I.T. As. Nos. 3964/LB, 3965/LB, 4821/LB and 4822/LB of 2002, decided on 6th September, 2006. VS I.T. As. Nos. 3964/LB, 3965/LB, 4821/LB and 4822/LB of 2002, decided on 6th September, 2006.
2007 P T D (Trib.) 2069
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Ch. Nazir Ahmad, Accountant Member
I.T. As. Nos. 3964/LB, 3965/LB, 4821/LB and 4822/LB of 2002, decided on 06/09/2006.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of accounts, evidence etc.---Rejection of accounts without pointing out defects---Validity---Admittedly, books of accounts were maintained, produced before the Taxation Officer and had been examined but Taxation Officer without pinpointing any defect in the books of accounts had rejected the declared version---No justification existed for rejection of accounts after examining books of accounts and without pointing out any specific defects in the accounts---Where the assessee produced books of .accounts as evidence in support of return, the Assessing Officer before disagreeing with such accounts shall give notice to the assessee of the defects in the accounts and will provide an opportunity to the assessee to explain his point of view about such defects and record such explanation on the basis of computation of total income of the assessee in the assessment order---Such having not been done the assessment orders were liable to be cancelled, as the requirements of the mandatory provisions of law had not been fulfilled---Order of First Appellate Authority was vacated and Taxation Officer was directed to accept the declared version of the assessee.
2001 PTD 3369; 2002 PTD 407 and 2001 PTD (Trib.) 3369 ref.
(b) Income-tax---
----Inspector's report---Inspector's inquiry report dated 23-10-2001 was not relevant 1'or the assessment years ending on 30-6-2000 and 30-6-2001.
2001 PTD (Trib.) 3369 rel.
(c) Income-tax---
----Rejection of accounts---Adverse past history of the assessee could not be a correct ground to reject the accounts, as rule of res judicata was not applicable to the income tax proceedings and every year was an independent year.
2002 PTD 407 rel.
Muhammad Younis Khalid for Appellant (I.T.As. Nos.3964/LB and 3965/LB of 2002).
Mrs. Sabiha Mujahid, D.R. for Respondent (I.T.As. Nos.3964/LB and 3965/LB of 2002).
Mrs. Sabiha Mujahid, D.R. for Appellant (I.T.As. Nos.4821/LB and 4822/LB of 2002).
Muhammad Younis Khalid for Respondent (I.T.As. 4821/LB and 4822/LB of 2002).
ORDER
Through these four cross-appeals, the consolidated impugned order of the learned C.I.T.(A,) dated 9-7-2002 for the assessment years 2000-01 and 2001-02 has been assailed by the assessee for both the years under review on the following grounds:---
(i) That the rejection of accounts upheld by the learned C.I.T.(A) is not justified.
(ii) Treatment regarding estimated sales and disallowances in the following heads under review is not justified:---
Travelling
Printing & Stationery Telephone
Rents Rates &Taxes
Repair & Maintenance Vehicle Ruining
Entertainment
Misc. Expenses
Computer. Expenses Advertisement
Packing Material
(iii) For the assessment year 2000-01 in addition to the above said grounds on behalf of the assessee, the treatment regarding disallowances out of "Repair and. Maintenance" and "Advertisement" have been objected and the setting aside of additional tax under section 89 has also been objected.
While the Department for both the years under review is aggrieved in respect of estimated sales as reduced by the learned C.I.T.(A). For 'the assessment year 2000-01, the Department has also objected the relief allowed reducing expenses from Rs. 1,07,563 to Rs.50,000.
Mr. Muhammad Younis Khalid, Advocate has appeared on behalf of the assessee and has contended that in this case, .books of accounts have admittedly been produced before the Taxation Officer and. it has been specifically mentioned in the assessment orders for both the years that the assessee is maintaining computerized books of accounts, which were examined. The assessee had also produced necessary document's and details in response to notices issued by the Taxation Officer, during the course of assessment proceedings. He has contended that the Assessing Officer without pinpointing any defects in the books of accounts has rejected the declared version without any justification and has made the assessment on the basis of Circle Inspector's Report which is not relevant for the years under review. He has contended that the Inspector's report is of 23-10-2001 while the assessment years under review end on 30-6-2000 and 30-6-2001. He has contended that the learned C.I.T.(A) in the impugned order has admitted that "Inspector's inquiry report dated 23-10-2001 does not reveal recording statement of the assessee nor any of his representative. No proper stock taking is evident either except for a one (1) page list produced quality/quantity, rates and amount worked out to a total amount in pencil writing", therefore, the learned C.I.T.(A) has observed that the basis taken for estimated sales on the basis of Inspector's report is not reliable. According to the learned counsel, the learned C.I.T.(A) instead of directing to accept the declared version has only reduced the estimated sales for the two years under review. The learned counsel in respect of his contention has placed reliance on the decision of this Tribunal reported as 2001 PTD 3369 and the decision of Hon'ble High Court reported as 2002 PTD 407 (H.C. Kar.) wherein it has been held that the un-verifiability of sales and purchases cannot be a ground for rejection of trading results and that the adverse past history of the assessee was not a correct ground to reject the book version, as rule of res judicata is not applicable in the income tax proceedings and every year is an independent year. The learned counsel is, therefore, of the view that the declared version may please be accepted.
On the other hand, Mrs. Sabiha Mujahid, representing the Department has contended that the learned C.I.T.(A) without any ,justification has reduced the estimated sales and has allowed relies in respect of disallowances despite the fact that the Assessing Officer after properly confronting the assessee has rejected the declared version and has estimated sales and made disallowances out of Profit & Loss A/c. He is, therefore, of the view that assessments made for both the years under review may please be restored.
We have heard the learned representatives of both the sides and have also perused the impugned under of the learned C.I.T.(A) and the assessment orders.
We have found that the assessee, in this case, is au individual deriving income from sale of garments on retail basis. Admittedly, books of accounts are maintained; produced before the Taxation Officer and have been examined for both the years under review, but the Taxation Officer without pinpointing any defects in the books of accounts has rejected the declared version and has made the assessments on the basis of Inspector's inquiry report which has been made by the Circle Inspector on 23-10-2001 despite the fact that the assessment years under review, ended on 30-6-2000 and 30-6-2001 respectively. We arc of the view that Inspector's inquiry report is not relevant as has already been held by this Tribunal in a decision reported as 2001 PTD (Trib.) 3369. We have further noted that although the history of the assessee is of rejection yet it has been contended by the learned counsel for the assessee that for the years under review, the assessee has properly maintained books of accounts and no specific defects have been pointed out by the Taxation Officer. We are, therefore, of the view that the adverse past history of the assessee cannot be a correct ground to reject the accounts, as rule of res judicata is not applicable to the income tax proceedings and every year is' an independent year as already been held by the Hon'ble Karachi High Court in a decision reported as 2002 PTD 407.
In view of the above facts we are or the considered view that there was no justification for rejection of accounts after examining books of accounts and without pointing out any specific defects in the accounts in view of section 62 of the repealed Income Tax Ordinance, 1979 which says that where the assessee produces books of accounts as evidence in support of return, the Assessing Officer before disagreeing with such accounts shall give notice to the assessee of 'the defects in the accounts and will provide an opportunity to the assessee to explain his point of view about such defects and record such explanation on the basis of computation of total income of the assessee in the assessment order. This being not done so, the assessment orders in this case are liable to be cancelled, as the requirements of the mandatory provisions of law have not been fulfilled.
Both the appeals filed by the assessee are, therefore, allowed. The impugned order of the learned C.I.T.(A) in this respect is vacated and the Taxation Officer is directed to accept the declared version of the assessee.
Consequently, both the cross-appeals filed by the Department arc dismissed.
C.M.A./69/Tax(Trib.)Order accordingly.