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

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Discount on sales‑‑‑Claim of, in Profit and Loss Account‑‑‑Re‑opening of assessment on the ground that Assessing Officer had wrongly allowed expenses on account of discount on sales which were not an expense on Profit and Loss Account rather it was an entry of trading account ‑‑‑Validity‑‑‑Assessee took sales on gross basis and discount was claimed as selling expenses‑‑‑Such methodology related to adoption of account‑‑‑If gross sales were taken and selling expenses were claimed in Profit and Loss Account, same would not affect the net result‑‑‑Disagreement between two officers could not constitute a valid basis for re‑opening of the case.

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

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Basic ingredient for reopening of case under S.66‑A of the Income Tax Ordinance, 1979 was the exact finding on an issue of fact‑‑‑Arguable and controversial findings could not be made basis for reopening of the case under S.66‑A of the Income Tax Ordinance, 1979.

(c) Income Tax. Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Estimation of sales‑‑‑Consumption of electricity units‑‑‑Re‑opening of assessment on the ground that estimation of sales was not made on the basis of criterion of consumption of electricity units‑‑‑Validity‑‑‑Assessing Officer had the discretion to justify his estimation particularly when the assessee contended that consumption of electricity mainly related to the production and not with sales‑‑‑Item of higher, value may consume less electricity in its manufacturing and an item of less value may consume higher electricity in its manufacturing process as their production was controlled by the market demand‑‑‑For purposes of exact analysis, Assessing Officer had to make detailed scrutiny‑‑‑Same was a disagreement on an issue of fact which could not constitute a valid basis for reopening of the case.

(d) Income Tax; Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Mark‑up‑‑‑Re‑opening of assessment on the ground that mark‑‑up was erroneously allowed as all the over drafts were in cash and utilized in purchase of property‑‑‑Validity‑‑‑Finding of Inspecting Additional Commissioner was vague and without authenticated evidence that the loan was used for purchase of any property since he was not supposed to record such finding particularly when the loan was obtained for business activity.

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

‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Re‑opening of assessment on the ground that claim of telephone bills installed at place other than the place of business was allowed‑‑ Validity‑‑‑Undoubtedly, loss of revenue may arise but it was not understandable how assessment order was erroneous on legal side‑‑‑Order passed under S.66‑A of the Income Tax Ordinance, 1979 had no legs to stand upon‑‑‑Appellate Tribunal cancelled the order of Inspecting Additional Commissioner and restored that of Assessing Officer.

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

‑‑‑‑S. 66‑A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Profit and loss expenses‑‑‑Quantum of disallowance in Profit and Loss Account could never be considered as ground for invoking the revisional jurisdiction under S.66‑A of the Income Tax Ordinance, 1979.

Suhail Mutee Babri, ITR/AR for Appellant.

M. Akram Tahir, D.R. for Respondent.

Date of hearing: 24th October, 2003.

ORDER

MUNSIF KHAN MINHAS (JUDICIAL MEMBER).‑‑‑The appellant is an unregistered firm and derives income from manufacturing of auto‑parts. Through the titled appeal, the appellant challenges the undated order under section 66‑A of the Income Tax Ordinance, 1979 (hereinafter referred to as the "Repealed Ordinance") passed by the learned Inspecting Additional Commissioner of Income Tax/Wealth Tax, Range‑II, Zone‑C, Lahore pertaining to the assessment year 2000‑2001. As per grounds of appeal taken by the appellant, the order under section 66‑A is in excess of lawful jurisdiction since the order under section 62, dated 17‑2‑2001 was neither erroneous nor prejudicial to the interest of Revenue to attract the provisions of section 66‑A of the Repealed Ordinance. According to the appellant, the order under section 66‑A passed on bass of surmises and whims is not sustainable in the eye of law. It has further been averred in the grounds of appeal that the order under section 66‑A is not maintainable as the Assessing Officer with conscious applicability of mind and inspection of accounts had made (a) estimation of sales (b) allowed the Discount and (c) allowed the Bank Interest. It is also the contention of the assessee that the learned IAC erred in considering that the bills of residence were claimed as business expenses. In a nutshell, the plea of the assessee is that being no error of law or facts, the order under section 66‑A in excess of lawful jurisdiction is liable to be cancelled.

2. Relevant facts in brief are that assessment was completed in the instant case for the year under appeal under section 62 of the Repealed Ordinance at Rs. 526,520 against declared income of Rs. 380,112 on 17‑2‑2001. However, the assessment record was requisitioned from Circle‑05, Zone‑C, Lahore and the assessment completed under section 62 was found to be erroneous as well as prejudicial to the interest of the Revenue on certain grounds as recorded in the impugned order and the same was cancelled under section 66‑A. The Assessing Officer Circle‑05 was directed to make fresh assessment after making thorough investigation, and appraisal of the facts on record.

3. Learned A.R. vehemently argues that the assessee always books sales on gross sales when the payments are made and these are made at reduced rates after allowing discount. According to the A.R., the expenses on account of discount on sales are selling expenses relating to the sales and that are very much allowable. Secondly, learned A.R. averred that the Assessing Officer had to make the reasonable assessment keeping in view the factors affecting the business. Learned A.R. has stated that intended estimation on the basis of criterion of consumption of electricity was very much confronted by the Assessing Officer and the assessee replied to the same. The, consumption of electricity is related with the production and not with sales. A spare‑part can consume more electricity having lesser value and spare‑part can consume less electricity having a higher value. So the electricity consumption cannot be a hard and fast rule or criteria for the estimation of sales. For convenience, notice of reply is hereby reproduced hereunder:‑‑

"Perusal of the assessment record of the assessee reveals that there are two electricity meters installed at the business premises. During the year 1996‑97 declared sales of the assessee were Rs.38,63,365 against which 43740 electricity units were consumed whereas this year assessee has declared sale of Rs.50,29,856 while 75533 electricity units have been consumed. The learned A.R. was confronted with this facts during the course of assessment proceedings who, submitted his written reply in this regard on 16‑2‑2000 as under:‑‑

"The assessee has consumed electricity units at 75,533 and pieces produced for the year under assessment is 501,788. The consumption of electricity can in no way give a fair died for sales or production firstly for the reason that the machinery in use is quite old and by passage of time require more consumption of electricity resulting in lessor production. Moreover, the asessee is engaged in manufacturing of guides for different kind of vehicles having variable sizes.

Certain parts require more machining than the others, which although have a direct bearing on consumption of electricity but the same is not in proportionate to sale price of the related product. Furthermore, certain parts, which are sold in set of 12 pieces, fetch same sale price, which other parts of 8 pieces do. Reference be made to price of Bed Ford Rocket where a set of 12 pieces is sold for Rs.122 as against 8 piece set of Bellarus which has the same sale price. The sale of this part is on decline for last few years due to crisis in sugar industries. Your honour would see that the variation in consumption of electricity depends upon the item produced and in no way a hard and fast formula can be laid for working out the production/sales on the basis of electricity consumption. The production results of the assessee are supported by proper record, which are being produced for examination purpose. As regard the G.P. rate, it is submitted that the declared G.P. rate of 35.57% is reasonable and in excess of what has been applied in the preceding years. Reference be made to the assessment year 1989‑90. Further added the trading account is open to verification, the assessee is maintaining the proper books of accounts and supporting vouchers are also available. The same are being produced for examination."

It is not necessary and bounden duty of the Assessing Officer to follow criteria of the consumption of electricity.

Thirdly, it has been argued that mark‑up has rightly been allowed. The loan has been received by the assessee for business purposes anti he has not yet purchased any property through this loan. So, there was no justification to reopen the case on this score. Lastly, the withholding tax at telephone bills is reimbursed to the distributor. It is funded by the assessee and the distributor does not claim withholding tax.

4. On the other hand, learned D.R. has argued that by not following the criteria of the consumption of electricity, by the Assessing Officer, approximately sales of Rs.14,00,000 have been less assessed. If increase in G. P. is given weight even then at least there should be assessment of more sales of Rs.10,00,000.

5. We have heard the arguments of learned representatives of both the parties. Learned IAC has invoked the jurisdiction under section 66A on three grounds. Firstly, the Assessing Officer wrongly allowed an expense on account of discount on the sale of Rs.5,82,449 which was allowed to the sister concern owned by the wife of the assessee as purchaser of goods. As per learned IAC, it is not an expense of P&L account rather it is art entry of the trading account. The Assessing Officer while accepting the said amount as expense of profit and loss account only disallowed an amount of Rs.50,000 while rest of the claim was allowed. As per version of the learned IAC, on rejection of the trading results and in net sales estimated by the Assessing Officer, the amount on account of discount of sales was automatically covered in the G.P. determined. Secondly, the Assessing Officer had not made estimation of the sales on the basis of criterion of the consumption of electricity units. Thirdly, the Assessing Officer has allowed the telephone expenses at Rs.43,372 against the claim of Rs.45,372 whereas the telephone bill paid in respect of the business premises declared by the assessee was only Rs.14,181 Telephone bills of Telephone No.6360382 and 6372422 installed at White House Lane, Sundar Das Road, Lahore have also been claimed and the claimed bills were very much available on record of the Assessing Officer. Hence, it resulted into wrong and excessive allowance. Resultantly, the assessment is erroneous insofar as prejudicial to the interest of the Revenue.

6. Now I take step by step each and every ground raised by the Assessing Officer.

Discount on Sales

The Assessing Officer has nowhere mentioned the word gross sales or net sales in his assessment order. As per the contention of the assessee, he took sales on gross basis and discount was claimed as selling expenses. It is methodology relating to adoption of account. If the gross sales are taken and selling expense is being claimed in P&L account. It does not affect the net result. I would like to mention here that basic ingredient for reopening of the case under section 66‑A is the exact finding on an issue of fact. Arguable and controversial findings cannot make basis for reopening of the case under section 66‑A. It can be disagreement of the two officers but cannot constitute a valid basis fork reopening of the case. Secondly, by not following the criteria of consumption of electricity, I myself feel that the Assessing Officer could have estimated the more sales ranging from Rs.10,00,000 to 14,00,000 but this criteria has not been followed. Again, the position remains the same that it is the discretion of the Assessing Officer to justify his estimation particularly when the assessee contended before him that the consumption of electricity mainly related to the production and not with sales. An item of higher value may consume less electricity in its manufacturing and an item of less value may consume the higher electricity in its manufacturing process and their production is controlled by the market demand. For the purpose of exact analysis, the Assessing Officer had to make detailed scrutiny but perhaps due to lack of time, he has not' preferred to do so. So, again the position remains that it is a disagreement on an issue of fact. Thirdly, this version of the learned IAC that mark‑up has been erroneously allowed as all the. Overdrafts were in cash. It was the duty of the Assessing Officer to relate utilization of this amount with the business activity and. he failed to do so. This finding of the learned IAC is" vague one and without authenticated evidence with him that the said loan was used for the purchase of any property. He was not supposed to record this finding particularly when the loan was obtained for the business activity by the assessee. Lastly, it has been categorically written by the learned IAC that bills of Telephone No.6360382 and 6373422 at the address of Muhammad Amin White House Land, Sundar Das Road, Lahore rave been claimed and very much available on record. Undoubtedly, loss of Revenue may arise but I fail to understand as to how the assessment order is erroneous on legal side. The quantum of disallowance in P&L account can never be considered as ground for invoking the revisional jurisdiction under section 66‑A'. Hence, order passed by learned IAC under section 66 has no legs to stand upon. Being not substantiated, it is hereby cancelled and original assessment order stands restored accordingly.

C.M.A/13/Tax (Trib.) Appeal accepted.