I.T.A. No. 6002/LB of 2003, decided on 4th January, 2006. VS I.T.A. No. 6002/LB of 2003, decided on 4th January, 2006.
2006 P T D (Trib.) 1165
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member
I.T.A. No. 6002/LB of 2003, decided on 04/01/2006.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 132(2) & 62---Decision in appeal---Enhancement of assessment on the basis of estimation by the. First Appellate Authority---Validity---First Appellate Authority exercised its powers under S.132(2) of the Income Tax Ordinance, 1979 on whims---Not an iota of additional evidence had been adduced by the First Appellate Authority to justify its action of enhancement in the assessment made under S.62 of the Income Tax Ordinance, 1979---Facts on the strength of which the already completed assessment had been enhanced were the same which were thoroughly appraised at the assessment stage---Facts recorded by First Appellate Authority evidently envisaged that adoption of daily sales was not supportive of any material evidence---First Appellate Authority pushed his own estimate in the assessment made under S.62 of the Income Tax Ordinance, 1979 without bringing any additional cogent or concrete material on record---Inviting provisions of S. 132(2) of the Income Tax Ordinance, 1979 was not tenable in law in circumstances.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 132(2)---Decision in appeal---Enhancement of assessment---In order to enhance the assessment or the penalty or to reduce the refund there must exist some overpowering material evidence, which could not be refuted.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 132(2)---Decision in appeal---Enhancement of assessment---Law disapproves enhancement in assessment or penalty Or reduction in refund where two opinions can be formed on a certain set of facts.
(d) Income Tax Ordinance (XXXI of 1979)---
---S. 132(2)---Decision in appeal---Enhancement of assessment---First Appellate Authority is debarred to exercise the powers vested in it under S.132(2) of the Income Tax Ordinance, 1979 on conjectures and surmises.
(e) Income-tax---
---Evidence---No information/evidence can be used at the back of the parties.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 132(2)---Decision in appeal---Enhancement of assessment---Non confrontation---Effect---Non-observance of mandatory provision of law i.e. confrontation by the First Appellate Authority prior to drawing adverse inference with the material gathered by him renders the order passed under S.132(2) of the Income Tax Ordinance, 1979 to be nullity in law.
(g) Income Tax Ordinance (XXXI of 1979)---
---S. 132(2)---Decision in appeal---Enhancement of assessment---Sale of bakery items had been adopted by the First Appellate Authority on pure guess work---Such segment of income had been introduced by the First Appellate Authority for the first time without corroborating any material evidence---Said part of income was deleted by the Appellate Tribunal in the circumstances.
Sheikh Muhammad Yousaf, ITP for Appellant.
Dr. Shahid Siddique Bhatti, D.R. for Respondent.
Date of hearing: 4th January, 2006.
ORDER
RASHEED AHMED SHEIKH (JUDICIAL MEMBER).---This appeal at the instance of the assessee-appellant is directed against the order passed by CIT(A) Zone-I, Faisalabad, dated 12-11-2003 in respect of assessment years, 2001-2002.
2. The learned counsel appearing on behalf of the assessee appellant attacked the impugned order on legal as well as on factual grounds. What happened in this case was that the learned Appeal Commissioner had enhanced the assessment, made under section 62 of the Repealed Income Tax Ordinance, 1979, by invoking the provision of section 132(2) of the Repealed Income Tax Ordinance. The reasons advanced for enhancement in the assessment was that the income estimated by the Assessing Officer in the year under appeal, was ridiculously low qua consumption of sui gas energy viz. the immediately preceding assessment year. The assessee-appellant in this case is a manufacturer of sweetmeat. The Appeal Commissioner while enhancing the assessment noted that the sales declared by the assessee at Rs.10,80,000 were estimated by the Assessing Officer at Rs.26,87,625 which were on the lower side when viewed in the context of the declared results in the past. According to the Appeal Commissioner the sales in the immediately preceding assessment year 2000-2001 were disclosed at Rs.18,00,000 against consumption of sui gas of Rs.2,88,723. This gave ratio of sui gas towards the declared sales at 6.25 times. While sui gas in the year under appeal was consumed at Rs.430,020 against which the sales have been attracted to be at Rs.10,80,000. Accordingly the assessee was confronted as to why the sales in the year under appeal may not be adopted at-6.25 times of the consumption of sui gas which worked out to be at Rs.26,87,625. However, reason for decline in sales was attributed to the fact that this year "Khoya" was prepared by the assessee himself whereas no such activities were carried on the past. Thus, preparation of "Khoya" resulted into heavy consumption of sui gas. It was also explained that for preparation of "Khoya", extra consumption of sui gas is required which is generally three times more viz manufacturing of sweetmeat by purchasing "Khoya" from the market. In addition to, a revised computation chart was also filed whereby the expenses claimed under the heads profit and loss were enhanced to a certain extent. However, the explanation furnished was not found satisfactory by the Assessing Officer and he of his own recast the trading account by working back the wages on the strength of record of employees shown in the Social Security Department. Thus "NIL" purchases were made in the year under appeal. Anyhow the Assessing Officer had proceeded to adopt sales at Rs.26,87,625 which were worked out by adopting ratio of 6.25 times of consumption of the sui gas.
3. In this backdrop it was observed by the First Appellate Authority that the, sales estimated by the Assessing Officer were considerably on the lower side. Accordingly a show-cause notice was issued by the Appeal Commissioner on two grounds which reads as under:
Perusal of assessment record/order reveals that estimated sales worked out at Rs.10,000 approximately per day, if sales price is adopted at Rs.100 per Kgs, daily sales would work out to be 100 Kgs which are ridiculously low.
Besides, dealing in sweets, you are also manufacturing bakery goods. Therefore, keeping in view extent of business, location and other relevant facts of the case, I intend to. enhance your daily sales to Rs.25,000.
With regard to consumption of sui gas the contentions earlier raised by the assessee-appellant before the Assessing Officer were reiterated before the First Appellate Authority. However, manufacturing. of bakery goods was denied and it was pointed out that another concern namely Moon Super Stores and Bakers is manufacturing bakery items but not the assessee which is also an existing assessee in company Circle-09, Faisalabad. This contention stood accepted by the Appeal Commissioner. As regards manufacturing of "Khoya" it was observed by the Appeal Commissioner as under:--
It was confirmed through reliable sources that the process of Khoya was not done by the appellant on own basis because in the workshop neither any Karahas etc. or such system, were found available.
All the facts stated supra prompted the learned Appeal Commissioner to adopt daily sales of sweetmeat at Rs.20,000 and that of bakery items at Rs.5,000. Thus annual sales of sweetmeat were computed to be at Rs.60,00,000 and those of bakery items at Rs.15,00,000. Segregated gross profit rate to each one head of income was also directed to be applied by the Assessing Officer.
4. After thorough appraisal of the facts obtaining on record and also after having given considerable thought to the divergent views expressed by the parties in appeal. There is no denying the fact that the Appeal Commissioner is vested with the powers under subsection (2) of section 132. of the Repealed Income Tax Ordinance to' enhance the assessment or the penalty or reduce the amount of refund. Nevertheless this power is qualified with the condition precedent that a reasonable opportunity of showing cause against such enhancement of reduction shall be afforded as the case may be.
5. It is cardinal principle that in order to enhance the assessment or the penalty or to reduce the refund there must exist some overpowering material evidence which could not be refuted. The higher appellate Courts have always deprecated practice of enhancement in assessment or penalty or reduction in refund in absence of adducing any irresistible evidence. The law also disapproves enhancement in assessment or penalty or reduction in refund where two opinions can be formed on a certain set of facts had this been the intention of the legislature that the assessment or penalty can be enhanced or the refund can be reduced by the appellate authority on whimsical inferences drawn from the facts so gathered, it would result into abuse of powers. Such practice would also result into reopening of the closed transactions which have been made after appraisal of the facts available on record. Moreover judicial discipline would also stand destroyed in such-like situation. Meaning thereby the First Appellate Authority is certainly debarred to exercise the powers vested to him under subsection (2) of section 132 of the Income Tax Ordinance, on conjectures and surmises.
6. Coming to the facts of the instant case the First Appellate Authority has exercised his powers under section 132(2) of the late Income Tax Ordinance,. 1979 on whims. Not an iota of additional evidence has been adduced by the Appeal Commissioner to justify his action of enhancement in the assessment made under section 62. Actually all the facts on the strength of which the already completed assessment has been enhanced are the same which were thoroughly appraised at the assessment stage consequent upon which sales were pitched up at Rs.26,87,625. It is imperative to state here that the foregoing facts recorded by the First Appellate Authority evidently envisage that adoption of daily sales of sweetmeat at Rs.20,000 is not supportive of any material evidence. In fact he has pushed his own estimate in the assessment made under section 62 without bringing any additional cogent or concrete material on record. Thus inviting provision of subsection (2) of section 132 of the late Income Tax Ordinance, 1979 in the present case was not tenable in law.
7. It is also interesting to note that the First Appellate Authority has observed that he, through reliable sources, came to know that "Khoya" was not prepared by the assessee himself. It is so because neither any "karahas" etc. nor any such system was found available in the workshop. But the fact remains that the assessee-appellant was never confronted by the Appeal Commissioner with the so-called facts gathered through reliable sources. The impugned appellate order is completely silent with regard to confrontation on this score. It is also settled principle that no information/evidence can be used at the back of the parties. In view of foregoing discussion, I have come to an inescapable conclusion that non-observance of mandatory provision of law, i.e., confrontation by the Appeal Commissioner prior to drawing adverse inference with the material gathered by him renders the order passed under section 132(2) of the Income Tax Ordinance, 1979 to be nullity in law.
8. It need to be noted that daily sale of bakery items at Rs.5000 have been adopted by the First Appellate Authority on pure guess work. This segment of income has been introduced by, the First Appellate Authority for the first time without corroborating any material evidence. Hence, this part of income is liable to be deleted and it is ordered accordingly.
9. Under the given circumstances, I cannot help but reach the conclusion that the First Appellate Authority has acted in flagrant violation of law while enhancing the assessee income, which was computed in terms of section 62, by invoking subsection (2) of section 132 of the late Income Ordinance, 1979. This would result into annulment of the Appeal Commissioner's order, dated 12-11-2003.
10. After annulment of the impugned appellate order, I have also given anxious thought as to whether the other issues involved in, appeal may be sent back to the First Appellate Authority to be decided on merits. But when glanced the facts in its totality it is deemed appropriate that no useful purpose would be achieved by pushing the assessee into another chain of litigation. Therefore, the assessee's other grievances are intended to be disposed off on merits at this stage.
11. First grouse pertains to estimation of sales. As evident the assessee has consumed more energy in the year under appeal viz the preceding assessment. But this was the assessee's contention that General Sales Tax, Income Tax and meter rent has not been deducted from the total bill in order to arrive at actual sui gas consumed in terms of rupees. It was also added by the learned counsel for the assessee that the Assessing Officer has tailored the manufacturing account according to his own wishes so as to pitch up the sales exorbitantly. Whereas the facts available on record paint altogether different picture. It was pointed out that opening stock has wrongly been taken by the Assessing Officer at Rs.1,30,000 instead of actual figure of Rs.40,000. Similarly the wages have been worked out at Rs.324,320 on surmises instead of wages actually paid at Rs.96,480. If the trading account is to be recasted after having taken regard to correct figures, then calculation of the Assessing Officer that no purchases were affected during the year under appeal, would cash to the ground. I have also gone through the assessment order and find that the assessee's contention of manufacturing of "Khoya" by himself has been brushed aside by the Assessing Officer without any rhyme and reason. In such-like situation heavy duty casts upon the Assessing Officer to fasten the blame at the assessee's door. No serious endeavour seems to have been made by the Assessing Officer to verify the contention of manufacturing of "Khoya" by the assessee himself. Anyhow considering the facts of the case in its entirety, it would be in the interest of justice and fairness of the affairs if annual sales are to be fastened at Rs.20,00,000 for the year under appeal and it is ordered accordingly.
12. In the result, the assessee's appeal succeeds to the indicated above.
C.M.A./30/Tax (Trib.)Order accordingly.