I.T.As. Nos. 735/LB and 851/LB of 2003, decided on 19th September, 2005. VS I.T.As. Nos. 735/LB and 851/LB of 2003, decided on 19th September, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1899 (2005)

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

----S. 62(1)---Assessment on production of accounts, evidence etc.---Add backs of profit and loss expenses on the basis of reasonableness/past history---Assessee contended that treatment accorded by the First Appellate Authority with regard to profit and loss add-backs was not at all justified and these should have been allowed in their entirety as the Assessing Officer had failed to comply with the mandatory requirement stipulated in S.62(1) of the Income Tax Ordinance, 1979 regarding formal confrontation to assessee before drawing any adverse inference---Validity---In case of profit and loss add-backs, it was a fact that formal confrontation under S.62 of the Income Tax Ordinance, 1979 had not been made---No add back would be tenable in law simply on the basis of alleged unreasonableness past history- Appellate Tribunal directed that the claimed expenditure be accepted.

2005 PTD (Trib.) 1208; 2004 PTD (Trib.) 2231; 2002 PTD (Trib.) 1583; 1999 PCTLR 1098; (1984) 50 AX 44; (1970) 76 ITR 365; 2002 PTD 407 HC Kar 417; 1999 PTCLR 1098 (Trib.) 1100; 2004 PTD 1640 FTO/1646-C; 2003 PTD (Trib.) 625; 1999 PTD (Trib.) 3892; 1996 PTD 263; 1998 PTD (Trib.) 860; 2003 PTD (Trib.) 2668 and (1999) 79 Tax 264 (Trib.) 266 rel.

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

----S. 62(1)---Assessment on production of accounts, evidence etc.---Formula assessments---Trading account-First Appellate Authority directed to accept the trading account---Appeal by the Department---Assessee contended that Assessing Officer had failed to cite specific defects in the books maintained and to formally confront the assessee under S.62 of the Income Tax Ordinance, 1979---Relief accorded by the

First Appellate Authority was fully justified---Validity---No exception could be taken to the finding recorded by the First Appellate Authority with regard to acceptance of manufacturing/trading account of the assessee company---Department's reference to electricity consumption was not convincing---"Formula assessments" were not acceptable---Assessing Officer had not formally confronted the assessee with comprehensive particulars of the case held by him to be parallel to assessee company's case---Adverse inference drawn by the Assessing Officer was indeed not justified---First Appellate Authority rightly directed that trading account were to be accepted.

2005 PTD (Trib.) 1208 ;2004 PTD (Trib.) 2231 2002 PTD (Trib.) 1583; (1984) 50 AX 44; (1970) 76 ITR 365; 2002 PTD 407 HC Kar 417; 1999 PTCLR 1098 Trib. 1100; 2004 PTD 1640 FTO/1646-C; 2003 PTD (Trib.) 625; 1999 PTD (Trib.) 3892; 1996 PTD 263; 1998 PTD (Trib.) 860; 2003 PTD (Trib.) 2668 and (1999) 79 Tax 264 (Trib.) 266 rel.

Siraj Khalid and Sohail Ibne Siraj for Appellant (in I.T.A. No. 735/LB of 2003).

Dr. Ahmad Shahab, D.R. for Respondent (in I.T.A. No. 735/LB of 2003)..

Dr. Ahmad Shahab, D.R. for Appellant (in I.T.A. No. 851/LB of 2003).

Siraj Khalid and Sohail Ibne Siraj for Respondent (in I.T.A. No.851/LB of 2003).

ORDER

These appeals by Revenue and assessee, a private limited company, arise out of order passed by the CIT(A) and it is the departmental contention that the CIT(A) has unjustifiably directed that trading account be accepted and has also allowed relief against P&L add backs (transportation expenses) arbitrarily, while the assessee-Company contests the CIT(A) partial confirmation of P&L add-backs against various Heads.

2. According to the DR, the Assessing Officer had specifically referred to electricity consumption and has appraised the manufacturing/ trading account with reference to power consumption and the CIT(A) was not justified to hold that the Assessing Officer's treatment in assessment was not tenable in law for the reason that specific defects in the books maintained had not been brought on record and not confronted formally to the assessee during the course of assessment proceedings. As for P&L add-backs, here too, the DR submits that these have been made reasonably on merits and should have been maintained.

3. AR of assessee argues that treatment as accorded by the CIT(A) with regard to P&L add-backs was not at all justified and these should have been allowed in their entirety as the Assessing Officer had failed to comply with the mandatory requirement stipulated in section 62(1) regarding formal confrontation to assessee before drawing any adverse inference. As regards the DR's submissions in the context of assessee-Company's manufacturing / trading account, it is contended that, here too, the Assessing Officer has failed to cite specific defects in the books maintained and formally confront the assessee with the same and hence relief as accorded by the CIT(A) was fully justified.

4. The following case-law has been referred to by AR of assessee":---

2005 PTD (Trib.) 1208; 2004 PTD (Trib.) 2231; 2002 PTD (Trib.) 1583; 1999 PCTLR 1098; (1984) 50 AX 44; (1970) 76 ITR 365; 2002 PTD 407 HC Kar 417; 1999 PTCLR 1098 TRIB 1100; 2004 PTD 1640 FTO/1646-C; 2003 PTD (Trib.) 625; 1999 PTD (Trib.) 3892; 1996 PTD 263; 1998 PTD (Trib.) 860; 2003 PTD (Trib.) 2668 and (1999) 79 Tax 264 (Trib.) 266.

5. We have heard both sides, have examined the available record and perused the cited case law and in our considered judgment, no exception can be taken to the finding recorded by the CIT(A) with regard to acceptance of manufacturing / trading account of the assessee-Company. The DR's reference to electricity consumption as an objective (sic) in the given facts and circumstances obtaining in assessee's case is not convincing. In the first place, "formula assessments" are not acceptable and it has been so held by various appellate fora, including the superior judiciary. Secondly, the Assessing Officer has not formally confronted the assessee with comprehensive particulars of the case held by him to be parallel to assessee-Company's case. That being so, we find that adverse inference as drawn by the Assessing Officer is indeed not justified and the CIT(A) has rightly directed that under the given facts and circumstances trading account will have to be accepted.

6. In the case of P&L add backs, we find that .as it is a fact that formal confrontation under, section 62 has not been made, hence no add back would be tenable in law simply on the basis of alleged reasonableness / past history. We accordingly direct that the claimed expenditure be accepted.

7. Resultantly, the assessee's appeal is accepted and the departmental appeal is rejected.

C.M.A./536/Tax (Trib.)Order accordingly.