I.T.A. No. 1422/LB of 2005, decided on 12th May, 2007. VS I.T.A. No. 1422/LB of 2005, decided on 12th May, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2075 (2007)

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

----S.59(1)---C.B.R. Circular No.18 of 1999, dated 11-9-1999, paras. 2 & 6---Self-assessment---Assessee, being a new taxpayer, was required to declare income at least 30% of the capital employed---Declared capital at Rs.750,000 was found on the lower side in a manufacturing unit of soap and silicate---Capital was estimated at Rs.25,00,000 and case was processed under normal law---Validity---Entire edifice of exclusion of the assessee's return of income, out of the Scheme, had boon built purely arbitrarily and on colourful assumptions that the capital employed in business was at Rs.25,00,000---Not an iota of evidence 'was either adduced or was brought to the notice of the Regional Commissioner of Income Tax by the Deputy Commissioner of Income Tax whereby it could be concluded that present was a case of concealment or evasion of income---By no stretch of imagination the observation made by the Deputy Commissioner of Income Tax .that assessee being a manufacturing unit of soap and silicate capital employed in business would be at Rs.25,00,000 could be marked with a rope that concealment or evasion. of income was made by the assessee---Such observation was certainly needed to undergo through a trial to establish its definiteness otherwise it would not be-regarded more than a "statement"---Neither the decision of the Regional Commissioner of Income Tax nor the reasons advanced by the Deputy Commissioner of Income Tax to process the assessee's return of income under normal law were tenable in the eye of law---Assessee's return of income being fully qualified to be accepted under the Scheme, the Assessing Officer was directed to accept the income declared by the assessee.

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

----S.59(1)---C.B.R. Circular No.18 of 1999 dated 11-9-1999, paras. 2 & 6---Self-assessment---Assumption of capital---Return of income could not be set apart out the purview of the Universal Self-Assessment Scheme for proceeding under normal law on the basis of assumed capital until and unless proved otherwise.

Nazir Ahmad Shad for Appellant.

S.A. Masood Raza Qazlabash, D.R. for Respondent.

ORDER

RASHEED AHMED SHEIKH (JUDICIAL MEMBER).---Vide this appeal, the assessee-appellant has called into question the order passed by C.I.T.(Appeals) Zone-I, Faisalabad dated 25-1-2005 in respect bf assessment year 1999-2000.

2. The learned counsel appearing on behalf' of the assessee appellant has attacked the impugned appellate order on legal as well as on factual grounds.

3. First contention was that exclusion of the assessee's return to be processed under normal law was unwarranted on the facts and in the circumstances of the case. As per the assessment order, net income was returned at Rs.2,25,000, being the new taxpayer, under the Universal Self-Assessment Scheme (hereinafter called USAS). However, the return was selected for processing under the normal law by the Regional Commissioner of Income Tax/Wealth Tax Central Range, Multan (herein after called RCIT) by virtue of letter bearing number SO/ii/Fsd/S. audit/4568 dated 27-2-2001. The reasons advanced for selection of the case were as under:---

"1. Being a new taxpayer the assessee was required to declare income at least @ 30% of the of capital employed in the business. The declared resultant capital at Rs.750,000 was found on the lower side in a manufacturing unit of soap & silicate The capital employed in the business of manufacturing of soap and silicate was estimated at Rs.25,00 000 acid after considering; the reply of the 'assessee the competent authority ordered Normal Law proceedings in the case." (Underlined by me only for the purposes of emphasis only)

The reply and the documents furnished by the assessee, during the course of assessment proceedings to state that the case was fully qualified to be accepted under the USAS. could not convince the Assessing Officer and he proceeded to determine net income of Rs.750,164. When the order was assailed in appeal before the First Appellate Authority, who maintained the impugned assessment order in its totality including the contention raised regarding exclusion of the return out of the ambit of USAS.

4. The question which has been posed for my consideration was as to whether the assessee's return of income can be set apart to be processed under normal law on the given facts. After having heard the divergent views expressed by the parties in appeal and on perusal of the USAS as well as the other documents furnished before me, I have come to a conclusion that the assessee's return of income has been decided by the RCIT to be processed under normal law on conjectures, surmises and whims. Evidently, neither the Assessing Officer has evaluated the ground realities nor any endeavour has been put forth to repel the pleas taken by the assessee at the tune of finalization of assessment. It was pleaded at the relevant time that the assessee was never the owner of manufacturing concern rather that was taken on lease. Thus the capital employed, therein was not more khan Rs.750,000 as was declared in the statement, and the income returned was 30% of the investment made or the capital employed in the' business. This was the precondition for the new taxpayer to ripe the benefits of the USAS as was envisaged under para. 6 C.B.R. Circular No.18 of 1999 dated September 11, 1999. It is not understandable on what basis it was observed by the Assessing Officer that the' capital employed in the business was at Rs.25,00,000. The para. quoted supra vividly spells out capital in business was estimated by the Assessing Officer at Rs.25,00,000 reason being the assessee was engaged in manufacturing of soap and silicate. In no way the return of income can be set apart out of the purview of the USAS for proceeding under normal law on the basis of assumed capital until and unless proved otherwise. This contention was also reiterated before the DCIT during the course of finalizing the assessment. Amazingly none of the authority put the assessee's contention to test in order to ascertain its veracity. Nevertheless, that was brushed aside by the department with the simple observation that the arrangement of the lessee and lessor was afterthought which was not proven by the record.

5. Apart from the above, the assessee-appellant was the lessee and not the lessor and list of lessors, who were four in cumber, was submitted before the RCIT on 1-6-2000 along with their national tax numbers copies of challans of payment of income-tax and lease agreement dated 21-7-1998 besides furnished during the course of assessment proceedings. Thus, much capital was not required to run the industrial establishment.

6. Moreover, after completing the assessment under normal law, proceedings under section 111 of the Income Tax Ordinance, 1979 were initiated by the DCIT in order to levy penalty on account of concealment or evasion of income by issuing a notice under section 116 of the Income Tax Ordinance, 1979. What happened that proceedings so initiated were ultimately dropped by the DCIT by observing that the notice under section 116 of the Income Tax Ordinance, 1979 was issued without any legal footings which were not sustainable on merits. Those proceedings 'were, in fact, dropped by the DCIT, after having perused the assessment record whereby the assessee's contention of leasing out the manufacturing concern and that the lessors were existing taxpayers, were found to be correct.

7. As is evident from the USAS, this scheme was optional not only for the existing but also for the new taxpayers as is envisaged under clause (a) of para.2 of C.B.R. Circular No.18 of 1999 dated September 11, 1999. In clause (b) of this para. of the scheme it has been manifestly provided that all returns of income filed 1'or assessment year 1999-2000 are entitled to the benefits of this scheme. Certain exceptions are also enumerated thereunder whereby cases of non-residents and public companies, quoted on stock exchange, were ousted to avail benefits of the said scheme. However, in order to administer USAS, certain assurances were made available to the optees of the Scheme under para. 11. First one was that no arbitrary selection of cases for audit of scrutiny would be made. Second one was that cases of concealment or evasion of income will be brought to the notice of Regional Commissioner of Income Tax who may, only after counselling with the taxpayers, take necessary decision for processing under normal law. Third was one that the taxpayers were at liberty to declare there true turnover, gross profit and act profit and no adverse inference would be drawn with regard to quantum of declared sales and gross and net profit.

8. When the aforesaid facts were appraised within the bounds of USAS, it eau be safely inferred that the entire edifice of exclusion of the assessee's return of income, out of the Scheme, has been built purely arbitrarily and on colourful assumptions that the capital employed in business was at Rs.25,00,00b. Not an iota of evidence whatsoever was either adduced or was brought to the notice of the RCIT by the DCIT whereby it could be concluded that this was a case of concealment or C evasion of income. By no stretch of imagination the observation made by the DCIT that, this being a manufacturing unit of soap and silicate capital employed in business would be at Rs.25,00,000 can be marked with a rope that concealment or evasion of income was made by the assessee. Reason being this observation was certainly needed to undergo through a trial to establish its definiteness otherwise it would not be regarded more than a "statement". To hold someone that you have concealed or evaded your income, the onus to prove this guilt squarely rests on the shoulders of the person who has said so. But in the instant case the Departmental authorities have miserably failed to fasten blame at the assessee's door. The words used in the scheme "concealment or evasion of income" by itself require existence of exact and direct evidence regarding suppression of income which in the present case was absolutely missing. Rather the reasons advanced to exclude the assessee's return of income out of the USAS were based on gossips and the assumed facts.

9. Coming to the scheme itself, the purport to legislate the Self-Assessment Scheme is always that the returns which are qualified thereunder should be accepted as such under section 59 of the Income Tax Ordinance, 1979, subject to the additions to be made on account of inadmissible expenses, if otherwise not hit by airy exception laid down in the scheme. When viewed in this perspective, I have come to an inescapable conclusion that neither the decision of the RCIT nor the reasons advanced by the DCIT to process the assessee's return of income under normal law were tenable in the eye of law. Since, the assessee's return of income was fully qualified to be accepted under the scheme, therefore, the Assessing Officer is directed to accept the income declared by the assessee at Rs.2,25,000 under subsection (1) of section 59 of the Income Tax Ordinance, 1979.

10. Since the assessee's appeal has been disposed of on legal plane, therefore, merits of the case have not been dilated upon hereunder.

11. The assessee's appeal is accordingly accepted.

C.M.A./68/Tax(Trib.)Appeal accepted.