I.T.As. Nos.177/KB, 921/KB and 103/KB of 2004, decided on 24th September, 2004. VS I.T.As. Nos.177/KB, 921/KB and 103/KB of 2004, decided on 24th September, 2004., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 16 (2004)

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

----S. 32---Method of accounting---Test reports---Test reports were merely indicator which could not be outright applied on each and every unit of Ghee Mill---If such practice was allowed, the very purpose of maintaining books of accounts by an assessee in accordance with S.32 and the Rules made thereunder would frustrate.

1987 PTD (Trib.) 402 ref.

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

----S. 62---Assessment on production of accounts, evidence etc.---Rejection of accounts----In absence of pointing out specific material defects in the books of accounts and particularly when the declared Gross Profit rate was not ridiculously low, the declared trading account was bound to be accepted.

1986 SCMR 443 rel.

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

----S.62---Assessment on production of accounts, evidence etc.--Rejection of accounts---High consumption of raw material---Merely declaring high consumption of raw material or excessive wastage did not give rise to the basis for rejection of account version.

(1961) 42 ITR 237 (H. C.) rel.

(d) Income-tax---

----Cost of sales account---Showing sale of damaged seed in cost of sales account was not against the principle of accountancy coupled with it.

(e) Income-tax---

----Cost of sales account---Crediting sale of damaged seeds to the cost of sales account could not be termed to be a discrepancy; it could safely be held to be a difference of opinion on recording a transaction and nothing else.

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

----Ss. 62 & 32---Assessment on production of accounts, evidence etc.---Method of accounting---Addition on account of process loss---When the declared gross profit rate and also the declared sale price had been directed to be accepted by the First Appellate Authority and especially when debit side of the trading account had not been objected to then judicial hierarchy demands acceptance of the declared trading version---Making addition on account of process loss in such circumstances would not be sustainable---Such would be burdening the assessee twice; it was so because gross profit rate had been arrived at after excluding debit side of the trading account which includes, inter alia, consumption of raw material---Since loss of quantity of raw material during the course of processing had been included in consumption of raw material meaning thereby that this had become part of the trading account, therefore, it would amount to double jeopardy---Addition made in process loss could not be declared to have been lawfully done---Addition on account of process loss in the case of sunflower seeds and also in rapeseeds was unjustifiably made and the same was deleted by the Appellate Tribunal ---Assessee' appeal was allowed while that of department was dismissed.

1994 PTD 730 rel. Appeal No. 800/2002 ref.

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

----S.62---Assessment on production of accounts, evidence etc.---Estimation of selling price---Average selling price was worked out by taking minimum and maximum selling price declared by the assessee which was multiplied to entire quantity of seeds and in this manner total sales were evolved by the Assessing Officer---Validity---Evolving sales by adopting average selling price in a case where books of accounts were regularly employed and were also audited besides the company was quoted on Stock Exchange, was nothing but a slipshod formula which was highly deprecated---Such fact had also escaped consideration by the Assessing Officer that selling price in consumers goods generally varies on day to day basis apart from considering the other factors---Assessing Officer had miserably failed to bring home any substantial and cogent unequivocal evidence/material to disbelieve the declared selling price---Merely adopting average selling price in an account case was a rough method of computing sales which was disapproved by the Appellate Tribunal.

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

----Ss. 80-C (2)(a)(ii) & 50(5)---Tax on income of certain contractors and importers---Deduction of tax at source---Sale of damaged seed---Provisions of S.80-C of the Income Tax Ordinance, 1979 were applied, by the Assessing Officer assuming that seeds sold were not actually damaged and were sold in the market as such, and such transaction fell within the ambit of S.80-C of the Income Tax Ordinance, 1979---Validity---Since no deduction of tax under S.50(5) of the Income Tax Ordinance, 1979 was made, hence provisions of S.80-C of the Income Tax Ordinance, 1979 were not attracted in such eventuality---Deduction authority was Collector of Customs who had to collect tax under S.50(5) of the Income Tax Ordinance, 1979 at the time of import of goods and in absence whereof the provisions of S.80-C of the Income Tax Ordinance, 1979 were not attracted---Section 80-C(2)(a)(ii) of the Income Tax Ordinance, 1979 provided for presumptive tax in case of importers which were liable to deduction of tax under subsection (5) of S.50 of the Income Tax Ordinance, 1979---Departmental contention was not entertained by the Appellate Tribunal because no tax was collected on import of raw material as such provisions of S.80-C of the Income Tax Ordinance, 1979 were not attracted in such eventuality.

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

----Ss.24 & 50(4)---Deductions not admissible---Advertisement expenses---Addition in spite of deduction of tax---Validity---Details furnished had made it evident that all parties were identifiable and tax under S.50(4) was deducted at the time of making payments to them---In addition to those the parties were limited companies and payments were also made to them by way of crossed cheques---Since the Assessing Officer had categorically admitted that after deducting tax from those parties same was duly deposited in Government treasury, therefore, the assessee could not be saddled with burden of additional tax by disallowing and adding such expenses in its total assessed income---Addition was deleted by the Appellate Tribunal in circumstances being not lawfully made---Order of First Appellate Authority was modified to the extent of allowing advertisement expenses in its entirety.

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

----Ss. 24(c), 52 & 62---Deductions not admissible---Payment of interest---Assessing Officer, after passing order under S.62 of the Income Tax- Ordinance, 1979, whereby the addition was made under S.24(c) of the Income Tax Ordinance, 1979, had also passed another order in terms of S.52 of the Income Tax Ordinance, 1979 holding the assessee to be in default in respect of payment of interest on T.F.C. (s) made to Bankers Equity---Such amount was also charged to tax in terms of S.52 of the Income Tax Ordinance, 1979---Validity---Once the Department had exercised option to charge amount of certain payments to tax under S.52 of the. Income Tax Ordinance, 1979 by holding the assessee to be in default, the said amount could not be subjected to further tax in terms of S.24(c) of the Income Tax Ordinance, 1979 for the same reasons that the assessee had failed to withhold tax from those sums under S.50(4) of the Income Tax Ordinance, 1979 which clearly amounted to double taxation which could not be allowed under the scheme of Income Tax Law---First Appellate Authority was not wrong in deleting the addition and its findings were endorsed by the Appellate Tribunal.

1984 PTD 239 rel.

Javed Iqbal Rana, D.R. for Appellant.

Abdul Rahim Lakhany for Respondent.

Date of hearing: 15th September, 2004.

ORDER

S.A. MINAM JAFARI (ACCOUNTANT MEMBER).---By this single order we proceed to adjudge the title three appeals; out of which two are cross appeals, one each filed by the assessee and the department, for the assessment year 2001-2002 while the third one is also preferred at the instance of the department in respect of assessment year 2000-2001. All these appeals are directed against two separate orders passed by CIT(A) Zone-I Karachi; one, dated 13-5-2003 and the other 11-12-2003 respectively for the assessment years, 2000-2001 and 2001-2002.

2. The assessee is aggrieved with regard to the directions given and the confirmation made by the First Appellate Authority in process loss account, application of gross profit rate in damaged seeds account, issuance of corrigendum by the Assessing Officer and the additions made out of certain heads of the profit and loss expenses. On the contrary the departmental grouse pertains to setting aside the addition made on account of concealed/suppressed sales (under the head sunflower seeds oil, rape seeds oil and cotton seeds oil), in oil yields account and its by-products as well as the shortage worked out therefrom. Acceptance of the declared sale rate in oil account and its by-products, the direction to apply 5% G. P. rate on sale of damaged seeds and vacation of levy of tax under section 80-C on sale of damaged seeds have also been contested by the Revenue to be unwarranted.

3. For the assessment 2000-2001 the Revenue's solitary objection relates to deletion of addition amounting to Rs.23,37,273 made under section 24(c) of the Income Tax Ordinance by the First Appellate Authority.

4. Both the learned representatives appearing at the bar have been heard at a great length and have perused the impugned orders, the details and documents as well as the case law furnished before us. However, we are taking up cross appeals at the first place.

Cross appeals

5. Facts forming background of the cross appeals are that the assessee which is a public limited company quoted on Stock Exchange of Pakistan, enjoys income from operating an oil mill by extracting, refining and sale of edible oil from sunflower seeds, rape seeds, cotton seeds, under the brand name "Seasons Canola". The books of accounts produced for examination were disbelieved by the Assessing Officer after making a detailed discussion in the body of the assessment order. It was noted therefrom that sales, at Rs.981,188,308 as against the preceding year's sales of Rs.824,098,981 have registered 16.51 % improvement while G.P. rate of 11.56%, against that of the preceding year's at 11.43% after re-casting, by charging packing material to the trading account would get reduced to 8.72% as was declared in the preceding assessment year. It was also noted that crude oil recoveries and wastage on further refining the cotton seeds at 15.96% with process loss at 2.92 %, in Rape seeds up to branded oil. at 37.28 % with process loss at 6.36% and in sunflower seeds at 33.25% with process loss at 2.90% was conceded. Difference in stocks of Rape seeds at 1,061,933 Kgs. was noted while in sunflower account, crushing of more seed viz. the available quantity was observed. The assessee's explanation with regard to purchase of local seeds and sale of damaged imported seed without crushing them stood accepted. However, the assessee's plea on the point of sale of imported seed to be actually damaged was disbelieved on the ground that complete identifiable particulars of the parties to whom imported and damaged seeds were sold were not recorded. Moreover discrepancy in two ledger account was also found. According to the Assessing Officer sale of damages sunflower seed account to Messrs Aziz and Sons A/c was debited by Rs.459,256 while sunflower seed A/c was credited by Rs.454,300. It was thus concluded that the profit earned amounting to Rs.4,954 was not recorded in the books of accounts. However, the Assessing Officer proceeded to tax total value of commercial imports transactions amounting to R.64,143,185 @ 5% in terms of section 80-C of the Income Tax Ordinance by treating to be undamaged seeds bifurcation of sale value of which in case of sunflower seeds was weighing 3,294,015 Kgs. at Rs.40,648,145 and Rape seeds 1,654,580 Kgs. at Rs.23,495,036.

6. The Assessing Officer further noted that the declared percentages of recoveries of crude oil from Rape seed and sunflower seeds respectively shown at 37.28 % and 33.25 % was low considering the percentages recorded in the assessee's own manufacturing reports and its Annexure as well as in the reports of PCSIR and that of the All Pakistan Solvent Extractors Association (APSEA). In this regard it was stated by assessee that further allowances for processing loss or wastage on account of refining crude oil or post crude oil process converting into cooking oil stage ranges from 3.5 % to 4 %. This standard by Government owned body namely Ghee Corporation of Pakistan, has been ignored completely by the Assessing Officer while converting crude oil into refined and cooking oil. Also pointed out that in the case of sunflower seeds the Assessing Officer had failed to take cognizance of allowance for processing loss on account of dirt and external material while in the case of Rape seed 6% allowance was allowed under this head. It was also contended by the assessee that reliance on the PCSIR and the APSEA's reports/letter were out of context as those were prepared on "clean seed basis" and this factor was also not reflecting in their recovery percentages. It was also urged that PCSIR and the APSEA's reports had also qualified the stated crude oil recovery percentage which had not been considered in the proposed recovery percentages. In addition to, the attention was also drawn to the fact that in two other cases, namely, Shujaabad Oil Mills (Pvt.) Ltd., Multan, shortage was allowed at 8.11 % with yield of crude oil at 36.5% and while in the case of Fatima Enterprises, Multan, the declared yield of 38.85% stood accepted in its assessment. Anyhow the contention of allowance of processing loss for post-refining crude oil was not entertained by the Assessing Officer by observing that this process had no relevance to recovery/yield of oil from crushing of seeds. Thus, the declared loss of 6.36% was held to be excessive in the case of Rape seeds considering Annexure H to the assessee's manufacturing report whereas that varies from 1.2% to 3.5%. Accordingly the wastage in the case of Rape seed was restricted to 3%. The Assessing Officer further justified his adoption of recovery percentage on the basis of a case bearing NTN 34-01-0803938 by observing that recovery of crude oil from Rape seeds was shown to have been yielded at 41.51 % during the assessment year 2001-2002. Although the assessee had submitted quantitative details of recovery of oil however, those were brushed aside by merely stating that those remained unsubstantiated on account of any sourceful document. The contention of crushing locally purchased Rape seed at 380 tons with lesser oil contents was also rejected by the Assessing Officer. As regards the assessees's contention that the declared yield was reasonable which was supportive of Ghee Corporation of Pakistan's standards (Ministry-approved standards), was not entertained by maintaining that the standards of GCP units were irrelevant as those were mis-managed units. It was, thus, concluded by the Assessing Officer that as the assessee had not recorded profit on sale of seeds in the books of account meaning thereby those were not properly maintained coupled with it production results did not commensurate with the established industrial standards, the return version was discarded by placing reliance on one of the reported and the other unreported judgment. The Assessing Officer, however, allowed consolidated processing loss or wastage in the case of Sun-flower seed at 2.90% and in the case of Rape seed at 3% for both crushed crude oil and for post-refining oil converting into cooking oil The difference between the declared recovery percentages and the adopted recovery percentages, as worked out, was then multiplied by the adopted sale rates viz. the declared sale rates as there was suppression in sale rates of oil and its by-products in respect of sunflower seed oil, Rape seed oil and cotton-seed oil and their related by-products.

7. The Assessing Officer also confronted the assessee with his proposed sale rates, and after considering the assessee's explanation, dated 4-6-2003 to contend that neither any basis were given nor any specific defects were pointed out by the Assessing Officer to justify his rejection of the declared sales rate despite the fact that Meal was sold to verifiable parties i.e. Feed Mills, and payments was predominantly received through banking channels, adding to it that even the export sale rates were lower being at Rs.7 per Kgs. against the proposed uniform sale rates of Rs.9.50 whereas in two other comparable cases sale rates of meals were adopted at Rs.5.50 and at Rs.5.32 per Kgs. respectively. However, the sale rate in the two heads i.e. Rape seeds and sunflower seeds was applied at Rs.9.17 per Kgs. after getting strength by quoting NTN of another case wherein the said sale rate was declared. Regarding variation in sale rates the Assessing Officer rejected the assessee's explanation by observing that it was a usual market phenomenon, duly supported by other cases including Dalda and Habib oil by holding that their products were of inferior quality. Coming to concealed/suppressed sales, it was noted by the Assessing Officer that in order to verify the sales, out of verification letter issued, under section 176 to nine parties, only two had responded confirming the sales. Accordingly, difference in sales figure was worked out to be, in case of sunflower seeds oil at Rs,46,654,096, in Rape seed oil at Rs. 105,242,398 and in cotton seed oil at Rs. 1, 167,614, totaling Rs. 153,064,108 which was treated to be as concealed/suppressed sales. This amount was ultimately added in the Gross Profit by observing that the cost of sales was verifiable. Additions out of certain heads of the P&L A/c expenses were also made on the ground that the claims were un-vouched, lack full identifying particulars and supportive evidence besides excessively claimed viz. compared to the preceding assessment year. This had resulted into computing net income of Rs.173,351,942 against returned figure of Rs.13,159,271. However, subsequent to passing the assessment order, a `Corrigendum' was also issued by the Assessing Officer transferring the addition of Rs.153,064,108 from the gross profit to the net profit which was otherwise added by him in the gross profit.

8. When this treatment was challenged before the Appeal Commissioner, he categorically held that rejection of declared trading results to have been illegally made. However, the issues of additions made on account of recoveries of oil and the wastage/shortage or the process loss were vacated with the direction to re-do them as per the APSEA'S formula. It was also directed that the difference so worked out between the declared recoveries and the adopted recoveries, if any, is to be multiplied by the assessee's declared sale price of oil and its by-products to work out the estimated figure of sales as against the declared sale and gross profit rate of 8.72% to be applied in view of the assessee's own established history, on the total sales so worked out. The resultant difference in the gross profit is to be added to the declared gross profit rate. As regards sale price, it was directed to accept the declared sale prices in respect of oil and its by-products for the reasons recorded therein. As far as application of section 80-C on sale of damaged seed was concerned, this treatment was held to be unjustified as a result thereof levy of tax under section 80-C was vacated by the Appeal Commissioner as sale of damaged seeds was a normal business exigency besides that was a stray transaction which cannot be held to be commercial transaction. Further direction was given to apply gross profit rate of 5% on sale of damaged stock of seeds valued by the Assessing Officer at Rs.6,41,43,181 although gross profit rate of 8.72% was obtained by the assessee as a result of the assessee's own manufacturing activity. Coming to profit and loss disallowances, the additions so made under the heads advertisement, salary and rent of sales point were set aside to be allowed after making necessary verification of the evidence and the facts to be brought on record. On the point of issuance of corrigendum subsequent to the assessment order, this plea was not entertained as the Assessing Officer had merely transferred the amount of gross profit so worked out to the net profit after passing the assessment order and nothing else.

9. At the very outset the learned counsel for the assessee vehemently contended that when the learned Appeal Commissioner has himself admitted and held rejection of the declared trading results to be illegal and also ordered acceptance of the declared sale prices of oil and its by-products as well as the declared gross profit rate, thus directing to set aside the process loss for re-adjudication in such circumstances is not at all sustainable reason being process loss is also part of the trading account. According to him, any addition made in process loss would amount to double taxation. One by estimating sales and then to apply gross profit rate thereon and other by assessing process loss although it was held by the Appeal Commissioner that no such addition can be made in respect of shortage or wastage etc. To substantiate the contention reliance was placed on a case law reported as 1994 PTD 730.

10. It was further added that addition on account of process loss in the trading account was also made in the immediately preceding assessment 2000-2001 which was deleted by the First Appellate Authority by directing acceptance of the declared trading version and that treatment was ultimately maintained by the Tribunal vide I.T.A. No.2215/KB of 2001, dated 9-4-2002. Apart from this, not only the miscellaneous application but also the reference application filed by the department in this regard were rejected by the Tribunal by virtue of its order, dated 13-9-2002. Copies thereof were also placed on record for our consumption Learned. counsel went on saying that since the assessee has a history of acceptance of declared trading version upto the Income Tax Appellate Tribunal's level and moreover the declared G.P. rate in the year under appeal is almost the same as was declared in the preceding assessment year 2000-2001 which cannot be held to be ridiculously low, thus, rejection of declared trading version for the year under appeal was not at all warranted on the facts and in the circumstances of the case. Support in this regard was sought from a case law of the apex Court of Pakistan in re: 1986 SCMR 443.

11. So far as process loss is concerned, a chart showing the declared process loss and the process loss worked out by the DCIT has been furnished by the learned counsel for the assessee which for the purposes of ready reference is being reproduced hereunder:--

Sunflower Seed

DeclaredAssessed

Rape Seed

DeclaredAssessed

In this regard it was stated that the declared processing loss was discarded by the Assessing Officer on the basis of analytical report of Pakistan Council of Scientific and Industrial Research (PCSIR), dated 18-1-2003, wherein recovery of oil in "clean seeds" was shown to have been made at 41.5% while the All Pakistan Solvent Extraction Association (APSEA) in its certificate, had yielded oil recovery ranging in between 39% to 41 % and wastage in such reports in the case of rape seeds was restricted to 3% against declared at 6.36% which is not appreciable on the facts and circumstances of the case. It was strongly urged that placing reliance on so-called reports was uncalled for as recovery of oil from such reports has been worked out from "clean seeds". Conversely in the case of present assessee the seeds are either .locally purchased or import thereof is to be made wherein element of dust and external material cannot be ignored. Resultantly further loss is occurred which ranges from 3 % to 4 % during cleaning process in order to bring seeds into the position of oil extraction. According to the learned counsel this factum has been ignored by the DCIT completely while working out recovery of oil from seeds.

12. It was thus urged that oil recovery has been adopted by the Assessing Officer considering the reports up to the stage of crude oil only ignoring further process of converting crude oil into refine cooking oil. Had this process been taken into consideration, certainly lesser recovery of oil would have been adopted by the Assessing Officer. To substantiate this contention sample of crude oil, refined oil and cooking oil was displayed before us besides furnishing reports/certificate of PCSIR and APSEA. The learned counsel went on explaining that by adopting process of converting crude oil into refine cooking oil further loss is occurred ranging from 3% to 4% and to put emphasis on this point, reference was made to the results declared by Ghee Corporation Units, copy whereof has been placed on record, wherein further loss on account of processing was depicted to be in between 3.5% to 4% in refining crude oil or post-crude oil refining. Also laid great emphasis that analytical reports even otherwise are merely indicators which cannot be applied squarely on any other oil extracting unit as incurring of process loss depends upon various other factors; such as quality of seeds, efficiency of plant and machinery, atmosphere and moisture in seeds etc. which are enumerated in APSEA's report. Reference in this regard was made to a judgment delivered by the Sales Tax Appellate Tribunal in appeal No. 80 of 2002 in which it was held as under:--

Percentage of wastage varies with the quality and no hard and fast formula can be worked out to calculate this percentage.

13. It was also expressed by the learned counsel for the assessee that the appellant, being a public Ltd. company quoted on Stock Exchange, is maintaining complete books of account including the stock register which were admittedly produced for examination. Since, the Assessing Officer could not pinpoint any specific cogent defects therein, which is evident from the assessment order, and this being an admitted fact, therefore, merely placing reliance on external indicators cannot justify rejection of the declared trading version. Strength in this regard was drawn from a case law cited as (1987) 55 Tax 101 (Trib.) wherein in similar circumstances the declared trading version was directed to be accepted.

14. Further argued that excess consumption of raw material could not be made basis for rejection of returned version and support in this regard was acquired from Indian case law reported as (1961) 42 ITR 237 (H.C. Madras High Court) and 1984 PTD 239 in which it was observed that declared trading version cannot be disbelieved on account of excess consumption.

15. As regards discrepancy pointed out by the DCIT in two ledger accounts; such as extract of stores ledger account and subsidiary ledger account of Aziz and Sons have been produced before us and it was thus pressed that actually there was no discrepancy in two ledger accounts. According to him, figure of Rs.454,300 in store ledger account has been calculated by the DCIT on his own by adopting average cost rate. On the contrary valuation of stock is prepared by the assessee by following method of first-in-first-out (FIFO). Thus, working of the Assessing Officer by multiplying quantity of 33040 Kgs. into Rs. 13.75 by working out average rate instead of actual working of valuation of stock which amounted to Rs.459,256, as was reflecting in stores ledger account is misleading and misreading of evidence by the Assessing Officer. Coming to selling price adopted by the Assessing Officer at Rs.13.75, the learned counsel for the assessee stated that there was no material whatsoever available with the Assessing Officer to disbelieve the declared selling price. The discrepancy in two ledger accounts actually arose when minimum and maximum sale price from the assessee's ledger account was adopted consequent upon which the evolved average selling rate was multiplied with the quantity sold during the year under appeal which is highly uncalled for. Firstly that, selling price changes from day to day basis and secondly that, different price is charged on different size of packs. Thirdly, valuation of stock was prepared in FIFO basis. Thus, the Assessing Officer has erroneously worked out the alleged discrepancy in the two ledger accounts.

16. Our attention was also drawn at page 12 of the assessment order whereby it was admittedly by the Assessing Officer that declared process loss at 2.9% in case of sunflower seeds is reasonable and that stood accepted by him. Thus, making further addition of Rs.46,654,096 in sunflower seed account is self-contradictory which is highly objection-able. According to the learned A.R. this addition seems to have been made for the sake of addition only and nothing else.

17. Coming to gross profit rate on damaged seeds, it was contended that the learned Appeal Commissioner has fallen in grave error in directing to apply gross profit rate of 5% in case of sale of damaged seed. It was pointed out by the learned counsel for the assessee that although the learned Appeal Commissioner has directed to accept declared G.P. rate of 8.72% yet sale of rape seeds have been credited to cost of sale account which is part and parcel of trading account, therefore, any further addition to be made on account of sale of seed and to apply gross profit rate 'of 5% thereon is tantamount to be double jeopardy. Thus, there was no valid reason with the learned Appeal Commissioner in directing to apply 5% gross profit rate on sale of damaged seeds rather deletion thereof should have been ordered.

18. Next contention pertains to the addition made out of certain heads of the profit and loss expenses. With regard to the addition made in advertisement account, salary account and rent of sale points, it was maintained that the learned Appeal Commissioner was not at all justified in setting aside the additions made in these three heads.. Although in advertisement account the, Assessing Officer has tried to quote two instances o' un- verifiability of the claim to the extent of Rs.22,74,424 nevertheless payment was made to them through banking channel. In salary account it was the assessee's contention that staff members had been increased in the year under appeal from 17 to 111 persons as a result thereof turnover had also shown to have been increased. Anyhow, complete statement showing details of staff salaries and their NIC number are produced before us to contend that the claim was genuine and should be allowed in toto.

19. On the other hand the departmental representative vehemently supported the impugned assessment order for the reasons recorded therein. It was stated that since the assessee company is claiming to have maintained sophisticated unit, therefore, its efficiency must be to the optimum level and the process loss claimed to have been incurred does not commensurate with such type of plant and machinery. He went on arguing that process loss given in test report of PCSIR is very relevant which can be adopted as a standard for all the units and reliance thereon was rightly placed by the Assessing Officer to compute the assessee's income.

20. The learned departmental representative has also pointed out that sale of rape seed has not been shown separately which is against established norms of accountancy rather that has been credited to trading account which has influenced G.P. rate. This being a glaring defects in books of account the sale of rape seeds was justifiably estimated by the Assessing Officer. The learned departmental representative took another ground relating to application of section 80C of the repealed Income Tax Ordinance, 1979, in the case of sale of rape seed. According to him, since sale under this head was duly covered under section 80C of the repealed Income Tax Ordinance, 1979, the Assessing Officer did no wrong in assessing sale of rape seed under this section.

21. The learned departmental representative also invited our attention to the order of the learned CIT(A) wherein it has been stated that in presence of cogent material, history of the assessee becomes irrelevant. Since, cogent material was in existence to disbelieve history of the case, thus the learned Appeal Commissioner has erroneously directed acceptance of the declared gross profit rate by following history of the case.

22. The learned departmental representative further attacked observation of the learned Appeal Commissioner with regard to acceptance of declared sale price. Whereas vast difference in declared selling price was visible during the year under appeal which fact was duly confronted to the assessee. Thus observing by the Appeal Commissioner that issue of selling price was not confronted to the assessee, is incorrect. Since, there was no proper rebuttal from the assessee's side, therefore, the Assessing Officer was fully justified to apply average selling rate in the case of sales made to Aziz and Sons.

23. The learned Advocate for the assessee in counter arguments stated that since sale of rape seed is not a regular business feature of the assessee and in some exceptional circumstances seeds were sold being those had gone damaged, and as such was credited to cost of sales and this treatment was in line with accounting principle and should not be doubted unnecessarily when irrefutable documentary evidence was provided. Since sale of damaged seeds is part of the manufacturing account, gross profit rate of 8.72% be applied as has been declared by the assessee in its manufacturing activities. In his support the learned counsel produced a certificate, dated 30-4-2004 issued by Chartered Accountants Messrs Arman and Company, Chartered Accountants showing break-up of cost of sales vide Note No.17 to the audited accounts wherein sale of damaged seed was duly reflecting in cost of sales, copy of that certificate was produced before us as well.

24. Further argued by the learned Advocate that the Assessing Officer observation's on page No.9 of the order that seeds sold were not damaged is patently incorrect. To substantiate the contention, copy of the assessment order in respect of assessment year, 2001-2002 to whom damaged seeds were sold namely, Messrs Muhammad Aftab Iqbal (prop: Sabir Traders, Multan) has been produced which clearly indicates that damaged seeds were purchased from the appellant's company. It was, thus, established that the damaged seeds were in fact sold in the market.

25. After given anxious thought to the rival arguments and the documents and the case law furnished before us, the first issue in the case in hand relates to processing loss declared by the assessee. To disbelieve the declared results of process loss, the Assessing Officer mainly relied upon external material such as reports of PCSIR and APSEA. Such certificates may have a evidentiary value but in no way a conclusive piece of material to be followed blindly. In fact variation in results of an operational manufacturing unit is bound to occur on account of various factors which are briefly enumerated above. Appropriate course available with the Assessing Officer prior to rejection of declared processing loss was to unearth specific defects in the books of accounts maintained by the assessee rather resorting to a scientific or mechanical formula. Even otherwise the Assessing Officer has miserably failed to appreciate the contents of PCSIR's analytical report which vividly spells out the result extracted from "CLEAN SEEDS". Whereas the assessee is maintaining composite unit and imported seeds are crushed, thus element of admixture dust/dockage cannot be ignored which would certainly result into loss in recovery of oil. This factum could not be controverted by the learned DR with any plausible reasonings. Placing reliance by the Assessing Officer on All Pakistan Solvent Extractors' Association's report which too is misleading for the reason that it clearly states that oil recovered from seeds in the solvent extraction process is crude oil. But that needs to be further bleached and deodorized before it could be converted into cooking oil. Thus, process of refining crude oil would certainly resulting an additional loss. This assessee's contention is fortified by us from the sample of oils produced before us. Reference is also made to page 12 of the assessment order wherein at paras. 2, 3 and 4, it has been observed as hereunder:--

(1) A.R.'s argument regarding allowance of process loss is correct only to the extent of sunflower seed. This loss has been claimed @ 2.90% and will be allowed to the assessee.

(2) The declared process losses @ 6.36% in the case of rape seed is excessive in view of Annexure-II to assessee's manufacturing report, according to which Canola (Rape seed) process losses vary from 1.2% 3.5%. Moreover the statistical conversion data provided in Annex-II shows 3.00% of wastage. Therefore the same has been restricted to 3.00%.

(3) Due allowance of dirt @ 3.00% has been allowed to the assessee in respect of both rape seed and sunflower seed, therefore, the argument that no allowance has been given in the case of sunflower seed is misconceived and incorrect.

26. From the above it is abundantly clear that the department is blowing hold and cold with the same breath. At the first place the processing loss in case of sunflower seeds has been accepted while at the second place addition on account of suppressed sale of sunflower seed oil has been made which is certainly not sustainable. Coming to rape seeds processing loss, 3% wastage was admitted by the Assessing Officer besides allowance of 3% dirt therefrom. If both these figures of wastes are added, it would give percentage of 6% which comes almost near to the wastage as has been declared by the assessee at 6.36%. Admittedly there is no hard and fast rule for allowing percentage of wastage on scientific parameters because it all depends on quality of seeds, atmosphere etc. We fully agree with the principle laid down in the judgment rendered by the Customs, Central Excise and Sales Tax Appeal in sales tax appeal in re: No.80 of 2002, wherein almost similar view has been followed that percentage of wastage varies with the quality.

27. In our considered view these test reports are merely indicator which cannot be outrightly applied on each and every unit of Ghee Mill. If such practice is allowed, the very purpose of maintaining books of account by an assessee in accordance with section 32 and the Rules made thereunder would frustrate.

28. In fact no direct evidence was available with the department to discard the reject declared trading results particularly when the assessee has a history of acceptance thereof at the stage of Income Tax Appellate Tribunal. Apart from this, the gross rate declared by the assessee in the year under appeal at 8.72% is almost the same as was evolved in the preceding assessment year and stood accepted by the Tribunal. Thus, in absence of pointing out specific material defects in the books of account and particularly when the declared G.P. rate during the year under appeal is not ridiculously low, the declared trading account is bound to be accepted. We are fortified in our opinion by the case law of the apex Court reported as 1986 SCMR 443, wherein it was held that in absence of non-maintaining of stock register but the G.P. rate declared was not ridiculously low, the books of account cannot be rejected.

29. Merely declaring high consumption of raw material or excessive wastage, as has been alleged by the department, does not give rise to the basis for rejection of account version and support in this regard has been sought from judgments of Indian High Court (Madras) reported as (1961) 42 ITR 237 (H.C. Madras), wherein the principle settled was that "Rejection of account on the ground of excessive consumption is not lawful".

30. The next departmental representative's argument that crediting sale of seeds to the cost of sales is violative of principle of accountancy instead a separate account for such transaction should have been maintained which is a glaring defect in the books of account, is factually incorrect. We are persuaded to incline with the plea of the learned counsel for the assessee that sale of seeds is not a regular feature of the assessee's business. A stray transaction i.e. sale of seeds; by no means can be held to be a commercial transaction in manufacturing activity unless otherwise proved with some substantial material. Sometimes so happens that the imported goods may be of substandard which per force would compel the assessee to sell the same in the local market. Neither in the past nor in the subsequent assessment years such transaction has taken place. In this background it can be safely inferred that sale of damaged seeds in the year under appeal, was a normal exigency. Thus showing sale of damaged seed in cost of sales account is not against the principle of accountancy coupled with it when such transaction was supported with a certificate of Chartered Accountants issued by Messrs Arman and Company in the assessee's case which has been produced before us. When we inquired from the departmental representative as to what extent or percentage sale of seeds constituted, it was hurriedly stated that it comes to 6.53 % of the total turnover which is a meagre percentage to effect the declared trading version. Even otherwise merely crediting sale of damaged seeds to the cost of sales account cannot be termed to be a discrepancy. It can safely be held to be a difference of opinion on recording a transaction and nothing else.

31. It is also imperative to mention here that when the declared gross profit rate and also the declared sale price have been directed to be accepted by the Appeal Commissioner and especially when debit side of the trading account has not been objected, then judicial hierarchy demands acceptance of the declared trading version. Thus, making addition on account of process loss in such circumstances would not be sustainable. Undoubtedly this would be burdening the assessee twice. It is so because gross profit rate has been arrived at after excluding debit side of the trading account which includes, inter alia, consumption of raw material. Since loss of quantity of raw material during the course of processing has been included in consumption of raw material meaning F thereby this has become part of the trading account, therefore, it would amount to double jeopardy. Thus the addition made in process loss cannot be declared to have been lawfully done. Strength in this regard has been acquired from a case law reported as 1994 PTD 730 whereby in a nutshell it was held that addition in such circumstances cannot be made which was ultimately deleted in that case.

32. Glancing through the facts of the case in its entirety, we are of the considered opinion that in view of the assessee's own established history, deviation therefrom cannot be made by resort to' scientific formula in absence of adducing glaring defects or discrepancy or pointing out existence of exceptional and extraordinary circumstances in the books of account maintained by the assessee when those were maintained on the same pattern as was in the past which pattern had stood accepted right up to the stage of the Tribunal. Actually the entire structure of assessment has been built up by the Assessing Officer on whimsical inferences drawn from certain set of acts or based on erroneous or mala fide grounds. Thus in such circumstances the Assessing Officer was not vested with unbridled powers to arbitrarily disturb the assessee's settled history. There are plethora of judgments on either of the higher appellate forums or the Tribunal and need. not to burden this judgment by citing them hereunder. For the reasons stated supra we have no ambiguity in our mind except to hold that the additions on account of process loss in the case of sunflower seeds and also in rape G seeds was unjustifiably made, hence those stand deleted. Consequently, the assessee's appeal is allowed while that of the department is dismissed on this score.

33. Now, we take up next issue of estimation of selling price of oil. The solitary objection raised for estimation of selling price by the Assessing Officer was that the declared selling prices in the year under appeal fluctuated vastly and he therefore, worked out average selling price by taking minimum and maximum selling price declared by the assessee which was multiplied to entire quantity of seeds and in this manner total seals were evolved by the Assessing Officer. Evolving sales by adopting average selling price in a case where books of accounts are regularly employed and are also audited besides the company is quoted on Stock Exchange, is nothing but a 'slipshod formula which is highly deprecated. This fact has also escaped consideration by the Assessing Officer that selling price in consumers goods generally varies on day to day basis apart from considering the other factors. To our mind the Assessing Officer has miserably failed to bring home any substantial and cogent unequivocal evidence/material to disbelieve the declared selling price. Merely adopting average selling price in a account case is a rough method of computing sales which is hereby disapproved by us. This would result into maintaining the findings of the Appeal Commissioner on this plane.

34. We also appreciate the learned counsel's gesture not to apply gross profit rate of 5% in the case of sale of damaged seeds as has been directed by the Appeal Commissioner, rather gross profit rate of 8.72% should have been directed to be applied in case of such transaction being part of the trading account. Since, sale of damaged seeds has been credited to trading account whereby the declared gross profit rate of 8.72% has been directed to be applied by the Appeal Commissioner, therefore, we fully subscribe to the learned counsel's contention that there was no justification with the Appeal Commissioner to apply separate gross profit rate on sale of damaged seeds to be at 5%. If such finding of the Appeal Commissioner is allowed, this would bring into applying lesser gross profit rate than the overall gross profit rate declared by the assessee. Accordingly the Appeal Commissioner's findings to this extent are modified directing the Assessing Officer to apply gross profit rate of 8.72% in the case of sale of damaged seed as' well.

35. Next departmental contention relates to application of section 80-C of the Repealed Income Tax Ordinance on sale of damaged seed. The provisions of this section are applied by the Assessing Officer I assumingly that the seeds sold were not actually damaged and were sold in the market as such, hence such transaction fell within the ambit of this section. This contention of the learned D.R. is factually without any substance. Firstly, copy of the assessment order of one of the buyer of damaged seed namely Mr. Muhammad Aftab Iqbal (Prop: Sabir Traders, Multan) bearing NTN 040-08-TR 11099 has been furnished for our perusal which suo motu nullifies the Assessing Officer's contention that seeds were not damaged. In that assessment order, sale of damaged seeds were assessed which has been purchased from the present assessee. Secondly, since no deduction of tax under section 50(5) of the Income Tax Ordinance was made, hence provisions of section 80-C are not attracted in such eventuality. Section 50(5) which envisages as under:--

(a) The Collector of Customs shall, in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sales tax, if any, levied thereon, at the .rates specified in the first schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of assessee to whom section 72 or section 81 applies, the assessment year, in which the "said date", as referred to therein, falls, whichever is 'the dater;

(b) The tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even through exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (IV of 1969) shall, so far as may be, apply accordingly.

36. From plain reading of this section it is evident that deducting authority is Collector of Customs who had to collect tax under section 50(5) at the time of import of goods and in absence whereof the provisions of section 80C are not attracted. Section 80C (2)(a)(ii) provides for presumptive tax in case of importers which are liable to deduction of tax under subsection (5) of section 50 of the Ordinance. This departmental contention is, therefore, not entertained because no tax was collected on import of raw material as such provisions of K section 80-C were not attracted in such eventuality.

37. Now, this bring us on the issue of addition made on account of incurring advertisement expenses amounting to Rs.2,846,796, salary Rs.3,208,231, rent of sale points Rs.1,126,860 depreciation on motor vehicle Rs.72,198 vehicle repair and maintenance Rs.20,858, travelling and conveyance Rs. 128,047, repair and maintenance Rs.97,311, printing and stationery Rs.97,629, Misc. Expenses Rs.22,884, telephone Rs.212,973, freight outwards Rs.192,500 and travelling and conveyance Rs.51,827. Except the addition made in respect of advertisement account, rest of the treatment accorded by the Appeal Commissioner with regard to disallowances made in other heads is hereby upheld whereby it was directed to be decided afresh by the Assessing Officer. Coming to advertisement expenses, certain details whereof are furnished before us. It is evidence therefrom that all those are identifiable parties and tax under section 50(4) was also deducted at the time of making payments to them. In addition to, those are limited company and payment were also made to them by way of crossed cheques. Since the Assessing Officer has categorically admitted that after deducting tax L from those parties in terms of section 50(4), was duly deposited in the Govt. treasury, therefore, the assessee cannot be saddled with burden of additional tax by disallowing and adding such expenses in its total assessed income. In this backdrop we are persuaded to delete the impugned addition being not lawfully made. Resultantly the Appeal Commissioner's order is modified to the extent of allowing advertisement expenses in its entirety.

DEPARTMENTAL APPEAL ASSESSMENT YEAR 2000-2001

38. The Revenue's sole contention for this assessment year relates to deletion of addition made under section 24(c) of the Income Tax Ordinance, 1979 by the First Appellate Authority. In this regard it was emphatically contended by the learned DR appearing on behalf of the Revenue that there was no justifiable reason with the learned Appeal Commissioner in deleting addition of Rs. 23,36,373 made under section 24(c) because the assessee had failed to deduct tax under section 50(7D) at the time of making payment of interest to Bankers Equity Limited and according to section 24(c) such expense is not allowable in particular when the assessee was held to be assessee in default under section 52 of the Income Tax Ordinance, 1979. As the provisions of section 52 declaring the assessee in default and those of section 24(c) which deals with admissibility of expenses on account of non-deduction of tax under section 50(7D) of the Income Tax Ordinance, 1979, are two separate and distinct proceedings, the Appeal Commissioner had acted in flagrant violation of law in deleting the impugned addition made under section 24(c) of the Income Tax Ordinance, 1979.

39. On the other hand the learned A.R. supported the impugned appellate order for the reasons recorded therein.

40. Facts in short forming back ground of the issue in hand are that redeemable capital amounting to Rs.98,126,296 was obtained from Bankers Equity Limited which was payable in 14 equal half-yearly instalments. The portion of payable capital for the year under appeal was at Rs. 14,018,022 and the mark-up to be paid was at Rs.23,36,337. Admittedly no tax under section 50(7D) was deducted while making payment of interest to the said institution. After confronting the assessee as to why the tax under section 50(7D) was not deducted, the explanation so tendered by the assessee was found patently incorrect. Accordingly, the sum of Rs.23,36,337, the amount of mark-up paid on T.F.C. (s) was added back being such expenses was inadmissible under section 24(c) of the Income Tax Ordinance, 1979. When the issue regarding admissibility of expense under section 24(c), claimed on account of payment of interest, was challenged before the CIT(A) Zone-I Karachi who by virtue of his order, dated 13-5-2003 recorded in income tax appeal No.692 deleted the impugned addition after holding to be not lawfully added.

41. On going through the facts available on record and the relevant provisions of law, we find that the Assessing Officer, after passing the order under section 62 whereby the impugned addition of Rs.23,36,337 was made under section 24(c) of the Income Tax Ordinance, 1979, had M also rendered another order in terms of section 52 of the Ordinance holding the assessee to be in default in respect of payment of interest on T.F.C. (s) made to Bankers Equity Limited. Accordingly, the said amount was charged to tax which amounted to Rs.233,634 in terms of section 52 of the Income Tax Ordinance, 1979 and the tax so charged was adjusted against outstanding refund of Rs.45,48,843 pertaining to assessment year 2000-2001 which is appearing on the notice of demand as well as in the IT-30. When viewed in this perspective, the addition made under section 24(c) of the Ordinance amounting to Rs.23,36,337 is tantamount to be a double jeopardy. Strength in this regard has been acquired from a reported case law in re: 2002 PTD (Trib.). It was observed therein that once the department had exercised option to charge amount of certain payment to tax under section 52 of the Income Tax Ordinance, 1979 by holding the assessee to be in default, the said amount cannot be subjected to further tax in terms of section 24(c) of the Income Tax Ordinance, 1979 for the same reasons that the assessee had failed to withhold tax from those sums under section 50(4) of the Income Tax Ordinance. Thus it would clearly amount to double taxation which cannot be all under the scheme of Income Tax Law. In the given scenario the Appeal Commissioner did no wrong in deleting the impugned addition and his findings are also endorsed by us.

42. Resultantly all the three appeals are disposed of to the extent and in the manner indicated above.

C.M.A./419/Tax (Trib.)Order accordingly.