Per Khawaja Farooq Saeed, Judicial Member and Muhammad Tauqir Afzal Malik, Judicial Member‑‑[Agreeing]‑‑

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 62‑‑‑Assessment on production of accounts, evidence etc.‑‑‑Sales- Estimation of sales‑‑‑Audit of sales by Sales Tax Department ‑‑‑Assessee claimed that sales should have been accepted for the reason that same were cross checked and audited by the Sales Tax Department‑‑ Department contended that assessee's non maintenance of accounts deprived him of the right of acceptance of declared sales and Gross Profit even otherwise assessee's claim of verifiability of purchase side was not supported by other facts ‑‑‑Assessee had a history of rejection and could not be given margin of the acceptance of the sales by the Sales Tax . Department ‑‑‑Validity‑‑‑Assessee was a `no account' case but it could not be said that only those sales could be ‑accepted which were supported by the books of accounts‑‑‑Audit by Sales Tax Department had some sanctity; it was a Government department, the decision of which should be respected by other Government institutions‑‑-Certain business had been subjected to sales tax on sales declared and assessed by a Government agency, and it should be given respect unless otherwise proved by the Department‑‑‑Government had decided to develop a culture of mutual trust by accepting each and every declaration of income‑‑‑Sales Tax assessment should .also be given proper respect while making income tax assessments‑‑‑Application of law through mutual trust and respect always bring happy and positive change in society, while the laws, implemented through baton or hammer create hatred and unhealthy atmosphere‑‑‑Any power granted to a person without strings leads to damage to system‑‑‑Maxim; `that power corrupts and absolute power corrupts absolutely' was fully applicable on such situations‑‑‑Sales pitched by a Government agency i.e. the Sales Tax Department should be accepted without any exception; it was a Government department, which had determined the sales after going into various factors connected therein‑‑‑Sales tax had come as an additional burden but this was going ‑to help in documentation of the economy, it obviously was a progressive step‑‑‑Estimates of Sales Tax Department might not be a true picture of the actual affairs of the business, however, unless it was proved otherwise Appellate Tribunal shall go with the figure determined by the Sales Tax Department‑‑‑No reason was available for pitching the sales to a figure other than what had been determined by the Sales Tax Department without any other substantial or objective reason or proof‑ ‑Since such a proof was' missing, Appellate Tribunal directed for acceptance of the declared sales being supported by the Sales Tax Audit.

M/s. Siemens A.G.'s case 1991 PTD 488 and I.T.A. No. 5100/LB of 2002 rel.

Per Amjad Ali Ranjha, Accountant Member‑‑‑[Minority view].

Muhammad Bashir Malik for Appellant.,

Muhammad Asif, D.R. for Respondent.

Date of hearing: 5th November, 2003.

ORDER

MUHAMMAD FAROOQ SAEED (JUDICIAL MEMBER).‑‑ Both the appeals have been filed by the assessee. The assessee's main claim is that his sales from polythene bags should have been accepted for the reason that the same are cross checked and audited by the Sales Tax Department. As a counter argument estimate of sale, G.P. and add backs in profit and loss are also being challenged.

It was argued that the entire debit side of the assessee is verifiable and sales being subject to Sales Tax GP rate was not to be applied on the basis of parallel cases. In his opinion it was a fit case for acceptance of the declared version and the department as well as the first appellate authority has acted arbitrarily in not accepting the same.

The DR said that it was no; a case of proper maintenance of accounts hence acceptance of the trading version is beyond comprehension. He said that assessee non‑maintenance of accounts deprives him of the right of the acceptance of declared sales and the GP. Even otherwise he remarked that the assessee claim of verifiability of the purchase side is not supported by the other facts.

Above all assessee has a history of rejection. He, therefore, cannot be given margin of the acceptance of the sales by the Sales Tax Department. He said that the assessee was supposed to prepare and issue cash memos., which he also failed as record does not indicate such documentation.

We have heard both and in principle agree that the assessee is a no account case. However, we cannot agree with learned DR that only those sales can be accepted which are supported by the books of accounts. The audit by the Sales Tax Department does have some sanctity. It is a government department, the decision of which should be respected by other government institutions. We have, unfortunately developed a culture of mistrust up to a very sophisticated level. It has damaged our traditions to a large extent. The recent development in laws have improved the position to some extent. The introduction of Rule 207‑A in the Income Tax Ordinance, 1979 (Defunct) is a good example of such development. It has brought a control, a check on the discretionary powers of the Assessing Officer with regard to the determination of the value of the certain properties. It may not be foolproof method but is definitely a welcome change in development of laws. The remedy it has brought is obviously well-thought and very positive. Similarly, certain businesses have been subjected to Sales Tax on sales declared and assessed by a government agency. In our humble opinion it should be given respect unless otherwise proof is available with the department otherwise. Now that the government has, decided to develop a culture of mutual trust by accepting each and every declaration of income the Sales Tax assessment should also be given proper respect while making income tax assessments. The application of law through mutual trust and respect always bring happy and positive change in society. While the law, implemented through baton or hammer creates hatred and unhealthy atmosphere. Any power granted to a person without strings leads to damage to system. The maxim that `power corrupts and absolute power corrupts absolutely' is fully applicable on such situations.

While discussing above preposition we find ourselves guided by the verdict given by the august Court of Pakistan in the case of Messrs Siemens A.G. reported as 1991 PTD 488 (S.C.) wherein the learned Supreme Court has held that the contract arrived at between the two Muslims should not be doubted by a third party including the Income Tax Department unless they have in. handsome proof in contrary. In fact insertion of the Rule 207‑A mentioned by us supra is also an example of acknowledgement of the regressive trends due to excessive and unbridled use of discretionary powers. We, therefore, hold that the sales pitched by a government agency i.e. the Sales Tax Department should be accepted without any exception. It was a Government department, which has determined the sales after going into various factors connected therein. Sales tax has come as an additional burden but however, since this is going to help in documentation of the economy it obviously is a progressive step. Present estimates of the Sales Tax Department may not be a true picture of the actual affairs of the business, however, unless it is proved otherwise we shall go with the figure determined by the Sales Tax Department.

The result of above discussion is obvious. There is no reason of pitching the sale to a figure other than what has been determined by the Sales Tax Department without any other substantial or objective reason or proof in this case. Since such a proof is missing in this case, we direct that the sales determined by the Sale Tax Department may be adopted.

This leaves us to the GP rate. We are not convinced that the debit side of the assessee is free from lacuna. Moreover, non- maintenance of books also goes to discredit of the assessee. The difference of the GP in the two years also is very sharp and no satisfactory reason has been given for the variation. The assessee is manufacturer of polythene bags. The necessary, ingredients of its production are undoubtedly imported items. However, it is not the assessee himself who has imported them. He has purchased them from, open market and the same also without any reasonable documentary support. The GP applied being on the basis of the parallel cases, therefore, is not disturbed.

Coming to the appeal for the assessment years 2001‑2002. For the reasons given in respect of the earlier order, we direct for acceptance of the declared sales being supported by the Sales Tax Audit. However, we confirm the application of GP as well as add backs in P&L account.

The result of above discussion for the two years is obvious. Both the appeals are partially allowed in respect of sales while on all other issues the same are rejected.

Order accordingly.

(Sd.)

(Khawaja Farooq Saeed)

Judicial Member

AMJAD ALI RANJHA (ACCOUNTANT MEMBER).‑‑‑I beg to differ with the findings of my learned brother (Judicial Member) regarding the acceptance of appeal of the assessee.

I do not agree with the findings of my learned brother (J.M.) as given on page‑4, where he states that there is no reason of pitching the sales to a figure other than what has been determined by the Sales Tax Department without any other substantial or objective reason or proof in this case. Since such a proof is missing in this case, we direct that the sales determined by the Sales Tax Department may be adopted.

Sales in this case have been declared at Rs.30,03,996, which have been determined at Rs.40,00,000 and AAC has reduced them to. Rs.38,00,000. My learned brother is only relying on one thing and that is the sales adopted by the Sales Tax Department, whereas he is ignoring all other important facts of this case.

It is important to note that the assessee has declared its income at Rs.54,349 which is ridiculously low in this line of business as it is not even equivalent to a Grade‑I employee of Government of Pakistan and the assessee is deriving income from manufacturing polythene bags.

Moreover, his finding that sales should be accepted seems incongruous, especially when he is not satisfied with the application of GP rate.

It is very interesting to note that in the assessment year 2000‑2001, electricity consumption has been declared at Rs.7,40,883 and Sui gas consumption at R ..1,82,254 giving total power consumption at Rs.9,23,137 with declared sales at Rs.30,03;996, which is not even 4 times of the consumption of power. But in the assessment years 2001‑2002, the assessee has consumed electricity worth Rs.8,02,14 and sui gas worth Rs.2,50,997 giving total power consumption at Rs.10,53,011 and has himself declared sales at Rs.55,45,180 which has been estimated at Rs.58,00,000 meaning thereby that sales were more than five times the consumption of power. Since it is a no accounts case, hence I am fully convinced that the estimation of sales in the assessment year, 2000‑2001 at Rs.40,00,000 by the department is still on the lower side and it should have been more than Rs. 45,00,000 based on the declaration made by the assessment himself in assessment year 2001‑2002. But since the department is not in appeal, hence I think that I have no other alternative except to confirm the sales as adopted by the AAC in his Order No.97, dated 20‑6‑2001. Similarly, since there is nominal increase on the part of the department in the next year at Rs.58,00,000 against declared at Rs.55,45,180, hence it also does not call for any relief. Hence, I am in favour of rejecting both these appeals.

(Sd.)

(Amjad Ali Ranjha)

Accountant Member

As the difference of opinion has arisen between the members of this Bench, hence the case is referred to the Hon'ble Chairman for nomination of a 'third member to resolve the following question:‑‑

Whether in view of the facts and circumstances of the case, assessee's appeals need to be accepted or rejected.

(Sd.)(Sd.)

(Khawaja Farooq Saeed)(Amjad Ali Ranjha)

Judicial Member Accountant Member

MUHAMMAD TAUQIR AFZAL MALIK (JUDICIAL MEMBER).‑‑‑This is a difference of opinion case entrusted to me by the honourable Chairman for resolving the following question:‑‑

"Whether in view of the facts and circumstances of the case assessee's appeal needs to be accepted or rejected?"

Arguments from both the sides have been heard and record perused. The AR of the assessee has further given three photocopies of orders one is in I.T.A. No. 5100/LB of 2002 for the charge years 2001‑2002, dated 14‑12‑2002 bearing NTN 3‑42‑0682254 in which the difference of opinion has been resolved by majority view accepting the trading account. The trading account was on the basis of audited results by General Sales Tax Department. The sales in this case were accepted by the majority view as declared before the Sales Tax Department. The other two assessment orders are for the charge years. 2001‑2002 and‑ 2002‑2003 bearing NTN Nos. 31‑20‑1282227‑2, dated nil and 31‑77‑7032657, dated 22‑1‑2003. These are two assessment years in which the Department had accepted the sales in the income‑tax returns which have been arrived at by the General Sales Tax Audit Department. These assessments do not have binding force on this Tribunal but it has got a persuasive value and cannot be ignored being on the same issue.

In view of the Judgments cited supra and after going through the orders of the learned Judicial Member I agree with the conclusion of the learned Judicial Member who has accepted the appeals of the assessee for both the years to the tune of sales only. On the issue of G.P. rate and P&L add backs, the appeals have not been accepted. Therefore, my opinion on this issue is that the assessee's appeals need to be accepted to the extent as ordered by the learned Judicial Member. I agree with his finding on the reasoning given by the learned Judicial Member.

The nutshell of the above discussion is that both the appeals of the assessee are accepted by majority view.

(Sd.)

(Muhammad Tauqir Afzal Malik));

Judicial Member

C.M.A./319/Tax(Trib.) Appeals accepted.