I.T.As. Nos.910/LB of 2003, 203/LB of 2001 and 2536/LB of 2003 decided on 21st September, 2004. VS I.T.As. Nos.910/LB of 2003, 203/LB of 2001 and 2536/LB of 2003 decided on 21st September, 2004.
2005 P T D (Trib.) 807
[Income‑tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Mazhar Farooq Sherazi, Accountant Member
I.T.As. Nos.910/LB of 2003, 203/LB of 2001 and 2536/LB of 2003 decided on /01/.
st
September, 2004. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 62‑‑‑Assessment on production of accounts, etc.‑‑‑Estimation of sales‑‑‑Assessing Officer, on the basis of local enquiries, issued a detailed notice to assessee under S.62 of the Income Tax Ordinance, 1979 whereby the assessee was confronted on various issues‑‑‑Assessing Officer, after detailed reasons, rejected the declared version and estimated the sales while various expenses claimed in the Profit and Loss Account were curtailed‑‑‑Round addition was also made in the assessment order‑‑‑Contentions of the assessee were that he was a manufacturer of spare parts for tractors which were supplied to tractor companies and Pakistan Army and were totally verifiable and were accepted in the past; that sales were subject to levy of sales tax; that gross profit rate declared was the highest in the line of business that; reply to discrepancies` was not objected to which was tantamount to acceptance of explanation and that objection was made regarding explanation offered in respect of over‑stated stocks or variance in sales and bank deposits, ‑loan figures etc. thus, addition should be deleted‑‑ Validity‑‑‑Contentions made by the assessee had force considering the ambient circumstances and past history‑‑‑Round addition made and additions under the head `discount in sales' were deleted and it was directed by the Tribunal that the sales/GP rate declared by the assessee should be accepted for all the assessment years under appeal.
2001 PTD 2938; 1995 PTD (Trib.) 1369; (1995) 51 Tax 11; 1994 PTI) (Trib.) 586 and 1994 SCMR 229 rel.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 62‑‑‑Assessment on production of accounts, etc. ‑‑‑Estimation of sales‑‑‑Unless defects are noticed in the account books maintained by an assesses the electricity and sui gas consumption cannot be made the basis for estimation of sales.
(1995) 51 Tax 11 rel.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S. 62‑‑‑Assesgment on production of accounts, etc. ‑‑‑Estimation of sales‑‑‑If collateral record supports the declared results then the Assessing Officer should accept them.
1994 SCMR 229 rel.
Anwar Ali Shah, D.R. for Appellant.
Mian Ashiq Hussain and Amir S. Khan for Respondents.
Date of hearing: 29th July, 2004.
ORDER
These are four cross‑appeals for the assessment years, 1997‑98 and 2001‑2002, two by the department and the other by the assessee appellant, an Individual, against the order of the learned AAC, Appeal Range; Lahore, dated 30‑11‑2000 while the assesses‑appellant has also filed an appeal in respect of assessment year, 1992‑93 against an order recorded on 25‑9‑1993 by the learned CIT(Appeals‑Zone‑V), Lahore agitating that the confirmation of rejection of trading results and ad hoc addition amounting to Rs.1,10,000 is unlawful and also contested the P&L. add backs. The main grounds of appeal as raised by the assessee appellant against the order of the learned AAC cited supra are summarized as under:
"That the rejection of declared version of sales is arbitrary, unjustified and unwarranted.
That the rejection of account books and declared version of sales as fixed by the learned AAC at Rs.85.,00,000 as reduced from Rs.1,10,00,000 against declared Rs.53,14,412.
That the learned AAC is not justified in confirming and fixing the partial disallowance of Rs.50,000 out of claim of discount on credit sales.
That the learned AAC is not justified in confirming the disallowances made out of P&L expenses, the add backs are unjustified, uncalled for and otherwise highly excessive.
Assessment year, 2001‑2,002.
That the rejection of accounts ‑has wrongly been confirmed by the learned CIT(Appeals),
That the sales as fixed by the learned CIT(A) at Rs.95,00,000 is highly excessive and contrary to the facts of me case.
That the addition under the head discount fixed at Rs.39,000 is unjustified.
That the additions under the heads Advertisement and Bonus to staff have wrongly been confirmed which even otherwise are highly excessive".
On the other hand, the. Revenue had raised:‑‑
"That the learned AAC is not justified in reducing the sales from Rs.1,10,00,000 to Rs.8S,00,000 during assessment year 1997‑98 while in the assessment year 2001‑2002, the learned CIT(A) was not justified to reduce the sales from Rs.1,15,00,000 to Rs.95,00,000 and also not justified in curtailing/reducing the addition under the head "Discount in Sales" from Rs.89,093 to Rs39,000".
Brief and relevant facts of the case are that the assessee -appellant, who derives income from manufacturing and sale of Auto Parts, returned net income of Rs.1,35,321 on total sales of Rs.53,14,572 for the assessment year 1997‑98. It had shown gross profit at Rs.21,47,426. During the course of assessment proceedings, the Assessing officer got local enquiries alone and on the basis of said enquiry a detailed notice under section 62 was issued whereby the assessee was confronted on various issues. Finally, the Assessing Officer after detailed reasons as elaborated in the assessment order rejected the declared version of the assessee and framed the assessment by estimating the sales at Rs.1,10,00,000 while various expenses claimed in the P&L account were also curtailed by Rs.1,40,942 in all so as to assess assessee's net income at Rs. 25,28,737. In the assessment year 2001-2002, the assessee filed return declaring net income at Rs.1,05,219 and the Assessing‑ Officer framed the assessment at total income of Rs.21,73,110 by estimating the total sales at Rs.1,15,00,000 after rejecting the declared, version of the assessee as enumerated in the assessment .order for assessment year, 2061‑2002 during the course of assessment proceedings. Assessment for the assessment year 1992‑93 was completed by the Assessing Officer after rejecting the trading results and framed the assessment at income of Rs.3,60,759 whereby the sales were estimated at Rs.6,1,27,371 while a round addition of Rs.1,10,000 was made.
On being aggrieved with the above treatment, the assessee went in appeal before the learned CIT(Appeals) who vide his order for the assessment years under consideration cited supra, observed that estimation of sales during the year, 1997‑98 at Rs.1,10,00;000 is quite excessive as per circumstances of the case because the Assessing Officer ignored the fact that as compared to assessment year 1996‑97, the cost of electricity has considerably increased with the result that for the same units of electricity which would cost to assessee at Rs.4,19,562 for the period relevant to the assessment year 1996‑97, the assessee had paid much more for the assessment year. 1997‑98. So, in view of this fact, the learned .AAC reduced the sales to Rs.85,00,000 being appropriate. Regarding "discount in credit sales", the learned AAC reduced the disallowance to Rs.50,000 being excessive while confirmed the various additions ‑made out of P&L account as reasonable. Regarding assessment year 2001‑2002, the learned CIT(Appeals) reduced the sales to Rs.95,00,000 being in the fitness of things and as per circumstances of the case: Regarding the add back out of P&L. account under the head of discount of sales, the justification of the Assessing Officer is not fair. So, the addition under the head is reduced and fixed at Rs. 39,000 in appeal by the' learned First Appellate Authority while confirmed the other additions. As far as assessment year 1992‑93 is concerned, the learned First Appellate Authority maintained the treatment meted out by the Assessing Officer regarding round addition of Rs.1,10,000 in the trading account being fair with the same ratio as decided in the preceding year. Regarding additions under the P&L account are concerned, these are also quite in line with the history of the case except for addition of Rs.15,000 in the claim of `travelling amounting to Rs.96,000, the same was deleted by the learned CIT(Appeals) because the Assessing Officer has not mentioned any reason whatsoever for this disallowance.
We have heard the rival arguments of both the sides.
In his arguments before us, the learned AR of the assessee drew our attention to the fact that a round addition of Rs.1,10,000 was made in the assessment year, 1992‑93 for alleged defects/deficiencies in the accounts by the Assessing Officer. The above round addition according to the learned AR was not justified considering that in the past assessment year i.e. 1989‑90 and 1990‑91 the round additions which were made to cover up the deficiencies noticed in the accounts maintained for the two years were deleted by the Hon'ble ITAT vide its order for assessment years 1989‑90 and 1990‑91, dated 4‑1‑1995 as being without any basis. It was further contended by the learned AR that in the assessment year 1992‑93 the sales and GP rate declared by the assessee were accepted by the Assessing Officer. As regards assessment year 1997‑98, the learned AR of the assessee argued that sales had been estimated at a high pitch when no notice under section 62 was given which is mandatory after the examination of the books of accounts. In this context, the learned AR cited two reported judgments i.e. 2001 PTD 2938 and 1995 PTD (Trib.) 1369 in which it has been held that no addition can be made unless the books of accounts have been examined and a notice under section 62 is issued to the assessee confronting him, with the proposed addition in the trading account, the Assessing Officer intend to make. The learned AR also contested the basis on the part of the Assessing Officer for evolving a "nexus" between electricity consumption and the production declared by the assessee for the relevant period. In this context, ‑the learned AR pointed out that electricity tariff had increased during the period under appeal and the assessee had to pay more ‑ as compared to the previous year in the shape of electricity charges. According to the, learned AR, the tariff had increased in the case of the assessee's production facility, by 60 paisas per unit. Further more, the AR also submitted that the assessee was involved in litigation with the Wapda authorities regarding the power consumption during the period. In support of his arguments, the learned AR cited a reported case as 1995 51 Tax 11 as decided by the Hon'ble Karachi, High Court, in which it has been held that unless defects are noticed in the account books maintained by an assessee the electricity and sui gas consumption cannot be made the basis for estimation of sales. The learned AR also contested the findings of the report of the inspector of the circle, which according to him was strictly speaking not relevant to the period under consideration. In support of his contention, the learned AR relied on a reported judgment as 1994 PTD 586 (Trib.). As regard the sales estimated by the. Assessing Officer, the learned AR stated that the assessee is a manufacturer of spare parts for tractors and these are supplied to tractor companies and Pakistan army 'and are totally verifiable and these were accepted in the past. The sales were also subject to the levy of sales tax as asserted by the AR. According to him, the GP rate declared was the highest in the line of business in which the assessee was engaged. It was prayed by the learned AR that the addition in the sales should be deleted.
As regard assessment year, 2000‑2001, the sales declared at ,Rs.76,69,758 which: were estimated at Rs.1,15,00,000 by the Assessing Officer but were later on reduced by the First Appellant Authority to Rs.95,00,000. In the appeal proceedings, the learned AR also submitted a copy of the relevant notice under section 62 in which the assessee -company was confronted with the various defects and deficiencies noticed in the accounts maintained for the year. According to the AR the discrepancies as noticed were properly explained to the Assessing Officer who did not reply to them. This fact according to the AR is tantamount to acceptance of the explanation offered by him. The AR further submitted that no objection was made by the Assessing Officer regarding the explanation offered ‑by him in respect of the over‑stated stocks or variation in sales and bank deposits, loan figures etc. He further argued that the assessee's sales were subject to sales tax and in support of his contention relied upon a decision of the Hon'ble Supreme Court of Pakistan reported as 1994 SCMR Page 229 in which it was held that if collateral record supports the declared results then the Assessing Officer should accept them. In this context, he prayed that the declared results in the absence of any defects and deficiencies noticed should be accepted.
We have examined the relevant record and perused the orders passed by the authorities below and we are of the view that the contentions made by the learned AR have a lot of force in them considering the ambient circumstances and past history of the case. In view of which the round addition made at 8.1,10,000 made in 1992‑93 and additions under the head `discount in sales' amounting to Rs.50,000 and Rs.39,000 during the years, 1997‑98 and 2001‑2002 are deleted accordingly and it is directed that the sales/GP rate as declared by the assessee should be accepted for all the assessment years under appeal.
At the same time, the appeals of the department being devoid of merit are rejected for the assessment years, 1997‑98 and 2001‑2002.
All the appeals are disposed of as above.
C.M.A./330./Tax (Trib.)Appeal accepted.