NYLEX (PRIVATE) LTD. VS D.C., INCOME-TAX
2002 P T D 275
[Lahore High Court]
Before Nasim Sikandar and Mansoor Ahmad, JJ
NYLEX (PRIVATE) LTD.
Versus
D.C., INCOME-TAX
I. T. A. No. 127 of 2000, heard on 09/07/2001.
(a) Income-tax---
----Gross profit rate---History of the case---Re-casting of account-- Application of gross profit rate following the history of the case after re casting of the account was not justified.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 24 (c)---Inadmissible deduction---Commission/discount-- Commission/discount having not been paid in cash could not be claimed and allowed as an expense.
(c) Income Tax Appellate Tribunal Rules, 1981---
----S. 14---Grounds which may be taken in appeal---Issue raised out of First Appellate Authority's order---Refusal of Tribunal to interfere-- Validity---Tribunal was not justified in refusing to interfere in. the application of G.P. rate on, the ground that the assessee had failed to assail the first appellate order in the first round as it was for the first time after remand that the trading account was re-cast---Assessee could take up the issue as a ground of appeal before the Tribunal in circumstances.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 136(1)---Appeal to High Court---Scope---Gross profit rate---Aspect of the matter that assessee undertook a particular kind of activity on which only a low rate could be achieved, could not be effectively ruled upon by the High Court while considering an appeal under 5.136 of the Income Tax Ordinance, 1979.
Kh. Abrar Majal for Appellant.
Muhammad Ilyas Khan for Respondent.
Date of hearing: 9th July, 2001.
JUDGMENT
NASIM SIKANDAR, J.---This judgment will dispose of I.T.As. Nos. 127 and 128 of 2000.
2. The appellant in these further appeals for the assessment years 1995-96 and 1996-97 is a private limited company deriving income from manufacturing and sale of cycle tyres. While framing assessment for the year 1995-96 on 10-1-1998 the Assessing Officer disallowed the claimed commission and discount at Rs. 23,56,743: It was held that the expense so claimed was not admissible under section 24(c) of the Income Tax Ordinance 1979 on account of the failure of the assessee to have made the required deduction as contemplated under section 50(4A) of the Income Tax Ordinance, 1979. Through a separate order the assessee was also found to be an assessee in default by invoking the provisions of section 52 of the Ordinance, 1979.
3. ' Learned first appellate authority however, did not accept the interpretation of the Assessing Officer. After finding that the, commission/discount had not actually been `paid' by the assessee the 50(4A) of the -Ordinance, 1979 were held to be inapplicable to the facts in hand. Accordingly the treatment so made to the assessee was disapproved. The assessments were set aside with the following remanding directions:---
However, the Assessing Officer shall examine the case afresh as to whether the gross sales have been offered for taxation or the net sales as per the principles of accountancy. The relevant treatment on account of this expense is worth consideration in the manufacturing account and not in the P&L account where it should have been allowed in toto."
4. After remand, the Assessing Officer on re-casting the trading account and by allowing the claimed discount reached net sales. However, the emerging G.P. rate at 8.97& was found to be low as against disclosed by the assessee at 19.86%. Likewise in the year 1996-97 the emerging rate at 6.60% was found to be in-adequate. Accordingly on the basis of a parallel case, the assessee was confronted with a rate of 23.8% though finally applied at, 20 % as per alleged history of the case in both the years.Involved.
5. The assessee as well as the Revenue approached the Tribunal by way of cross appeals. A Division Bench of the Income Tax Appellate Tribunal at Lahore maintained the order of the CIT(Appeals) in all respects. This has aggrieved the assessee.
6. After hearing the learned counsel for the parties at quite some length, we are persuaded to agree with the learned counsel for the appellant/assessee that in the given situation, the application of a rate at 20% following the alleged history of the case after recasting of the A account appears un-justified. Although we are in full agreement with the Assessing Officer that earlier the assessee has been having the best of both by deducting the alleged discount from gross sales and at the same time claiming the commission/discount as an expense in profit and loss account yet we find that the treatment meted out to it after recasting of trading account is unfair. Even if the claim of the assessee is accepted that earlier it was disclosing G.P. Rate on gross receipts still we are of the considered view that the commission/discount having never been paid in cash could not be claimed and allowed as an expense. The findings of B the learned first appellate authority in the first round are quite pertinent and relevant. However, in second round the Tribunal wrongly refused to interfere in the application of G.P. Rate on the ground that the petitioner had failed to assail the first appellate order in the first round. The C remand order as re-produced above was clearly open ended and it was for the first time after remand that the trading account was re-cast. Therefore, the assessee could take up the issue as a ground of appeal before the Tribunal.
5. As noted earlier, v/e are of the view that after re-casting of the account the application of rate as per the history of the case was not justified. Learned counsel for the petitioner appears justified is-stating that application of that rate at 20% after re-casting has the effect of knocking the petitioner out of the market. According to him the application of that rate has made the petitioner totally non-competitive. He claims that the applied rate is un-realistic as it is not at all achievable in the kind of the business and the commodity in which the assessee is dealing. That aspect of the matter if the assessee achieved a particular G.P. Rate during the particular period necessarily entails factual inquiry. Before its a case was attempted to be made out that during the period involved before us the assessee undertook a particular kind of activity on which only a low rate could be achieved. That aspect E of the matter again cannot be effectively ruled upon by us while considering an appeal under section 136 (since repealed) of the Income Tax Ordinance, 1979.
6. Therefore, we will set aside the order of the Tribunal, dated 8-11-1999. The appeal before the learned CIT (Appeals) shall be deemed pending and will be decided after allowing the appellant an opportunity of being heard to support his case with regard to application of a lower rate than the one applied at 20% on the alleged basis of its history. That history, it needs to be mentioned, lost its significance after re-casting of the trading account.
Both the appeals stand accepted to that extent only.
C.M.A./M.A.K./N-124/LAppeals accepted.