I.T.As. Nos. 3116/LB to 3118/LB of 2004, decided on 28th January, 2006. VS I.T.As. Nos. 3116/LB to 3118/LB of 2004, decided on 28th January, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1691 (2006)

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

----S.62(1)---Assessment on production of accounts, evidence etc.---Rejection of trading account---Assessee contended that not only the expenses debited to trading account but also the sales declared were subjected to verification---Besides higher gross profit rate had been conceded viz. generally applied in this line of business---No valid reason existed with the department to discard the declared trading version---Validity---Assessing Officer had kept in darkness while disbelieving the assessee's declared version---Nothing substantial whatsoever had been adduced to justify rejection of declared trading version---Although assessee had a history of rejection of its declared trading version nevertheless the fact remained that each year was a separate assessable entity that was why the "doctrine of res judicata" did not attract to the assessment proceedings---Assessment made for one assessment year had no binding effect on the assessment to be made in respect of subsequent assessment year unless it was proved that no substantial variance in the facts and circumstances existed in both the assessment years.

1994 PTD 174; 1991 PTD 678 and 1991 PTD 730 rel.

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

----S.62(1)---Assessment on production of accounts, evidence etc.---Rejection of trading account---Assessee contended that since the debit side as well as the credit side of the trading account were open to verification besides the entire sales were subjected to sales tax and there was no valid reason with the department to disbelieve the declared trading results---Such contention had been brushed aside by the Assessing Officer without referring to any infirmity despite the fact that books of accounts were examined by him---Validity---Complete list of parties to whom the sales were effected had been placed on record and entire sales were made to limited companies whose complete identifying particulars had also been mentioned in front of their names---Parties were also registered with the Sales Tax Department and their sales tax numbers had been recorded therein---Even Assessing Officer had not quantified proportion of unverifiable purchases and sales---Par excellence substantial improvement in sales as well as in gross profit rate could be exhibited in the years under appeal viz. the preceding assessment years, in such circumstance Courts always come at the assessee's rescue---Assessee's declared trading results were accepted by the Appellate Tribunal and was ordered accordingly.

1967 PTD 291; 1974 PTD 45; (1974) 29 Tax 161; 1978 PTD (Trib.) 16; 1985 PTD 896 and 1987 PTD (Trib.) 402 rel.

Saleem Abid, I.T.P. for Appellant.

Dr. Shahid Siddique Bhatti, D.R. for Respondent.

ORDER

RASHEED AHMED SHEIKH (JUDICIAL MEMBER).---This order is intended to dispose off above titled three appeals which are directed at the behest of the assessee-appellant against the consolidated order passed by C.I.T. (Appeals) Zone-III, Lahore dated 15-4-2004 in respect of assessment years 2000-01, 2001-02 and 2002-03.

2. The moot and the common point involved in the instant case pertains to rejection of declared trading version for all the three years under appeal.

3. The divergent views expressed by the parties in appeal have been considered as well as perused the details and documents placed before the Bench. It was vociferously contended by the learned counsel for the assessee that not only the expenses debited to the trading account but also the sales declared are subjected to verification. Besides higher gross profit rate has been conceded viz. generally applied in this line of business. Thus there was no valid reason with the department to discard the assessee's declared trading version.

4. The facts leading for disposal of the issue in hand are that the assessee is a private limited company which derives income from manufacture and sale of knitted garments. For the facility of convenience and ready reference, the turnover declared and the treatment accorded by the Assessing Officer as well as by the First Appellate Authority is detailed below.

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C.I.T. (Appeals Treatment)????????????????????????????????????????????????

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ASSESSMENT YEARS

Declared version???????????????????????? 1999-2000??? 2000-01??????? 2001-02???????????? 2002-03

?????????????????????????????????????????????????? Rupees????????? Rupees????????? Rupees?????????????? Rupees

Sales?????????????????????????????????????????? 29,58,404????? 36,07,662????? 58,62,719????????? 62,59,844

G.P. Rate??????????????????????????????????? 22.24%???????? 39.17%???????? 35.18%????????????? 36.10%

(Before depreciation)

ASSESSMENT POSITION

Sales Estimated?????????????????????????? 35,00,000?? 40,00,000????? 65,00,000'????? 70,00,000

G.P. Rate-Applied??????????????????? 35%???????????? 39.17%????????? 35.18%??????? 36.10%

??????????????????????????????????????????????????????????????????????? (as declared)??? (as declared) ?? (as declared)

ITAT'S TREATMENT

Sales??????????????? 32,00,000??????? in appeal?????????? in appeal?????????? in appeal

G.P. rate????????? Confirmed??????? in appeal?????????? in appeal?????????? in appeal

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5. Perusal of the assessment order depicts that for the former assessment year 2000-01 the assessee's books of accounts were examined and on scrutiny thereof it was commented by the Assessing Officer that the sales were made on cash basis. Cost of sales were not open to verification because of the fact that fuel and power expenses, oil for the generator and compressor remained unsubstantiated as usual. No evidence of payment of knitting needles and machinery repair had been filed. Thus cost of sales was unverifiable to a great extent and as such the declared results were not worthy of reliance. Also commented that there was a difference in the total bank deposits viz. the declared total receipts/sales. However no adverse inference in this regard was drawn. It was thus concluded that the trading results were not faithfully recorded in the books of accounts. Also added that the assessee has a history of rejection of the declared trading version. On almost similar and identical observations the declared trading version was disbelieved by the Assessing Officer in respect of later two assessment years. The reply furnished by the assessee-appellant could not convince the Assessing Officer to accept the declared trading version. Accordingly the Assessing Officer proceeded to estimate the sales as are enumerated supra. However, the yielded gross profit rates were accepted by holding that since the gross profit rate declared by the assessee-appellant was better viz. the other parallel cases, hence accepted.

6. When the contention of the learned counsel for the assessee was viewed in the context of the above stated facts, I have come to an inescapable conclusion that the Assessing Officer has leapt in darkness while disbelieving the assessee's declared version. Nothing substantial whatsoever has been adduced to justify rejection of the declared trading version. Although the assessee has a history of rejection of its declared trading version nevertheless the fact remains that each year is a separate assessable entity that is why the "Doctrine of Res judicata" does not attract to the assessment proceedings. Meaning thereby the assessment made for one assessment year has no binding effect on the assessment to be made in respect of subsequent assessment year unless it is proved that no substantial variance in the facts and circumstances exists in both the assessment years. By this time this theory is uncontroverted, hence is followed in the present case in order to administer justice. Strength in this regard may be acquired from the case-law cited as 1994 PTD 174 (SC Pak.), 1991 PTD 678 (HC Kar.) and 1991 PTD 730 (H.C.) and many mere.

7. Coming to the other segment of the learned counsel for the assessee's arguments with regard to rejection of declared trading version it is cardinal principle that the declared results cannot be discarded on whims and gossips. In fact heavy duty casts upon the Assessing Officer's shoulder to fasten the blame at the assessee's door by pinpointing the glaring defects and the discrepancies noted in the books of accounts and also by illustrating a few examples to this effecting order to justify his act of disbelieving the returned version. No such endeavour seems to have been made by the Assessing Officer in the present case in absence of which benefit of doubt leans in favour of the assessee-appellant.

8. Conversely it was the assessee's contention right from the assessment stage that since the debit side as well as the credit side of the trading account are open to verification besides the entire sales are subjected to sales tax, thus, there was no valid reason with the Revenue to disbelieve the declare trading results. This .contention has been brushed aside by the Assessing Officer without referring to any infirmity despite the facts that books of accounts were examined by him it is also imperative to state here that complete list of the parties to whom the sales were effected has been placed on record. That list squarely supports the assessee's contention that the entire sales are made to the limited companies whose complete identifying particulars have also been mentioned in front of their names. In addition to, all the parties are also registered with the Sales Tax Department and their sales tax numbers have been recorded therein. Even the Assessing Officer has not quantified proportion of unverifiable purchases and sales. Par excellence (above all others) substantial improvement in sales as well as in the gross profit rate can be exhibited in the years under appeal viz. the preceding assessment years as is evident from the chart tabulated supra. In such circumstances the Courts always come at the assessee's rescue. Reference in this regard can be made to the case-laws reported as 1967 PTD 291, 1974 PTD 45, (1974) 29 Tax 161 (H.C. Born.), 1978 PTD (Trib.) 16, 1985 PTD 896 and 1987 PTD (Trib.) 402 etc.

9. Viewing the facts of the case in its entirety I have no other option but to accept the assessee's declared trading results for all the three years under appeal and it is ordered accordingly.

10. Next contention relates to the disallowances made out of certain heads of the profit and loss expenses. It was the assessee's contention that the additions made thereunder are excessive, arbitrary and unreasonable as the entire expenses were incurred considering business exigency. Even the expenses incurred are reasonable looking into the declared quantum of turnover. Upon having perused the facts available on record, I am convinced that the additions made thereunder are quite reasonable being the expenses claimed were partly documented and vouched. Hence this contention is not sustainable.

11. The assessee's appeal accordingly succeeds in the terms noted above.

C.M.A./46/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Order accordingly.