I.T.A. No.3958/LB of 2004, decided on 12th August, 2005. VS I.T.A. No.3958/LB of 2004, decided on 12th August, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 696 (2005)

(a) Income Tax Ordinance (XLIX of 2001)---

----S.122---Income Tax Ordinance (XXXI of 1979), S.12 (18)---S.R.O. No. 633(I)/2002 dated 19-9-2002---Amendment of assessment---Addition---Assessment was modified under S.122 of the Income Tax Ordinance, 2001 on 21-1-2004 by invoking S.12 (18) of the Income Tax Ordinance, 1979 treating the share deposit money as a loan---Validity---High Court had observed that S.R.O. No.633(I)/2002 dated 19-9-2002 was not a valid and legal document and was of no consequence and it was so declared---Department could not invoke the provisions of S.122 of the Income Tax Ordinance, 2001---Order passed by the Assessment Officer was cancelled and assessment finalized under S.62 of the Income Tax Ordinance, 1979 was restored by the Appellate Tribunal.

Honda, Shahrah-e-Faisal, Karachi and others' case 2005 PTD 1316; 2005 PTD 1621 and W.P. 7788 of 2003 rel.

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

----S. 12(18)---Income deemed to accrue or arise in Pakistan---Addition---Share deposit money created through transfer entry by general voucher did not attract the provisions of S.12 (18) of the Income Tax Ordinance, 1979.

2001 PTD 1180 rel.

Ziauddin Sheikh for Appellant.

Muzammal Hussain, D.R. for Respondent.

Date of hearing: 11th August, 2005.

ORDER

NASEER AHMAD (ACCOUNTANT MEMBER).---The titled appeal has been preferred at the behest of assessee for the assessment year 2000-01 against order dated 29-6-2004 passed by the learned C.I.T.(A), Zone I, Lahore. The appellant has agitated that the Assessing Officer was not justified to invoke the provisions of section 12(18) of the repealed Income Tax Ordinance, 1979 terming the share deposit money as loan.

2. Brief facts giving rise to the present appeal are that the appellant is a private limited company deriving income by rendering services to its clients as a Share Registrar, Secretarial, Financial Management Consultancy, software designing and its development. The appellant also covers the customized Software Development and designing a comprehensive Network for ISP. In the year under appeal the income of the appellant was assessed at Rs.17,61,296 against the declared income of Rs.8,07,368 due to certain additions made out of claimed expenditure under the head of P & L account. The assessment was, thereafter, modified under section 122 of the Income Tax Ordinance, 2001 on 21-1-2004 by invoking section 12(18) of the Income Tax Ordinance, 1979 treating the share deposit money as a loan by giving the following insertion in the impugned order:--

"That share deposit money amounts Rs.35,00,000 which was also reversed during the next year vis-a-vis, being loan and it is required to be processed through banking channel but record does not show its receipts through banking channel. Hence the provision of section 12(18) of then Income Tax Ordinance, 1979 are required to be disallowed and added into your income already assessed."

On 10-1-2004, a show-cause notice was issued communicating the above paragraph working out the impact of income to be assessed. Compliance thereof was required on or before 15th January, 2004. Reply to the notice was submitted within stipulated time explaining that with the consent of Messrs Mercantile Leasing Company Limited, a sister concern, Share Deposit Money was created through general voucher by transferring the said amount from its credit account to share deposit account. Later on due to financial problems and its merger with Universal Leasing Company Limited, they showed its disinterest in investment in the assessee company and the transaction, therefore had to reverse through general voucher. A reported decision of Honourable High Court Lahore was also referred i.e. 2001 PTD 1180, Messrs Micropak (Pvt.) Limited; where it was held that two conditions were necessary before invoking the provision of 12(18) of the Income Tax Ordinance, 1979. First, that there was a loan received by an assessee and secondly, that it was so claimed. Where any of two requirements were not answered, the provisions were attracted. The assessee being aggrieved preferred appeal before the Commissioner of Appeal-I contending that the decision made by the learned Assessing Officer is bad ignoring the communicated facts i.e. creation of share deposit money by transfer entry through general voucher and declaration of share deposit money instead of loan referring the decision of I.T.A.T. in a case, Messrs Micropak (Pvt.) Limited, 2001 PTD 1180. The learned First Appellate Authority upheld the action of the Assessing Officer's order presuming that cash created share deposit money after the amendment made by the Finance Act, 1998 w.e.f. 1st July, 1998, where advances and gift has been included in the provision of 12(18) of the repealed Ordinance, the contention of the appellant that share deposit money was created through transfer entry by general voucher was never dealt with in the impugned appellate order. The appellant, being aggrieved with the decision of First Appellate Authority, came up before the Honourable Income Tax Appellate Tribunal.

3. It is the contention of the learned A.R. for the assessee that the learned C.I.T.(Appeals) did not appreciate the transaction channel and upheld the assessing authority's decision presuming that transaction was made in cash. That the learned Assessing Officer issued show-cause notice under section 122 of the Income Tax Ordinance, 2001 of on 10-1-2004 requiring compliance by 15th instant. The reply to the show-cause notice was filed on 15-1-2004 and the order was passed on 21-1-2004. Surprisingly, the communicated facts, such as transaction channel were not appreciated neither desired any evidence nor discussed in the impugned order except inserting a stereotype phrase "the contention of the assessee is not satisfactory, up to the mark and also not provided the books of accounts where the general entry was made." The fact is that the assessing authority never demanded any information in support of our contention. The assessment was framed in a hasty manner within 6 days i.e. 15th January to 21st January, 2004 just to satisfy the audit.

Share deposit money of Rs.3.5 million was created through journal voucher by transferring the amount from Mercantile Leasing Company Limited's account, a sister concern, maintained with the assessee where an amount of Rs.36,32,041 was credited against the receipt of 70,000 $ on their behalf through banking channel. B-1-Ledger sheet and B-2 copy of General Voucher representing transfer entry to share deposit money along with B-3, a copy of bank statement showing the receipt of 70,000 $ on behalf of Messrs Mercantile Leasing Company Limited, a sister concern.

It was also held in a case, Honda, Shahrah-e-Faisal, Karachi and others 2005 PTD 1316 and 2005 PTD 1621 provision contained in subsection (5-A) of section 122 of the Income Tax Ordinance, 2001 inserted w.e.f. 1-7-2003 is not retrospective in operation and consequently assess ment finalized before 1-7-2003 cannot be reopened/ revised/amended in exercise of jurisdiction under the above provision.

On the other hand the learned D.R. for the Revenue supported the order of the learned C.I.T.(A).

4. We have heard both the sides and perused the orders of the authorities below. We are of the considered opinion that the assessee appellant's case on facts does not attract the provisions of section 12(18) of the repealed Income Tax Ordinance, 1979 as has been explained by him in the earlier para. We have further observed that the proceedings in this case cannot be considered to be illegal in view of the fact that these have been carried out under two different enactments i.e. section 12(18) of the repealed Income Tax Ordinance, 1979 and section 122 of the Income Tax Ordinance, 2001. In such a situation the benefit of ambiguity goes to the taxpayer and we observe so. Apart from this we have also observed that the impugned assessment order under section 122 of the Income Tax Ordinance, 2001 dated 21-1-2004 does not indicate as to under which subsection of section 122 the proceedings have been conducted. Needless to say that as per the observations recorded in second para. of the impugned assessment order, the Taxation Officer Circl-5, Companies Zone-I, Lahore has observed that the original order which has subjected to section 122 of the Income Tax Ordinance, 2001 is erroneous and prejudicial to the interest of Revenue. In this behalf it would not be out of place to mention here a recent decision of the Lahore High Court in Writ Petition 7788 of 2003. In this decision the learned High Court Lahore has observed that S.R.O. No.633(I)/2002 dated 14-9-2002 is not a valid and legal document and, therefore, is of no consequence and it is so declared. As per ratio settled vide this judgment the department could not invoke the provisions of section 122 of the Income Tax Ordinance, 2001 on the facts and circumstances of the appellant's case. Under these circumstances the order dated 21-1-2004 passed by the Taxation Officer Circle-6, Companies Zone-I, Lahore under section 122 of the Income Tax Ordinance, 2001 is hereby cancelled. Consequently the assessment finalized under section 62 at net income of Rs.1,761,296 is restored.

C.M.A./566/Tax(Trib.)Appeal accepted.