I.T.As. Nos.639/KB, 640/KB, 641/KB, 642/KB and 643/KB of 2002. VS I.T.As. Nos.639/KB, 640/KB, 641/KB, 642/KB and 643/KB of 2002.
2007 P T D (Trib.) 2140
[Income-tax Appellate Tribunal Pakistan]
Before S. Hasan Imam, Judicial Member
I.T.As. Nos.639/KB, 640/KB, 641/KB, 642/KB and 643/KB of 2002.
(a) Income Tax Ordinance (XXXI of 1979)--- ----Ss.13(1)(aa), 62 & 65---Unexplained investment etc., deemed to be income---Addition was deleted by the First Appellate Authority by observing that "the amount of addition had been duly approved by the Inspecting Additional Commissioner but notices under S.13(1)(aa) of the Income Tax Ordinance, 1979 did not fulfil the requirements of law being in the nature of notices under Ss.65/62 of the Income Tax Ordinance, 1979---Assessing Officer confronted different amounts as compared to the actual additions made in the orders and under varying subsections of S.13(1) of the Income Tax Ordinance, 1979, as such notice under S.62 of the Income Tax Ordinance, 1979 was not a substitute for notice under S.13(1)(aa) of the Income Tax Ordinance, 1979---Validity---Notices required under S.13 of the Income Tax Ordinance, 1979 had been properly served and there was nothing on record to enable the First Appellate Authority to record his finding that notice under S.62 of the Income Tax Ordinance, 1979 was not a substitute of notice under S.13 of the Income Tax Ordinance, 1979---Finding of First Appellate Authority was based on incorrect facts ignoring the order of Assessing Officer---Argument that no notice under S.13 of the Income Tax Ordinance, 1979 had been issued was not traceable besides being contrary to facts---After admission of entire, facts in compliance of notice under S.13 of the Income Tax Ordinance, 1979, there remained no necessity to go in further details, besides, notice under S.13(2) of the Income Tax Ordinance, 1979 was mandatory in case of amount of expenditure referred to in clauses (aa), (b), (c), or (d)---Amount of the expenditure referred to in clause (c) of subsection (1), was in the opinion of the Deputy Commissioner too low whereas in the present case the situation was different so far as requirements of S.13(2) of the Income Tax Ordinance, 1979 was concerned---Reasonable opportunity had also been provided to the assessee of being heard, although the Director of the Company specifically accepted the proposals for making addition under S.13 of the Income Tax Ordinance, 1979 as such justification appeared to vacate the order of First Appellate Authority.
1989 PTD 1239 and (1994) 70 Tax 44 ref.
(b) Income Tax Ordinance (XXXI of 1979)----
----S.13(1)(aa)---Qanun-e-Shahadat (10 of 1984), Art.114---Addition of peak credit in benami Bank account---Admission through order sheet entity---Director of the Company was debarred from denying the facts admitted in order sheet after accepting the allegations---Under Article 114 of the Qanun-e-Shahadat Order, 1984, in no manner and at no stage the assessee could decry from admissions endorsed to the Department in writing disclosing the concealed purchases and operation of Bank account for making purchases .permitting the Department to believe a thing to be true and to act upon such belief---Neither the scribe of the statement nor his representative could be allowed to deny the truth at declared facts---Addition of peak credit for the year in benami Bank account appeared to be justified as based on admitted facts.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(aa)---Addition---After addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 them remained no question of another addition in trading account in terms of concealed purchases---Assessing Officer was directed to adjust addition in the head "concealed purchases" in addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 being peak credit of the year.
Rehan H. Naqvi and Mrs. Lubna Pervaiz for Appellant.
Riaz Ahmed D.R. for Respondent.
ORDER
S. HASSAN IMAM (JUDICIAL MEMBER).---By this order we propose to decide the above captioned cross-appeals pertaining to assessment years 1995-96 to 1999-2000. During the course of arguments the learned counsel appearing on behalf of the assessee did not, pass the appeals at the instance of the assessee, hence common grounds mentioned below, brought from the order of CIT(A) dated 8-2-2002 taken by the Department, would only be the subject-matter of present order: --
GROUNDS:
(1) That the learned CIT (Appeals) has erred in deleting the additions made under section 13(1)(aa).
(2) That the learned CIT (Appeals) is not justified in disregarding the verbal statement of the Director of the Company accepting the maintenance of the bank account in other person's name.
(3) That the learned CIT (Appeals) has failed to realise the fact that the payments for purchases of the company were made from the bank account which have been subjected to additions under section 13(1)(aa).
2. This is a case of private limited concern running Flour Mills at Thatta. The original assessment in this case has been finalised under section 59(1) vide DCR No.04/41 dated 17-2-2002 at the income of Rs.186,388, Rs.246,141, Rs.360,309, Rs.S16,SS9 and Rs.679,243 respectively for the assessment years 1995-96 to 1999-2000 respectively, as definite information received from the National Bank of Pakistan, Main Branch Thatta vide letter dated 5-5-2000 that "various payments have been, made from. Account No.4634 NBP Thatta its favour of District Food Controller, Thatta to clear the payments to subject assessee's company" supported by copy of the Bank Statement and details of payment made .through various cheques out of account in the name of Mr. Jawaid Anwar son of Muhammad Anwar opened on 13-12-1994.
3. The Assessing Officer in view of the factual information regarding various payments made from the said account to clear the .purchases from DFC Thatta, whereas the company has neither showed maintenance of any bank account nor creditors were appearing in the balance for the relevant years, concluded and determined that the company operated benami bank account for payments to DFC, whereby collected further evidence to support his version viz. various, challans produced by the assessee-company showing "Transfer Entry" on bank stamps rather than cash balance sheet of the company for every year which reveals that no creditor has been disclosed. Show-cause notices to this effect were duly issued for compliance but show-cause notices and letters issued to account-holder remained uncomplied. The Assessing Officer in the circumstances obtained permission as required under section 65 (as per assessment order) whereby issued a notice under section 6S which is duly complied with. The ratio of the notices and replies relevant in present appeals is hereunder:--
(i) "That the contents of both the show-cause notices issued by your honour learned predecessor are identifying that assessee has not declared any bank account but on the paid challan stamp of transfer is offered by the bank.
That in this contention it may be submitted that assessee does not maintain any bank account and the same can be verified from the statements of Accounts and details filed by the assessee during the course of assessment proceeding.
(ii) That the assessee being involved in the business of Flour Mills, the entire purchases were made from Food Controller Thatta, the manner, how the purchases are made and how the payment have been made can be verified from Food Controller, Thatta.
(iii) That the assessee had no connection with Mr. Jawaid Anwar son of Muhammad Anwar resident of Abdullah Shah Ashabi Road, Thatta bearing NIC No.401-55-03443 and your honour can examine him by issuing notice under section 148 of the Income Tax Ordinance, 1979.
4. Since the assessee did not reply the main questions viz., (i) why payments were effected from bank account operated by Mr. Jawaid Anwar son of Muhammad Anwar, resident of Old Abdullah Shah Ashabi Road, Thatta bearing NIC No.401-55-034443, (ii) why the account holder paid huge sums without being Director of Company creating liability on this account, therefore, in view of the admission of non-maintenance of books of accounts and denial of relationship with the account-holder; separate notices under section 61 for each year were issued and duly responded with a similar reply reiterating earlier reply in toto. However, assessee denied proposed additions under section 13(1)(aa) meanwhile District Food Controller Thatta replied the letter disclosing (i) quantum of purchases at wheat concealed by the assessee-company, (ii) mode of payment stated to be through challan, therefore, complete details of actual purchases were also confronted to the assessee along with the contents of letter of DFC Thatta to afford another opportunity in the interest of ,justice. The assessee however, once again domed .the relationship with account-holder and bank statement alleging that notice under section 65 issued on the basis of alleged bank account does not refer short purchases declared by the assessee, besides the letter of the Food Department has not been served, as such proposed addition appears to be afterthought. It appears that .since the assessee intentionally avoided to reply the important questions referred above to, the Assessing Officer immediately provided copy of letter of District Food Controller, copies of Bank Statement of Account No.4634 Thatta and letter of DFC Thatta showing purchases and adjournment slip in shape of notice under section 61 and requested the assessee to explain further. The letter was once again not complied with, however; Mr. Jawaid the Director of the Company attended and recorded his version in order sheet and endorsed his signatures which is reproduced hereunder:--
(1) That due to mistake the company did not declare its true purchases of wheat from DFC Thatta.
(2) That company was maintaining bank Account No.4634 Main Branch of NBP Thatta in Benami Manner.
(3) That on behalf of company, he offered to be taxed on agreement basis if (a) No addition on account of Benami Bank account be made (b) N.P rate be applied on difference of actual anal concealed purchases (c) Penalty under section 111 be applied at 100%.
(4) That resultant demand in five years be paid
(a) 25%down payment on 7-4-2001.
(b) Balance demand be paid in two instalments payable in 1st week of May and 3rd week of June. In any way all demands be cleared by 20-6-2001.
5. In view of offer of agreement recorded in order sheet, a letter appears to have been issued and served on assessee vide No.1437 dated 11-4-2001, besides due to non-compliance of the alleged agreement recorded on order sheet, the Assessing Officer issued another letter which reads as under:--
"Please refer to this office earlier correspondence on the subject and this office letter No.1315 dated 14-3-2001 (copy enclosed), no response of which was received.
You are once again apprised about intention of this office to assess your income after making following addition like of certain correspondence on the subject.
(1) On account of benami bank account additions will be made taking peak credit of each year.
(2) On account of concealed quantum of purchases declared G.P. rate would be applied instead of making full addition of concealed quantum of purchases. This lenient view has been taken in order to allow natural justice to prevail.
On above basis' addition be made in each subject year in following mariner:--
| S. No | Asstt Year | Proposed Addition of peak credit for the year in benami Bank Account | Section | Declared G.P. Rate for the year without depreciation | Concealed quantum of purchases (difference of declared & actual purchases) | Additions proposed |
| 1. | 95-96 | 3,500,000 | 13(1)(aa) | 3.71% | 30245100 | 1122093 |
| 2. | 96-97 | 7,650,000 | 13(1)(aa) | 3.68% | 46168000 | 1698982 |
| 3. | 97-98 | 2,667,500 | 13(1)(aa) | 3.59% | 59337408 | 2130213 |
| 4. | 98-99 | 600,320 | 13(1)(aa) | 3.59% | 65300000 | 2344270 |
| 5. | 99-00 | 100,000 | 13(1)(aa) | 3.58% | 50827800 | 1819635 |
In order to be fair and just you are once again provided an opportunity before completing the assessment in above manner in each year. You are hereby given another opportunity to explain following two basic points:--
(i) Why payments out of Bank Account No.4634-5 of National Bank main Branch Thatta were made in favour of DFC Thatta to clear purchases made by you. Details are already provided to you time and again.
(ii) Why adverse inference may not be drawn in above manner to tax concealed quantum of purchases by adopting declared GP rate (before trading depreciation),
Since these purchases were concealed by you with a mala fide intention for which necessary information as provided by National Bank Main Branch Thatta as well as District Food Controller Thatta has been provided to you time and again to be fair and just. If you feel that any one sided decision is being followed by the Department you are requested in your own interest to personally appear before the undersigned along with all necessary evidences/explanations which you have on 18-4-2001 failure to do so this time will mean that you have nothing to offer in your defence and assessments will be completed by making above additions in each year for which this letter may be treated, as a show cause".
6. In response thereof the Department received a letter containing following offers:--
"Such insistence of assessee to finalize the case on agreement basis was against interest of revenue being a clear case of concealment. Assessee was therefore, in categorical manner informed in following words that to such agreement is possible.
"Kindly refer to your letter received on 20-4-2001 through which you offered au agreement to pay Rs.2.5 Million including penalties in respect of additional assessment proceedings under section 65 for the assessment years 1995-96 to 1999-2000. You had also enclosed demand draft of Rs.0.5 Million bearing D.D. No.906255 and sent another D.D. on 24-4-2001 bearing D.D. No.906260 for Rs.0.75 Million.
Your offer has been examined but under the circumstances as which clearly point towards furnishing of in accurate part, the same is rejected.
Before finalizing the assessment for five years in a manner already confronted vide-letter No.1437 dated 11-4-2001. You are once again provided an opportunity to explain your position by 30-4-2001. It may please be underlined that already enough opportunities have been provided to you time and again."
7. The Assessing Officer however, served another notice informing the assessee the finalization of the case on agreement basis is against the interest of revenue being a clear case of concealment. However, provided another opportunity to explain the position and after allowing adjournment he assessed the income hereunder:--
ASSESSMENT YEAR 1995-96
Original Assessed IncomeRs. 186,388
(1) Addition U/s 13(1)(aa)Rs.3,.500,000
(Peak credit of year)
(2) On concealed purchases
G.P. rate of 3.68 % applied
Resulting in Trading Addition.Rs. 1,122,093
Total Re. Assessed IncomeRs.4,808,481
Less: W.W.F. @ 2%Rs. 96,170
Taxable IncomeRs.4,712,311
Also issue 116 for charging penalty wider section 111. Also prosecution proceedings are separately started.
ASSESSMENT YEAR 1996-97
Original Assessed IncomeRs. 246,141
Addition U/s 13(1)(aa)Rs.1, 650,000
(Peak credit of year)
On concealed purchases
G.P. rate of 3.68% applied
Resulting in Trading Addition.Rs. 1,698,982
Total Re. Assessed IncomeRs.3,565,123
Less: W.W.F. @ 2%Rs. 71,302.
Taxable IncomeRs.3,493,821
Also issue 116 for charging penalty under section 11.1. Also prosecution proceedings are separately started.
ASSESSMENT YEAR 1997-98
Original Assessed IncomeRs. 360,309
Addition U/s 13(1)(aa)Rs.2,667,500
(Peak credit of year)
On concealed purchases
G.P. rate of 3.59 applied
Resulting in Trading Addition.Rs.2,130,213
Total Re. Assessed IncomeRs.5,158,022
Less: W.W.F, @ 2%Rs. 103,160
Taxable IncomeRs.5,054,862
Also issue 116 for charging penalty udder section 111. Also prosecution proceedings are separately started.
ASSESSMENT YEAR 1998-99
Original Assessed IncomeRs.516,559
Addition U/s 13(1)(aa)Rs.600,300
(Peak credit of year)
On concealed purchases
G.P, rate of 3.59% applied
Resulting in Trading Addition.Rs.2,344,270
Total Re. Assessed IncomeRs.3,461,149
Less: W.W.F. @ 2%Rs. 69,223
Taxable IncomeRs.3,391,926
Also issue 116 for charging penalty under section 111. Also prosecution proceedings are separately started.
ASSESSMENT YEAR 1999-2000
Original Assessed IncomeRs.679,243
Addition u/s 13(1)(aa)Rs.100,000
(Peak credit of year)
On concealed purchases
G.P. rate of 3.58 applied
Resulting in Trading Addition.Rs. 1,819,635
Total Re. Assessed IncomeRs.2,598,878
Less: W.W.F. @ 2%Rs. 51,978
Taxable IncomeRs.2,546,900
Also issue 116 for charging penalty under section 111,. Also prosecution proceedings are separately started.
8. The learned CIT(A) deleted the addition under section 13(1)(aa) of the Income Tax Ordinance, 1979 observing that "the amount of addition under section 13(1)(aa) has been duly approved by the learned IAC but notices under section 13(1)(aa) do not fulfil the requirements of law being in the nature of notices under section 65-62 of the Income Tax Ordinance, 1979" . It is added that "the DCIT confronted different amounts as compared to the actual additions made in the impugned orders and under varying subsections of section 13(1) of the Income Tax Ordinance, as such under section- 62 is not substitute of notice under section 13(1)(aa)".
9. In this context the learned CIT(A) relied upon a decision 'reported as 1989 PTD 1239 while disagreeing that the Director of the company admitted vide order sheet entry dated 31-3-2001 that alleged amount is maintained by the company is not reliable and convincing and as it is opposed to the documentary evidence available on record in the shape of a certificate from the Bank Manager confirming that the Bank Account is owned by Mr. Jawaid Anwar and operated in his personal capacity and not on behalf of the company. It is finally recorded that "the verbal statement of the Director Mr. Muhammad Jawaid is insufficient and cannot be considered to be a conclusive evidence to prove that the ownership- of the money exclusively in the hands of the company justifying addition under section 13 and because no action is proposed against the real owner of the Bank Account and do effort has been made to factually ascertain the reason as to why the alleged payments have been made to DFC out of his account. The learned CIT(A) also concluded that the addition is based on mere presumption and the DCIT has failed to prove beyond doubt that ownership of money rests exclusively in the hands of the company before invoking the provisions of section 13 of the Income Tax Ordinance, 1979 and that the .assessing officer has not made additions but has confined himself' by computing assessed income through estimation of sales in the years under appeals and while considering the element of suppressed purchases and application G.P. Such action is in conformity with the decision of the ITAT reported as (1994) 70 Tax 44 as relied upon by the learned A.R.
10. Heard the learned representative of the two parties. The learned counsel for the assessee namely Mr. Rehan Hasan Naqvi during the course of arguments records his statement that he does not want to press and argue assessee's appeals. As a result thereof appeals bearing I.T.A. Nos.639 to 643/KB of 2002 at the instance of the asscssee, stand dismissed as withdrawn.
11. Perused the record, learned CIT(A) a page 8 of the order disagreed with the learned counsel for the asscssee in recording his finding that statutory approval as required under the law has been taken and that argument of the learned counsel for the assessee that no approval is obtained under section 13(1)(aa), is incorrect. So far as the other finding is concerned which relates to notice under section 13(1)(aa), it is stated by the learned CIT(A) that notice required under section 13(1) is not properly issued and notice under section 62 is not a substitute for notice under section 13(1). We are not in agreement with the learned CIT(A) because apart from notice under section 65 after proper approval were issued accompanied with notice under sections 61 and 62 under the head new development, therefore, further notices were issued to explain the queries (i) why purchases were concealed and (ii) why sum total of wheal entries in Bank Account No.4634-5 NBP, Thatta may not be made relevant to the assessment years 1995-96 to 1999-2000. This letter proposing addition under section 13(1)(aa) dated 3-3-2001 was responded and the first part of the reply is sufficient to make out case that notice under section 13(1)(aa) was properly issued containing following words that as regard the addition under section 13(1)(aa) proposed by your honour on the alleged Bank Account No.4634-5 maintained by Mr. Javecl Anwar son of Muhammad Anwar al NBP Thatta Branch. And in reply thereof it is submitted "that asscssee is not maintaining any Bank Account and assessee has no connection with the alleged Bank Account maintained by Javed Anwar son of Muhammad Anwar at NBP Thatta Branch. It is further stated in the letter that "as regard the addition proposed under section 13(1)(e) of the Income Tax Ordinance, 1979, it is submitted that your honour letter dated 6-2-2001 stales that the Department received letter, dated 14-12-2001 from the Food Department Thatta which revealed that the purchases declared by the assessee arc much lower than the actual purchase made by the assessee during the assessment years 1995-96 to 1999-2000. This letter 'has also been properly replied but assessee failed to answer the queries regarding the payments made from the bank account to clear purchases and concealed purchases.
12. The Assessing Officer further provided personal opportunity of hearing in connection with notices under section 13(1)(aa) and 13(1)(e) and in response thereof the Director of the company in writing admitted the mistake of the company of not declaring its true purchases of wheat from DFC Thatta and maintenance of Bank Account No.4634-5, Main Branch NBP Thatta. Besides, the Director of the Company voluntarily offered to be taxed on certain conditions on agreement basis which offer was later on denied, by the department, due to loss of revenue.
13. In the circumstances, we find sufficient reasons to hold that the notices required under section 13 have been properly served and there was nothing on record to enable the learned GIT(A) to record his finding shat notice under section 62 is not substitute of notice under section 13. In fact the; finding of the learned CIT(A) is based on incorrect facts ignoring the order of Assessing Officer. The further argument that no notice under section 13 has been issued Finds no reason, besides being contrary to facts. We arc of the further view that after admission of entire faces in compliance of notice .under section 13, there remains no necessity to go in further details. Besides, notice under section 13(2) is mandatory in case of amount of expenditure referred to in clauses (aa), (b), (c) or (d) of the amount of the expenditure referred to in clause (c) subsection (1), is in the opinion of the Deputy Commissioner too low, whereas in the present case the situation is different so far as requirement of section 13(2) is concerned, besides a reasonable opportunity has also been provided to the assessee of being heard, although the Director of the company specifically accepted the proposals for making addition under section 13 of the Income Tax Ordinance as such justification appears to vacate the order of CIT(A).
14. Vide Article 114 of the Qanun-e-Shahadat Order (10 of 1984), the Director of the Company is debarred from denying the facts admitted in order sheet after accepting the allegations. We are therefore, of the considered opinion that in view of Article 114 of the Qanun-e-Shahadat Order (10 of 1984), in no manner and at no stage the assessee could deny from admissions endorsed to the Department in writing disclosing the concealed purchases and operation of Bank Account for making purchases permitting the Department to believe a thing to be true .and to act upon such belief. Neither the scriber of the statement nor his representative could be allowed to delay the truth of declared facts. In the circumstances, we further find that addition of peak credit for the year in. Benami Bank Account at Rs.3,500,000, Rs.1,650,000, Rs.2,667,500, Rs.600320 and Rs.100,000 for the assessment years 1995-96 to 1999-2000 respectively appears to be justified as based on admitted facts.
15. However, the learned CIT(A) has confirmed the addition in the head concealed purchases, where GP rate of 3.6I has been applied resulting in trading addition of Rs. 1,122,093 which is not legally possible because after addition under section 13(1)(aa) there remains no question of another addition in trading account in terms of concealed purchases, hence the assessing officer is directed to adjust addition of Rs.1,122,093 in the head "concealed purchases in addition under section 13(1)(aa) being peak credit of the year maintained by us.
16. Since no other issue requires consideration, hence appeals at the instance of the Department, stand allowed to the extent and in the manner indicated above.
C.M.A../1/Tax(Trib.)Appeals allowed.