Income Tax Ordinance (XXXI of 1979)-----

----Ss. 13(1)(aa), 59A, 65, 80CC & 50(5A)---Workers' Welfare Fund Ordinance (XXXVI of 1971), S.4 (2) ---Addition---Excess income over and above the presumptive income---Order was passed under Ss.62/65/135 of. the Income Tax Ordinance, 1979---Addition was made by ignoring the direction of Appellate Tribunal; accounts and without identifying the source of alleged unusual profits other than exports related transaction by virtue of which assessee was not entitled to avail the protection provided under S.80CC(3) of the Income Tax Ordinance, 1979 and also charged workers welfare fund---First Appellate Authority cancelled such order while order under S.4(2) of the Workers' Welfare Fund Ordinance, 1971 was vacated---Validity---On setting aside of orders by the Appellate Tribunal in the second round, it was clearly mentioned that on the basis of facts and provisions of law both the parties were at par and it was in the interest of justice to have proper and final appraisal and Department implemented the direction of setting aside in violation of its spirit---Provision of S.65 of the Income Tax Ordinance, 1979 invoked as. well as addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 read with S.8CC(4) of the Ordinance, had been made in utter disregard of not only the provisions of law but facts of the case inasmuch as the income over and above the imputable income had been treated as unexplained investment without establishing that income other than exports was earned by the assessee---Whatever had been done by the Revenue was nearly harassment and maladministrarion of taxation---Order of the First Appellate Authority was lawful---Appeal of the Department was rejected by the Appellate Tribunal being without merit.

1997 PTD 1555 rel.

1995 PTD 856 ref.

Mrs. Sabiha Mujahid, D.R. for Appellant.

Sarfraz Mahmood, F.C.A. for Respondent.

Date of hearing: 22nd August, 2002.

ORDER

IMTIAZ ANJUM (ACCOUNTANT MEMBER).---This appeal by Revenue has been preferred on the following grounds:--

(i)That the learned CIT(A) was not justified in cancelling the order passed under sections 62/65/135 of the Income Tax Ordinance, 1979 without appreciating the facts of the case as addition of Rs.2,09,75,904 under section 13(1)(aa) was rightly made according to section 80CC(4) of the Income Tax Ordinance, 1979 as the assessee tailed to explain the nature and source of the above said amount.

(ii)That the learned CIT(A) was not justified in vacating the order under section 4(2) of WWF Ordinance, 1971 as the assessee is an `industrial establishment' chargeable to WWF under the Workers' Welfare Fund Ordinance, 1971.

2. We have heard Mrs. Sabiha Mujahid, learned DR and Mr. Sarfraz Mahmood, FCA, learned AR of the assessee/respondent.

3. Relevant facts briefly are that assessee in this case a public limited company derived income from manufacturing and exports of hockey sticks. cricket and hockey . balls. Return was filed under section 55 declaring income of Rs.2,57,90,387 which was accepted under section 59A of the Income Tax Ordinance, 1979 (hereinafter mentioned as the Ordinance). Subsequently it was noticed that declared income was not in accordance with the provisions of section 80CC of the Ordinance on the basis of tax deducted under section 50(5A) presumptive income on work back basis was arrived at Rs.29,05,528. As a result income amounting to Rs.2,28,84,859 was over and above the presumptive income charged to tax while completing assessments under section 59A Excess income of Rs.2,28,84,859 was taxed at the normal rates which was upheld in first appeal vide order, dated 29-5-1996 but was cancelled in second appeal by ITAT. vide order ITA Nos. 3478 and 3479/LB/1996, dated 22-10-1996 with the following observations:

(i)"Income-tax deducted under section 50(5A) constitutes full and final discharge of tax liability and assessment is deemed to have been made under section 59A in cases where the assessee's only, source of income is from export as laid down under section 80CC (6).

(ii)That Income Tax Officer had no jurisdiction under section 62 or 59A to pass fresh assessment without invoking the powers and without complying with the procedure laid down under section 65 of the Income Tax Ordinance, 1979. Neither subsection (4) of section 80CC nor administrative instructions of the C.B.R. permit the Assessing Officer to bypass the elaborate procedure laid down under section 13 for the purpose of taxing the excess/unexplained income. The Assessing Officer had invoked provisions of section 80CC(4) without reference to section 13 of the Income Tax Ordinance, 1979."

After first round of proceedings mentioned above resulting in the cancellation of charging of imputable income to tax by ITAT re assessment proceedings were completed under section 65/62 once again charging to tax income over and above imputable income on work back basis separately.

4. In first appeal through a consolidated order for the assessment years 1993-94 and 1994-95, dated 5-6-1999 the decision was as under:--

"As for the re-opening of the case under section 65 'for assessment year 1993-94 entirely agree with the learned counsel that no new or definite information had come into the possession of the Assessing Officer which could warrant-re-opening."

"The upshot of this discussion therefore is that the re-opening proceedings as also the relevant assessments for assessment year 1993-94 are not maintainable and are therefore, declared null and void."

"The Assessing .Officer has failed to point out any specific deficiency in the evidence produced by the appellant on the basis of which he has inferred that the appellant could not prove his case. Non-production of certain records is certainly not a reason enough to summarily reject the claim and hold that a certain block of income was from undisclosed source. The observation is too general to hold any ground. In this circumstance it is deemed fair to set aside the impugned order for fresh appraisal of facts. The Assessing Officer is directed to give a reasonable opportunity to the appellant to present his case and then thoroughly examine the documentary evidence furnished by the appellant before forming any conclusions."

"As for the levy of WW Fund it may be mentioned that tile Honourable ITAT in the reported decision, 1997 PTD 1944 has already held the charge of WWF in the case of incomes covered by presumptive tax regime as illegal. In this view of the matter WWF levied at Rs.5,15,808 is deleted. In the same manner since the impugned order has been set aside on the point of additions under section 13, penalty proceedings initiated under section 116(b) shall automatically stand abated."

"As a result whereas the appeal for assessment year 1993-94 succeeds, the appeal for assessment year 1994-95 is partly accepted as indicated above."

The above treatment was challenged before ITAT and the grievance of the appellant was adjudicated in the following manner:--

"We find that no prejudice will be caused to the assessee if the company were to 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 and 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: No WWF to be levied as assessee is placed in the presumptive tax regime."

"Resultantly, the departmental appeals-for 1993-94 and 1994-95 and assessee's appeal for 1994-95 are disposed of in the manner specified above.".

In consequence of the ITAT judgment quoted above ACIT passed order again under sections 62/65/135, dated 23-12-2000 repeating the same treatment by making addition of Rs.2,69,75,904 as unexplained investment under section 13(1)(aa) alongwith WWF charged amounting to Rs.5,15,808. The above treatment was again challenged in. first appeal and CIT(A) vide order, dated 25-6-2001 adjudicated the matter by canceling the order under sections 62/65/135 with the observations:--

"The learned Commissioner of Income Tax (Appeals) cancelled the order of Assistant Commissioner of Income Tax under sections 62/65/135 by stating that, `the Assessing Officer has tried to use a vague terminology which has no place in section 13(1)(aa) and that assumption of jurisdiction by Assessing Officer, by using such vague terminology is unwarranted'. The learned Commissioner of Income Tax (Appeals) also vacated the order under-section 4.(2) of WWF on the ground that "income is covered under presumptive tax regime."

Against the above order of the CIT(A) the department is in appeal on the grounds mentioned. in the opening para. of this order.

5. Learned DR has reiterated the basis of action under sections 62/65/135 in terms of judgment of Supreme Court of Pakistan reported in 1997 PTD 1555 as quoted on pages 2 and 3 of the impugned order. It has been further emphasized that tinder the provisions of section 80CC(4) of the Ordinance appellant was entitled to take credit of business income covered under section 80CC and not income other than the rate applicable to income chargeable under this section. The working of accretion charged to tax under section 13(1)(aa) was, therefore, fully justified. However, on submissions of the assessee during the assessment proceedings as quoted on pages 3 and 4 of the impugned order nothing has been said other than the way the same has been appreciated by the ACIT.

6. Learned AR has also reiterated the submissions made before the Assessing as well as Appellate Authority. It has been argued that excess of actual income over the imputable income computed on work back basis as escaped income is against the provisions of subsection (3) of section 80CC according to which tax deducted under section 50(5A) on exports proceeds constituted the final discharge of assessee's tax liability. Charging of further tax on the same income amounted to double taxation which was, not permitted by law as also held in a reported case 1995 PTD 856. The learned AR has also re-emphasized the extract from the judgment of the honourable Supreme Court of Pakistan reported in 1997 PTD 1555 which has also been reproduced on page 2 and partly on page 3 of the impugned order which is being reproduced for ready reference as:--

"We may observe that the subject of-section 80C seems to be to eliminate the hassle of filing of returns by the assessee and going through the assessment order and to eliminate the involvement to the minimum extent of the Income Tax Department. To achieve the above object, subsection (4) was enacted. In our view, subsection (5) of section 80C cannot be used by the Income Tax Department for defeating the above objective of the legislator and, therefore, resort cannot be made to subsection (5) of the above section as a matter of course. It is to be invoked sparingly in exceptional circumstances. If an assessee makes profit more than what is subject to tax under, subsection (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 claims that he has made unusual profit, for example, he has earned Rs.100,000 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 formula provided under the Ordinance. But if he fails to discharge above burden of proof, in that event subsection (5) can be invoked."

Regarding the invoking. of provisions under section 13(1)(aa) alongwith section 80CC(4) AR has stated that these provisions could be invoked in the event if an assessee was required to explain the nature and source of any sum. investment money valuable article, excess amount or expenditure while none of the factors were involved in this case. As the Assessing Officer through notice under section 13(1)(aa) has mentioned accretion and increase in assets which expression does not find any place in the provisions of section 13(1)(aa). Since particular investment, money or valuable article for action under section 13(l)(aa) was missing no action in their case was legally possible. AR has further reiterated that as entire book profit declared by the assessee were on account of exports which were fully supported by audited accounts and complete accounting records no part of this income could be treated as undisclosed what to think of action under section 13(1)(aa) or section 13. AR has emphatically urged that as the issue of actual 'income over imputable income under section 80CC stands finally settled by Honourable Supreme Court of Pakistan vide reported judgment 1997 PTD 1555 the Assessing Officer instead of filing the proceedings proceeded on conjectures and surmises ignoring the documentary evidence as well as case-law. The learned AR has also objected to the charge of WWF as it. had been categorically directed by ITAT not to charge the same.

7. We have considered the facts of the case as reflected through. checkered history of assessment, re-assessment and judgments of the Appellate Authorities. Although the results and conclusion of the Appellate Authorities have been briefly mentioned supra yet even at the cost of repetition we deem it proper to refer back to the first ITAT judgment vide I.T.As. Nos. 3478 and 3479/LB/1995, dated 22-10-1996.

On the basis of the first order whereby income over and above imputable was subjected to tax and upheld by the CIT(A) in the first round ITAT on page 4 framed the issues as under:--

"(i)Whether the book profits in excess of the income worked back in accordance with the method laid down in subsection (4) of section 80CC can be charged to tax without recourse to the procedure laid down in section 13 of the Income Tax Ordinance?

(ii)Whether the voluntary return inn respect of income referred to in subsection (1) of section 80CC tantamount to waiver of the mandatory right of not filing the return as per subsection (3) of section 80CC and what is the legal effect of such a return?

(iii)Whether in the face of the mandatory ' provisions of sub section (6) the book profits in excess of the income worked back in accordance with subsection (4) can be taxed under section 62 or section 59 without recourse to section 65 of the Ordinance. "

The above issues/questions were then appraised in terms of . the provisions of section 80CC which have also been reproduced on page 5. Issues relating to the tax deducted under subsection (5A) of section 50 provisions of subsection (3) of section 80CC, filing of return under section 55 or not and question of legality of assessment of exporter under section 62 or 59A without invoking section 65 with specific reference to subsection (4) of section 80CC adjudicated the issue in the following manner:--

"As an assessment having already been deemed by law to have been made, no further action under section 62A or 59A is exigible. Even if it is assumed, for the sake of argument, that income deemed to have been assessed had actually been under assessed within the purview of subsection (4) of section 80CC, the only course available to the ITO is to invoke section 65 for additional assessment. Action under section 62 or 59A without recourse to section 65 is, therefore, illegal.

Examining the facts of appellant's" case in the light of sub section (6) of section 80CC assessments for assessment years' 1993-94 and 1994-95. were deemed to have been- made on 23-6-1993 and 30-6-1994 respectively on the culmination of the income years during which deductions under subsection (5A) of section 50 had been made. Assessment having already been made within the purview of deeming provisions of subsection (6) of section 80CC, the impugned orders under sections 62 and 59A were clearly illegal."

In the second round ITAT vide their judgment, dated .28-6-2000, for the impugned assessment year of 1994-95 after exhaustive discussion on the issues of provisions of section 80CC, section 13, section 65, judgment of Supreme Court of Pakistan reported as 1997 PTD 1555, the basis adopted by the Assessing Authorities and submissions made .on behalf of the appellant before them as well as before ITAT alongwith recourse to the provisions of section 65(1)(c) as upheld by the First Appellate Authority had setting aside of addition under section 13(1)(aa) decided the matter as follows:--

"We find that no prejudice will be caused to the assessee if the company were to make an attempt again to convince the Assessing Officer that the excess income of Rs.12,09,75,904 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 take 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. No. WWF to be levied assessee is placed in the presumptive tax regime.

8. At this point Assessing Authority of having before it the detailed adjudication of the issues took another route of doubting the version of statement of accounts, application of section 80CC(4) and arrived at the conclusion that assessee had failed to explain the unusual profit which was over and above the presumptive income, therefore, was not entitled to protection under section 80CC(4) as final discharge of tax liability to the extent of tax deducted under subsection (5A) of section 50 of the Ordinance.

9. CIT(A) after recording the grounds of appeals as many as 14 on pages 4, 5 of the appellate order and replies of the appellant on pages 6, 7, 8 and 90 operative parts of the ITAT judgment vide ITA No.5035/LB/1999, dated 28-6-2000 rightly summarized the issues that:--

"The core issue is that the appellant declared income which was over and above the imputable income to the extent of RS.2,09,75,905. The department has been considering this income as not covered under section 80CC(3) and, was hit by the mischief of section 80CC(4) and has relied on famous judgment of the Supreme Court, in the case of Messrs Ellahi Cotton Mills (Pvt.) reported as 1997 PTD 1555 and C.B.R.'s Circular No.12 of 1991, dated 30-12-1991. Interestingly the appellant has also placed reliance on the same judgment of the APEX Court, making the cornerstone to his defence system. The careful examination of the relevant part of the judgment reveals that provision of 80CC(4) cannot be invoked as a matter of course but under exceptional circumstances. The assessee has to prove to the satisfaction of the Assessing Authority that he has earned unusual profit out of transaction of his export business activity subject to 80CC(1) and if he fails to do so only then Assessing Officer, will be within his jurisdiction to invoke section 80CC. In the instant case the Assessing Authority has been rejecting appellant's plea. The income earned by him over and above the imputable income was subject to normal rate of tax and reliance was primarily placed on C.B.R.'s Circular No.12. However, the learned ITAT, in their judgment in the instant case vide their Order No. I.T.A. 5035/LB of 1999, dated 28-6-2000, has in order to resolve this dispute issued the following directions:--

We find that no prejudice will be caused to the assessee if the company, were to 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 offered tax under section 80CC(1). The Assessing Officer, however, must not unnecessary complicate matter and must make 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'."

CIT (A) has also recorded that after. this Assessing Officer attempted to make addition under section 13(1)(aa) read with section 80CC(4). The facts of the entailing proceedings particularly with reference to the facts of the accounts or rejection/appreciation of the submissions made as well as history of acceptance of accounts arrived at the conclusion that in the light of Honourable Supreme Court's observation quoted supra protection of subsection (4) was still available. Accounts of the assessee has always been found to be verifiable and accepted except for the impugned year of 1994-95. As all necessary records was provided, examined, explanation rendered, provisions of sections 13(1)(aa) and 80CC(4) were invoked without identifying that alleged unusual profits were from source other than exports. related transactions by virtue of, which assessee- was not entitled to avail the protection provided under subsection (3) of section 80CC. The orders passed under sections 62/65/135 were cancelled while order under section 4(2) of Workers' Welfare Fund Ordinance and show-cause notice under section 116(b) were vacated.

10. As is evident from the discussion above the issues framed by ITAT vide. their judgment, dated 22-10-1996 mentioned in para. 7 supra repeated submissions made by the assessee on all the queries raised and related aspects, the case-law relied upon have not been appreciated in true perspective. Without much effort it is clearly ascertainable that on setting aside of the orders by ITAT in the second round vide order I.T.As. Nos. 4023, 5034 and 5035(LB) of 1999, dated 28-6-2000 thereby it was clearly mentioned that on the basis of facts and provisions of law both the parties were at par and it was in the interest of justice to have proper and final appraisal, department implemented the direction of setting aside in violation of its spirit. This observation is fully supported by the fact that provisions of section 65 invoked as well as addition under section 13(1)(aa) read with section 80CC(4) have been made in utter disregard of not only the provisions of law but facts of the case inasmuch as that income over and above the imputable income has been treated as unexplained investment without establishing that income other than exports were earned by the assessee. In making our above observation we have derived immense strength from the adjudication of the issue by ITAT on two occasions earlier on and submissions. explanations on behalf of the assessee by the learned AR in an extremely meticulous and relevant manner. We also feel compelled to refer that whatever has been done by, the Revenue is nearly harassment and maladministration of taxation. In the facts and circumstances discussed above and in the .light- of our observations findings of the CIT(A) has been found absolutely detailed and lawful. We uphold the decision in first appeal by rejecting the grounds of the Revenue being without merit. Appeal by the department. stands dismissed accordingly.

C. M. A./681/Tax (Trib.)Appeal dismissed.