Income Tax Appeals Nos. 856/LB, 1408/LB and 938/LB of 2003, decided on 20th January, 2006. VS Income Tax Appeals Nos. 856/LB, 1408/LB and 938/LB of 2003, decided on 20th January, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2706 (2006)

Income Tax Ordinance (XXXI of 1979)---

----S. 62---Assessment on production of accounts, evidence etc.---Conceding of defects in accounts by representative of assessee mentioned through order sheet entry---Assessee contended that requirement of law as per S.62 of the Income Tax Ordinance, 1979 was not fulfilled by merely stating that defects in accounts were conceded by the Authorized Representative of the assessee as per order sheet entry---Obligatory for the Assessing Officer to point out specific defects in account and confront the assessee with the same and to obtain his explanation for proper consideration which was not done so---Effect---Submissions of the assessee were borne out from record---Assessing Officer failed to point out any specific defect in accounts---Requirement of S.62 of the Income Tax Ordinance, 1979 having not been fulfilled, Appellate Tribunal directed to accept the declared trading result of the assessee in circumstances.

Rana M. Liqman D.R. for Appellant (in I.T.A. No. 856 of 2003).

Siraj-ud-Din Khalid for Respondent (in I.T.A. No. 856 of 2003).

Siraj-ud-Din Khalid for Appellant (in I.T.A. No.938 of 2003).

Rana M. Liqman, D.R. for Respondent (in I.T.A. No.938 of 2003).

ORDER

Order made vide I.T.A. No.938/LB of 2005, dated 21-5-2005 was recalled through M.A. No. 385/LB of 2005, dated 16-9-2005 for the reason that the additional ground of appeal had been inadvertently escaped adjudication. The additional ground of appeal is as follows:

"That since in the notice under section 62, dated 14-5-2002 issued after the production and examination of books of accounts, the officer has neither pointed out the defects in the books nor gave his mind to reject the trading account and to make add-back, the rejection of trading account making of add-backs are illegal, unjustified and the additions liable to be deleted."

Cross-appeal by the Revenue which stood disposed off earlier vide I.T.As. Nos. 856 and 938/LB of 2003, dated 21-5-2005 was also recalled and the assessee and the Revenue appeals were heard.

The learned AR has vehemently submitted that the Assessing Officer failed to point out any specific defects in the books of accounts and confront the same to the assessee as per requirement of law under section 62 of the Income Tax Ordinance. In this regard he referred to observations of the Assessing Officer regarding sales and GP at page 5 of assessment order as follows:--

"In the notice under section 62, dated 18-3-2002 the assessee was confronted on account of declared GP @ 5.09% against declared GP. in the preceding year @ 8.15% and 7.76%. In the written reply vide letter, dated 22-3-2002 AR contended that GP declared @ 5.13% (taxable period) is better than comparative cases of Rahim Yar Khan. He further asserted that as there was bumper wheat crop therefore the wheat was available in open market and there was no inter-provincial restriction of movement of flour. As the tough competition was faced therefore GP rate was declined. Vide letter, dated 20-5-2002 AR on the assessee further contended that sales were made on lesser rate due to open market competition. He also referred parallel cases where GP rate is applied @ 5% or less than 5% as under:--

(1) 24-20-0090881 GP rate applied for the assessment year 2000-2001 @ 5%.

(2) 24-15-0944449 declared GP @ 4.52% accepted with addition of Rs.35,000 only.

(3) The list of other cases also provided.

(4) Order of ITAT was also provided wherein declared GP @ 4.11%. In case NTN 24-15-Z080594 has been accepted.

The contention of assessee has some force but as the fact of defective accounts is conceded and assessee has history of higher GP therefore after discussion with AR and keeping in view details and documents provided and element of unverifiability GP is determined and 5.5% and sales are rounded upto Rs.79,000,000 for exempt period and Rs.88,000,000 for taxable period respectively."

The learned AR submitted that when the Assessing Officer found that the contention of the assessee had force and that he failed to point out any specific defects in books of accounts as regards sales and GP there was no justification to reject the trading account and to estimate sales and apply GP rate. He further submitted that requirement of law as per section 62 of the Income Tax Ordinance is not fulfilled by merely stating that defects in accounts were conceded by the AR of the assessee as per order sheet entry. It was obligatory for the Assessing Officer to point out specific defects in accounts and confront the assessee with the' same and to obtain his explanation for proper consideration. It was not done so in the present case. Submissions of the AR are borne out from record. The Assessing Officer failed to point out any specific defects in accounts. Since requirement of section 62 is not fulfilled in this case declared trading results of the appellant are directed to be accepted. Rest of the order vide ITA Nos. 856, 1408 and 938/LB/03/04, dated 21-5-2005 needs no interference and is maintained.

Appeals are disposed off as above.

C.M.A./94/Tax (Trib.)Order Accordingly.