I.T.As. Nos. 228/LB to 231/LB of 2006, decided on 4th January, 2007. VS I.T.As. Nos. 228/LB to 231/LB of 2006, decided on 4th January, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1703 (2007)

(a) Income-tax---

----Tax-Concept-Tax was not a forced liability, but in fact responsibility to owe to the State a proper share given by the taxpayer for utilizing and consuming services provided by the State.

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

----S. 62---Assessment on production of accounts, evidence, etc.---Rejection of declared sale and purchase rate of cane on the basis of parallel cases---Validity---Declared sale rate and purchase rate of cane by assessee, a Sugar Mill, had been rejected by the Taxation Officer on the basis of parallel cases without considering the fact that the assessee -company had newly been- established, which could not be compared with the companies with whom the assessee-company had to compete and required huge incentives to the formers for the establishment of his business---No justification existed for rejection of accounts---Declared sale rates and the declared purchase rate of cane were directed to be accepted.

2001 PTD 1480 and 1987 PTD (Trib.) 638 ref.

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

----S. 62---Assessment on production of accounts, evidence etc.---Disallowances out of Profit and Loss account expenses had been made without confronting the assessee and pointing out specific instances of un-vouched and unverifiable nature of expenses, which was not justified--Disallowances made in Profit and Loss account were deleted by the Appellate Tribunal and claim of expenses was directed to be accepted.

1971 SCMR 681; (1994) 50 Tax 48 (Trib.); (1999) 79 Tax 76 (Trib.); 1999 PTD (Trib.) 3896; 2001 PTD (Trib.) 2938 and 2002 PTD (Trib.) 583 ref.

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

----S. 62---Assessment on production of accounts, evidence, etc.---Financial expenses---Rejection of---Assessee contended that complete details duly supported with relevant bank statements had been appended rendering entire claim of financial expenses fully verifiable---Validity---In presence of valid evidence in the shape of bank statement, there was no justification for curtailment of the claim regarding financial charges---Such evidence had also been furnished before First Appellate Authority but he had ignored the same---No justification existed for curtailment of the claim of financial expenses---Orders of the officers below were vacated and the claim of financial expenses was allowed by the Appellate Tribunal.

1995 PTD 289 ref.

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

----S. 12(18)---Income deemed to accrue or arise in Pakistan---Trade advances, addition of---Assessee contended that advances were admittedly trade advances against which sales had been made---Addition had been made on the basis that the payment could not substantiate that these were received through bank cheques---Validity---Assessee had not claimed these amounts as loans, gift or advance, addition made under S.12(18) of the Income Tax Ordinance, 1979 was unjustified---Expression `advance' should not be taken in form of isolated or detached manner, this associating the context was to be read to give and construe in the light of the purposes and objects of the act itself---Expression `advance' was to be interpreted in the light of the words associated to it and not in isolation, as in S.12(18) of the Income Tax Ordinance, 1979, `advance' had been mentioned along with `loan' and `gift', which clearly relates to non-business financial transaction, but in the case of assessee, advances on which provisions of S.12(18) of the Income Tax Ordinance, 1979 had been invoked were business advances--Such advances were not hit by mischief of S.12(18) of the Income Tax Ordinance, 1979---No justification existed for the addition---Order of First Appellate Authority was vacated and additions made under S.12(18) of the Income Tax Ordinance, 1979 were deleted by the Appellate Tribunal.

1973 PTD 453 ref.

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

----S.39(3)(4)---Income Tax Ordinance (XXXI of 1979), S.12(18)---Income from other sources---Business advances---Exemption from chargeability thereof---Under subsection (4) of S.39 of the Income Tax Ordinance, 2001, it had been specifically mentioned that "subsection (3) shall not apply to an advance payment for sale of goods or supply of services"---Income Tax Ordinance, 2001, provides exemption from chargeability of tax of business advances received against sale of goods or supplies.

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

----S. 13(1)(d)---Unexplained investment etc., deemed to be income--Addition on account of construction of factory building Assessee contended that Taxation Officer without looking into type of construction, location of premises had adopted higher cost of construction @ Rs.350 per sq. ft. against declared cost of Rs.222 per sq. ft.---Validity---Taxation Officer had quoted some parallel cases but without examining site and other relevant facts, the construction could not be treated to be parallel---Taxation Officer should have pointed out defects or have given concrete reasons for rejecting the declared cost after obtaining any expert opinion---Cost of construction was reduced to Rs.250 per sq. ft. by the Appellate Tribunal and addition made in this respect was directed to be reduced accordingly.

1989 PTD 311 and 1994 PTD (Trib.) 1268 ref.

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

----S. 13(1)(a)-Unexplained investment etc., deemed to be income---Addition on account of unexplained creditors---Assessee contended that complete details and break up of creditors were furnished---Creditors were fully verifiable but addition. had been made in violation of Central Board of Revenue's standing instructions---Validity---Taxation Officer had pointed out few instances of incomplete addresses in assessment order and unverifiable parties had not been confronted through notice under S.62(1) of the Income Tax Ordinance, 1979---Addition made in this respect was set aside to confront the assessee in this respect and if creditors were verifiable, then to delete the addition, otherwise, fresh assessment be made in this respect in accordance with law.

(i) Income-tax---

----Depreciation---Curtailment of---Without installation of huge machinery, the declared quantity production of sugar could not be possible---Taxation Officer had made mere observation and had curtailed the claim of the assessee on plant and machinery without any justification, as it was quite evident from details and documents that no portion of plant and machinery installed by the assessee remained unverifiable---Claim in this respect was directed to be allowed.

Moazzam Zafar for Appellant.

Mehmood Aslam, DR. for Respondent.

ORDER

Through these four appeals filed by the assessee, four separate impugned orders of the learned CIT(A), dated 26-9-2005 for the assessment years 1999-2000 to 2002-2003 have been objected. The rejection of manufacturing accounts and reduction. of cane purchase rate @ Rs.30, Re.1, Rs.20 & Rs.25, resulting trading addition for all the four years under review respectively, addition under section 12(18) of the repealed Income Tax Ordinance, 1979 and disallowance of 15% of the claimed financial expenses for the assessment years 1999-2000 to 2001-2002, applied sale rate @ Rs.17,500 per Metric Ton as against Rs.15,340 and Rs.16,437 declared for the assessment years 1999-2000 and 2000-2001 respectively, disallowance of (i) depreciation on plant or machinery for the assessment years 2000-2001 and 2001-2002, (ii) depreciation on factory building for the assessment years 2001-2002 and 2001-2002, (iii) depreciation on other plant and machinery for the assessment year 2000-2001, (iv) depreciation on account of vehicle for the assessment year 2002-2003 and claimed extra shift allowance for the assessment year 2001-2002, addition under section 13(1)(d) on account of unexplained creditors for the assessment year 1999-2000, addition under section 13(1)(a) on account of unexplained creditors for the assessment year 2001-2002 have been objected by the appellant. For all the four assessment year's under review, the disallowances out of P&L A/c expenses under the head "Travelling and Conveyance", "Printing and Stationery", "Entertainment", "Motor Vehicle Running", "Telephone", "Function/Ceremonies", "Legal and Professional Charges", "Guest House", "Staff Welfare", "Fee & Subscription", "Gardening" and "Miscellaneous Expenses" have been objected, while for the assessment years 1999-2000 and 2000-2001, the disallowance out of "Motor Vehicle Repair and Maint. Expenses", for the assessment year 2002-2003, "Financial Charges" and for the assessment year 1999-2000, the disallowance out of "Repair and Maint." (General) and "Charity and Donation Expenses" have been objected. For the assessment year 1999-2000, the appellant has submitted that "the Assessing Officer has made trading addition at Rs.116,282,258 as well as addition under section 13(1)(a) amounting to Rs.10,131,370. To meet natural justice and as provided in the law, the addition made under section 13(1)(a) merits set off against trading addition. The Assessing Officer has not setoff the said addition against trading addition and the CIT(A) has not adjudicated this ground of appeal".

Mr. Moazzam Zafar, Advocate has appeared on behalf of the appellant and has contended that the appellant is an unlisted Public Limited Company deriving income from manufacturing and sale of sugar. The assessment' year 1999-2000 is the first year of assessment. The return for this year was filed declaring nil income, which were subsequently revised claiming loss of Rs.436,205,933. For the assessment year 2000-2001, return declaring loss of Rs.415,394,756, for the assessment year 2001-2002, loss of Rs.397,44,333 and for the assessment year 2002-2003, loss has been declared at Rs.117,730,924. Along with returns, statement of account consisting of Balance Sheet, Manufacturing Account, Trading Profit and Loss Account and Schedule of Fixed Assets have also been filed. Learned counsel has contended that for all the years under review, all the relevant details, documents and books of accounts were provided and were examined by the Taxation Officer. He has argued that assessment proceedings for the assessment year 1999-2000 were initiated by issuing statutory notice under section 61 of the repealed Income Tax Ordinance, 1979 on 16-3-2002 for compliance on 28-3-2002, on which date, the matter was adjourned, but on the next date i.e. 15-4-2002, the appellant has provided complete books of accounts, details and all supporting documents, but another notice under sections 61/62, dated 17-5-2002 for compliance on 24-5-2002 was issued by the DCIT, which was also duly complied with by the appellant. The Taxation Officer has duly acknowledged the reply and books on the reply letter, dated 30-5-2002, copy of which has also been provided before this Bench. Another notice under sections 61/62 has been issued for compliance on 26-6-2002. The compliance of the said notice has been made on 28-6-2002 with complete required details, explanations of queries and related documents, which as also been acknowledged by the Taxation Officer, but unfortunately for the reasons best known to him has not noted down in the proceedings and diary sheet. Learned counsel has placed before us the attested copy of the diary sheet and has pointed out that in the diary sheet on, dated 28-6-2002, it has specifically been mentioned that "Reply received from Kaleem and Company (C.A.) in response to Notice under sections 62/61, dated 26-6-2002 and P.O.F. "According to the learned counsel, the Taxation Officer has a prejudice and mala fide mind towards the appellant and has therefore tried to make different impression that the letters were without books of accounts. He has contended that similar is the position for the assessment year 2000-2001, as for this year also, books of accounts were furnished before the Assessing Officer as well as before the learned CIT(A). Learned counsel has contended that appellant being a unlisted public company is legally and statutory bound to maintain prescribed books of accounts and supporting vouchers and documents. The books and documents so maintained are subject to audit by independent chartered accountant as well as Govt. agencies such as Sales Tax. Excise, EOBI and Social Security etc. To meet these legal requirements, the company has maintained complete books of accounts consisting of ledgers, cash book, bank book, sales tax register, excise record, production record, wages record, stock registers and gate inward and outward register etc. The appellant in support of declared version has filed complete party-wise detail of sales, purchases, evidence of direct and indirect expenses duly supported by vouchers and books of accounts. According to the learned A.R., complete books of accounts were not only provided to the Assessing Officer, but to his predecessor as well. Again in response to notice under sections 61/62, complete books of accounts were produced for examination along with other details and documents on 30-5-2002. Copy of letter having acknowledgement thereof, dated 30-5-2002 has also been placed before us. He has submitted that these documents were received by giving signature on the front page of letter but no order sheet entry was made on 30-5-2002. Relevant copy of order sheet entry has also been produced before us. He has contended that these details and documents, as directed by the Assessing Officer were again provided on 26-6-2002. The Assessing Officer while making order sheets entry, dated 28-6-2002 erroneously, unjustifiably and malafidely did not mention production of books of accounts. According to him, the mala fide intention is evident from the order sheet entry of the said date, which appears to have been probably made after concluding the proceedings of the day. He has contended that at the appeal stage, all the relevant documents that were produced before the Assessing Officer were again provided to the learned CIT(Appeals) together with written arguments supported with case-laws. The learned CIT(Appeals) without going through the submissions, pronouncements of Hon'ble higher Courts have given unilateral and controversial observations that the appellant has failed to provide relevant details, documents, books requisitioned vide notices under sections 62/61, dated 17-5-2002 and 15-6-2002. This finding of the learned CIT(A) is totally wrong and based on misconceptions, as he never tried to go through the appellant submissions as well as supporting case laws. According to the learned counsel, the Assessing Officer has not pointed out any specific defects through notices issued under section 62(1) and the learned CIT(A) without considering these documents, accounts and violating various pronouncements of Hon'ble higher Courts has unjustifiably and erroneously upheld the Assessing Officer's action regarding rejection of accounts. Relying upon the decisions of the Hon'ble higher Courts, he has submitted that trading account of an assessee cannot be rejected without pointing out specific defects in accounts as well as parallel cases. He has in this respect referred the decision of this Tribunal reported as 2001 PTD 1480 in which, it was held as under:--

"No books of a/c were produced on ground of being lost. No specific notice was issued under section 62, assessment of sales without confrontation of proposed sale. Though officer could not confront with defects in a/c due to absence of books but he should have confronted the assessee with the proposed estimation of sales rather than giving general type of notice which is to no way could be quoted with notice under section 62(1)."

Another decision reported as 1987 PTD (Trib.) 638 has been referred wherein, it has been held that:

"Assessing Officer while rejecting trading results of assessee and estimating sales has to evolve a basis for it------Assessing Officer if wanted to rely upon any parallel case he should confront the assessee with that---where officer failed to evolve such basis and did not confront assessee with cases he relied upon declared version was ordered to be accepted by the Tribunal".

Learned counsel has contended that above all, the facts and case-law cited above remain that the assessment order suffers from legal infirmity. Section 62(1) of the defunct Ordinance vividly stipulates that prior to rejection of declared version, the Assessing Officer is obliged to confront the assessee with the defects noted by him in the books of account maintained by the assessee, but in the present case the notices issued by the Assessing Officer merely spell out submissions of certain details, which had been compiled by the appellant. According to the learned counsel, in no way this notice comes at par or can be equated with the notice to be issued under section 62(1) of the defunct Ordinance and since no such notice has ever been issued according to the law in the present case, which ultimately result into acceptance of declared version of the appellant. He has in this respect placed reliance on the following decisions:--

(a) 1971 SCMR 681, (b) (1994) 50 Tax 48 (Trib.), (c) (1999) 79 Tax 76 (Trib.), (d) 1999 PTD (Trib.) 3896, (e) 2001 PTD (Trib.) 2938 and (f) 2002 PTD (Trib.) 583.

Regarding the adoption of higher sale rate, the learned counsel has contended that the appellant has provided complete party-wise detail of sales of sugar. The declared sales were supported by respective sales agreements etc. Copies of sales tax returns were also provided. Complete bank statements were also provided. The Assessing Officer has applied higher sale rate of Rs.17,500 per M. Ton thereby making addition on the basis of so-called parallel cases of Gojra Sumundari Sugar Mills Ltd. and Channar Sugar Mils Ltd., which are in no' way parallel to the case of the appellant being of .initial years of operation and due to the location of the appellant. He has submitted that the alleged parallel cases were not confronted through specific notice under sections 62 and 62(1) or otherwise, therefore, the action of the Assessing Officer is void and illegal. According to the learned counsel, the learned CIT(A) failed to appraise appellant's submissions therefore has upheld the illegal action of the Assessing Officer. This finding of the learned CIT(A) is totally wrong and based on misconception, as he never tried to go through the appellant's submissions as well as supporting case-laws.

Regarding the curtailment of purchase rate of cane, it has been submitted that the declared purchases were supported by respective copies of CPRS's, complete quantitative party-wise detail of purchases and relevant bank statements and there was no justifiable basis for curtailment of purchase rate of cane.

Regarding the addition under section 13(1)(d), the learned counsel has contended that the appellant declared construction of building measuring 674,474 sq. ft. and cost of construction at Rs.150,748,805 yielding cost of Rs.223.50 per sq. ft. Complete details comprising approval, site-plan, agreements with construction contractors etc. were provided. It is vehemently contested that there was no suppression of cost of construction being the bank finance project. He has contended that the Assessing Officer has not considered the submissions and unjustifiably relying upon incomparable case has adopted cost of construction @ Rs.350 per sq.ft. resulting in huge, unjustified and exorbitant addition under section 13(1)(d) of Rs.105,657,961. According to the learned counsel, the Assessing Officer failed to put on record any material evidence regarding lowness of the cost of construction and without making any spot inspection personally or through a nominee or obtaining any expert opinion regarding the quality of construction of the building has made the addition. As such, he has no basis or justification for increasing the cost of construction and making addition under section 13(1)(d). He has in this respect referred reported case of this Tribunal cited as 1989 PTD 311 wherein it was held that:

"Mere lowness of cost of construction declared by assessee not sufficient to discard the declared version---Parallel cases not a safe guide as no two houses could be compared for cost of construction. The type of construction etc. has to be kept in view. This can be only done either through an expert opinion or through a spot inspection by the Assessing Officer or his nominee".

He has referred another reported case cited as 1994 PTD (Trio.) 1268, wherein it has been held that:--

"Under section 13(l)(d)(e), the addition regarding construction of building where declared cost by the assessee was neither ridiculously low nor otherwise appeared unusual for the kind of construction and stated covered areas, the addition made was merely only conjecture and was not legal in circumstances".

According to the learned counsel, the learned CIT(A) too misconceived the facts and submissions thereof while deciding appellant's appeal and has unjustifiably in a summarize manner upheld the action under this head.

Regarding the addition under section 13(1)(a), it has been contended that the appellant has provided detail along with break up of creditors under various heads amounting to Rs.47,291,401. Complete particulars of the parties together with supporting accounts, documents and copies of respective ledger accounts were provided. It was explained to the Assessing Officer that most of the payable amounts 'represent payable to suppliers and contractors, hence the amount of creditors was fully verifiable and merits acceptance. The Assessing Officer has pointed out a few instances of incomplete addresses in the assessment order, but he miserably failed to point out these unverifiable parties through specific notice under section 62(1). In this way, the appellant has not been provided proper opportunity to verify the veracity of these creditors. According to the' learned counsel, the appellant has been penalized illegally, injudiciously and unheard.

He has contended that while making addition under section 13(1)(a) of Rs.10,131,377, the Assessing Officer has violated C.B.R.'s instructions issued vide letter C.No.7 (2)DT-14/91, dated 2-4-1991. He has contended that during the hearing of the appeal, the learned CIT(A) never pointed out any party of incomplete addresses and unjustifiably upheld the addition made by the Assessing Officer under this head.

Regarding the addition under section 12(18), it has been contended that complete detail of advances prepayments etc., was provided showing complete particulars of the parties. Copies of bank statements were also filed to authenticate the transaction being through banking channels. He has contended that in response to notice under section 62, copies of already filed details together with relevant bank statements were again provided, which rendered the entire claim fully verifiable. It has been strongly contested that the transaction made with the alleged parties were through normal banking channel and verifiable. The Assessing Officer, however, did not look into the facts and made additions under section 12(18) of the repealed Income Tax Ordinance, 1979. He has contended that the learned CIT(A) without going through the filed bank statements and details in support of advances has unjustifiably upheld the additions under this head. Learned counsel has argued that advances were admittedly trade advances against which the appellant was to make sales and hence these formed part of trading result. Such as these advances have been subjected to tax by the Assessing Officer with the reason for invoking section 12(18) was that the appellant could not substantiate that these were received through cross bank cheques. He has contended that the action of the Assessing Officer is illegal, unjustified and unwarranted, as section 12(18) of the defunct Ordinance, 1979 wherein the legislature has used the 'expression `advance' in between the expression `loan and gift', accordingly, the expression advance should not be taken inform on isolated or detached manner, disassociated the context, but is to be read together and construed in the light of the purpose and object of the Act itself, so the expression `advance' is to be interpreted in the light of words associated to it and not in isolation. In support of this, reliance has been placed on a reported judgment cited as 1973 PTD 453, wherein the Hon'ble High Court has held that:

"Meaning to a particular expression is to be assigned in the light of other expression used by the legislature in a statutory provision".

He is, therefore, of the view that the expression `loan' and `gift' clearly relate to non-business financial transaction, therefore, the expression `advance' being connected to the other two, is also in the nature of non-business financial transaction. Since the advances on which the provisions of section 12(18) has been invoked are business advances, therefore, are not hit by mischief of section 12(18) of defunct Ordinance, 1979. He has in this respect referred C.B.R. Circular No.3 of 1992, which reveals that:

"The matter has been considered in the Board since the basic purpose of the aforesaid provision of law is to check fictitious loans .." .

As such, section 12(18) is meant to check fictitious transactions. Since the Assessing Officer has not anywhere in the assessment observed that the advances were fictitious. Obviously, no fictitious element in the advance is available and Assessing Officer fully agreed to this, therefore, the provisions were not applicable in the case of the appellant. He has in this respect referred the new Ordinance, 2001. Section 39(3)(4), which is the parallel of section 12(18) of the defunct Ordinance, 1979 and provides exemption from charge-ability of tax of business advances received against sales of goods or supply. He has contended that the action under defunct Ordinance, is protected vide section 239(9) in the Income Tax Ordinance, 2001, wherein it has been provided that:--

"(9) Anything done or action taken under the repealed Ordinance in so far as it is not inconsistent with the provision of this Ordinance shall, without prejudice to anything already done or any action already taken,- be treated as having been done or taken under this Ordinance."

He has, therefore, contended that the illegal addition made by the Assessing Officer under section 12(18) may please be deleted.

Regarding the depreciation, it has been contended that the appellant declared cost of plant and machinery worth Rs.773,414,731. Since this was the first year of production apart from normal depreciation, extra shift and initial depreciation has been claimed at Rs.306,272,233. Complete details supporting vouchers and invoices and copies of L.Cs for purchase of machinery have been provided. During the assessment proceedings and after examination of detail and accounts, the Assessing Officer has admitted in the assessment order that the complete purchase invoice of machinery through inland LC by Bankers Equity Ltd. from Hudabiya Engineering is on the record, but without any justification has observed that claim in this respect was unverifiable due to lack of documents and that some invoices of plant and machinery pertains to assessment year 1998-99 and the invoices of some machinery pertain to succeeding assessment years. Learned counsel has submitted that the Assessing Officer has curtailed the claim of depreciation to Rs.138,500,881 without any justifiable reason. He has contended that it was vehemently contested before the learned CIT(A) that complete details, documents and supporting vouchers have already been provided. He has argued that as regard machinery through L/C documents what else did the Assessing Officer require for the verification of purchase of machinery. He has placed a copy of L/C in support of his contention. As regards machinery of value of Rs.2,691,500 relating to the year 1998-99, it has been contended that these have to be included in the machinery cost for 1999-2000 being the first year of production. According to the learned counsel, it is interesting and surprising to note that out of total cost of machinery of Rs.773,414,731, the Assessing Officer has noted that vital machinery like shredder, hammer cost just Rs.350,000 was purchased on 3-3-1998 during the closing period of the crushing season and this has created serious doubts in his mind regarding the genuineness of the evidence produced by the assessee. According to the learned counsel, the Assessing Officer seems to be unaware of the fact that the original cost of shredder hammer is Rs.4549,650, which is covered by the inland L/C of Rs.470,000,000. Other examples quoted regarding acquisition of machinery are also well before the closing of crushing seasons (31-12-1997 and 27-1-1998). As such, the doubts raised by Assessing Officer are self created of his confused mind. In view of these facts, learned counsel for the assessee has contended that Assessing Officer had no justification to curtail the claim of depreciation. Moreover, to meet the norm of justice, he should have confronted the appellant before making such disallowance. He has contended that the learned CIT(A) totally misconceived the submissions made on behalf of the assesses and without applying his mind has unjustifiably upheld the action of Assessing Officer.

Regarding the addition on account of Lease Finance Assets, which is the subject-matter only for the assessment year 2001-2002, it has been contended that the appellant claimed liability under the head assets subject to lease finance with complete detail of liability claimed under this head at Rs.1,238,798. Relevant supporting documents such as bank statement payment schedule of leasing company was provided. It has been contended that the Assessing Officer without considering these documents has added the entire claimed liability and the learned CIT(A) has ignored the factual fact that the appellant has obtained assets on lease which has been declared in the schedule of assets. It has been argued that the learned CIT(A) without considering these submissions has upheld the addition.

Regarding the additions out of P&L A/c expenses, it has been contended that the assessee claimed various expenses in the Profit and Loss A/c during the course of assessment proceedings, complete detail and evidence of expenses, claimed under various heads in the Profit and Loss A/c was provided to the Assessing Officer. The Taxation Officer has unjustifiably, without pointing out any specific instances of unverifiability and unvouched nature of expenses through specific notices has made certain unjustified additions out of Profit and Loss A/c. The learned CIT(A) unjustifiably and without considering the facts of the case that this is the first year of assessment has observed that in view of the history, the quantum of additions is excessive and harsh. Obviously, according to the learned counsel, he did not apply his own mind and adjudicated the appeal. He has contended that the claimed expenses are verifiably and should have to be deleted.

Regarding the disallowance of financial expenses, it has been contended that the appellant has claimed financial charges, complete details duly supported with relevant bank statements has been provided rendering the entire claim of financial charges fully verifiable. The Assessing Officer, however, without considering these documents and on erroneous pretexts has unjustifiably and without applying judicious mind has disallowed certain amount of financial charges. Learned counsel has contended that during the appeal proceedings before the learned CIT(A), relevant detail along with bank statement was again filed regarding rendering entire claim under this head fully verifiable. These details have been placed before this Bench also. He has contended that the learned CIT(A) is totally unjustified by observing that no positive efforts have been made to get verify this expense.

Learned counsel for the assessee has further submitted that the assessment for the period under appeal was made after making trading addition as well as addition under section 13(1) (a), but the repealed Income Tax Ordinance, 1979 provides only one addition either it relates to trading accounts or relating to section 13. If the additions under both heads are made simultaneously, then the addition made under section 13 merit set off against trading addition. He has in this respect referred a reported judgment cited as 1995 PTD 289. According to the learned counsel, the Assessing Officer has not given such set off in to assessment order. Moreover, the learned CIT(A) has not adjudicated the appellant's appeal on this issue. In view of the above submissions, it has been prayed that the above appeal may graciously be accepted.

On the other hand, learned DR is supporting the impugned orders of the learned CIT(A) and has contended that the Taxation Officer has discussed all the issues in detail and after considering the submissions made by the assessee has made the assessment in accordance with law and the learned CIT(A) has also keeping in view the available record and relevant laws. According to the learned DR, no interference in the matter is required.

We have heard the learned representatives from both the sides and have also perused the impugned orders of the learned CIT(A), the assessment orders, the case-law referred by the learned counsel for the appellant and all the details furnished on behalf of the appellant.

Regarding rejection of trading accounts, we have found that the appellant is a new entrant in the business and the assessment year 1999-2000 is the first year of business. For this year, return declaring nil income was filed, which was subsequently revised claiming loss and in the subsequent three years i.e. 2000-2001 to 2002-2003, the appellant has declared losses. It has been contended on behalf of the appellant that along with return for all the four years,, statement of accounts consisting of Balance Sheet, Manufacturing A/c, Trading, Profit and Loss A/c & Schedule of Fixed Assets were also filed. It has further been contended that all the relevant details, documents and books of accounts were provided and were examined by the Taxation Officer. The learned counsel for the appellant in this respect has also placed before us copy of order sheets for all the four years under review. While perusal of the order sheet for the assessment year 2000-2001 and 2001-2002, we have found that for the assessment year 2000-2001 in the entry, dated 13-5-2003, it has specifically been mentioned that the assessee has filed reply to the queries raised and the books of accounts have been produced. Likewise, in the entry for the assessment year 2001-2002, dated 5-6-2003,it has been admitted that books of accounts have been examined with reference to the details and documents already filed. But for the assessment year 1999-2000, the Taxation Officer has mentioned in the assessment order that books of accounts despite notices have not been furnished. We are of the view that this view of the Taxation Officer is not acceptable due to the fact that as per order sheet entry for the assessment year 1999-2000, the Taxation Officer has noted in the entry, dated 20-3-2001 that representative of the appellant has been asked to come up with details and documents, which have been admittedly filed on 11-4-2001 and in none of the entries, it has been mentioned that books of accounts be produced, except in the entry, dated 28-3-2002 wherein it has been mentioned that case has been adjourned till 15-4-2002 for furnishing details and books, but in the order sheet, there is no entry for 15-4-2002. The learned counsel in this respect has given details and has established that books of accounts and all the details required by the Taxation Officer were furnished for assessment. After perusal of details furnished, we have observed that during the course of hearing and examination of record, lower authorities could not bring forward any substantial record or reasons in support of the impugned assessment. We are of the view that as it has been held by this Tribunal as well as by the Superior Courts that this way of conducting case is not justifiable, as the tax is not a forced liability, but in fact responsibility to owe to the statues a proper share given by the tax payer for utilizing and consuming services provided by the State. As has already been held the determination of the tax must be made with the view to keep this principle intact and to maintain confidence and boost the encouragement in the tax paying society, so that the tax could not be taken by the concerned public to hard imposition, but a duty. Government Authorities responsible for tax matters including C.B.R. is trying to develop tax culture in the working classes and to encourage in this respect the enforcement of self assessment at large, which will Insha Allah discourage the public regarding concealment of taxes. We have further noted that the declared sale rate and purchase rate of cane has been rejected by the Taxation Officer on the basis of parallel cases without considering the fact that the assessee company has newly been established, which cannot be compared with the companies with whom the assessee company has to compete and requires huge incentives to the formers for the establishment of his business.

In view of these facts and circumstances of the case, we find no justification for rejection of accounts. The declared sales rates for the assessment years 1999-2000 and 2000-2001 and the-declared purchase rate of cane for all the four years under review are directed to be accepted.

Likewise, the disallowances out of P&L A/c expenses have been made without confronting the appellant and pointing out specific instances of unvouched and unverifiable nature of expenses for all the four years under review, which also is not justified. The disallowances made for all the four years under review in P&L A/c expenses are also deleted and the claim of expenses in this respect is directed to be accepted.

Regarding the disallowance of "Financial Expenses" for all the four years under review, it has been contended on behalf of the appellant that complete details duly supported with relevant bank statements have been appended rendering entire claim of Financial Expenses fully verifiable. We are of the view that in the presence of valid evidence in the shape of bank statement, there was no justification for curtailment of the claim regarding Financial Charges. Evidence in this respect has also been furnished before the learned CIT(A), but he has also ignored the evidence in this respect. We, therefore, find no justification for curtailment of the claim of Financial Expenses. The impugned orders of the Officers below in this respect are, therefore, vacated and the claim of Financial Expenses for all the four years under review is allowed.

Regarding the addition made under section 12(18) of the repealed Income Tax Ordinance, 1979, the same has been made by the Taxation Officer for the assessment years 1999-2000 to 2001-2002. In this respect, it has been contended on behalf of the appellant that complete detail of advances, prepayments etc. was provided showing complete particulars of the parties and copies of bank statements were also filed to authenticate the transactions being through banking channels. It has further been contended on behalf of the appellant that advances were admittedly trade advances against which the appellant has to make sales and hence, this formed part of the trading results and the Taxation Officer has made the addition on the basis that the payment could not substantiate that these were received through bank cheques. We are of the view that as the appellant has not claimed these amounts as loans, gift or advance, addition made under section 12(18) is justified. E We find force in the contention made by the learned representative of the appellant that expression `advance' should not be taken in form of isolation or detached manner. This associating' the contest but is to be read to give and construe in the light of the purposes and object of the act itself. We are, therefore, of the view that the expression `advance' is to be interpreted in the light of the words associated to it and not in isolation, in section 12(18), `advance' has been mentioned along with `loan' and `gift', which clearly relates to non-business financial transaction, but in the case of the appellant, advances on which provisions of section 12(18) have been invoked are business advances. We are, therefore, of the view that these advances are not hit by mischief of section 12(18) of the defunct Ordinance, 1979. We will also in this respect refer the parallel section of the new Ordinance regarding section 12(18) of the defunct Ordinance, 1979 which is section 39(3), which says that:--

"(3) Subject subsection (4), any amount received as a loan, advance, deposit for issuance of shares or gift by a person in a tax year from another person (not being a banking company or financial institution) otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number shall be treated as income chargeable to tax under the head "income from Other Sources" for tax year in which it was received".

And under subsection (4), it has been specifically mentioned that "subsection (3) shall not apply to an advance payment for sale of goods or supply of services". We are, therefore, of the view that new Ordinance, provides exemption from charge-ability of tax of business advances received against sale of goods or supplies. We have further noted that action under the defunct Ordinance, 1979 is protected through section 239(9) wherein it has been provided that "Anything done or action taken under the repealed Ordinance, insofar as it is not inconsistent with the provisions of this Ordinance, shall without prejudice to anything already done or action already taken to be treated as having been done or taken under this Ordinance".

In view of this legal position and relevant facts, we find no justification for the addition made under section 12(18) of the repealed. Income Tax Ordinance, 1979. The impugned order of the learned CIT(A) in this respect is vacated and the additions made under section 12(18) by the Taxation Officer for the assessment years 1999-2000 to 2001-2002 are deleted.

Regarding the addition made under section 13(1)(d) of the repealed Income Tax Ordinance,, 1979 for the assessment year 1999-2000 on account of construction of factory building, it has been contended by the .representative of the appellant that complete detail of construction together with site, map, type of construction, agreement with contractor and evidence of cost of construction was provided, but the Taxation Officer without looking into the type of construction, location of the premises has adopted higher cost of construction @ Rs.350 per sq.ft. against declared cost of Rs.222 p sq.ft. We have noted that the Taxation Officer has quoted some parallel cases, but we are of the view that without examining site and other relevant facts, the construction cannot be treated to be parallel. The Taxation Officer should have pointed out defects or given concrete reasons for rejecting the declared cost after obtaining any expert opinion in this respect. The cost of construction is, therefore, reduced to Rs.250 per sq. ft. The addition made in this respect under section 13(l)(d) is directed to be reduced accordingly.

Regarding the addition made under section 13(1)(a) of the repealed Income Tax Ordinance, 1979 on account of unexplained creditors, it has been contended that complete details and break up of creditors were furnished. Creditors are fully verifiable, but the Taxation Officer in violation of C.B.R.'s standing instructions in this respect has made the addition. We have noted that the Taxation Officer has pointed out few instances of incomplete addresses in the assessment order. On the other hand, it has been contended by the learned representative of the appellant that unverifiable parties have not been confronted through notice under section 62(1). The addition made in this respect is, therefore, set aside to confront the assessee in this respect and if creditors are verifiable, then to delete the addition made in this respect. Otherwise, fresh assessment be made in this respect in accordance with law.

Regarding the depreciation, it has been contended that assessment year 1999-2000 was the first year of business and the appellant had provided complete detail of plant and machinery worth Rs.7,73,415,731. It has been contended that machinery valuing Rs.47,00,00,000 was purchased from Hudabiya Engineering Mills Ltd. through inland L/C of Bankers Equity Limited out of which, an amount of Rs.34,28,82,271 has been treated by the Taxation Officer as unverifiable due to lack of documents and machinery worth Rs.26,91,500 has been treated by the Taxation Officer to be pertaining to the year 1998-99 and as such, depreciation on it has not been allowed for the assessment year 1999-2000. On the other hand, it has been contended by the representative of the appellant that as the copy of L/C along with complete invoices was submitted to the Taxation Officer, which has also been placed before us, there was no justification for disallowing the claim of depreciation. Likewise, there was no justification to disallow the claim of depreciation on the pretext that the machinery valuing Rs.26,91,500 pertained to the year 1998-99, as it is clear that year 1998-99 being the first year of production, depreciation on machinery shall be claimed for this year. We also find force in the contention of the learned counsel for the appellant that without installation of huge machinery, the declared quantity production of sugar cannot be possible.

We have found that Taxation Officer has made mere observation and has curtailed the claim of the assessee on plant and machinery without any justification, as it is quite evident from details and documents that no portion of plant and machinery installed by the appellant remained unverifiable. Therefore, the claim in this respect is directed to be allowed.

We, however, find no warrant for interference regarding disallowance of claim of depreciation on factory and building for the assessment years 2001-2002 and 2002-2003 and on account of vehicle for the assessment year 2002-2003, as these have rightly been disallowed by the Taxation Officer and upheld by the learned CIT(A).

All the four appeals filed by the assessee are decided in the manner as indicated above.

C.M.A./43/Tax (Trib.)Order accordingly.