I.T.A. No.6035/LB of 2003, decided on 13th October, 2004. VS I.T.A. No.6035/LB of 2003, decided on 13th October, 2004.
2005 P T D (Trib.) 944
[Income-tax Appellate Tribunal Pakistan]
Before Ehsan-ur-Rehman, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member
I.T.A. No.6035/LB of 2003, decided on /01/.
13th October, 2004. Income Tax Ordinance (XXXI of 1979)---
----Ss. 62, 30, 32A, 34 & 80---Assessment on production of accounts, evidence etc.---Rejection of accounts---Assessment was framed by rejecting the account, declared manufacturing trading results, yield and sale rate---Addition out of Profit and Loss Account expenses were made and interest income was charged to tax as a separate block under S.30 of the Income Tax Ordinance, 1979---On account of loss, demand under S.80D of the Income Tax Ordinance, 1979 was created---Assessee contended that all the requisite details in qualitative/quantitative form were furnished and stage-wise production record showing the consumption of raw material was filed---Assessing Officer denied such fact and contended in the order that reliability of accounting books could not be accepted in the absence of manufacturing record which had not been produced---Validity---Assessing Officer had not acknowledged the production of record at assessment stage whereas the assessee had contended that such record was produced but the First Appellate Authority kept silent as to the availability or otherwise of such information on record---Problem had arisenas the First Appellate Authority failed to adjudicate each and every ground of appeal which had made the arguments of the assessee devoid of any effect---Order had to be vacatedand the matter had to be remanded to the First Appellate Authority for deciding afresh keeping in view the grounds of appeal---First Appellate Authority was directed to pass a proper speaking order after completely examining/perusing the assessment record; summoning the Assessing Officer and obtaining his comments; properopportunity of being heard shall be allowed to the assessee and only then to pass an order after detailed findings on facts and on legal issues involved after determining allthe facts.
I.T.A. No. 23/KB of 2002; 2004 PTD 1263; 2003 PTD (Trib.) 625; 1999 PTD (Trib.) 3892; 1997 PTD (Trib.) 1408; 2002 PTD 407; 1994 PTD 123; 1984 PTD 150 and 1984 PTD 239 ref.
Mushtaq Ahmed Vohra, FCA for Appellant.
Muhammad Zulfiqar Ali, D.R. for Respondent.
Date of hearing: 13th October, 2004.
ORDER
By this order the further appeal directed against the order, dated 1-11-2003 passed by the CIT(A), Zone-III, Lahore is being disposed of as under.
Facts in brief of the case are that the appellant/assessee is a public limited company, which being assessed to tax for running a textile mill engaged in the manufacturing and sale of yarn. The assessment for the impugned year has also been framed by rejecting the accounts, declared manufacturing trading results, yield and sale rate. Additions out of the P&L account expenses were made and interest income was also charged to tax as a separate block under section 30 of the repealed Income Tax Ordinance, 1979 (hereinafter referred to as the repealed Ordinance). Ultimately on account of loss the demand under section 80D of the repealed Ordinance was created. The demand created under section 80D ibid was also subjected to a surcharge @ 5% with justification that it is in the light of ITAT s judgment in I.T.A. No.23/KB of 2002. The assessment so framed was challenged before the learned First Appellate Authority. The learnedFirst Appellate Authority upheld the rejection of accounts, adopted yield, the sale rate applied and also confirmed the add-backs/disallowances except the addition on account of provision of gratuity amounting to Rs.109,676 as disallowed twice. In respect of interest income directions were issued to the Assessing Officer to follow the provisions of section 34 of the repealed Ordinance and allow the adjustment. The levying of surcharge and additional tax on the demand under section 80D was also confirmed. This passing of the order at the first appeal stage has brought the appellant/assessee in further appeal in this Tribunal.
The learned AR at the very start of the arguments has submitted that each year is the independent year, so the main thrust of his argument is for the acceptance of the accounts and the declared manufacturing trading results as well as deletion of add-backs. The learned AR also agitated the imposition of surcharge and additional tax on the tax demand created under section 80D. The learned AR firstly submitted that all the requisite details in the form of party-wise details of purchases and sales with their complete identifying particulars and the sales tax registration numbers also mentioning the quantity and the value with and without sales tax were filed before the Assessing Officer. In a similar form the detail of waste sales were also filed. The learned AR also produced before us the particulars of the parties from whom the purchases were made and the amount of tax deducted on making payments. In respect of the names of the parties given in the assessment order as an instance of unverifiability of purchases, the learned AR produced before us the photocopies of the invoices issued by such parties with their sales tax registration numbers and amount of tax deducted by the appellant/ assessee on making payments. The learned AR also produced the photocopies of invoice-wise purchases to highlight that no variance existed on cross-verification from the sales tax record. The learned AR also produced before us the complete quantitative details, the yield rate. The learned AR has also pointed out that no notice under section 62(1) of the repealed Ordinance was ever issued. The learned AR further pleaded by submitting at bar before us that all the details which are being produced now were duly filed before the Assessing Officer along with the complete accounting record which also consisted of the set of account books also. The learned AR produced before us the printed annual report to explain that it was simply due to depreciation as per accounts that variation in G.P. rate has occurred which was also duly explained before the Assessing Officer. The learned AR also produced a working on separate sheet showing the fact that there is a gross profit after adjustment of accounting depreciation giving a G.P. rate of 11.48% as against rate declared at 5.13% in the immediately preceding year. The learned AR by referring to the provisions of section 32A of the repealed Ordinance has pleaded that all the provisions have been duly complied with and rejection of accounts in without any cognate reasons. The learned AR has also submitted that complete day to day/stage-wise record of production was maintained which is available for cross checking from the financial record. It was also submitted before us that there was no justification to apply the yield rate of 90.72% against the declared rate of 87.01% as this declared rate is quite in accordance with the average rate as declared in all the preceding years. The learned AR has contested also the applying of sale rate of Rs.100 per kg as against the declared rate of Rs.95 per kg, by submitting that declared sale rate is duly supported with the sales invoices and the Assessing Officer has not given a single name of parallel case as a justification for adopting sale rate. The learned AR also contested the disallowances by submitting that the Assessing Officer totally failed to bring on record any infirmity of law and also any instance of unvouched/unverifiability of expenses. The learned AR also contested the addition of Rs.12,383 on account of written-off claim. The learned AR has challenged the imposition of surcharge on a tax demand created under section 80D of the repealed Ordinance as totally illegal. The learned AR in support of his contention that in the given circumstances the declared manufacturing trading and quantitative results should have been accepted has referred to the reported judgment with citation as 2004 PTD 1263. The learned AR has alsosubmitted that the Assessing Officer was required to issue a show-cause notice pointing out the specific instances of defects in the books of accounts and merely mentioning about the defects is not legally sufficient. The explanation shall be obtained from the assessee after confronting such defects and after discussing this, a proper conclusion shall be drawn as in the absence of which the assessment framed has become ab initio, illegal and void. For his this argument the reliance was placed on a reported judgment withcitation as 2003 PTD (Trib.) 625 and also on another reported judgment with citation as 1999 PTD (Trib.) 3892. The learned AR has submitted that little justification was left with Assessing Officer for stating the names and addresses of parties are not there when all the required particulars of such parties were recorded in the sales tax record for which input of tax was claimed, for his this argument the learned AR referred to a reported judgment with citation as 1997 PTD (Trib.) 1408. The learned AR in support of his arguments that each year is an independent year, secondly no res judicata exist in income tax proceedings, thirdly that setting aside is not proper and fourthly that when no specific defects in accounts have been pointed out, it merit acceptance in toto has referred to a reported judgment with citation as 2002 PTD 407 and 2002 PTD 407 (H.C. Kar). The learned AR in support of his contention for the acceptance of accounts has submitted that in the absence of any irregularity/defects in the books of accounts these cannot be rejected when production record were duly maintained and placing his reliance on reported judgment with citation as 1994 PTD 123 and also on another reported judgment with citation as 1984 PTD 150. The learned A.R. in an alternative plea has submitted that even low yield where there is no evidence in support of such findings the accounts cannot be rejected and drew support from a reported judgment with citation as 1984 PTD 239. The learned AR has submitted that the quantitative production as assessed has resulted into a total net result which is more than 100% of the raw material consumed. The learned AR by saying with due apology quoted words from the reported judgment by taking it as absurd , so pleaded that no adverse inference could be drawn for rejecting the declared book results. For this argument the reliance was placed on reported judgment with citation as 2004 PTD 1263. The learned AR further submitted that the notice as pointed out in the assessment order was duly complied with by submitting a reply. In this reply which is dated 28-8-2002, the learned AR contended, it was mentioned that sales invoices along with the accounting record andsalestaxrecordedweredulyproduced.Salestaxlawrequiresthatquantityandqualityaretobementionedonsalestaxinvoicesandsummaryofwhichintheformofsalestaxreturns has to be filedattheendofeachmonth,whichnecessitatesthatfinancialrecordistobemadewithinthefourwallsofsalestax returns and reciprocally sales tax record is to be basedon the financial accounting record. In this reply it was also broughtinto the noticeofAssessingOfficerthatthereceiptsandpaymentsforthecash are routed through the bank in the form of crossed chequesorbank drafts. Request was also made for supplying the particulars of parallel cases for the sale rate and the yield as referred by the Assessing Officer so that these could be distinguished or could be commented upon.
The learned DR despite specifically providing the opportunity to produce the assessment record along with ensuring the availability of Assessing Officer has failed to do so. The learned DR has supported the impugned order by reading out paras from it. Little help has been extended by the department except that it has been told that Assessing Officer is on leave.
Available record has been perused and anxious thought has been given to the submissions placed at bar before us.
As far as the instances of unverifiable purchases as given in the assessment order, the learned AR has produced their sales tax registration numbers and the photocopies of sales tax invoices giving the complete particulars, thus it is quite clear that these are verifiable. A certain portions of the reply letter, dated 28-7-2002 has been reproduced in the assessment order. The learned AR on behalf of the assessee is contending that all the requisite details in the form of qualitative/ quantitative were furnished and stage-wise production record showing the consumption of raw material was also filed. This fact has been denied by the Assessing Officer. The Assessing Officer is contending in the order that reliability of accounting books cannot be accepted in the absence of manufacturing record which has not been produced. Itis strange that the learned First Appellate Authority has not mentioned anything about the verifiability of purchases but has simply mentioned that detail of purchase has not been filed. A major responsibility was rested on the learned First Appellate Authority who should have perused the record when all these objections were raised as per grounds of appeal failed at the first appeal stage. It shows that no proper effort has been made on the part of learned First Appellate Authority for redressal of a basic and primary objection raised before him. Similar is the situation in respect of yield, where the Assessing Officer has stated that it is not up to the mark, when compared with the other parallel cases as wellas with the assessee s own declared results in the preceding year. The Assessing Officer has not mentioned anything regarding the parallel case and of the preceding year. Here also, no proper effort at all has been made by the learned First Appellate Authority to dilate on this issue except of writing a customary few words as an approval what hasbeen done by the Assessing Officer discarding that at the appeal stage the genuineness of the objection raised by the assessee was to be looked into by recording proper findings on it. Exactly is the situation in respect of sale rate which too has been confirmed at the first appeal stage except the expenditure on account of gratuity and interest income where the contention of the appellant/assessee has been accepted. In the cases of amount of provision of gratuity the learned First Appellate Authority has taken the pain of going through the computation of taxable income chart. The learned CIT/WT(A) has failed to comment upon as to how the interest income has been assessed as a separate block of income in the hands of appellant/assessee. The learned First Appellate Authority without commenting as to who the Tribunal s order, quoted by the Assessing Officer, which is without giving the date of passing of order, has been relied upon for imposing surcharge and additional tax on a demand created under section 80D. The case-law as referred by the learned AR in hisarguments are on all fours but we are handicapped as the Assessing Officer is not acknowledging the producing of such record at the assessment stage whereas the appellant/assessee has contended these were produced whereas the learned First Appellate Authority preferred to keep silent as to the availability of this information on record. The problemas arisen is that the learned First Appellate Authority failed to adjudicate each and every ground of appeal which has made the arguments of the learned AR without any immediate fruits. So we feel constrained not to uphold the impugned order which has to be vacated and the matter has to be remanded to the learned First Appellate Authority for deciding afresh keeping in view the grounds of appeal submitted before him. The learned First Appellate Authority is directed to pass a proper speaking order after:--
(i)completely examining/perusing the assessment record;
(ii)summoning the Assessing Officer and obtain his comments;
(iii)proper opportunity of being heard shall be allowed to the assessee/appellant and only then to pass an order after detailed findings on facts and also on legal issues involved after determining all the facts.
The appeal is disposed of as indicated above ibid. The copy of this order shall be sent to the concerned learned First Appellate Authority by the office.
C.M.A./343/Tax (Trib.)Order accordingly.