I.T.As. Nos. 3506/LB of 2004 and 2549/LB of 2005, decided on 6th February, 2007. VS I.T.As. Nos. 3506/LB of 2004 and 2549/LB of 2005, decided on 6th February, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1843 (2007)

(a) Income Tax Appellate Tribunal Rules, 1981---

----R.14---Grounds which may be taken in appeal---Ground was vague and against the Income Tax Appellate Tribunal Rules, 1981 as the heads of account of the Profit and Loss Account expenses had not been pointed out.

(b) Income-tax---

----Gross Profit rate---Observation of First Appellate Authority that "Assessing Officer was not at liberty to apply G.P. rate when both purchases and sales were verifiable and Assessing Officer should have specifically pointed out the element of unveriliability of debit side of the trading account instead of using general remarks" was not interfered by the Appellate Tribunal.

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

----S.62---Assessment on production of books of accounts, etc.---Rejection of accounts---Once Taxation Officer had specifically mentioned in the assessment order that during the course of proceedings, books of accounts were produced along with other details and information and it had been admitted that record/details provided by the assessee showed that sales were made to verifiable parties, complete details of the same were provided, stock register, production record and accounts produced by the assessee were also scrutinized, which proved the authenticity of the sales declared by the assessee, there was no justification for rejection of accounts and declared Gross Profit rate was directed to be accepted.

2003 PTD (Trib.) 2668 ref.

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

----S.30---Income from other sources---Addition in respect of `other income'---Taxation Officer had admitted that on behalf of the assessee, ledger account and other details were furnished, but he had made the addition without specifically asking for further information---Addition made in respect of `other income' was deleted by the Appellate Tribunal.

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

----S.12(18)---Income Tax Ordinance (XLIX of 2001), S.39---Income deemed to accrue or arise in Pakistan---Advance said before transfer of goods---Addition---Validity---Money paid before transfer of goods did not amount to advance as mentioned in S.12(18) of the Income Tax Ordinance, 1979---Even otherwise, in the Income Tax Ordinance, 2001 in S.39(4), it had been specifically provided that subsection (3) of S.39 of the Income Tax Ordinance, 2001 should not apply to an advance payment for the sale of goods or supply of services---Addition made was deleted by the Appellate Tribunal.

2004 PTD (Trib.) 1883 rel.

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

----S.62---Assessment on production of books of accounts, etc.---Disallowance---Taxation Officer had made disallowances out of Profit and Loss account expenses on the basis of `stock phrases' without specifically confronting the assessee regarding defects in the accounts maintained by the assessee- Disallowances made in Profit and Loss account expenses were deleted by the Appellate Tribunal.

Zaheer-ud-Din Babar, C.A. for Respondent (I.T.A. No.2549/LB of 2005).

Mrs. Sabiha Mujahid, D.R. for Appellant (I.T.A. No.3506/LB of 2004).

Mrs. Sabiha Mujahid, D.R. for Appellant (I.T.A. No.3506/LB of 2004).

Zaheer-ud-Din Babar, C.A. for Respondent (I.T.A. No.2549/LB of 2005).

ORDER

Out of these two appeals, one has been filed by the Department for the assessment year 2001-02 against the impugned order of the learned C.I.T.(A) dated 11-3-2005, while the second appeal has been filed by the assessee for the assessment year 2002-03 against the impugned order of the learned C.I.T.(A) dated 25-6-2004.

The Department in its appeal has assailed the impugned order on the following two grounds:---

(2) That the learned C.I.T.(A) was also not justified to accept the declared G.P. rate without any cogent reasons.

(3) That the learned C.I.T.(A) was not justified to delete the additions made out of P&L A/c expenses without appreciating the facts of the case.

Regarding the ground in respect of additions out of P&L A/c expenses, we are of the view that on behalf of the appellant-Department, in the memo of appeal, heads of account of the Profit & Loss A/c expenses have not been pointed out. Therefore, the ground is vague and against the Income Tax Appellate Tribunal's Rules.

Even otherwise, we have found that the learned C.I.T.(A) has deleted the disallowances placing reliance on the decision of this Tribunal reported as 2003 PTD (Trib.) 2668 with the following observations:---

"Coming to the next point relating to curtailment of P&L expenses the Assessing Officer has made disallowances due to unverifiability of the claim and involvement of personal element. The A.R. of the appellant contended that complete particulars of expenses claimed were also submitted before the Assessing Officer during the course of assessment proceedings and the Assessing Officer has failed to point out any specific defect. In support of said contention the A.R. of the appellant also produced the documentary evidence in shape of vouchers/cash memos. which renders the genuineness of the claim. The Assessing Officer has made addition by the using stock phrases like unverifiability and unvouched. The said style of disallowances has been disapproved by the appellate forum. Reliance is placed in a case reported as 2003 PTD (Trib.) 2668 considering the ratio of above case-law additions made out of P&L expenses are ordered to be deleted."

After perusal of the above observations of the learned C.I.T.(A), we find no warrant for interference in the impugned order, which is upheld and appeal in respect of disallowances is dismissed.

Likewise, regarding the directions of the learned C.I.T.(A) to accept the declared G.P. rate, the following observations made by the learned C.I.T.(A) are proper and reasonable:---

"The matter has been considered. The Assessing Officer is not at liberty to apply G.P. rate when both purchases and sales are verifiable as admitted at pages 2 and 3 of the assessment order. The Assessing Officer should have specifically been pointed out the element of unverifiability of debit side of the trading account instead of using general remarks. No parallel cases have been quoted in support of his decision to apply GP @ 14.5%, which is necessary requirement for natural justice. To meet the ends of justice and fair-play the Assessing Officer is directed to accept the trading result of the appellant."

In view of the above observations of the learned C.I.T.(A), we find no warrant for interference in this respect also.

The appeal filed by the Department is, therefore, dismissed.

The assessee in its appeal for the assessment year 2002-03 has assailed the impugned order of the learned C.I.T.(A) regarding trading addition, application of GP rate at 15%, as against declared rate of 13.64%, addition in respect of `other income', disallowances out of P&L A/c expenses and the addition under section 12(18) of the repealed Ordinance, 1979. The assessee has also requested for credit of advance payment of tax, which ground has not been pressed by the learned counsel for the assessee and is, therefore, ignored.

Regarding the trading addition and rejection of accounts, the learned counsel for the assessee has contended that the assessee is maintaining books of accounts and has shown a reasonable increase in the trading results. Sales have been declared at Rs.6,06,52,660, as against declared at Rs.2,90,07221 for the assessment year 2000-01 and at Rs.4,08,57,539 for the assessment year 2001-02. Likewise, G.P. rate has been declared at 13.09% for the assessment year 2000-01 and at 13.34% for the assessment year 2001-02, while for the year under review i.e. 2002-03, G.P. rate has been declared at 13.64%.

The learned counsel has submitted that it is to note that the declared trading results were accepted by the learned C.I.T.(A) in the course of first appeal for the previous assessment year i.e. 2001-02. The learned counsel placing reliance on the reported decision of this Tribunal has contended that in cases where the books of accounts have been furnished, no addition in trading results should be made without specifically pointing out defects in books of account. The decision of this Tribunal reported as 2003 PTD (Trib.) 2668 has been placed before us. The learned counsel has contended that Taxation Officer at page 3 of the assessment order has specifically mentioned that "record/details provided by the assessee show that sales were made to verifiable parties. Complete details of the same were provided. Stock register, production record and accounts produced by the assessee were also scrutinized, which proved the authenticity of the sales declared by the assessee". According to the learned counsel after the above observations of the Taxation Officer in the assessment order, there was no justification for rejection of books version.

Regarding the addition amounting to Rs.91,123 in respect of `other income', the learned counsel has contended that assessee company had declared other income at Rs.4,08,897 out of sales proceeds of empty drums, refund of securities, sale of fixed assets etc. and in response to the query of the Taxation Officer, detail of income was provided by the assessee, but the Taxation Officer without further going into the matter, has made the addition, which is not justifiable.

Regarding the addition made under section 12(18) of the repealed Income Tax Ordinance, 1979, the learned counsel has contended that the assessee has shown advances from customers at Rs.6,13,642 and in response to the notice of the Taxation Officer, ledger account in this regard showing all the details was furnished, but the Taxation Officer has made the addition without any justification. The learned counsel in this regard has referred the decision of this Tribunal reported as 2004 PTD (Trib.) 1883 wherein, it has been held that "the transaction agreed between the parties and money paid before transfer of goods did not amount to advance to be taken under the mischief of section 12(18) of the late Ordinance, 1979".

The learned counsel has also objected the disallowances made out of P&L A/c expenses by the Taxation Officer. Placing reliance on the decision of this Tribunal reported as 2003 PTD (Trib.) 2668, it has been contended that disallowances made without confronting the assessee, in the presence of books of accounts are liable to be declared to be null and void. The learned counsel in this respect has also placed before us the notice dated 22-4-2002 sent by the Taxation Officer under section 62 of the late Ordinance, 1979.

We have heard the learned representatives from both the sides and have also perused the impugned orders of the learned C.I.T.(A), the assessment orders and other relevant facts of the case.

We are of the view that once the Taxation Officer has specifically mentioned in the assessment order that during the course of proceedings, books of accounts were produced along with other details and information and it has been admitted that record/details provided by the assessee show that sales were made to verifiable parties. Complete details of the same were provided. Stock register, production record and accounts produced by the assessee were also scrutinized, which proved the authenticity of the sales declared by the assessee, there was no justification for rejection for rejection of accounts and declared G.P. rate is, therefore, directed to be accepted.

Likewise, regarding the addition made in respect of `other income', Taxation Officer has admitted that on behalf of the assessee, ledger account and other details were furnished, but he has made the addition without specifically asking for further information in this regard. The addition made in respect of `other income' is also deleted.

Regarding the addition made under section 12(18) of the late Ordinance, 1979, we are of the view that there was no justification for the addition in this regard, as this Tribunal has already held in so many cases that money paid before transfer of goods did not amount to advance as mentioned in section 12(18) of the late Ordinance, 1979. Even otherwise, in the new Income Tax Ordinance, 2001 in sub-section (4) of section 39, it has been specifically provided that sub-section (3) should not apply to an advance payment for the sale of goods or supply of services. In view of this legal position, the addition made in this regard under section 12(18) is deleted.

Same is the position regarding disallowances out of P&L A/c expenses. The Taxation Officer has made disallowances out of P&L A/c expenses on the basis of stock phrases without specifically confronting the assessee regarding defects in the accounts maintained by the assessee. The disallowances made in P&L A/c expenses are, therefore, deleted.

The appeal filed by the Department for the assessment year 2001-02 is dismissed, while the appeal filed by the assessee for the assessment year 2002-03 is allowed to the extent and in the manner as indicated above.

C.M.A./44/Tax(Trib.)Order accordingly.