I.T.As. Nos. 4453/LB, 4454/LB of 2005, 4605/LB, 4606/LB, 5049/LB and 5050/LB of 2003, decided on 24th February, 2006. VS I.T.As. Nos. 4453/LB, 4454/LB of 2005, 4605/LB, 4606/LB, 5049/LB and 5050/LB of 2003, decided on 24th February, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1189 (2006)

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

----First Sched., Part-III, Para-C, Ss. 80-DD & 50(5)---Rate of surcharge---Levy of---Before an assessee is taxed under minimum tax regime as contemplated in S.80DD of the Income Tax Ordinance, 1979 his final tax liability is first calculated under the normal tax regime on the basis of total income---When the liability under the normal law regime worked out on said basis is less than the tax deducted under S.50(5) of the Income Tax Ordinance 1979 only then he is taxed under S.80DD of the Income Tax Ordinance, 1979 and the tax deducted under S.50(5) of the Income Tax Ordinance, 1979 is taken as the minimum tax payable by the assessee, though actually it is more than the tax calculated under the normal tax regime including the surcharge under para. C of Part-III of the First Schedule of the Income Tax Ordinance, 1979 and it is against the very scheme of the Income Tax Ordinance, 1979 to charge surcharge from an assessee who is already paying tax at an amount higher than the tax calculated under the normal law regime which S.80DD of the Income Tax Ordinance, 1979 called the final tax liability and which includes both income tax and surcharge---When the final tax liability including both income tax and surcharge was less than the tax deducted under S.50(5) of the Income Tax Ordinance, 1979 only less than the tax deducted under S.50(5) of the Income Tax Ordinance, 1979 was taken as the minimum tax payable by the assessee under S.80DD of the Income Tax Ordinance, 1979.

FAR Bennion MA on Statutory Interpretation (Third Edition, Butterworth, 1997; Messrs Aphali Pharmaceuticals Ltd. v. State of Maharashtra and others (1989) 4 Supreme Court Cases 378 and S. Sankappa and others v. Income-tax Officer, Central Circle II, Bangalore (1968) 68 ITR 760 (SC) ref.

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

----First Sched., Part-III, Para-C, Ss.9 & 10---Rate of surcharge---Levy of surcharge---Principles---Surcharge will be levied only when income-tax will be levied under S.9 of the Income Tax Ordnance, 1979---Where income tax is not levied under S.9 of the Income Tax Ordinance, 1979 no surcharge could be levied under S.10 of the Income Tax Ordinance, 1979---If Ss. 9 & 10 of the Income Tax Ordinance, 1979 were read in conjunction, S.10 of the Income Tax Ordinance, 1979 clearly stated that an additional duty in the form of surcharge will be levied on the income tax payable under S. 9 of the Income Tax Ordinance, 1979 at the rate as given in the First Schedule of the Income Tax Ordinance, 1979.

(c) Interpretation of statutes---

----Schedule to a statute---Schedule had nexus with certain sections in the main enactment, which were called the inducing sections, which control and regulate the Schedule.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss. 9., 10 & First Sched.---Charge of income-tax---Surcharge--Inducing sections of the First Schedule were the sections 9 and 10 of the Income Tax Ordinance, 1979 and where no tax was charged under S.9 of the Income Tax Ordinance, 1979 no surcharge could be levied under S.10 of the Income Tax Ordinance, 1979.

Dawood Corporation (Pvt.) Ltd. v. Commissioner of Income Tax Appeal-II, Karachi 2006 PTD 148 rel.

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

----Ss.10, 8ODD & First Sched.---Charge of super tax and surcharge, Under S.10 of the Income Tax Ordinance, 1979 surcharge was levied on the basis of assessed total income meaning thereby that where tax was not levied on the basis of assessed total income no surcharge could be levied---Tax under S.80DD of the Income Tax Ordinance, 1979 in the present case, was not levied on the basis of the assessed total income and if tax was not levied on the basis of assessed total income no surcharge could be levied.

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

----S. 8ODD & First Sched., Part-III, para-C---Minimum tax on income of importers of edible oils, etc.---Levy of surcharge---When the .very scheme of the Income Tax Ordinance, 1979 did not support the levy of surcharge on tax recovered under S.80DD of the Income Tax Ordinance, 1979 there was no need to specifically refer S.80DD of the Income Tax Ordinance, 1979 in Para. C of Part-III of the First Schedule of the Income Tax Ordinance, 1979.

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

----First Sched: Part-III, Para-C---Levy of surcharge---Certain sections of the presumptive tax regime had been mentioned in Para-C of Part-III of the First Schedule of the Income Tax Ordinance, 1979 only to clarify that where a person was assessed to tax under normal law regime and his income also included a portion of income covered under the Presumptive Tax Regime the later will be excluded.

(h) Income-tax---

----Disallowance---First Appellate Authority could not direct dis?allowance of 20% of expense from vehicle account as being unverifiable as it was never in dispute that the assessee had actually incurred the expense and the only dispute was whether it was a capital or revenue expense.

(i) Income Tax Ordinance (XXXI of 1979)--

---S. 132(4)-Decision in appeal---For enhancement of assessment a notice under S.132(4) of the Income Tax Ordinance, 1979 was mandatory.

(j) Income-tax---

----Trading account---Where the declared trading account of an assessee were finally accepted the addition on account of other income on insufficient grounds was not sustainable.

(k) Income-tax---

----Addition---Unless an Assessing Officer pointed out specific instances of unverifiable transactions he could not make the additions---Generalized observation are not sufficient to sustain additions in profit and loss accounts.

2004 PTD (Trib.) 2231; Coca Cola Export Corporation v. IAC 2002 PTD 1496 = 1991 PTD (Trib.) 643; 1989 PTD (Trib.) 39; (2002) 88 Tax 48 (Trib.) and Ayenbee (Private) Limited v. ITAT 2002 PTD 407 rel.

Sajid Ijaz Hotiana for Appellant (in I.T.As, Nos. 4453/LB, 4454/LB of 2005, 4605/LB and 4606/LB of 2003).

Muzammal Hussain, D.R. for Respondent (in I.T.As. Nos.4453/LB, 4454/LB of 2005, 4605/LB and 4606/LB of 2003).

Muzammal Hussain, D.R. for Appellant (in I.T.As. Nos.5049/LB and 5050/LB of 2003).

Sajid Ijaz Hotiana for Respondent (in I.T.As. Nos.5049/LB and 5050/LB of 2003).

Date of hearing: 14th February, 2005.

ORDER

Out of these six appeals the first two for the assessment years 2000-2001 and 2001-2002 have been filed by the assessee against order of the learned CIT (Appeals) dated 8-6-2005 whereas the remaining four appeals for the assessment years 2001-2002 and 2002-2003 are cross-appeals against order of the learned CIT (Appeals) dated 12-5-2003. Two appeals of the assessee pertaining to the assessment years 2000-2001 and 2001-2002 against order of I.T.A. No. 4453/LB of 2005 rectification passed under section 221 of the Income Tax Ordinance, 2001 are being taken up first.

2. Brief facts of these appeals are that the assessee is an unlisted Public Limited Company deriving income from manufacturing and sale of Ghee/Oil & soaps.. The final assessments were finalized under section 135/132 of the repealed Income Tax Ordinance, 1979 (hereinafter the repealed Ordinance) by charging minimum tax under section 8ODD of the repealed Ordinance at Rs.. 1,55,89,169 and Rs. 3,13,68,038 for the assessment years 2000-2001 and 2001-2002 respectively. Subsequently the Deputy Commissioner of Income Tax, Circle 02, and Gujranwala rectified the orders under section 221 of the Income Tax Ordinance, 2001 (hereinafter the Ordinance) and charged surcharge @ 5% at Rs. 7,79,458 and Rs. 15,68,402 under Para-C of Part-III of the 1st Schedule to the repealed Ordinance for the two assessment years. The assessee challenged the rectification before the learned CIT (Appeals) Zone, Gujranwala who dismissed the appeals by observing that the Para-C only excluded "the amount of presumptive Income Tax .payable under sections 8OBB, 80C, 80CC and 80CD." Now the assessee has challenged the order of CIT (Appeals) on the following grounds, which are common for both the years:---

(1) That the learned CIT(A) has ignored that the authority passing the order impugned before him had no jurisdiction over the appellant.

(2) That the learned CIT(A) has ignored that the order under section 221 can only be passed by the Commissioner or Taxation Officer and not by the Deputy Commissioner of Income Tax.

(3) That the CIT (A) has ignored that section 221 cannot be invoked for years covered under the repealed Ordinance.

(4) That CIT (A) has ignored that surcharge is not leviable over and above tax levied under section 8ODD of the Income Tax Ordinance, 1979.

(5) That the learned CIT (A) has ignored the written arguments in support of grounds of appeal.

3. During the course of hearing of the appeal the learned counsel for the assessee has addressed his arguments mainly on grounds Nos. 3 and 4 and has submitted that impugned orders are totally illegal, without jurisdiction and void ab initio. First of all, we take up the arguments of the learned counsel on ground No.4. However, before proceeding further it would be appropriate to reproduce clauses (43) and (44) of section .2, sections 9, 10, 8ODD and Para-C of Part III of the 1st Schedule to the repeated Ordinance which have been referred to by the counsel and the same are as under (only relevant portions):---

"(43) "tax" means income tax, super tax, surcharge and additional tax chargeable or payable under this Ordinance, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance.

(44) "total Income" means the total amount of income referred to in section 11 computed in the manner laid down in this Ordinance; and includes any income which under any provision of the Ordinance, is to be included in the total income of an assessee;

(9) Charge of income-tax,---(1) Subject to the provisions of this Ordinance, there shall be charged, levied and paid for each assessment year commencing on or after the first day. of July, income tax, in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule;

(10) Charge of super tax and surcharge.---(1) in addition to the income tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income, or any part thereof, of the income year or years, as the case may be, of every person, and additional duty of income tax (in this Ordinance referred to as `super tax') and surcharge at the rate or rates specified in the First Schedule;

Provided that were by virtue of an amendment in the First Schedule, the rate of super tax and surcharge, for the purpose of assessment in respect of any assessment year, is altered, the rate of super tax and surcharge existing prior to the said alteration shall continue to apply in respect of any assessment year to which the said existing rate is applicable.

(2) Subject to the provisions of this Ordinance, the total income of any person shall, for the purpose of super tax and surcharge, be the total income as assessed for the purpose's of income tax, and where an assessment has become final and conclusive for the purposes of income tax for any year, the assessment shall also be final and conclusive for the purposes of super tax or surcharge, as the case may be, for the same year.

(3) All the provisions of this Ordinance relating to the charge, assessment, deduction at source, collection, or payment in advance, recovery and refund of income tax shall apply, so far as may be, to the charge, assessment, deduction at source, collection, payment in advance, recovery and refund of super tax and surcharge, as the case may be.

8ODD Minimum tax on income of imports of edible oils, etc. Notwithstanding anything contained in this Ordinance, or any other law for the time being in force, the tax collected under subsection (5) of section -60 on import of edible oils as raw material by an industrial undertaking shall be deemed to be the minimum amount of tax payable under this Ordinance and where the final tax liability determined under this Ordinance exceeds the amount collected under the said subsection, the said amount shall be adjustable against such liability."

Para-C of Part-III of the First Schedule to the repealed Ordinance is as under:---

"In respect-of the income year relevant to the assessment year commencing on or after the fist day of July, 2000, a company, not being a banking company, other than a banking company shall pay surcharge equal to five per cent of the amount of income tax payable excluding the amount of presumptive income tax payable under sections 8OBB, 80C, 8000 or 80CD. "

4. Learned counsel for the assessee has first of all submitted that there are three different tax regimes in the repealed Ordinance; each of which is based on its own peculiar scheme and cannot be mixed up each other. The regimes are the normal tax regime, the presumptive tax regime and the minimum tax regime. Under the normal tax regime the charging section for income tax purposes is the section 9 whereas surcharge is levied under section 10 on the basis of total income computed under various heads of income as given in section 15, The First Schedule which gives the rate of tax has nexus with the total income as computed under the normal law tax regime only; and therefore, the rates of tax and surcharge as given in the Schedule have no application regarding the income which is not computed on the basis of total income and which is not charged to tax under sections 9 and 10. In. support of this contention the learned counsel has further submitted that a Schedule in a statute is a kind of extension of certain sections and in thus said to be induced by such sections. The First Schedule is induced by sections 9 and 10 meaning thereby that the provisions of the Schedule are applicable only to such income which is computed in terms of total income; and tax is being levied on such income in terms of its computation as total income. Therefore, where tax is being levied not on the basis of total income (which will also mean that the charging section in case of such income is not section 9 or 10) the provisions of the Schedule will not be attracted.

4. In support of his arguments the learned counsel has first of all referred to the treatise of FAR Bennion MA on Statutory Interpretation (Third Edition, Butterworth, 1997). On page 554 of the book the learned author defines Schedule as an "extension of the section which induces it. Material is put into a Schedule because it is too lengthy or detailed to be conveniently accommodated in a section, or because it forms a separate document (such as in a treaty)." He further goes on to say that "A Schedule is attached to the body of, the Act by appropriate words in one of the sections (known as inducing words)." Then the learned counsel has referred to a judgment of the Hon'ble Supreme Court of India in the case of Messrs Aphali Pharmaceuticals Ltd. v. State of Maharashtra and others reported as (1989) 4 Supreme Court Cases 378 to submit that the provisions of a Schedule are controlled by the inducing sections and that in case of a conflict between the main act and the Schedule the former prevails. It has been observed by the Lordships of the Supreme Court on page 393 of the report that "Expressions in the Schedule cannot control or prevail against the express enactment and in case of any inconsistency between the Schedule and the enactment, the enactment is to prevail and if any part of the Schedule cannot be made to correspond it must yield to the Act. Finally the learned counsel has referred to para 20 of a recently reported judgment of the Hon'ble Karachi High Court in the case of Dawood Corporation (Pvt.) Ltd. v. Commissioner of Income Tax Appeal-II, Karachi reported as 2006 PTD 148. This para is very pertinent to the controversy in hands and reads as under:

"We fully agree with the interpretation of the learned ITAT. We would like to add that a perusal of Part-III of the First Schedule to the Income Tax Ordinance, 1979, shows that the rate of surcharge has been prescribed under this provisions, which is 10% of the Income Tax and super tax, if any payable for the year. The Tribunal has rightly held that the charging section is section 10 of the Income Tax Ordinance, 1979, and therefore, it will control and govern the provision contained in Part-Ill of the First Schedule to the Income Tax Ordinance, 1979. The Tribunal considered the provision contained in section 10, in sufficient length and has rightly held that under section 10(2) the Legislature has expressly provided that the total income of any person shall, for the purposes of super tax and surcharge be the total income as assessed for the purposes of income tax. A perusal of this provision further shows that the basis of charging surcharge is not the tax payable under section 85 but is total income as assessed for the purposes of income tax. When the provision contained in section 10(2) is read with Part-III of the First Schedule to the Income Tax Ordinance, 1979, no ambiguity is left to the effect that the total income for the purpose of income tax and surcharge is assessed in the assessment order and the rate of surcharge would be the 10% of the income tax and super tax as provided in Part-III of the First Schedule to the Income Tax Ordinance, 1979..." (Underlining is ours for emphasis)

5. The learned counsel went on to state that the tax impugned under section 80DD on the basis of minimum tax has no nexus whatsoever either with the charging sections 9 and 10 nor it' is levied on the basis of total income as computed in terms of section 15 etc. Therefore, the provisions of the First Schedule are not attracted in such a case.

6. The learned counsel further submitted that even where tax is imposed under section 80DD as minimum tax the provisions of surcharge as given in Part-III of the First Schedule don't go out of consideration rather the same are duly accounted for while calculating the tax liability of an assessee under normal law; it is only when the tax liability (including surcharge) of an assessee under normal law falls short of the tax deducted under subsection (5) of section 50 of the assessee is subjected to tax under section 80DD and the tax deducted under section 50(5) is taken as the minimum tax which finally relieves an assessee of his tax liability. The practice of the Revenue of charging surcharge on the minimum tax after the comparison of the tax liability under the normal law and the tax deducted under section 50(5) has been made, is illogical and against the explicit scheme of the repealed Ordinance.

7. Continuing his arguments the counsel for the assessee stated that section 80DD speaks of two scenaries; one is the tax collected on raw materials under subsection (5) of section 50 which is deemed to be the minimum amount of tax payable under section 80DD and second is the final tax liability. Where the tax deducted under section 50 (5) is more than the final tax liability as determined under the normal law provisions of the repealed Ordinance the tax deducted under subsection (5) of section 50 will become the final tax liability; and the Revenue will not be authorised to further "finalize" the tax liability by including surcharge in it.

8. Commenting on the contention of the CIT(Appeals) in the impugned order that surcharge will be levied for the reasons that. section 80DD unlike sections 80BB, 80C, 8000 and 80CD has not been excluded from the application of Para C the learned counsel for the assessee has submitted that these sections have been referred only to emphasis that where income of an assessee will include both income computed under normal law as well as under the presumptive tax regime the component of the income covered by the presumptive tax regime will be excluded while calculating surcharge under Para-C. The learned counsel has further submitted that the legislature would have mentioned section 80DD in Para-C. only if it had first through some other provision of the Ordinance had levied surcharge on the minimum tax payable under section 80DD. Since the scheme of the Ordinance does not admit of any ambiguity there was no need to refer section 80DD in Para-C. It is further submitted that legislature always avoids, rather abhors, redundancy; and where the legislation is clear the same cannot be burdened with unnecessary verbosity.

9. The learned DR supported the order of the learned CIT (Appeals). He further stated that this learned Tribunal has already held that surcharge is leviable on the minimum tax determined under section 80D of the repealed Ordinance. He further argued that the value of exports from which tax is deducted under subsection ('5) of section 50 is the deemed total income in case of tax calculated under section 80DD on the analogy of section 80D where the aggregate turnover is deemed to be income of an assessee. In connection with the last submission of the learned DR the counsel for the assessee submitted that in section 80DD there is no concept of any deemed income or deemed total income as is the case of section 80D, therefore, the reference of the learned DR to section 80D is totally misplaced. The counsel for the assessee further submitted that he had reservations regarding the correctness of the view of the learned Tribunal that surcharge was leviable on the minimum tax calculated under section 80D; however, section 80DD and section 80D stood on entirely different footings though both were based on the theory of the minimum tax.

10. Regarding the ground No.3 that the assessments completed under the repealed Ordinance cannot be rectified under section 221 the learned counsel for the assessee has referred to subsection (1) of section 239 of the Income Tax Ordinance, 2001 and has submitted that rectification proceedings are assessment proceedings; therefore the same will be conducted under the relevant provisions of the repealed Ordinance, if other conditions for the invoking of this provision are fulfilled. In support of his last submission he has referred to the judgment of the Hon'ble Supreme Court of India in the case of S. Sankappa and others v. Income Tax Officer, Central Circle II, Bangalore reported as (1968) 68 ITR 760 (SC). On the other hand the learned DR submits that the provisions of section 221 have rightly been invoked in case of assessments completed under the repealed Ordinance.

11. We have considered the rival contentions and have also perused the relevant record and the precedents relied upon by the learned counsel for the assessee and are persuaded to agree with him. The learned AR is right in stating that before an assessee is taxed under minimum tax regime as contemplated in section 80DD his final tax liability is first calculated under the normal lax regime on the basis of total income and it is only when the liability under the normal law regime worked out on this basis is less than the tax deducted under subsection (5) of section 50 that he is taxed under section 80DD and the tax deducted under subsection (5) of section 50 is taken as the minimum tax payable by the assessee, though actually it is more than the tax calculated under the normal tax regime including the surcharge under Para-C; and it is against the very scheme of the repealed Ordinance to charge surcharge from an assessee who is already paying tax at an amount higher than the tax calculated under the normal aw regime which section 80DD calls the final tax liability and which includes both income tax and surcharge. In other words it is. only when the final tax liability including both income tax and surcharge is less than the tax deducted under subsection (5) of section 50 that the tax deducted under subsection (5) of section 50 is taken as the minimum tax payable by the assessee under section 80DD. The language of the section 80DD does not support the stance of the Department that once the assessee is taxed under section 80DD and the tax deducted under subsection (5) of section 50 is taken as the minimum liability the assessee will be subjected to an additional charge in the shape of surcharge because the minimum charge will be imposed only when it is more than the income tax and surcharge payable under the normal tax regime.

12. We also agree with the submission of the counsel for the assessee that surcharge will be levied only when income tax will be levied under section 9. Where income tax is not levied under section 9 no surcharge can be levied under section 10. Which is apparent, if both the sections are read in conjunction, section 10 clearly states that an additional duty in the form of surcharge will be levied on the income tax payable under section 9 at the rate as given in the First Schedule. It also supports the contention of the counsel for the assessee' that a Schedule has nexus with certain sections in the main enactment, which are called the inducing sections, which control and regulate the Schedule. The inducing sections of the First Schedule are the sections 9 and 10 and where no tax is charged under section 9 no surcharge can be levied under section 10. The judgment of the Hon'ble Karachi High Court referred supra also supports the contention of the counsel for the assessee.

13. Under section 10 surcharge is levied on the basis of assessed total income meaning thereby that where tax is not levied on the basis of assessed total income no surcharge can be levied. It is no ones case that tax under section 80DD is levied on the basis of the assessed total income; and if tax is not levied on the basis of assessed total income no surcharge can be levied. The reason given by the learned CIT (Appeals) for disallowing the appeal of the assessee is unsustainable. When the very scheme of the repealed Ordinance does not support the levy of surcharge on tax recovered under section 80DD there was no need to specifically refer section 80DD in Para-C. Additionally we agree with the contention of the counsel for the assessee that certain sections of the presumptive tax regime have been mentioned in Para-C only to clarify that where a person is assessed to tax under normal law regime and his income also includes a portion of income covered under the presumptive tax regime the later will be excluded.

14. In view of the above discussion the appeals of the assessee are allowed and the impugned orders of the C.I.T.(Appeals) as well as the Assessing Officer passed under section 221 are vacated. As we are allowing the appeals on ground No. 4, the other grounds need not be adjudicated upon.

Cross-appeals for the assessment years 2001-2002 and 2002-2003.

15. Both the assessee as well the Department have challenged the

Orders of the learned CIT(Appeals) dated 12-5-2003 on various grounds. The Department has challenged the orders on the following grounds, which are identical for both the years except the figures of relief:---

(1) That the learned CIT(A) was not justified in directing to accept the declared trading results.

(2) That the learned CIT(A) was not justified to reduce the disallowance to the extent of 20% of total claim under the head "Mazda Account".

(3) That the learned CIT(A) was not justified to reduce the "other Sales" from Rs.463,122 to 350,000 (from Rs.500,000 to Rs.400,000 for the Assessment year 2002-2003).

16. On the other hand the assessee is aggrieved of the orders on the following grounds, which are also common for both the years except for the amounts involved:

(1) That addition in respect of loss claimed on embezzlement of cash has incorrectly been confirmed without any discussion/basis.

(2) That the CIT (Appeals) has made new addition under the head of Repair expenses of vehicles without giving any notice of enhancement and even otherwise enhancement cannot be made on account of a new item.

(3) That relief given in the addition of other income is insufficient as the addition was made without any basis whatsoever.

(4) That the additions have been confirmed although no specific instances of unverifiability etc. were pointed out by the Assessing Officer. The detail of the additions disallowed is given in grounds of appeal.

17. Brief facts as collected from the order of the CIT (Appeals) necessary for the disposal of these cross appeals are that the appellant filled its Income Tax returns for the Assessment years 2001-2002 and 2002-2003, duly supported by the audited final accounts, and declared the following trading results:

?????????????????????????????? 2001-2002???????????? 2002-2003

Sales (net)?????????????? 1,247,706,476??????? 1,423,633,350

Gross Profit???????????? 1,160,589,674??????? 1,325,671,465

G.P. rate???????????????? 6.98%???????????????????? 6.88%

The Assessing Officer issued statutory notices, which were duly complied by the assessee and produced books of accounts along with vouchers etc. After examining the books of accounts the Assessing Officer pointed out some instances of cash transactions and some allegedly unverifiable instances of the sale and purchase transactions; and confronted the appellant estimation of sales on the basis of sui gas consumption. The appellant submitted that instances of cash transactions and allegedly non-verifiable instances of sales and purchases were not proper basis for rejection of trading accounts and also pointed out that expense incurred on consumption of sui gas was not the proper basis for estimation of sales. The assessee further replied that in the previous year i.e. 2000-2001 the assessee had incurred considerable expense on furnace oil during the heavy load shedding of the sui gas and provided the detail of the same. However, the Assessing Officer was not convinced regarding the acceptance of the declared version except that he combined the charges incurred on sui gas and furnace oil for comparison with the previous assessment year and estimation of sales for the years under consideration; and estimated the sales at Rs.1752,206,680 and Rs.2266,543,319 for the two assessment years respectively. Sales of soap were estimated at Rs.70,00,000 and Rs.80,00,000 and G.P. rate was applied at 7% on ghee account and 25% on sale of soap. The total trading additions were made at Rs.37,750,788 and Rs.63,196,147 for the two assessment years respectively.

18. The assessee contested the rejection of trading accounts as well as the estimation of sales. The learned CIT(Appeals) after considering the verbal as well as written submissions of the assessee as well as the case-law relied upon, ordered the acceptance of the trading results for both the Assessments years. While accepting the appeals of the assessee on this issue the learned CIT(Appeals) has dealt with the issue in detail. She has noted that the Assessing Officer could not point out any specific defects in the declared version; it is also that basis for the estimation of sale were absolutely irrelevant. If ever a comparison on the basis of sui gas or any other input has to be made the same has to be on the basis of unit consumption and it cannot be on the basis of charges incurred on a particular input since price of an input never remains static. It is also noted that if the order of the Assessing Officer was allowed to stand on this account the projected capacity of the unit would far exceed the installed capacity.

19. The learned DR as well as the learned counsel for the respondent have been heard. The learned DR has not been able to point out any flow in the order of the learned CIT(Appeals) on the issue of acceptance of the trading results for both the years. We are also conscious of the fact that the respondent/assessee has history of the acceptance of trading results and for both the previous years i.e. the Assessment years 1999-2000 and 2000-2001 this Tribunal refused to interfere in the appellate orders directing acceptance of trading results. We don't find any factual or legal discrepancy in the impugned orders for the two years under appeal to warrant interference for these years as well.

20. Next the Department has challenged the reduction of disallowance to the extent of 20% of total claim under the head "Mazda account". On the other hand, in its cross-appeal the assessee has challenged the disallowance of 20% as the same has been disallowed without issuing notice of enhancement. We have heard the learned DR as well as the counsel for the assessee; and feel that ground taken by the Department is misplaced. The relevant facts for disposal of this issue are that the assessee had claimed repair expenses for Mazda Van at Rs.193,205 and Rs.598,569 for the two assessment years respectively. The Assessing Officer did not doubt the incurring of the expense; however, he treated the expense as capital expenses and after allowing depreciation @ 20% added the amounts of Rs.154,612 and Rs.478,855. The assessee challenged the treatment of the expense as capital expense. The learned CIT(Appeals) accepted the contention of the assessee that it was a revenue expenses, however, curiously enough she ordered disallowance of 20% of the expense on account of "element of unverifiability".

21. The learned counsel for the assessee has submitted that the verifiability of this expense was never in issue and the only issue was whether this expense was a capital expense or a revenue expense; and that the learned CIT(Appeals), after allowing the appeal of the assessee has illegally directed disallowance of 20% of the expense. He has further pointed out that if she wanted to make any enhancement she was required to issue a notice under subsection (4) of section 132, which has not been done. He has further pointed out that the Department has not challenged the direction of the learned CIT(Appeal) that this expense be treated as revenue expense.

22. We are persuaded to agree with the submissions of the counsel for the assessee. The learned CIT(Appeal) could not direct disallowance of 20% of expense from Mazda account as being unverifiable as it was never in dispute that the assessee had actually incurred the expense and the only dispute was whether it was a capital or revenue expense. The counsel for the assessee is also correct in submitting that for enhancement of assessment a notice under section 132(4) is mandatory. Therefore, we direct the deletion of the addition on this account.

23. The next common issue in the cross-appeals is the estimation and then reduction in the estimated other sales/other income. The Department has challenged the reduction in other sales from Rs.463,122 to Rs.350,000 and from Rs.500,000 to Rs.400,000 for the assessment years 2001-2002 and 2002-2003 respectively; and assessee, on the other hand, has lamented the insufficiency of relief in other income.

24. The learned DR as well as the counsel for the assessee have been heard. We find that neither the Assessing Officer nor the learned CIT(Appeals) have given any cogent reasons for disallowance of relief to the assessee on this account. Where the declared trading accounts of an assessee are finally accepted the addition on account of other income on insufficient grounds is not sustainable and we accordingly hold so. Even otherwise it will not affect the final tax liability of the assessee as it has been assessed under section 8ODD.

25. For the assessment year 2001-2002 the assessee claimed an expense of Rs.1,000,000 on account of embezzlement of cash by the accountant. The Assessing Officer disallowed the expense for non-production of any documentary evidence in support of the claim in shape of F.I.R. etc. The learned CIT(Appeals) also did not allow the appeal on this account. The learned counsel for the assessee stated that F.I.R. No.390 of 2001 was duly lodged and produced before the Assessing Officer but he has not considered it. As the only reason given for disallowance of this expense by the Assessing Officer is that copy of F.I.R. etc. was not produced and the counsel for the assessee has showed that the same was duly lodged and produced it is directed that this expense may be allowed, though it will not effect the final tax liability of the appellant as the same has been determined under section 8ODD.

26. Finally the assessee has challenged the disallowance of expense claimed under various heads of P&L account. The Assessing Officer made the additions with general observation that the same were not fully vouched and verifiable. It is further observed that the element of personal nature and non-business use could not be ruled out; therefore, "suitable" add backs were made. The learned CIT(Appeals) confirmed the additions as the CIT(A) found the same to be "reasonable" though CIT(A) did not give any reason of her satisfaction that the additions were reasonable.

27. The learned counsel for the assessee has submitted that, though the fate of the appeal on this issue will not affect the tax liability of the assessee, yet the same need to be struck down as the same are not only against the facts of the case and the relevant legal provisions, but also the authoritative pronouncement of the legal position by this learned Tribunal as well as the Hon'ble superior Courts. It is now a settled legal position that no addition can be made on the basis of stock phrases as has been the practice with the Department for so many years. Unless there are specific instances of unverified or unvouched expenses no additions can be made. In support of his contention he has relied upon the following case-law:--

(1) 2004 PTD (Trib.) 2231.

(2) Coca Cola Export Corporation v. IAC 2002 PTD 1496 = 1991 PTD (Trib.) 643.

(3) 1989 PTD (Trib.) 39

(4) (2002) 88 Tax 48 (Trib.)

(5) Ayenbee (Private) Limited v. ITAT (2002 PTD 407)

28. We have considered the submissions of the counsel for the assessee on this account. The learned DR has also been heard. There is no cavil with the submissions of the counsel for the assessee that unless an Assessing Officer points out specific instances of unverifiable transactions he cannot make the additions. By now the law is settled that generalized observations are not sufficient to sustain additions in profit and loss accounts. Therefore we are constrained to allow the appeals of the assessee on account of additions made from Profit and Loss account.

29. In view of the above discussion, the appeals of the assessee for the Assessment years 2000-2001, 2001-2002 and 2002-2003 are allowed and cross-appeals of the Department for the Assessment years 2001-2002 and 2002-2003 are dismissed.

C.M.A./27/Tax (Trib.)????????????????????????????????????????????????????????????? Order accordingly.