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

‑‑‑‑Ss. 62 & 80‑D‑‑‑Assessment on production of accounts, etc. ‑‑‑Income from construction of town houses‑‑‑Application of Gross Profit rate on sale of houses and application of provisions of S.80‑D of the Income Tax Ordinance, 1979 on such sales‑‑‑Validity‑‑‑Since in the immediately preceding year, Gross Profit rate had not been applied, application of Gross Profit rate for the year under consideration was quite unjustified‑‑ Action of both the authorities below was declared contrary to law‑‑ Appeal preferred by the assessee was accepted and Gross Profit rate applied was deleted by the Appellate Tribunal.

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

‑‑‑‑Ss. 62 & 13‑‑‑Qanun‑e‑Shahadat (10 of 1984)‑‑‑Income Tax Rules, 1982, R. 207A‑‑‑Assessment on production of accounts, etc. ‑‑‑Addition‑ Sale price of plot declared according to registered sale‑deed was enhanced by the Assessing Officer on estimated basis‑‑‑Validity‑‑ Department itself had accepted the sale price as declared by the assessee in cases of purchasers of the properties who were also taxpayers whereas the same had been rejected in case of assessee which was quite unjustified‑‑‑Since sale price declared by the assessee was supported by the registered sale‑deed and was also more than the rates fixed by the District Collector , its acceptance by the First Appellate Authority was justified‑‑‑Order of the First Appellate Authority was upheld by the Appellate Tribunal.

1993 PTD 206; 1993 SCMR 1108 = 1993 PTD 1108; NTR 91 Trib. 138 and 1999 PTD (Trib.) 8 rel.

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

‑‑‑‑S. 80‑D‑‑‑Minimum tax on income of certain persons‑‑‑Sale of immovable property‑‑‑Application of S. 80‑D of the Income Tax Ordinance, 1979‑‑‑Contention of the assessee was that provisions of S.80‑D of the Income Tax Ordinance, 1979 were not applicable because the immovable properties were not covered by the definition of "goods"‑‑‑Validity‑‑‑Word "goods" revealed that the immovable properties were not covered by the provisions of S.80D of the Income Tax Ordinance, 1979 as such no minimum tax was chargeable‑‑‑Orders passed by both the authorities below on the issue were vacated and appeal of the assessee was accepted.

(1999) 80 Tax 262 rel

(d) Income Tax Ordinance (XXXI of 1979)

‑‑‑‑S. 62‑‑‑Assessment on production of accounts, etc. ‑‑‑Commission‑‑ Assessing Officer rejected commission receipt on sale of P.O.L. being not supported by books of accounts‑‑‑Validity‑‑‑Assessing Officer was quite unjustified in discarding declared version of the assessee in respect of commission without ascertaining the‑veracity of the same from the principal‑‑‑Since petroleum products were purchased and sold on the rates fixed by the Government and the payments were made through bank how could unfair means be adopted for earning more commission against the rates fixed by the Government‑‑‑Assessing Officer was directed to accept the declared version of the assessee in respect of commission on sales of P.O.L.

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

‑‑‑‑Ss. 24 & 62‑‑‑Deductions not admissible‑‑‑Add back ‑‑‑EOBI/Social Security‑‑‑Addition was made out of, staff salaries for want of complete details and payment of EOBI/Social Security ‑‑‑Assessee contended that details required by the Assessing Officer were not applicable because proper salary register had been maintained‑‑‑While disallowing staff salaries 'the Assessing Officer was bound to confront the assessee with specific defects but he did not do so‑‑‑No such addition had been made in the earlier assessments‑‑‑Validity‑‑‑Before making addition Assessing Officer must have confronted the assessee with proposed treatment by pointing out specific defects in the salary register maintained by the assessee company‑ ‑‑Action of both the authorities below was contrary to history because no such addition had been made in the earlier years‑‑ Addition made out of staff salaries was deleted by the Appellate Tribunal being unjustified.

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

‑‑‑‑Ss. 24 & 62‑‑‑Deductions not admissible‑‑‑Add back under the head administrative heads as well as Profit and Loss expenses being unverifiable‑‑‑Validity‑‑‑Expenses claimed had been curtailed on the basis of unverifiable nature but not a single instance of unverifiability had been quoted in the body of assessment order‑‑‑Unjustified treatment meted out by the Assessing Officer was upheld by the First Appellate Authority merely on stock phrases which was not sustainable in the eye of law as the issue was disposed of in an arbitrary manner by both the authorities below‑‑‑Some relief under such heads was allowed by the Appellate Tribunal.

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

‑‑‑‑Third Sched., R. 7(b)(i)‑‑‑Disposal of assets and treatment of resultant gains or losses‑‑‑Addition in income arising out of sale of fixed assets without pointing out defects in the account by using general phrases‑‑‑Validity‑‑‑Version of assessee was convincing as his contentions carried legal weight that no defects were pointed out in the accounts maintained by him and the treatment of the Assessing Officer was based on stock phrases‑‑‑First Appellate Authority had ‑also not appreciated the facts in true perspective as it ignored the settled law on the issue under review‑‑‑Appeal was accepted by the Appellate Tribunal by deleting the addition.

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

‑‑‑‑S. 24 & Third Sched., R.1 (b)(i)‑‑‑Deductions not admissible‑‑ Depreciation allowance‑‑‑Rejection of‑‑ ‑Depreciation claimed had been rejected without quoting plausible reasons or any instance of un verifiability in the body of order‑‑‑First Appellate Authority had also not applied its independent mind and had passed sketchy order‑‑In absence of any plausible reasons in support of treatment meted out by both authorities below‑‑‑Appellate Tribunal ordered for acceptance of .the depreciation claim raised by. the assessee.

Ahmad Kamal, D.R.. for Appellant (in I.T.As. Nos. 3893/LB and 3892/LB of 1996).

Muhammad Ali Asghar Qazi, I.T.P. for Respondent (in I.T.As. Nos. 3893/LB and 3892/LB of 1996).

Muhammad Ali Asghar Qazi, I.T.P. for Appellant (in I.T.As. Nos. 3472/LB, 3473/LB of 1996 and 1271/Lb of 2003).

Ahmad Kamal, D.R. for Respondent (in I.T.As. Nos. 3472/LB, 3473/LB of 1996 and 1271/LB of 2003).

Date of hearing: 4th June, 2003.

ORDER

For the assessment years 1992‑93 and 1993‑94 cross appeals have been field. by the assessee as well as department against the consolidated impugned order, dated 16‑4‑1996 whereas for the assessment year 1996‑97, only the assessee has come up in appeal before us against the impugned order, dated 28‑2‑2003 both recorded by the CIT (Appeals) Zone‑II, Lahore. The representatives on behalf of rival parties are present and have been heard. Therefore, the appeals are being disposed off in the following manner:‑‑

Assessment years 1992‑93 and 1993‑94

2. For the years under consideration both the assessee as well as department have come up in appeal before us. The assessee is aggrieved against the order of CIT(Appeals) on application of G.P. rate at 22.5% on sale of houses, estimation of sale of Malba/debris at Rs.1,100,000 against the declared sale proceeds at Rs.1,000,000 and confirmation of A application of the provisions of section 80‑D. On the contrary, the Revenue is agitating the acceptance of sale price of houses, reduction of applied G.P. rate from 30% to 22.5% on sale of houses, non‑application of G.P. rate on sale of plot and reduction in estimation of sale of plot and Malba.

3. Brief facts of the case are that the assessee'a public company not quoted on stock exchange deriving income from business of construction and sale of town houses, filed returns declaring loss of Rs.5,790,316 and Rs.8,071,285 for the assessment years, 1992‑93 and 1993‑94, respectively. The Assessing Officer after discarding declared version of the assessee finalized assessment under' section 62 of the Income Tax Ordinance, 1979 by estimating sale price of the houses at Rs.3,000,000 per house against declared value of Rs.2,800,000 subjecting to G.P. rate of 30% for both the years under appeal. The Assessing Officer also adopted sale price of the property situated at 36‑C Model Town, Lahore at Rs.8,000,000 against declared value of Rs.6,000,000 including Rs.1,000,000 being amount recovered against sale of Malba/debris which was estimated by the Assessing Officer at Rs:1,100,000. The assessee had shown a profit of Rs.1,200,000 on the sale of a plot which was purchased by the assessee for a consideration of Rs.4,800,000. The declared version of the assessee was not accepted by the Assessing Officer and he by applying‑a G.P. rate of 30% on the estimated sale proceed of this plot worked out profit of Rs.2,400,000. Demands under section 80D for both the years and error in adoption of figure of plots at Rs.2,332,908 against Rs.2,298,360 were also created. Against , the treatment meted out by the Assessing Officer the assessee went in appeal before the CIT(Appeals), who allowed relief to the assessee by reducing the applied G. P. rate to 22.5 % , accepted the sale price of the plot situated at 36‑C Model Town; Lahore at Rs.5,000,000 as declared by the assessee confirmed the ,estimated sale of Malba/debris at Rs.1,100,000 and application of provisions of section 80‑D in case of the assessee.

4. The learned AR of the assessee has vehemently argued that the G. P. rate fixed at 22.5 % by the CIT(Appeals) is quite unjustified because the properties are purchased and sold on the prevalent market price. The prices of construction material always vary during the construction and due to various other reasons fixed profit margin cannot be earned in this business. Therefore, G.P. rate cannot be applied in case of immovable properties. The learned AR of the assessee has apprised the Court that in the preceding years no G.P. rate has been applied in case of the assessee. In order to lend credence to his submission he has furnished before us a copy of assessment order pertaining to immediately preceding year, i.e. 1991‑92, which fully supports the contention raised on behalf of the assessee. He laid emphasis on this point that by applying. G.P. rate on sale of houses in case of the assessee both authorities below have proceeded contrary to the history of the case established from record.

5. On the contrary, the learned DR supports the orders passed by both authorities below and contends that GP rate applied at 30% by the Assessing Officer was quite justified, against which relief allowed by the First ‑Appellate Authority by reducing the same to 22.5 % is quite unjustified. He therefore, prays for restoration of G.P. rate applied by Assessing Authority.

6. We have given conscious consideration to the arguments put forth by the representatives on behalf of rival parties and also carefully gone through the relevant record along with past history of the case. We find ourselves in agreement with the contentions raised on behalf of the assessee which are legally tenable. We are of the considered view that since in the immediately preceding year, i.e. 1991‑92 G.P. rate has not been applied in case of the assessee therefore, for the years under consideration application of the same at 22.5% is quite unjustified. Since the action of both authorities below is contrary to the history of the case established from record, therefore, the same cannot be endorsed by us at all. Hence in the interest of justice and fairplay the appeal preferred by the assessee is accepted and the G.P. applied at 22.5% is deleted. The departmental appeal on the issue of G.P. rate is dismissed.

7. On the issue of sale price of houses, the learned AR contends that cost of construction and purchase price of the plot are verifiable as the houses and plots are sold through registered sale‑deed, which are sacred documents in the eye of law under the provisions of Qanun‑e- Shahadfit, 1984 which has been made applicable to the income tax proceedings vide reported judgment cited as 1993 PTD 206. The most important aspect of the case which has been apprised the Court by the AR is that the sale prices declared by the assessee have been accepted in cases of the purchasers of the properties who are also the income tax payers but the same have not been accepted in case of the assessee. In order to lend credence to his, submission he has placed reliance on reported judgment cited as 1993 SCMR 1108 = 1993 PTD 1108 and NTR 91 (Trib.) 138 as discussed by the CIT(Appeals) in the body of impugned order. He has further relied upon a reported judgment of I.T.A.T. cited as 1999 PTD (Trib.) 8 whereby it has been held that the sale value as evidenced by the registered sale‑deed was not only reasonable but also in accordance with the rates fixed by the District Collector must be accepted. He further contends that the sale price mentioned in sale deeds was more than the rates fixed by the District Collector.

8. On the contrary, the learned DR has argued that the sale price declared by the assessee being unverifiable had rightly been rejected by the Assessing Officer against which relief granted by the first appellate authority is not only unjustified but also contrary to the facts of the case but has not been able to prove his version with documentary evidence.

9. On the issue of sale price of the properties we find ourselves in agreement with the contentions raised on behalf of the assessee which are forceful. It is surprising enough that the department itself has accepted the sale price as declared by the assessee in the cases of the purchasers of the properties, who are also tax payers whereas the same has been rejected in case of the assessee which is quite unjustified. Furthermore, since the sale price declared by the assessee is supported by the registered sale‑deed and is also more than the rates fixed by the District Collector,' it is beyond our understanding that what prevented the Assessing Officer for not accepting the same. The DR has not been able to convince us that in what way the sale price declared by the assessee is understated. We are of the considered view that by accepting the sale price declared by the assessee the first appellate authority has done justice, therefore, we are inclined to uphold the impugned order on the issue under consideration and we order accordingly. Consequently, the departmental appeal on the issue under consideration is dismissed.

10. On the issue of Malba/debris the learned AR has not been able to put forth cogent arguments, which may persuade us to have a contrary view to that of the CIT(Appeals). Therefore, in the absence of plausible reasons from assessee's side we are left with no other alternative except to uphold the impugned order on the issue under review and we order accordingly. Assessee's appeal on the issue of Malba/debris is dismissed being devoid of legal substance.

11. On the issue regarding applicability of section 80‑D in the case of the assessee the sole contention of the learned AR is that the provisions of section 80‑D are not applicable in the instant case because the immovable properties are not covered by the definition of "goods" as held by the Honourable High Court in case of Kawther Grain (Pvt.) Ltd. v. DCIT Gujranwala reported as (1999) 80 Tax 262 (H.C. Lhr). On the other hand the learned DR insists for charge of minimum tax in the case of the assessee under section 80‑D but has not been able to prove his version with plausible reasons.

12. After hearing the arguments advanced by rival parties, we find that the word "goods" as defined by the Honourable High Court, reveals that ‑ the immovable properties are not covered by the provisions of the section 80D as such no minimum tax is chargeable in case of the assessee. Consequently orders passed by both authorities below on the issue under consideration are vacated and appeal of the assessee in this regard is accepted in terms of prayer.

Assessment year 1996‑97

13. For the year under consideration the assessee has come up in appeal before us alleging the orders passed by both authorities below to be unjustified. The following issues have been raised as per memo. of appeal:‑‑

(i) Estimation of commission of sale of POL at Rs. 2,589,356 is quite unjustified.

(ii) Disallowance of Rs.45,550 out of staff salaries is unwarranted.

(iii) Following disallowances out of the following expenses charge to direct cost without pointing out any specific defects is unjustified:'

ParticularsClaimedDisallowed

(a)Running & MaintenanceRs. 17,151Rs. 5,717

(b)Petrol for Generator & CarRs.140,601Rs.46,8'10

(c)General ChargesRs. 4,623Rs. 1,541

(d)EntertainmentRs. 20,585Rs. 6,962

(e)StationeryRs. 4,148Rs. 1,382

(f) 'Conveyance ChargesRs: 7,200Rs. 2,400

(g)Books & PeriodicalsRs. 2,489Rs.830

(iv) Disallowance of Rs.200,675 out of Staff Salaries amounting to Rs.501,687 is arbitrary. The disallowances out of following P&L expenses without pointing out any specific defects is unjustified:‑‑

ParticularsClaimedDisallowed

(a)TelephoneRs.136,341Rs.20,452

(b)Vehicle MaintenanceRs.149,232Rs.59,693

(c)EntertainmentRs. 48,274Rs.25,000

(d)Printing and Stationery.Rs. 20,969 Rs.7,500

(e)Directors Travelling Exp.Rs. 12,615Rs. 4,500

(f)Staff TravellingRs. 7,503Rs. 3,500

(g)PostageRs. 3,637Rs. 1,500

(h)Medical ExpensesRs. 25,653Rs.10,500

(i)Books & PeriodicalsRs. 9,467Rs. 5,500

(j)General ExpensesRs. 11,526Rs. 5,200

(v) Disallowances of Rs.1,75,000 out‑of depreciation claim on the ground of personal use of business assets is contrary to the facts of the case.

(vi) The Income has been wrongly computed as the learned Assessing Officer has not deducted from income Loss on Sale of Fixed Assets under section 7(b)(i) of Third Schedule of the Income Tax Ordinance, 1979 and Gain on Sale of Fixed Assets as per accounts.

(vii) Depreciation claimed at Rs.328,029 allowable under the law has not been allowed.

14. Brief facts of the case are that the assessee deriving income from construction of town houses and their sale besides income from commission on sale of P.O.L. and related items, filed return for the year under consideration declaring a loss of Rs.7,859,851 by disclosing commission on sale of P.O.L at Rs.369,908, direct costs shown at Rs.385,051 and administrative and general expenses at Rs.2,008,822. The Assessing Officer finding the declared version not supported by books of accounts, rejected the same and finalized assessment under F section 62 of the Income Tax Ordinance, 1979 by estimating commission on sale of P.O.L. and related items at Rs.2,589,356. The Assessing. Officer after making certain additions out of expenses shown as direct cost and out of P&L expenses finalized assessment at total loss of Rs.4,371,486. In appeal, the learned CIT(Appeals) Zone‑11, Lahore confirmed the treatment meted out to the assessee by the Assessing .Officer in toto.

15. First we take up the issue of commission on sale of petroleum products. The learned AR has vehemently argued that estimation of commission on sale of P.O.L at Rs.2,589,356 against declared at Rs.369,908 is quite unjustified because the Assessing Officer neither requisitioned the documentary evidence nor confronted the assessee with proposed treatment by issuance of notice under section 62 of the Income Tax Ordinance, 1979 as required under the law. He further contends that the petroleum products are purchased and sold on the rates fixed by the Government of Pakistan and the Government has also fixed the amount of commission. He stresses that since the payments are made through banks, therefore, question of receiving excess commission does not arise. In order to know, veracity of the declared version of the assessee the Assessing Officer was at liberty to verify the amount of commission from the principal but he did not do so. In order to lend credence to his version he has furnished before us a certificate issued by the principal which fully supports the commission declared by the assessee. The learned DR supports the orders passed by both authorities below on the issue under consideration but has not been able to dislodge the line of arguments adopted by the learned AR.

16. We are in full agreement with the learned AR of the assessee and are of the considered view that the Assessing Officer was quite unjustified in discarding declared version of the assessee in respect o commission received on sale of P.O.L without ascertaining the veracity of the same from the principal. It is surprising to note that since the petroleum products are purchased and sold on the rates fixed by the Government and the payments are made through bank, therefore, how could the unfair means be adopted for earning more‑commission against the rates fixed by the Government. Therefore, by giving conscious consideration to the certificate issued by the principal we are left with no other alternative except to direct the assessing authority for accepting the declared version of the assessee in respect of commission on sale of P.O.L. Consequently, the assessee's appeal on the' issue under consideration succeeds.

17. With regard to addition amounting to Rs.45,550 out of staff salaries, the perusal of the record reveals that out of total claim of expenses at Rs.136,650 the said addition was made for want of complete details and payment of EOBI/Social Security. The sole contention of the learned AR is that the details required by the Assessing Officer are not applicable in case of the assessee because proper salary register has been maintained. He stressed that while disallowing staff salaries the Assessing Officer was bound to confront the assessee with specific defects but he did not do so. The most important aspect of the case, which has been apprised the Court is that in the earlier assessments no such addition has been made.

18. On the other‑ hand, the learned DR opposes the contentions raised on behalf of the assessee but has not been able to put forth any plausible arguments which may persuade us to have a contrary view to that of the learned AR.

19. We find ourselves in agreement with the arguments advanced by the AR which are legally tenable and forceful. We are also of the considered view that before making such addition the Assessing Officer must have confronted the assessee with proposed treatment by pointing out specific defects in the salary register maintained by the assessee company. Furthermore, the action of both authorities below is contrary to history of the case because no such addition has been made in the earlier years. In view of foregoing reasons we are inclined to delete the unjustified addition amounting to Rs.45,550 made of staff salaries and we order accordingly.

20. On the issue of add backs made under the head administrative heads as well as P&L expenses it has been observed by us that the additions had been made without evolving any proper basis. The expenses claimed by the assessee have been curtailed by the Assessing Officer on the basis of unverifiable nature of the same but it is pertinent to note that not a single instance of unverifiability has been quoted in the body of assessment order. Similarly, the learned CIT(Appeals) while disposing the appeal on the issue under consideration has also not applied his independent mind and upheld the unjustified treatment meted out by the Assessing Officer merely on stock phrases which is not sustainable in the eye of law. Both authorities below have disposed off the issue under consideration in an arbitrary manner which in no way can be endorsed by us. The learned AR of the assessee contends that the expenses claimed by the assessee are fully verifiable and vouched. In view of the foregoing reasons we find that some relief is due to the assessee under the following heads and we order accordingly:‑‑

ParticularsDisallowedRelief allowed by us

Running & MaintenanceRs. 5,717Confirmed

Petrol for Generator & CarRs. 46,870Rs.30,000

General ChargesRs. 1,541Confirmed

Entertainment.Rs. 6,962Rs. 5,000

StationeryRs. 1,382Rs. 10,000

Conveyance ChargesRs. 2,400Confirmed

Books and PeriodicalsRs. 830‑do -

TelephoneRs. 20,452Rs.15,000

Vehicles MaintenanceRs. 59,693Rs.40,000

EntertainmentRs. 25,000Rs.15,000

StationeryRs. 7,500Rs. 5,000

Directors Travelling Exp.Rs. 4,500Rs. 3,000

Staff TravellingRs. 3,500 ,Rs. 2,500

PostageRs. 1,500Rs. 1,000

Medical ExpensesRs. 10,500Rs. 8,000

Books and PeriodicalsRs. 5,500Rs. 4,000

General ExpensesRs. 5,200Rs.3,000

DepreciationRs.175,000Deleted

21. On the issue of computation of income on sale of fixed assets under section 7(b)(i) of the Third Schedule, the learned AR has objected that both authorities below have dealt the matter in an arbitrary and unjust manner. He has vehemently asserted that the assessee is a public limited company and accounts of the assessee are subjected to thorough audit. Therefore, both Revenue Authorities have grossly erred while making the computation on this issue regarding fixed assets of the assessee. He maintains that neither the Assessing Officer nor first appellate authority have pointed out defects in the account of the assessee and have taken resort to general phrases, which have not approved under the law.

22. On the contrary, the learned DR supports the treatment meted out to the assessee by both authorities below by contending that the issue regarding computation of income on sale of fixed assets under section 7(b)(i) has been dealt in a justified manner keeping in view unverifiability of the version of the assessee. He therefore, prays for upholding of the action of both authorities below and dismissal of the assessee's appeal on the issue under consideration.

23. In our considered view the version of the assessee is convincing as his contentions carry legal weight that no defects were pointed out in the accounts maintained by the assessee and that the treatment of the Assessing Officer is based on stock phrases. Likewise the learned CIT(Appeals) have also not appreciated the facts in true perspective of the case by ignoring the settled law on the issue under review. In view of the foregoing reasons it will be judicious and fair to accept the appeal of the assessee on the issue under consideration by deleting the impugned addition. The appeal of the assessee succeeds.

24. On the issue of depreciation, it has been observed by us that the depreciation claimed by the assessee has been rejected by the Assessing Officer without quoting plausible reasons or any instance of unverifiability in the body of impugned order. Similarly, while confirming the treatment meted out by the Assessing Officer on the issue under consideration the learned CIT(Appeals) has also not applied his independent mind and has passed sketchy order. Therefore, in the absence of any plausible reasons in support of the treatment meted out by both authorities below, we are left with no other alternative except to accede to the claim of depreciation raised by the assessee and we order accordingly.

25. The appeals filed by the as lessee as well as department stand disposed off to the extent and manners as indicated above.

C.M.A./308/Tax (Trib.)Order accordingly.