I.T.A. No.4620/LB of 1994, decided on 16th July, 2002. VS I.T.A. No.4620/LB of 1994, decided on 16th July, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1097 (2002)

(a) Income‑tax‑‑‑

‑‑‑‑Revision of return ‑‑‑Assessee had the prerogative to `revise' the return of income before finalization of assessment.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑-‑S. 12(18)‑‑‑Companies Ordinance (XLVII of 1984), S.73‑‑‑Deemed income‑‑‑Loan‑‑‑Loan from Managing Director for purchase of land‑‑ Alteration of such loan into capital against allotment of shares in the revised balance‑sheet‑‑‑Addition of such loan was made on the ground that the same was not made available the company through cross cheques‑‑‑Explanation of the assessee that revision of the balance‑sheet was the result of an "error" which was corrected with the recommendation of the company's Auditor was rejected ‑‑‑Validity‑‑ Revision of balance‑sheet had been made with intention to evade tax liability under Ss.12(18)/30 of the Income Tax Ordinance, 1979‑‑ Allotment of shares to Managing Director was of no consequence as the company owed loan to him which amount was included in the company's balance‑sheet under the Head "Current Liabilities"‑‑‑Original balance- sheet was duly signed by the Managing Director and in said balance-sheetamount was unambiguously cited as a "loan" amount due under the Head "Current Liabilities"‑‑‑Revision of such balance‑sheet subsequently after the death of the Managing Director, was clearly an afterthought contrived solely to evade tax liability under Ss.12(18)/30 of the Income Tax Ordinance, 1979‑‑‑Form III was also not filed before the Registrar of Companies within 30 days of the alleged allotment of shares as required under S.73 of the Companies Ordinance, 1984 and the same was filed belatedly when the Assessing Officer requisitioned the same during the course of assessment proceedings‑‑‑Addition made under S.12(18) of the Income Tax Ordinance, 1979 by the Assessing Officer was fully justified in circumstances and relief accorded by the First Appellate Authority was without any justification‑‑‑Order of the Appellate Authority was vacated and order of the Assessing Officer was upheld by the Appellate Tribunal.

2001 PTD 1180 distinguished

Abdul Rasheed, D.R. for Appellant.

Zia Ullah Kayani for Respondent.

Date of hearing: 3rd April, 2002.

ORDER

MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER).‑‑‑This appeal by Revenue is directed against order of the CIT(A), Zone‑I, Lahore, dated 10‑10‑1994.

2. It is the departmental contention that the First Appellate Authority has unjustifiably deleted addition made under sections 12 (18)/30 of the Ordinance amounting to Rs.86 lacs.

3. The facts in this case are that the assessee‑company purchased factory land at 46.5 Kms. Lahore Sheikhupura Faisalabad Road and a registered sale‑deed was executed accordingly. As the Company statedly did not have adequate resources to make the purchase on its own it relied on its Managing Director, Mr. Qamar‑uz‑Zaman, to contribute the requisite financing.

4. In return of income filed on 31‑7‑1993 by the assessee‑company for the assessment year 1993‑94, a balance sheet duly signed by the Directors, is attached in which amount of Rs.86,32,404 is shown as a loan amount outstanding under the Head "Current Liabilities" as at 31‑12‑1992. Subsequently, on 3‑3‑1994 another balance sheet has been filed in which the loan amount outstanding as at 31‑12‑1992 stands reduced to Rs.32,404 only and the issued subscribed and paid‑up capital of the company stands augmented to Rs.30,600,000 from Rs.22,000,000 shown in the previous balance sheet filed on 31‑7‑1993 alongwith the return.

5. At assessment stage, the DCIT after examination of the company's accounts opined that in the balance sheet filed on 3‑3‑1994 the assessee had altered the figures disclosed under "Capital and Liabilities" by arbitrarily transferring Rs.86 lacs under the Head "Current Liabilities" to the Head "Capital' in order to evade the tax liability arising under sections 12(18)/30 of the Ordinance. According to the DCIT, the purchase of land by the company by tapping the resources of its Director, Mr. Qamar‑uz‑Zaman, was tantamount to receipt of a `loan' by the company from its Director and since such `loan' amount had not been advanced to the company by crossed cheque drawn on a bank it was, therefore, liable to be treated as the company's deemed income under section 12(18) read with section 30 of the Ordinance.

6. In reply filed, the assessee‑company denied any liability under sections 12(18) and explained that so‑called revision of balance sheet on 3‑3‑1994 was the result of the discovery of an "error" in the so‑called 'provisional balance sheet' tiled on 31‑7‑1993 insofar as loan amount outstanding as at 31‑12‑1992 had been incorrectly cited, allegedly inadvertently, and the same was, therefore, "corrected" in the so‑called `revised balance sheet' filed on 3‑3‑1994 statedly in line with the recommendations of the company's auditors. The DCIT was advised that there had been no transfer of cash funds as such from the Director to the company and no loan had been advanced to the Company by the Director and only an "asset" i.e. land had statedly been purchased by the Director, Mr. Qamar‑uz‑Zaman, and "subsequently" transferred to the company.

7. The DCIT rejected the explanation tendered and held that the so -called revised balance sheet was not relevant for assessment purposes as in the original balance sheet filed on 31‑7‑1993 alongwith the return of income for 1993‑94 an amount Rs.86,32,404 was cited and which represented the loan advanced by Mr. Qamar‑uz‑Zaman, Director of the company to Messrs Zaman Paper and Board Mills (Pvt.) Limited, for purchase of factory land by the company. As the amount in question had not been made available to the company through crossed cheque drawn on a bank the same was treated as deemed income of the company under section 12 (18) read with section 30 of the Ordinance.

8. Before the CIT (A) the assessee‑company agitated that the DCIT had misconstrued the factual position obtaining and had unjustifiably ignored the explanations offered for revision of the company's balance sheet. It was emphasized that the revision was legally justified and had been resorted to only on the discovery of a bona fide 'mistake' in the original balance sheet by the company's auditors.

9. The CIT (A) in his appellate order has recapitulated at length the observations recorded 'by the DCIT and reply filed by the assessee and has come to the conclusion that the provisions of sections 12(18)/30 were not attracted as no loan' amount had ever been advanced by the Director to the Company.

10. Before the Tribunal, the assessee‑company had reiterated earlier submissions made before the DCIT and CIT (A) and has further argued that in view of Hon'ble Lahore High Court judgment cited as (2001) 83 Tax 451, there was now no justification to invoke the provisions of sections 12(18)/30 in the assessee's case.

11. The DR has been heard. The DR supports the findings recorded by the DCIT and argues that the learned CIT (A) has not appreciated the factual position correctly and has unjustifiably knocked down the addition made under sections 12(18)/30 by the DCIT.

12. We have heard both sides and have examined the relevant record, including the assessment, and our findings are recorded as under:

13. Under the law an assessee has the prerogative to `revise' the return of income before finalization of assessment. In the case of the present assessee, there is no "revision" of return of income filed for 1993‑94 as such. There is only one return of income for 1993‑94 on record filed on 31‑7‑1993 declaring Nil income with exemption claimed vide clause (118‑D) of the Second Schedule to the Income Tax Ordinance, 1979. The assessee‑company has filed two balance sheets for assessment year 1993‑94, the first on 31‑7‑1993 and the second on 3‑3‑1994. The balance sheet filed on 31‑7‑1994 is marked as `provisional'. The differences between the two balance sheets include the tabulation made on account of "issued subscribed and paid up capital" of the company and the company's Current Liabilities as well as the fact that the second balance sheet is signed by the Manager Finance and two Directors namely Mr. Imran Qamar and Mr. Momin Qamar and 'the company's Auditors whereas the first balance sheet filed on 31‑7‑1993 is signed by two Directors namely Mr. Qamar‑uz‑Zaman and Mr. Imran Qamar. (Mr‑ Qamar‑uz‑Zaman died on 18‑11‑1992.).

14. As per the registered sale‑deed executed for the purchase of factory land, it is patent that the land in question has been purchased by the assessee‑company and not by the Director. Now, the question arises as to the mode of financing involved in the said purchase as the Company statedly did not have the necessary funds at that time to make the purchase on its own. As stated supra, the funds for making the purchase of said factory land had been made available by the Director of the Company Mr. Qamar‑uz‑Zaman. It is a fact that payment to the seller was made directly by Mr: Qamar‑uz‑Zaman while the sale‑deed was executed in favour of the Company.

15. In our considered view, the facts clearly show that an amount of Rs.86 lacs was made available to the company by the Director in order for the company to be able to purchase the factory land in question. No doubt the payment was made directly by Mr. Qamar‑uz‑Zaman to the seller of the land. That, however, does not alter the fact that the purchase of factory land had been made by the company. It is of the consequence whatsoever that the cash for the purchase was handed over to the seller by the. Director who had made the finances available to the company as the benefit of the payment so made is to the company. The manner in which the finances have been made available by Mr. Qamar- uz‑Zaman to the company to purchase the said land makes it abundantly clear that a loan of Rs.86 lacs has been advanced by Mr. Qamar‑uz- Zaman to the company and it is so cited in the balance sheet as at 31‑12‑1992 filed on 21‑7-1993. The said balance sheet is unambiguous in its declaration that amount of Rs.86,32,404 constitutes loan and advances of the company.

16. The DCIT in assessment order for 1993‑94 passed under section 62, dated 29‑3‑1994 has pointed out that journal entry, dated 31‑10‑1992 credits Directors loans and advances account and debits land cost account and it is on the basis of these entries that the 'original balance sheet as at 31‑12‑1992 has been filed on 31‑7‑1993 alongwith the return of income for assessment year 1993‑94. The subsequent revision of the balance sheet has been made in the absence of Mr. Qamar‑uz -Zaman, who died on 18‑11‑1992. The reason given for the revision of the balance sheet by the assessee‑company, namely, that a "mistake" had been discovered by the auditors insofar as `loan' amount of Rs.86,32,404 has been, statedly inadvertently, cited in the original balance sheet does not appear at all plausible. The original balance sheet filed on 31‑7‑1993 is signed by Mr. Qamar‑uz‑Zaman (Managing Director) alongwith Mr. Imran Qamar (Director) and Mr. Qamar‑uz‑Zaman could not possibly have made any "mistake" with regard to loan amount due to him from the company as he had admittedly made available the amount of Rs.86 lacs to the company for purchase of factory land and it was this very amount that had been shown as `loan' amount payable by the company. Thus, Mr. Qamar‑uz‑Zaman in his. lifetime had unequivocally affirmed that a load had been advanced by him to the company as per the original balance sheet filed on 31‑7‑1993. Mr. Qamar‑uz‑Zaman well knew the factual position and indeed he is the only person who is in a position to state the factual position correctly as it is he who has made available the amount of Rs.86 lacs to the company for purchase of factory land. The subsequent revision of balance sheet has been made after the death of Mr. Qamar‑uz‑Zaman. The persons signing the so‑called revised balance sheet filed on 3‑3‑1994 are in no position to alter the true nature of the financing involved for purchase of factory land when Mr. Qamar‑uz -Zaman, M.D. of the company had himself approved and signed the original balance sheet filed by the company alongwith the company's return of income. The CIT (A) has completely ignored the fact that the original balance sheet filed, on 31‑7‑1993 is duly signed by Mr. Qamar uz‑Zaman who made the amount of Rs.86 lass available to the company for its purchase of factory land and resultantly loan amount of Rs.86 lacs was included in the amount of Rs.86,32,404 cited as the company's Current Liability. The CIT(A) does not appear to be even aware of the fact that the 2nd balance sheet filed on 3‑3‑1994 has not‑been signed by Mr. Qamar‑uz‑Zaman.

17. The AR's reference to Lahore High Court judgment cited as (2001) 83 Tax 451 is of no avail to the company in its attempt to evade tax liability under sections 12(18)/30. The situation envisaged in the cited case is not obtaining in the case presently before us insofar as there is no question here of any `share deposit money' in excess of authorized capital. Furthermore, the conditions precedent laid down in the cited judgment of the Lahore High Court for Art amount to qualify as a "loan" are, fully satisfied as the balance sheet as at 31‑12‑1992 duly signed by Mr. Qamar‑uz‑Zaman, M.D. and filed by the company alongwith its return of income on 31‑7‑1993, clearly shows that "loan" amount or Rs.86,32,404 is outstanding and is payable by the company and which is an acknowledgment that a "loan" had actually been received by the assessee‑company. As per the criteria laid down by the Lahore High Court, therefore, amount of Rs.86 lacs utilized by the company for purchase of factory land cited as a "loan" in the company's balance-sheet signed by a Mr. Qamar‑uz‑Zaman, duly qualifies as "loan" received by the company from its Director. Mr. Qamar‑uz‑Zaman.

18. The manner in which the 2nd balance sheet, dated 3‑3‑1994 has been drawn up makes it quite clear that the so‑called `revision' has been provoked by an intention to evade tax liability under sections 12(18)/30. The (belated) allotment of shares to Mr. Qamar‑uz‑Zaman, is of no consequence and it is abundantly clear that as at 31‑12‑1992 Mr. Qamar- uz‑Zaman, held shares the value of Rs.3.5 Million only and an amount of Rs.8.6 Million was owing to him by the company and which amount is included in the company's balance sheet as at 31‑12‑1993 filed on 31‑7‑1993 under the Head, "Current Liability." As pointed out supra, Mr. Qamar‑uz‑Zaman, has duly signed the original Balance Sheet as at 31‑12‑1992 filed on 31‑7‑1993 by the company and in that Balance Sheet amount of Rs.86,32,404 is unambiguously cited as a "loan" amount due under the Head "Current Liability". Also, the company's share capital (issued, subscribed and paid‑up) is cited therein at Rs.22 Million as against the authorized capital of Rs.100 Million. The subsequent revision of this Balance Sheet after the death of Mr. Qamar‑uz‑Zaman, is clearly an after thought contrived solely to evade tax liability under sections 12(18)/30 of the Ordinance. Had the company actually allotted shares to Mr. Qamar‑uz‑Zaman amounting to Rs.86 lacs the same would have been reflected in the Balance Sheet signed by him i.e. the original Balance Sheet filed by the Company on 31‑7‑1993. It is indeed also highly significant that Form‑III was not filed by the Company before the Registrar within 30 days of the alleged allotment (i.e. by 30‑11‑1992) as required under section 73 of the Companies Ordinance, 1984. Rather, Form‑III was filed before the Registrar belatedly on 16‑3‑1994 i.e. when the DCIT requisitioned the same during the course of assessment proceedings. The ambient circumstances thus clearly give a lie to the company's claim that shares had actually been allotted on 29‑10‑1992 to Mr. Qamar‑uz‑Zaman amounting to Rs.86 lacs.

19. In view of the above, we find that the addition made under sections 12(18)30 of the Ordinance by the DCIT is fully justified by the operative circumstances and relief accorded by the CIT (A) is without any justification. We accordingly vacate the order of the CIT(A) and reinstate the order of the DCIT.

C.M.A./595/Tax(Trib.) Order accordingly.