I.T.As. Nos. 4023/LB, 5034/LB and 5035/LB of 1999 decided on 28th June, 2000. VS I.T.As. Nos. 4023/LB, 5034/LB and 5035/LB of 1999 decided on 28th June, 2000.
2003 P T D (Trib.) 1228
[Income‑tax Appellate Tribunal Pakistan]
Before Muhammad Munir Qureshi, Accountant Member and Khawaja Farooq Saeed Judicial Member
I.T.As. Nos. 4023/LB, 5034/LB and 5035/LB of 1999 decided on /01/.
th
June, 2000. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 65(1)(c), 80CC‑4, 50(5AA), 13(1)(aa) & 59‑A.‑‑‑Additional assessment‑‑‑Jurisdiction‑‑‑Excess income over presumptive income‑‑-Definite information‑‑‑In the presence of definite information of excess income over presumptive; income Assessing Officer's recourse to provision of S.65(1)(c) of the Income Tax Ordinance, 1979 was upheld by the Appellate Tribunal---‑Original assessment having beets completed under S.59‑A of the Income Tax Ordinance, 1979, S.65(1)(c) of the Income Tax Ordinance, 1979 permitted excess of income over presumptive income to be assessed under the normal law.
(b) Income Tax Ordinance (XXXI of 1979)--‑‑
‑‑‑‑Ss. 65(1)(c), 59‑A & 62‑‑Additional assessment‑‑‑Jurisdiction‑‑ Initiation of proceeding under S.65(1)(c) of tire Income Tax Ordinance, 1979 by the Assessing Officer after cancellation of assessment .under S.62 of the income Tax Ordinance, 1979, by the Appellate Tribunal which was made subsequent to assessment framed under S.59-A of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Assesnment had been made under S.59‑A of the Income Tax Ordinance, 1979 subsequent assessment under S.62 of the Income Tax Ordinance, 1979 was cancelled by the Appellate Tribunal after cancellation of said assessment what remained in the field was the one made under S.59‑A of the Income Tax Ordinance. 1979‑‑‑‑After the cancellation of assessment made under S.62 of the Income Tax Ordinance, 1979,1he Assessing Officer had lost jurisdiction to act under S.65 of the Income Tax Ordinance, 1979 recourse to provisions of S.65(1)(c) thus was in order which was maintained by the Appellate Tribunal.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 13(1)(aa) & 80CC‑‑‑Addition‑‑‑Unexplained excess income over presumptive income was sufficient to invoke provision of' S.13(1)(aa) of the Income Tax Ordinance, 1979 and said provision need not be interpreted narrowly.
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 80CC (4), 50(AA), 59‑A, 13(1)(aa) & 62‑‑‑Tax on income of certain exporters‑‑‑Presumptive income ‑‑‑Assessee claimed unusual excess profit over presumptive income calculated on work back basis‑‑ Such profit was brought to tax by resort to provision of S.80CC (4) of the income Tax Ordinance, 1979‑‑‑Validity‑‑‑‑.Excess income over presumptive income imputed on work back basis was available to assessee‑‑‑Assessing Officer was well within his jurisdiction to interrogate the assessee on the same‑‑‑Assessing Officer's contention was that assessee had not been able to establish that such excess income was contrived out of super normal profits statedly available to the assessee out of its regular business of export and the provision of S.13(1)(aa) were required to be invoked‑‑‑First Appellate Authority was of the view that matter needed to be investigated further‑‑‑Assessee had been somewhat evasive in producing comprehensive documentation to establish its bona fides in the matter‑‑‑No prejudice would be caused to assessee if the assessees were to make an attempt again to convince the Assessing Officer that excess, income arose against its regular transactions that had suffered tax under S.80CC(1) of the Income Tax Ordinance, 1979‑‑‑Assessing Officer must not unnecessarily complicate matters and must make a specific requisition of the precise record/documentation if considered necessary in order to arrive at a firm finding on the matter ‑‑‑Assessee must also cooperate fully to facilitate a firm decision making by the Assessing Officer‑‑‑Appeal was disposed of with such direction by the Appellate Tribunal.
1998 PTD (Trib.) 1201 ref.
1997 PTD 1555 rel.
Rizwan Bashir, A.C.A. for Appellant/Assessee.
Mrs. Talat Altaf, D.R. for Respondent/ Department.
Dates of hearing: 11th May and 13th June, 2000.
ORDER
MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER). ‑‑‑These are cross‑‑appeals by Revenue and the assessee against order of the CIT(A) Sialkot Zone, Sialkot, dated 5‑6‑1999 in which in assessment year 1993‑94 the First Appellate Authority has struck down the Assessing Officer's recourse to the provisions of section 65 and declared the assessment framed under section 62 to be null and void. For the assessment year 1994‑95, however, the CIT(A) has upheld Assessing Officer's recourse to the provisions of section 65(1)(c) of the income Tax Ordinance, 1979. However, addition made under section 13(1)(aa) in the amount, of Rs.2,9,75,904 has been set aside for de novo appraisals and penalty proceedings initiated under section 116(b) stand abated as a result. Finally, levy of Workers Welfare Found for 1994‑95 amounting to Rs.5,15,808 has been deleted on the ground that the assessee's income is covered under the presumptive tax regime and reference has been made to decision cited as 1998 PTD (Trib.) 1201 in support.
2. Briefly stated, the facts, the facts in this case are that the appellant, a public limited company deriving income mainly from manufacture and export of assorted sports goods‑ has been hit by the mischief of section 80CC(4). The provisions of this section are reproduced hereunder:‑‑‑
"Where an 'assessee while explaining the nature and source of any sum, investment money, valuable article, excess amount or expenditure, referred to in section 13 takes into account any source of income which is subject to tax in accordance with the provisions of this section, he shall not he entitled to credit of any sum as is in excess of an amount which if taxed at a rate or rates, other than the rate applicable to income chargeable to tax under this section, would have resulted in tax liability equal to the tax payable in respect of income under this section".
3. The appellant being are exporter is subject to the provisions of section 50(5AA) of the Income Tax Ordinance, 1979 and tax deducted at export stage as per cited provision constitute final discharge of liability. The appellant company thus falls squarely in the presumptive tax regime. In assessment originally framed under section 62 for the assessment year 1993‑94, the Assessing Officer took cognizance of the fact that income declared by appellant company for the period from 1‑7‑1992 to 31‑12‑1992 was hit by the provisions of section 80CC(4) insofar as presumptive income on work back basis was indicated at Rs.8,57,229 as against declared Rs.1,80,1,866. The differential amount of Rs.1,71,44,637 being in excess of the presumptive income, arrived at on work back basis was brought to tax by resort to the provisions of section 80CC(4).
4. In appeal, the First Appellate Authority upheld the treatment as accorded by the Assessing Officer. However, the Income Tax Appellate Tribunal cancelled the assessment made for 1993‑94 on the ground that the Assessing Officer had directly invoked the provisions of section 80CC(4) without referring to section 13 of the Income Tax Ordinance. It was held that the law did not permit such recourse by passing the procedure laid down under section 13 for the express purpose of taxing the excess unexplained income.
5. As the case was not hit by expiry of limitation time laid down in law for recourse to the provisions of section 65 of the Assessing Officer on receipt of ITAT's order issued notices under section 65 on 25‑4‑1997 with the prior approval of the IAC. Prior to issuance of such notice under section 65, a show‑cause notice had also been issued by the Assessing Officer proposing action under section 65 on 18‑3‑1997. The appellant filed reply to such show‑cause notice on 31‑3‑1997 but same was found to be unsatisfactory.
6. After receipt of notice‑under section 65; the assessee filed writ petition before the Hon'ble Lahore High Court who vide order, dated 21‑5‑1997 stayed the proceedings. As the writ petition has not been disposed of after expiry of six months from the date of stay granted, the Assessing Officer resumed assessment proceedings and issued notice under section 61 on 16‑2‑1998. In response the assessee submitted ‑reply, dated 27‑2-1998 and referred to Hon'ble Supreme Court of Pakistan's decision reported as 1997 PTD 1555 in which decision the Apex Court has held that in the case of an importer subject to the‑provisions of section 80C of the Income Tax Ordinance, where the said importer ....
"makes profit more than what is subject to tax under sub section (1) of section 80C, the Revenue has no power to charge tax on the additional income as long as the above additional income is earned by him on account of transactions, which have been subject to tax under subsection (1) of section 80C. However, if the assessee claimed that he has made unusual profit, for example, he has earned Rs.1,00,000 instead of Rs.5,000 which would have been the normal profit, the protection of above subsection (4) would still be available to him if he can on the basis of reliable evidence prove the above fact to the satisfaction of the forum provided under the Ordinance. But if he fails to discharge above burden of proof, in that even subsection (5) can be invoked" (SIC).
7. The appellant had obviously referred to the Supreme Court decision announced in the case of an "importer" subject to the provisions of "section 80C" of the Income Tax Ordinance for the reason that the provisions of sections 80C and 80CC have been held to be analogous.
8. The Assessing Officer did not stop assessment proceedings and again issued notice under section 61 requisitioning complete books of account/details of exports etc. The assessee, however, sought adjournment which was allowed and then furnished written reply on 15‑12‑1998 again making reference to cited Hon'ble Supreme Court of Pakistan's decision. The Assessing Officer then pointed to the assessee that unless necessary documentary evidence was produced to establish that unusual profit had indeed been earned by the assessee on its normal transaction subject to tax under section 80CC(1) in the relevant period, the excess amount of Rs.1,61,32,165, over and above the imputed income calculate on work back' basis would be brought to tax under section 13(1)(aa) of the Ordinance.
9. In response, Accounts Officer of the Company appeared on 29‑12‑1998 and produced ledger book only. Other account book viz. cash book, stock register, invoices etc, were not produced. The Assessing Officer then pointed out to the assessee's AR vide order sheet entry, dated 29‑12‑1998 that reliable evidence must be produced if it is claimed that the excess over presumptive income calculated on work back basis is due to unusual profit earned by the company. The Assessing Officer specifically pointed out that in order to be able to earn such unusual profit, the company would have to show GP rate at 58.21% and income/sale ratio of 42.12% which is totally out of line with the past history of the case as well as the results disclosed in other similar cases of sports goods manufactures exporters.
10. In response to the Assessing Officer's direction, the assessee filed another reply pointing out that the entire proceedings initiated under section 65 were a nullity in the eye of law as there had been, according to the assessee, no escapement or under assessment or assessee's income in any manner and that the Assessing Officer had no definite information in this regard. Further more, it was pointed out that the Assessing Officer had failed to identify the investment, money or valuable articles which he sought to bring to tax under section 13(1)(aa). The Assessee argued that the general reference to increase in assessee's assets did not provide‑ any basis for action under 13(1)(aa). 'The assessee also brought it to the Assessing Officer's notice that the entire book profit declared by the assessee was on account of export goods and other income declared which was fully supported by Audited Accounts. Finally, the assessee again made reference to cited decision of the Hon'ble Supreme Court and requested that proceedings initiated under section 65 be withdrawn. The assessee then undertook to prove to the satisfaction of the Assessing Officer that the additional unusual profit targeted by the Assessing Officer was directly related to export' sales of sports goods and had already suffered tax under section 80CC(1). The assessee declared that complete books of accounts would be produced before the Assessing Officer for examination and his satisfaction on the matter.
11. The Assessing Officer rejected the assessee's reply as he was not satisfied that the evidence placed before him established that the excess over imputed income calculated on work back basis was indeed the result of unusual profits earned by the company from export sales of sports goods.
12. With regard to action taken under section 65 in 1993‑94 the Assessing Officer has recorded a finding that the excess income over and above the presumptive income had gone untaxed and was, therefore, within the purview of section 65 of the Ordinance, 1979. Furthermore, the information with regard to such cases over presumptive income was definite and clearly established from the evidence on record and necessary approval had been obtained from the IAC. The Assessing Officer also noted that the unusual profits quantified by him at Rs.1,61,32,165 were admittedly in excess of the presumptive income calculated on work back basis and were ultimately of close of year bound to be reflected in the company's balance sheet as moneys available to the appellant‑company in any garb viz. cash/asset/investment etc. The Assessing Officer concluded that comprehensive records including complete set of books of account had not been produced before him and, therefore, it had not been possible for him to establish that unusual profits had indeed been earned by the appellant‑company from manufacture and export of sports goods in the relevant period during the assessment year 1993‑94. Addition was then made under section 13(1)(aa) in the amount of Rs.1,61,32,165. The Assessing Officer further directed that notice under section 116(b) be issued for concealment/furnishing of inaccurate particulars of income. Charge of Workers Welfare Fund was also raised under section 4(2) of the Workers Welfare Fund Act, 1971.
13. The position in assessment year 1994‑95 is similar with regard to income available to appellant‑company in excess of the presumptive income calculated on work back basis. However,' there is a difference in that the original assessment for 1994‑95 was framed under section 59A of the Ordinance and this was reopened under section 65(1)(c). In the first round of appeals, the First Appellate Authority has upheld recourse to provisions of section 65(1)(c) and addition made on account of excess income over and above the presumptive income with reference to the provisions of section 80CC(4). However, such addition made did not find favour with the Income Tax Appellate Tribunal as in the case of such addition made in assessment year 1993‑94. Subsequently. The case has followed the same general pattern as detailed in above discussion for assessment year 1993‑94 with the Assessing Officer again issuing notice under section 65(1)(c) and attempting to interrogate the assessee with regard to the alleged availability of unusual profits given rise to the excess income over presumptive income and statedly relatable to the general business of the appellant‑company i.e. manufacture and (export) sale of assorted sorts goods. Again the Assessing Officer has found that the assessee has not been able to establish through pertinent documentation, the nexus between the alleged availability of unusual profits and the transactions subject to tax under section 80CC(1). Consequently, the assessee‑company has again, as in the assessment year 1993‑94, not been found able to satisfy the condition laid down in the Hon'ble Supreme Court of Pakistan's decision cited as (1997) PTD 1555 that the assessee establish before the Assessing Officer, through reliable evidence, that the unusual profits giving rise to excess income over presumptive income are indeed on account of transaction which has been subject to tax under subsection (1) of section 80C (80CC in the case of the assessee being an exporter).
14. The First Appellate Authority upheld recourse to the provisions of section 65(1)(c) in 1994‑95 on the ground that clause (c) of subsection (1) of section 65 has been inserted by Finance Act, 1922 substituting the old section 65(1)(c) and through the substituted clause, it seas not possible to invoke the provisions of section 65 where assessment had originally been made under subsection (1) of section 50 or section 59‑A (as in the case of assessee). However, while upholding recourse to the provisions of section 65 in the assessment year 1994‑95, the CIT(A) has struck down the addition made under section 13(1)(aa) read with section 80CC(4) making reference to cited Apex Court's decision 1997 PTD 1555 and accepting assessee's argument that in the light of cited Apex Court's decision, the provisions of section 80CC(4) should not have been invoked as the excess income over presumptive income was not relatable, unusual profits from undisclosed sources". Rather, the unusual profits were relatable to transactions that had already suffered tax under section 80CC(1).
15. The department is in appeal against the orders of CIT(A) for both the assessment years 1993‑94 and 1994‑95. However, the grounds of appeal filed for 1993‑94 are patently defective in so far as these make reference to "setting aside" of addition under section 13(1)(aa) when the CIT(A) in 1993‑94 had held recourse to the provisions of section 65 to be illegal and as a consequence the assessment made under section 62 for that year i.e. 1993‑94 has been held to be null and void. In the grounds filed the department has failed to contest the CIT(A) finding with regard to reopening of the original assessment under section 65 and has instead wrongly contested so called setting‑aside of addition under section 13(1)(aa) when, as stated above, the CIT(A) has not set aside the said addition under section 13(1)(aa) in adjudication made for 1993‑94, but has rather found the same to be null and void once the action under section 65 has been held to be illegal. The departmental appeal for 1993‑94 is thus rendered infructuous and accordingly dismissed.
16. As far as assessment year 1994‑95, is concerned, the sequence of event leading to addition under section 13(1)(aa) is the same as explained in detail in the above paragraphs for assessment year 1993‑94, however, the First Appellate Authority upheld recourse to the provisions of section 65(1)(c) but set aside the addition under section 13(1)(aa) for the reason that the Assessing Officer was found to have acted in haste and had, in the view of the CIT(A), rather summarily discarded appellant's books of accounts produced before him during the course of assessment proceedings
17. In assessment year 1994‑95, the total income for the year, as per return filed, aggregates Rs.2,57,90,387, out of which business income is shown at Rs.2,38,81,432 and other income at Rs.19,08,955. The presumptive income imputed with reference to tax deducted under section 50(5AA) amounting to Rs.2,83,289 quantifies as Rs.29,05,528. The balance excess income over imputed income amounts to Rs.2,09,75,904. Such excess have been found by the Assessing Officer to be unexplained as the assessee could not establish that the same arose to the assessee from the transactions that had suffered tax under section 80CC(1).
18.We have heard the two sides and given the matter our earnest consideration and our findings on the various issues involved are recorded as under,‑‑‑‑
(i) There is no doubt that the law embodied in section 80CC clarifies the limit upto which credit for presumptive tax will be available to an assessee placed in the presumptive tax regime As assessee is not debarred from declaring actual income over and above the deemed income on presumptive basis however, to such a situation return of total income should be filed which the assessee has done in the present case leading to assessment under section 62. The present assessee admittedly enjoys excess income over and above the presumptive income imputed Such excess income is hit by the mischief of subsection (4) of section 80CC.
(ii) Subsections (4), (5) and (6) of section 80CC have been added to provide for a method of working out the amount of income for which credit shall be admissible in cases of exporters and to provide for a deemed assessment in such cases on the lines of sections 80B and 80C. The provisions of section 80CC(4) are required to be interpreted in the light of the Hon'ble Supreme Court of Pakistan cited decision (1997) PTD 1555. The cited decision is in respect of the provisions of section. 80C. However, as the provisions of section 80C are analogous to the provisions of section 80CC, therefore, the Apex Court's verdict is fully applicable in the present case. In the cited decision, the Hon'ble Supreme Court of Pakistan has hold that resort to the provisions of subsection (5) of section 80C (equivalent to subsection (4) of section 80CC) cannot be made routinely as a matter of course, Rather, it is to be invoked in exceptional circumstances. As pointed out while discussing assessee's assessment for 1993‑94, section 80CC(4) may only be invoked legitimately in the light of cited Apex Court's decision where the assessee is not able to tax under subsection (1) of section 80CC. However, the Apex Court has made it incumbent on the assessee to establish that the excess income over presumptive income is relatable to say, unusual profits arising out of transactions that have been subject to establish, through `reliable evidence' that the claim of unusual profits, where made, is proved to the satisfaction of the forum provided under the Ordinance. In the present case such a forum is the office of Assessing Officer who has passed the order under section 62.
(iii) The Assessing Officer has laboured to show that despite ample opportunity accorded, the assessee was unable to lead reliable evidence before him to establish his bona fides on the matter relating to excess income over presumptive income in order 'be able to escape the mischief of section 80CC(4).
From the ambient circumstances, it is quite clear that the Assessing Officer has not made a hasty assessment. This is evident, from the fact that proceedings in this case in the second round, after the original assessment had been cancelled by the ITAT, were started through show‑cause notice, dated 18‑3‑1997 and concluded on 31-12‑1998. Six months stay period granted by Lahore High Court was duly honoured and after expiry of the same, proceedings were re‑started and notices issued under section 61 and section 13(1)(aa). It is evident from the record that the assessee filed replies to the Assessing Officer's notices and also produced some account books before him for his scrutiny and satisfaction. It cannot therefore, be fairly said that necessary opportunity as envisaged in law had not been given to the assessee to explain its position on the matter.
(iv) It is the departmental contention in 1994‑95 that the matters having been examined at length by the Assessing Officer and the assessee being unable to satisfy him in the manner required by the Apex Court's decision, the First Appellate Authority should have upheld the addition under section 13(1)(aa) rather than set aside the same on flimsy pretexts.
The appellant, on the other hand, assailed the confirmation of section taken under section 65(1)(c) in 1994‑95 as wholly misconceived as the department statedly had no definite information readily available on record that could be seen to justify course to the provisions of section 65. This objection of the assessee has been looked into and we find that the CIT(A) has rightly upheld the Assessing Officer's recourse to the provisions of section 65(1)(c) as it is patent that there is definite information of excess income over presumptive income available to the company in 1994‑95 amounting to Rs.2,09,75,904 and the original assessment having been made under section 59‑A clause (c) of subsection (1) of section 65 permitted such excess to be assessed under the law. Needless to say, the only requirement for recourse to the provisions of section 65(1)(c) is that the original assessment have been made under subsection (1) of section 59 or section 59‑A. This conditions is fully satisfied in the present case as the original assessment for 1994‑95 was admittedly made under section 59‑A. No doubt the subsequent assessment made under section 62 was cancelled by the ITAT. After cancellation, however, the assessment that remained in the field was that made under section 59‑A. It cannot therefore, be said that for 1994‑95 after cancellation of the assessment made under section 62, the Assessing Officer had lost jurisdiction to act under section 65. That being so, recourse to the provisions of section 65(1)(c) is found to be in order and maintained.
(v) Coming now to the CIT(A)'s decision to set aside the addition under section 13(1)(aa), it is the assessee's contention that the CIT(A) should have cancelled the said addition rather than remand the matter back to the Assessing Officer. The assessee submits that the Assessing Officer has failed to pinpoint any unexplained investment, money or valuable article as noted in the said, section and had instead arbitrarily made addition with reference to general accretion in assets. The Assessing Officer has given full working for the accretion referred to by the assessee, on page‑2 of the assessment order for 1994‑95. The total accretion of Rs.2,57,90,387 tallies with the total income declared by the assessee of like account. However it is the Assessing Officer's contention that out of such total income of Rs.2,57,90,387 the presumptive income imputed against tax deducted under section 50(5AA) amounts to Rs.29,05,528 only and the balance amount of Rs.2,09,75,904 remains untaxed and unexplained as to source. It is further submitted that such unexplained amount must eventually be reflected in the balance -sheet as it is incorporated in the assessee's Final Accounts. That being so, such reflection in the balance‑sheet will take the garb of moneys available to the assessee and which availability can manifest itself in various form viz. assets investments cash etc. in our view of the matter, so long as it appears that such (unexplained) excess income shown is indeed reflected in the balance‑sheet, the provisions of section 13(1)(aa) need not be interpreted narrowly and excess "moneys available" is sufficient to invoke section 13(1)(aa).
(vi) In the present case, it is only too clear that excess income over presumptive income imputed on work back basis is indeed available to the assessee in the period relevant to assessment year 1994‑95. That being so the Assessing Officer was well within his jurisdiction to interrogate the assessee on the same. It being the Assessing Officer's contention that the assessee has, not been able to establish that such excess income is contrived out of super normal profits statedly available, to the assessee out of its regular business of export of sports goods, therefore, the provisions of section 13(1)(aa) are required to be invoked. The CIT(A) is of the opinion that the matter needs to be investigated further, we feel that the assessee has indeed been somewhat evasive in producing comprehensive documentation to establish its bona fides on the matter on the lines indicated in Apex Court's decision cited above. For this reason, we find that no prejudice will be caused to the assessee if the company were td make an attempt again to convince the Assessing Officer that the excess income of Rs.2,09,75,904 is indeed arising to the company against its regular transactions that have suffered tax under section 80CC(1). The Assessing Officer,' however, must not unnecessarily complicate matters and must make a specific requisition of the precise record/documentation, he considers necessary in order to arrive at a firm finding on the matter. Similarly, the assessee must cooperate fully to facilitate firm decision making by the Assessing Officer.
(vii) No WWF to be levied as assessee is placed in the presumptive tax regime.
19. Resultantly, the departmental appeals for 1993‑94 and 1994‑95 and assessee's appeal for 1994‑95 are disposed off in the manner specified above.
C.M.A./626/Tax (Trib.) Appeals disposed of accordingly.