VS, 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2514 (2007)

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

----S.62(1)---Assessment on production of accounts, evidence etc.---Non- issuance of notice before assessment---Effect---Before finalization of assessments, it was obligatory upon the Assessing Officer to confront the assessee with the defects noted by him in the accounts maintained by the assessee by issuance of specific notice under S.62 of the Income-Tax Ordinance, 1979---Assessing .Officer failed to do so because after examination of books of accounts and necessary details furnished by the assessee notice under S.62 of the Income Tax Ordinance, 1979 was issued but same was not specific notice under said section as the contents of the same were those of notice under S.61 of the Income Tax Ordinance, 1979 requiring the assessee to furnish further details, which could not be termed as specific. notice under S.62 of the Income Tax Ordinance, 1979---After that notice no other notice was ever issued and assessment was finalized without confronting the assessee with the defects noted by the Assessing Officer, and did not afford the assessee an adequate opportunity to explain his position---Assesses, in circumstances, had been condemned unheard---Orders passed were liable to be cancelled for non-issuance of specific notice under S.62(1) of the Income Tax Ordinance, 1979 which was mandatory under the law.

2006 PTD (Trib.) 2325; (1999) 80 Tax 241; 2001 PTD (Trib.) 2938; 2003 PTD (Trib.) 625 and 1999 PTD (Trib.) 382 rel.

(b) Income Tax---

----Notional gain---Assets and liabilities in foreign currency were translated into. Pak rupees at the exchange rate prevailing on the balance sheet date, which resulted gain on revaluation of foreign currency and did not come within the meaning of real income and was not liable to tax---Action of Assessing Officer was unsustainable and was vacated by the Appellate Tribunal.

1998 PTD (Trib.) 288 rel.

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

----S.62(1)---Assessment on production of accounts, evidence etc..---Profit and loss account---Addition---Addition under the heads of Profit and Loss Account. had been made without confronting the assessee with specific instances of unverifiability, which was clear violation of provisions of S.62(1) of the Income Tax Ordinance, 1979---Authorities while making .additions had also deviated from established history of the case---All expenses were incurred for smooth running of business and could not be termed as inadmissible merely on the basis of stock phrases and conjectures---Assessing Officer having failed to confront the assessee with specific instances of unverifiability, the additions made were illegal.

2006 PTD (Trib.) 2325 rel.

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

----S. 24(1)(i)---Deductions not admissible----Assessing Officer had admitted submission of complete details of total expenditure relating to salaries and allowances in respect of employees of the company drawing taxable as well as .non-taxable emoluments---Additions made without pinpointing specific instances of unverifiability in no way could be termed as justified due to unsustainability of the same in the eye of law---Additions were deleted by the Appellate Tribunal.

M. Ismail and Wasim Ismail for Appellant.

Anwar Ali Shah, D.R. for Respondent.

ORDER

ZAFAR ALI THAHEEM (JUDICIAL MEMBER).---The above captioned appeals pertaining to assessment years 1997-98 and 1998-99 were recalled by us in its original form vide our order dated 10-10-2006 by vacating the ITAT orders dated, 26-4-2001 and 24-9-2002. In consequence of these orders, the assessee's appeal bearing I.T.A. No.4526/LB of 2004 pertaining to assessment year, 1998-99 against C.I.T.(A)'s order .dated 29-6-2004 had also become infructuous and in consequence whereof, the original appellate orders dated 1-7-1999 and 12-4-2000 were restored for adjudication, which have been impugned before us. Since, the representatives on behalf of both parties are present, therefore, the same are being disposed of in the following manner: -

As per memo of appeals, the following issues have been raised for adjudication:-

Assessment year 1997-98

1. That the learned C.I.T.(A) ignored the facts and figures of the past history while dealing with the additions before him.

2. That the following additions have been wrongly confirmed:

3. That the addition of Rs. 1,59,47,000 in Bad Debts should have been deleted straightaway instead of setting aside, as it was already offered for assessment in the computation of income tax return.

4. That the appellant may be allowed to amend, add or delete any ground on or before hearing of appeal.

Assessment Year 1998-99:

1. That the addition of Rs.50,00,148 under the head "Excess Perquisites" for provision of allowance in cash to employees ,having taxable salaries has been confirmed illegally. Next there was no jurisdiction to set aside the addition of Rs.5,00,000 in respect of employees other than covered by statements under section 139 of the Income Tax Ordinance.

2. That the addition of Rs.2,70,94,000 on account of "national gain" for conversion of project balances had to be deleted.

3. That the following additions ought to have been ordered as deleted after recording the remarks that there is no mention of element of inadmissible, unverifiable or of not related to business:

4. That the additional tax under .section 87 for Rs.542,145 was wrongly charged.

At the very outset, the learned AR of the assessee has attacked the treatment of both authorities below on legal point that before finalization of assessment, the Assessing Officer should have confronted the assessee with the defects by pinpointing in the books of accounts by issuance of specific Notice under section 62(1), which was mandatory requirement under the law but he failed to do so in both the years under appeal. He has submitted that during .the course of assessment proceedings for the assessment year 1997-98, the Assessing Officer had issued only a single Notice under section 61 requiring the assessee to furnish books of accounts along with other relevant material/details, which was provided as admitted by him in order sheet entries dated 23-2-1998, 5-3-1998 and 10-3-1998. However, before finalization of assessment he did not bother to confront the assessee through specific notice under section 62 of the repealed Income `Tax Ordinance, 1979, which may be verified from the body of assessment order itself.

With regard to assessment year 1998-99, the AR contended that the Assessing Officer although issued notices under section 62 but it is surprising to note that contents of the said notices were of section 61 by virtue of which the assessee was again required to furnish some further details of total expenditure relating to the Head salary and allowances in respect of all the employees of the company, who had taxable and non-taxable salaries and allowances. The AR vehemently contended that the assessee had already furnished the same in the shape of statements under section 139 covering whole employees of the company getting taxable salary and one month's detail of the salary and allowances of employees getting below taxable salary. The learned A.R. explained that the statements under section 139 were comprising of name, designation and complete break up of salaries and allowances of each employee which fulfil the legal requirement of law for making assessment in respect of excess perquisites under section 24(1). In order to lend credence to his submissions, he has furnished before us assessee's replies in original dated 1-4-1999, 8-4-1999 and 10-5-1999 whereby the assessee after submitting these details requested the assessing officer to confront the assessee with regard to figures of excess perquisites if any paid by the company. The learned AR argued that in spite of the assessee's repeated requests supra, the Assessing Officer did not bother to confront the assessee in terms of section 62(1) of the Ordinance before making huge arbitrary additions under these heads. He further stated that rest of the additions were also made by the Assessing Officer without confronting the assessee through statutory notice under section 62(1), therefore, the whole assessment is liable to be cancelled in view of the reported judgment cited as 2006 PTD (Trib.) 2325.

The learned A.R. further argued that the impugned treatment given by both the Authorities below is also contrary to history settled by the ITAT in the preceding as well as succeeding years. In order to lend credence to his submissions he has furnished before us copies of ITAT's orders dated 5-7-1999 pertaining to assessment years 1995-96 and 1996-97 and ITAT's orders dated 10-10-2006 pertaining to assessment years 1999-2000 to 2002-03 and invited our attention to pages 18, 19 and 20 of orders -dated 10-10-2006, which is being reproduced hereunder for the sake of reference:

"Arguments heard and record perused. We find ourselves in agreement with the assertions made by learned AR, which are forceful being supported by cogent reasons and documentary evidence. After going through the orders passed by both Authorities below, the following infirmities in the impugned orders have been noted by us:---

* Before finalization of assessments, it was obligatory upon the Assessing Officer to confront the assessee with the defects noted by him in the accounts maintained by the assessee, which is well-reputed organization, by issuance of specific notice under section 62 but he failed to do so because after examination of books of accounts and necessary details furnished by the assessee notice under section 62 was issued but same was not) specific notice under this section as the contents of the same ere of notice section 61 requiring the assessee to furnish further details, which cannot be termed as specific notice under section 62. After that notice no other notice was ever issued and assessment was finalized without confronting the assessee with the defects noted by the Assessing Officer, hence did not afford the assessee and adequate opportunity to explain his position. From this treatment meted out to the assessee, an inference can easily be drawn that assessee has been condemned unheard. 1n view of following reported judgments, the assessment orders passed for the years under consideration are liable to be cancelled for non-issuance of specific notice under section 62(1) which was mandatory under the law:--

(1) (1999) 80 Tax 241 (H. C. Lah.), (2) 2001 PTD (Trib.) 2938, (3) 2003 PTD (Trib.) 625 and (4) 1999 PTD (Trio.) 382.

* With regard to .notional gain, we are persuaded with the assertions of learned AR that all assets and liabilities in foreign currency were translated into Pak rupees at the exchange rate prevailing on the balance sheet date, which .resulted gain on revaluation of foreign currency and does not come in the meaning of real income, hence not liable to tax as per rationale settled in reported judgment cited as 1998 PTD (Trib.) 288. By taxing the notional gain, both Authorities below have not appreciated the facts of the case as well as established Law, Therefore, action of Assessing Officer in this regard is unsustainable and thereby vacated.

* With regard to issue of add-backs, it has been observed by us that all additions under the impugned heads of P & L account have been made without confronting the .assessee with specific instances of unverifiability, which is clear-cut violation of provisions of section 62(1) of Income Tax Ordinance, 1979 (Repealed). Furthermore, while making the impugned additions both Authorities below have also deviated from established history of the case comprising of more than two decades especially pertaining the assessment years 1995-96 and 1996-97, whereby only three additions were made under the following heads : --

* Survey Investigation and Training Expenses.

* Business Promotion Expenses.

* Miscellaneous Expenses.

* Which too were deleted by the Honourable ITAT vide order dated 5-7-1999. Moreover it is pertinent to observe that all the expenses were incurred for smooth running of business. Hence, could not be termed as inadmissible merely on the basis of stock phrases and conjectures. Since, the Assessing Officer had failed to confront the assessee with specific instances of unverifiability noted by him, therefore, the impugned additions were made under P & L heads are illegal in view of the reported judgment cited as 2006 PTD (Trib) 2325.

* With regard to additions made under section 24(1)(i), it has also been observed that the Assessing Officer has admitted submission of complete details of total expenditure relating to salaries all allowances in respect of employees of the company drawing taxable as well as non-taxable emoluments, therefore, impugned additions made by Assessing Officer without pinpointing specific instances of unverifiability in no way can be termed as justified due to unsustainability of the same in the eye of law. Therefore, the additions are deleted.

In view of above observations, the orders passed by both Authorities below on the issues under consideration are vacated and the assessee's appeals pertaining to assessment years 1999-2000 to 2002-03 are accepted on legal as well as factual plane by directing the Assessing Officer to accept the returned version of the assessee. Since, the Department has also come up in appeal before us only for the assessment year 1999-2000 against the relief allowed to the assessee in respect of excess perquisites under section 24(1)(i) and since we have already granted further relief to the assessee on this issue, therefore, the same stands dismissed. "

While concluding his arguments, the learned AR contended that in the years under review the treatment meted out to the assessee from both the Authorities below was same as meted out in the succeeding years pertaining to assessment years 1999-2000 to 2002-03. The A.R. prayed that Since the issues involved in the year under review are same and quite identical as already decided by this Court in its orders supra pertaining to assessment years 1999-2000 to 2002-03, therefore, the appellant fully deserves the same relief as granted by this court earlier.

On the contrary, the learned DR has termed the contentions raised by learned AR to be baseless. When we asked him about non-issuance of specific notice under section 62 being mandatory in the .account case of private limited company, in the assessment year 1997-98 which is clearly evident from the body of assessment order dated 24-3-1998 and copies of order sheet entries dated 23-2-1998, 5-3-1998 and 10-3-1998, he has not been able to put forth any plausible reasons to this effect .and unable to defend the departmental treatment. Similarly, when we confronted that the contents of the notices under section 62 for the assessment year 1998-99 are of notices under section 61 as in the body of said notices the assessee was neither confronted with the defects noted in the books of accounts nor with the proposed treatment. On this query he asserted that during the course of assessment proceedings; the AR of the assessee was verbally confronted with the defects pinpointed by the Assessing Officer as well as proposed treatment. In short, he has fully supported the treatment meted out to the assessee in respect of P and Ladd-backs, additions made under section 24(1)(i) and notional gain but has not been able to quote any dictum of law in support of his version.

Arguments heard and record perused. The assertions made on behalf of the assessee are forceful being not rebutted by learned DR. We are also of the considered opinion that by not confronting the assessee with the defects pinpointed in books of accounts, the Assessing Officer had violated mandatory provisions of section 62 of repealed Income Tax Ordinance, 1979. Furthermore, while dealing with the case of the assessee both Authorities below have also deviated from established history of the case pertaining to more than two decades. Since, the issues involved in the appeals for the charge years are quite identical to that of immediately preceding assessment years as well as succeeding assessment years, while had recently been decided by us in favour of the assessee vide order dated 10-10-2006 for the assessment years 1999-2000 to 2002-03, therefore, the appeals of the assessee are accepted on legal as well as factual plane and we accordingly direct the Assessing Officer to accept the returned version of the assessee.

C.M.A./129/Tax(Trib.)Appeals accepted.