I.T.As. Nos.1606/KB to 1609/KB of 2003, decided on 9th March, 2005. VS I.T.As. Nos.1606/KB to 1609/KB of 2003, decided on 9th March, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 123 (2005)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 13, 59, 62, 65 & 134---Addition to total income---Appeal to Income Tax Appellate Tribunal---Appellant/assessee had objected to consolidated order of C.I.T.(A) for ielevant years on the ground that no approval was obtained by Assessing Officer while making impugned addition under S.13(1)(c) of Income Tax Ordinance, 1979---Validity---Assessing Officer in the assessment order, had nowhere mentioned any thing regarding approval of Inspecting Additional Commissioner which was mandatory requirement of law as mentioned in last proviso to subsection (1) of S.13 of Income Tax Ordinance, 1979---Assessee had established through evidence that Inspecting Additional Commissioner in response to the letter of Assessing Officer had granted/accorded the "permission" for additions under S.13(1) of Income Tax Ordinance, 1979, which could, in no way, be equated to "Approval" which was the requirement of law---Assessing Officer had failed to subscribe in assessment order under Ss.65/62 for all relevant years under review under which sub-clause, impugned addition was made---Observations made by C.I.T.(A) with regard to production and non-production of Books of accounts in impugned order were contradictory and against the facts of the case, as he had without any justification, rejected contentions raised by assessee and had upheld addition for relevant assessment year and set aside assessments for remaining assessment years---No justification was available for impugned additions as same had been made without prior approval of Inspecting Additional Commissioner for all relevant years---Consolidated impugned order of C.I.T.(A), was vacated and additions made for said years under S.13 of Income Tax Ordinance, 1979, were deleted.

2003 PTD'(Trib.) 1238; 2005 PTD (Trib.) 326 and PLD 2004 AJ&K 30 ref.

Udha Ram Rajput for Appellant.

Ms. Farzana Jabeen, D.R. for Respondent.

Date of hearing: 8th February, 2005.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---The appellant through these four appeals has objected to the consolidated impugned order of the learned CIT(A), dated 18-8-2003 for the assessment years 1996-97 to 1999-2000 on the common ground for all the four years that no approval was obtained by the Taxation Officer while making the addition under section 13(1)(c) of the Repealed Income Tax Ordinance, 1979. The appellant in addition to the above-common ground has objected the upholding of addition regarding freight charges and marketing allowance for the assessment year 1996-97. While for the assessment years 1997-98 to 1999-2000, the objection has been raised by the appellant against the setting aside of assessments regarding addition made under section 13 in respect of non-declaration of liability regarding FFC.

2. The appellant, an individual, for the years under review is deriving income from foodgrain commission and from urea agency. For the assessment year 1996-97, return was filed declaring income at Rs.97,000. Assessment was finalized under section 59(1) of the Repealed Income Tax Ordinance, 1979. Subsequently, the assessment was reopened under section 62 due to the alleged discrepancy in the commission received by the assessee as compared to the declared in the return of income. The Taxation Officer while finalizing the assessment determined the income at Rs. 1,37,495 and the addition under section 13(1) was made at Rs.38,485 being the difference of commission received by the assessee and declared in his return of Income. For the assessment year 1997-98, the declared income of Rs.97,879 was accepted under section 59(1), but the case was later on reopened under section 65 of the Repealed Ordinance, 1979 and the Income was assessed at Rs.4,33,069 making an addition of Rs.39,290 under section 13(1) and addition on account of trading liability of Messrs Fauji Fertilizer Company made at Rs.1,45,800. For the assessment year 1998-99, the Income declared at Rs.1,72,910 accepted under section 59(1) was reopened and bank liabilities at Rs.4,42,761 were added to the income and further addition of trading liability of Messrs Fauji Fertilizers Company was also made at Rs.21,66,600 to determine the total income at Rs.26,09,361. Later on for this year, the credit of stock unadjustable available and the capital shown in the wealth tax were deducted from the income to arrive at the net income for the year at Rs.39,90,820. For the assessment year 1999-2000, the return accepted under Self-Assessment Scheme declaring income at Rs.1,73,000 was reopened and re-assessment was finalized making addition out of trading liability of assessee at Rs.21,78,000 and further bank liability amounting to Rs.3,79,022 were added towards the income and after deduction of capital shown in the wealth statement at Rs.11,45,000, the balance addition under section 13(1)(c) was made at Rs.14,12,022 to arrive at the assessed Income of Rs.15,85,022.

Against the above treatment, the assessee filed first appeals. The learned CIT(A) through consolidated impugned order has upheld the addition made by the Tax Officer for the assessment years 1996-97 with the following observations:--

In the assessment year 1996-97, the assessee filed original return at Rs.97,000 which was assessed under section 62 at Rs.99,000. The case was subsequently reopened on account of the fact that assessee has declared commission at Rs.19,775 instead of Rs.58,270 received from Messrs National Fertilizer Company and Messrs Fauji Fertilizer Company. Accordingly after due consideration, the balance amount of Rs.38,495 was added in the net income of the assessee to determine total Income at Rs.1,37,495.

The learned counsel of the assessee in the grounds of appeal has submitted that difference was on account of price charges for logistic purposes and were re-imbursable to the assessee. Neither the amounts under the heads were declared nor any justification was given. Similarly, in respect of Market Allowance, it was suggested in the grounds of appeal that it was for growers and was accordingly net off accordingly as against this the facts remain that all the income receivable from the company was to be declared before the officer and it was later on detected through inquiry and the concealment was proved which under the circumstances was not done in the hands of the assessee.

Besides above when the original assessment was made in the case, the assessee produced books of account and the case was treated as account case. Whereas during the hearing in respect of proceedings under sections 65/62, plea was taken that the assessee was not maintaining books of account. This was clear-cut misstatement on the part of the officer and also morally incorrect to turn about from the previous factual position about the production of books of account. In the facts and circumstances of the case, the books of account were not produced, as the concealment on the part of the assessee could have been established with documentary evidence. But the assessee cleverly avoided and now took the plea that books of account have not been maintained. Buy this contention of the assessee is hereby rejected. Besides above the officer has also obtained permission for the addition amounting to Rs.38,495 which was granted by the learned Inspecting Additional Commissioner of the Range under section 13(1)(c) of the Income Tax Ordinance,. 1979 and being clear-cut concealment, it was rightly taxed by the officer and in the facts and circumstances of the case, the same is hereby upheld."

While for the assessment years 1997-98 to 1999-2000, assessments have been set aside or de novo proceedings with the following observations:--

"The perusal of the orders for the years 1997-98, 98-99 and 99-00 gives an impression that an important case was assigned to an officer who does not know how to deal with such important matters. The officer has not been above to explain as to what he wants to say and what he wants to do. Accordingly whatever material was available to him was spoiled by him.

Basically, there were no many contradictions in the data available from both the parties. For example, the assessee produced books of accounts at the time of original assessment under section 62 and when the assessments were re-opened, the assessee took opposite argument that books of accounts were not maintained by him and were not produced by him. This contention of the assessee's AR is a naked use of force through which he is thrusting his arguments for acceptance.

Besides above, while doing so, he is trying to weaken the ground through which the addition under section 13(1)(c) has been made by the Officer.

The case of the assessee for the years 1997-98, 1998-99 and 1999-2000 rests with the addition made in the income of the assessee on account of trading liabilities of Messrs Fauji Fertilizer Company to Rs.1,35,000, Rs.21,66,000 and Rs.21,78,000 for the assessment years 1997-98, 98-99 and 99-00 respectively.

The learned Assessing Officer has added these amounts in the years under consideration on account of the fact that trade liabilities were not declared in the Wealth Tax liabilities of the assessee.

On the other hand, the learned counsel of the assessee has contended that these liabilities were to be considered in the assessment year 1999-2000 as per amendment introduced the Finance Act, 1999-2000.

In view of contradicting positions adopted by the Assessing Officer and A.R. of the assessee, I am of the considered opinion that whereas the assessee has successfully agitated the addition being not reasonable, whereas the officer has justified the addition on account of the Information collected from Messrs National Fertilizer Company and Messrs Fauji Fertilizer Company assessee's which also contained some taxable addition which the assessee's failure to, recognize and record in his books of account and same were also upheld in the assessment year 1996-97. The assessee's contention that liabilities were to be taken into consideration w.e.f. on account of amendments in the Finance Bill for the year 1999 needs consideration and active application of mind by the Assessing Officer.

In respect of Bank Liabilities added by the officer at Rs.2,39,290 Rs.4,42,761 and Rs.3,79,022 for the assessment year 1997-98, 1998-99 and 1999-2000, respectively are considered, the examination of all details show that the officer while calculating the same has considered the Credit Balance shown by the assessee in the bank statement along with Debit balance. But at the same time, the officer has failed to consider the opening balance which was necessary for the determination of the liabilities. Besides above this matter was also not confronted to the assessee in writing independently therefore, I am of the opinion that the matter was not decided on merit and in the circumstances, the officer must have obtained information from the Bank Branch direct to ascertain the amount of Liabilities against the assessed. The method adopted by him in the above situation was faulty and cannot be upheld.

In view of above facts, the issues involved in the appeal for all the three years are hereby set aside for de novo proceedings in accordance with the law. The officer is directed to give fresh consideration to the issues involved in the assessment strictly in accordance with the law, facts and circumstances of the case.

The learned Commissioner of Income Tax, Sukkur Zone is requested to assign this case to a Senior Officer who is well-versed with the accounts and capable enough to adjudicate upon the issues involved in the case".

3. Mr. Udha Ram Rajput, Advocate has appeared on behalf of the appellant and has attacked the Impugned orders of the Officers below mainly on the legal scores that the addition has not been made by the Taxation Officer after obtaining approval from the learned IAC which is the mandatory requirement of law as mentioned in the last proviso to subsection (1) of section 13. He has contended that the Taxation Officer has not obtained any approval for the addition as required under the law for all the .four years under review. He has contended that in the assessment order, the Taxation Officer has not mentioned that any approval was obtained from the learned IAC before making the addition. He has placed before us the letter of Inspecting Additional Commissioner of Income Tax, Larkana Range, Larkana, dated 28-6-2002 addressed to the Special Officer of Income Tax, Circle Shikarpur which is on the subject:--

"Permission for addition under section 13(1)(c) of the Income Tax Ordinance, 1979, in the case of Mr. Imdad Ali and Co. Shikarpur for the assessment year 1996-97, 1997-98, 1998-99 and 1999-2000".

In the body of the order referring to letter No. 665, dated 28-6-2002, it has been mentioned as follows:--

"Considering the facts and circumstances of the case, permission for addition under section 13(1) is granted/accorded in the above named case as follows:--

S. No.????????????????????????? Assessment year?????????? Addition under section 13(1)(c)

(1)??????????????????????????????? 1996-97?????????????????????? Rs.38,945

(2)??????????????????????????????? 1997-98?????????????????????? Rs.2,39,290

(3)??????????????????????????????? 1998-99?????????????????????? Rs.12,17,910

(4)??????????????????????????????? 1999-2000?????????????????? Rs.14,12,022."

According to the learned counsel, the above letter shows that the learned IAC has not allowed any approval for the addition. He has contended that the "approval" and "permission" have different meaning and their impact is also quite different. According to learned Counsel, for the addition under section 13, approval of the IAC is pre-mandatory condition for exercise of jurisdiction. The learned counsel has contended that although there is no mention of any approval from the learned IAC in the assessment orders for all the four years and in view of the above referred letter, the Taxation Officer has sought permission, in any, and the learned IAC has also allowed permission, therefore, the additions after seeking/allowing permission from IAC is not tenable in the years of law due to lack of approval from the learned IAC, in accordance with law. In support of these contentions, the learned counsel has placed reliance on the reported decisions 2003 PTD (Trib.) 1238, 2005 PTD (Trib.) 326 and PLD 2004 AJ & K 30 wherein it has been held that "approval" and "permission" have different meanings and their impact is also quite different.

Regarding the observations made by the learned CIT(A) in the consolidated impugned order that the assessee has furnished books of accounts before the Assessing Officer during the course of original proceedings and has failed to produce the books of accounts during the proceedings before the Taxation Officer under sections 65/62 of the Repealed Income Tax Ordinance, 1979, it has been contended by the learned counsel that no books of accounts were ever produced before the Assessing Officer in the original proceedings under section 62, as the books are not maintained. He has, in this respect, placed before us the diary sheet of the original assessment proceedings before the Taxation Officer wherein it has been specifically mentioned that no books of accounts have been produced before the Assessing Officer. However, certain evidence required under the law were produced before the Taxation Officer.

The learned counsel has contended that original assessment order for all the four years under review has never been served upon the assessee/appellant and the assessments for all the four years were made on IT-30 which according to the learned counsel is a general practice in their circle.

On the facts of the case, the learned counsel has contended that for the assessment year 1996-97, the addition has been made as per information received from Messrs F.F.C. that the amount to the tune of Rs.58,270 has not been declared by the assessee but according to the learned counsel, in this respect, it was explained to the Taxation Officer that this amount includes marketing allowance and freight charges which has been declared by the assessee in his statement of account and the alleged freight charges were for logistic purposes, as without reimbursement of this expenditure, the goods could not be brought into the godown/shop. The same being direct in nature was net off accordingly and that is why it did not appear in the statement of account.

Regarding the alleged marketing allowance, it has been contended by the learned counsel that it was for growers and being direct in nature was net off accordingly as such, the same did not appear in the statement of account.

Regarding the addition for bank credit, the learned counsel has submitted that there was no justification for the addition as admittedly, the bank statements for first six months and last six months are on the record of the department and as per bank statements, there was in clear term a "debit balance" which is in accordance with the liability claimed by the appellant. According to the learned counsel, the Taxation Officer has simply considered the debit and credit entries but has ignored the opening debit balance and has not in this respect confirmed/verified from the bank authorities.

Regarding the F.F.C. trading liability, the learned counsel has contended that the Taxation Officer has considered the non-declaration of liability towards stock-in-trade not declared by the appellant, without considering the fact that no addition can be made in respect of liabilities under section 13 of the Repealed Ordinance, 1979. According to the learned counsel, the Taxation Officer has treated the said liability against stock in trade, therefore, the credit of this extent was warranted which has not been allowed in accordance with law and therefore according to him, the addition is not justified. The learned counsel has contended that rejection of explanation offered by the assessee about non-declaration of liability due to non-declaration of stock in equal amount was patently void and illegal. He has submitted that no addition under bank credit and trading liability was warranted and to be dealt with on the basis of wealth tax return, as the action on the basis of wealth tax return was introduced in the statute through Finance Act, 1999 without having retrospective effect. According to the learned counsel for the appellant, the addition made under section 13(1) is quite vague, as it does not disclose to which kind of eventually it falls. He has, therefore, requested that the impugned order of the learned CIT(A) may please be vacated and the additions as made by the Taxation Officer for all the four years under review may please be deleted.

4. On the other hand, Ms. Farzana Jabeen representing the department is supporting the impugned orders of the Officers below. According to her, the impugned order may please be maintained, as the Taxation Officer has made the additions after admittedly obtaining permission for the additions from the learned IAC in accordance with law and the learned CIT(A) has rightly upheld the addition for the assessment year 1996-97, as the concealment has been established.

Regarding the other three years, the learned DR has submitted that the learned CIT(A) has already set aside the assessments for de novo proceedings and the assessee may explain his position before the Assessing Officer.

5. We have heard the learned representatives of both the sides and have also perused the consolidated impugned order of the learned CIT(A), the orders, made for all the four years under review under sections 65/62 of the Repealed Income Tax Ordinance, 1979, the case-law referred by the learned counsel for the appellant and other relevant documents placed before us on behalf of the appellant.

6. We have found that in all the four years, the Assessing Officer in the assessment order has nowhere mentioned regarding approval of the learned IAC for the subject additions which is the mandatory requirement of law for making the addition under section 13 of the Repealed Income Tax Ordinance, 1979. On behalf of the appellant, it has been established through evidence that the learned IAC in response to the letter of the Assessing Officer granted/accorded the "permission" for additions under section 13(1), which can in no way be equated to "approval" which is the requirement of law. Likewise, the Assessing Officer has failed to subscribe in the assessment orders under sections 65/62 for all the four years under review under which sub-clause the addition was made. We have further noted that the Assessing Officer in all the four orders has mentioned that during the original assessment proceedings, the record of the case was produced by the assessee, but on behalf of the assessee, the diary sheet of the original assessment has been placed before us wherein, there is no mention that the record has been produced during the course of assessment proceedings. Even otherwise, it has been contended on behalf of the assessee's learned counsel that no assessment order for the years under review has ever been issued for all the four years under review and the original assessments were made on IT-30.

Regarding the production and non-production of books of accounts, the observations have been made by the learned CIT(A) without confirming from the record of the case. We are of the view that observations in this regard made by the learned CIT(A) in the impugned order are contradictory and against the facts of the case, as he has, without any justification, rejected the contentions as raised by the learned representative of the assessee and has upheld the addition for the assessment year 1996-97 and set aside the assessments for the remaining assessment years. The learned CIT(A) after giving the following observations had no justification to-set aside the assessment:

"The orders for the assessment years 1997-98, 1998-99 and 1999-2000 give an impression that an important case was assigned to an Officer who does not know how to deal with such important matters. The Officer has not been able to explain as to what he wants to say and what he wants to do. Accordingly, whatever material available to him was spoiled by him."

We are of the view that after giving above referred observation, the learned CIT(A) has given further opportunity to the appellant department to fill in the lacunas which cannot be cured due to lack of violation of the mandatory requirement of law. We are of the view that in the present case, the additions have been made without prior approval of the learned IAC. If there was any "permission" sought and granted/accorded that cannot be treated as "approval" under the law, as "approval" and "permission" have different meanings and their impact is also quite different as has already been held by this Tribunal as well as by the Hon'ble Superior Courts in many cases, some of which have already been referred by the learned counsel and have been mentioned supra.

We, therefore, find no justification for the additions, as the additions have been made without prior approval of the learned IAC for all the four years under review. The consolidated impugned order of the learned CIT(A) is, therefore, vacated and the additions made for all the four years under review under section 13 by the Assessing Officer are deleted.

All the four appeals filed by the assessee for the assessment years 1996-97 to 1999-2000 are allowed.

H.B.T./471/Tax (Trib.)???????????????????????????????????????????????? Appeal allowed.