M.A. No. 721/LB of 2005, I.T.As. Nos. 3247/LB and 3299/LB of 2003, decided on 8th November, 2005. VS M.A. No. 721/LB of 2005, I.T.As. Nos. 3247/LB and 3299/LB of 2003, decided on 8th November, 2005.
2006 P T D (Trib.) 1282
[Income-tax Appellate Tribunal Pakistan]
Before Zafar Thaheem, Judicial Member and Mazhar Farooq Shirazi, Accountant Member
M.A. No. 721/LB of 2005, I.T.As. Nos. 3247/LB and 3299/LB of 2003, decided on 08/11/2005.
Income Tax Ordinance (XXXI of 1979)---
----S. 59(1)---C.B.R. Circular No.4 of 2001, dated 18-6-2001, para.9(a)(ii)---Self-assessment---Assessment year 2001-2002---Selection of case for total audit---Selection of case by the Regional Commissioner of Income Tax for total audit was declared illegal by the Appellate Tribunal and Assessing Officer was directed to accept the return under S.59(1) of the Income Tax Ordinance, 1979---Appeal filed by the department was rejected being devoid of merit.
Messrs Sahib Textiles (Pvt.) Ltd., through Managing Director, Faisalabad v. Federation of Pakistan through Secretary Finance, Secretariat, Islamabad and 4 others 2004 PTD 1; Ellahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC 582 = 1997 PTD 1555; Canon Products Ltd. v. I.T. Officer, Companies Circle, Karachi 1985 PTD 549; Muhammad Asghar and others v. Income Tax Officer and others 1986 PTD 357; Ikhlaq Cloth House, Faisalabad v. ACIT, Faisalabad 2001 PTD 3121; 2005 PTD (Trib.) 342 and 2003 PTD (Trib.) 2157 rel.
Muhammad Shahid Abbas for Appellant (in M.A. No.721/LB of 2005 and I.T.A. No. 3247/LB of 2003).
Anwar Ali Shah, D.R. for Respondent (in M.A. No.721/LB of 2005 and I.T.A. No. 3247/LB of 2003).
Anwar Ali Shah, D.R. for Appellant (in I.T.A. No.3299/LB of 2003).
Muhammad Shahid Abbas for Respondent (in I.T.A. No.3299/LB of 2003).
Date of hearing: 2nd November, 2005.
ORDER
These are two cross-appeals for the assessment year 2001-2002 one by the assessee-appellant and the other by the Revenue, filed against the order of the learned CIT/WT (Appeals-Zone), Gujranwala, dated 7-4-2003. The assessee-appellant has also filed a miscellaneous application by submitting the amended grounds of appeal for the same assessment year i.e. 2001-2002 whereby he has been aggrieved with the following contentions:--
"That the exclusion of case from SAS by the RCIT/WT is against all canon of justice and without any basis, hence the action is illegal.
That the estimation of manufacturing sales at Rs.60,00,000 and reduced to Rs.26,00,000 by the CIT(A) whereas the sales has shown as per Survey Agreement of Rs.18,00,000. Hence the estimation is void ab initio and illegal.
That the estimation of retail sales at Rs.25,00,000 and reduced to Rs.22,00,000 by the CIT(A) whereas the sales has been shown as per Survey Agreement of Rs.20,00,000. Hence, the estimation is void ab initio and illegal.
That the estimation of both the sales at Rs.85,00,000 reduced to Rs.48,00,000 against declared at Rs.38,00,000 (as per Survey Form) no the basis of I.T.I's report which is irrelevant for the year under consideration.
That the add backs (as set forth in the memo. of grounds of appeal before us) are contested being high and excessive."
On the other hand, the Revenue had raised the following issue:--
"That the learned CIT has reduced the estimated sales from Rs.60,00,090 to Rs.26,00,000 under the head manufacturing account and that of trading account reduced from Rs.25,00,000 to Rs.22,00,000 without any justification and cogent reasons.
That the learned CIT(A) was not justified to reduce the add backs under the heads `electricity light and repair' and `packing expenses' made by the Assessing Officer."
Briefly stated the facts of these cross-appeals are that the assessee-appellant, an individual, who derives income from manufacturing and sale of Sweets besides the income earned from purchase and sale of general merchandize items. Return for the year under appeal was filed by the assessee declaring total income of Rs.2,16,500 and the case of the assessee was selected for `total audit' under para. 9(a)(ii) of the CBR's Circular No.4 of 2001. The selection of the case was made by the worthy RCIT, Northern Region, Islamabad. The Assessing Officer issued notices under section 61 and in compliance thereto, the AR of the assessee-appellant duly appeared before the Assessing Officer to whom the case was discussed at great length. The Assessing Officer also issued a notice under section 62 which was duly replied by the assessee-appellant's AR on 26-2-2003 as mentioned in the assessment order on page-4. The Assessing Officer, for the detailed reasons as discussed in the assessment order, rejected the declared. version of the assessee-appellant being not supported with books of accounts and finalized the assessment by estimating the manufacturing sales for the year under appeal at Rs.60,00,000 against declared sales of Rs.18,00,000 as shown in the Survey Form and estimated the sales on account of retail sales at Rs.25,00,000 as against declared figure of Rs.20,00,000 as shown in the Survey Form respectively and assessed the total income at Rs.14,30,500 during the course of assessment proceedings while making certain additions under the Profit & Loss accounting expenses as mentioned in the assessment order.
On being aggrieved, the assessee-appellant went in appeal proceedings before the learned CIT(Appeals), who vide his order cited supra, after taking into consideration the facts and circumstances of the case and perusing the assessment record, observed that the assessee ?appellant, in response to notice issued under section 62, contended that Meter No.18-2112-01378700U was totally used for light purposes and not for manufacturing of any sort of business activity which was not accepted by the Assessing Officer during the course of assessment proceedings. As regards admission of wages before the Survey Team, the assessee has admitted sales of manufacturing account at Rs. 18,00,000 and retail sales at Rs.20,00,000 but the Assessing Officer did not accept the version of the assessee and believed that the wages as admitted by the assessee during the survey process were for estimation of production and sales of the assessee. In view of this fact, the learned first appellate authority reduced the estimated sales to Rs.26,00,000 on account of manufacturing sales and to Rs.22,00,000 on account of retail sales being made without any basis and evidence and also excessive as the report of the circle inspector was also related to the subsequent assessment year. As regards the additions made out of Profit and Loss account expenses, the learned first appellate authority confirmed/reduced the same as elaborated in the appellate order on page-4 for the year under appeal.
We have heard the rival contentions of both the sides and also perused the available record and the case-law and other related documents as furnished by the learned AR of the assessee-appellant, during the course of hearing before us, who argued vehemently regarding the exclusion of the case froth the ambit of Self-Assessment Scheme by the RCIT, as it was announced by the superior judiciary in re: 2004 PTD 1 (Lahore High Court) in the case of Messrs Sahib Textiles (Pvt.) Ltd., through Managing Director, . Faisalabad v. Federation of Pakistan through Secretary Finance, Secretariat, Islamabad and 4 others wherein the Hon'ble High Court has quoted the following cases:--
Ellahi Cotton Mills Ltd. v. Federation of Pakistan PLD 1997 SC 582 = .1997 PTD 1555 ref.
"Sections 59 & 62.---Self-Assessment Scheme---Direction by C.B.R. to RCIT giving a time limit to select cases for total audit-Validity-Such direction was not "performance of a legal duty" qua assessee, the denial or absence whereof could amount to accrual of legal right."
Canon Products Ltd. v. IT. Officer, Companies Circle, Karachi 1985 PTD 549; Muhammad Asghar and others v. Income Tax Officer and others 1986 PTD 357 and Ikhlaq Cloth House, Faisalabad v. ACIT, Faisalabad 2001 PTD 3121 ref.
"Section 59---Self Assessment Scheme---Change in or extension of scheme after its announcement and filing of returns---Scope and validity---Availing of scheme is optional for assessee, but such fact would not justify issuance of parameters of denial of scheme to assessee individually or collectively after filing of returns--;After filing of returns and taking final and decisive step by assessee in response to scheme notified for the year, no change or extension detrimental to assessee can be made therein."
It was held by the Hon'ble High Court in the case of Messrs Sahib Textile (Pvt.) Limited as under:--
"Since admittedly all the cases of the petitioners were selected for process under normal law on the basis of the guidelines issued after filing of the returns these cannot be approved on any legal, moral or ethical basis. Therefore, for the reasons earlier detailed in the previous paras, I will allow these petitions and hold that their selection for total audit on the basis of guidelines was improper. It shall be set at naught."
In another case it was held by the learned ITAT in re: 2005 PTD (Trib.) 342 that:--
"Section 59(1)---C.B.R. Circular No. 7 of 2002, dated 15-6-2002---Self-Asses4ment Scheme para. 9(a)(ii)---C.B.R. Letter C. No. 7(7)/S. Asstt/2002, dated 17-12-2002---Self assessment---Setting apart---Selection of case for total audit was not justified, when the High Court declared the guidelines as ultra vires on the basis of. which, the Assessing Officer had selected the case and assessed the income of the assessee under normal law---Returns filed by the assessee under Self-Assessment Scheme were restored and all the subsequent proceedings by the department were vacated by the Appellate Tribunal."
In another reported case decided by the ITAT in re: 2003 PTD (Trib.) 2157 regarding survey estimation whereby it was held as under:
"Section 62---Survey for Documentation of National Economy Ordinance (XV of 2000), Preamble---Survey---Estimation of sales---Assessment of higher turnover than assessed by the survey team---Validity---No firm basis existed to justify the turnover as assessed by the Assessing Officer at Rs.25 lacs when at the time of survey, a turnover of Rs.17 lacs appeared to have been agreed to---If the Department had any firm evidence that the declaration as made by the assessee was not correct, then the same should have been confronted to the assessee formally---Mere reference to a general equality conducted by the Inspector was of no consequence in the eye of law---Inspector did not prepare an inventory of stocks statedly available at assessee's business premises and no copy of the same was ever handed over to the assessee for rebuttal---Assessing Officer had erred in blindly accepting the Inspector's bald recommendations---Appellate Tribunal directed that sales for the year be assessed at Rs. 17 lacs, as agreed to in the survey report."
In view of the foregoing reasons as mentioned above, we are of the considered judgment that the case of the assessee before us is on `all fours' with the cases cited supra, in view of which the Assessing Officer is directed to accept the return under section 59(1) for the year under appeal i.e. assessment year 2001-2002.
At the same time, the appeal of the department, for the assessment year, 2001-2002, being devoid of merit is rejected because the issues as raised by the Revenue on the grounds of appeal were general in nature.
C.M.A./575/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal accepted.