I.T.As. Nos. 2503/LB of 2002, 3551/LB, 2862/LB, 3898/LB of 2003, 2419/LB, 5891/LB, 3254/LB and 2657/LB of 2004, decided on 28th December, 2005. VS I.T.As. Nos. 2503/LB of 2002, 3551/LB, 2862/LB, 3898/LB of 2003, 2419/LB, 5891/LB, 3254/LB and 2657/LB of 2004, decided on 28th December, 2005.
2007 P T D (Trib.) 31
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Mukhtar Ahmad Gondal, Accountant Member
I.T.As. Nos. 2503/LB of 2002, 3551/LB, 2862/LB, 3898/LB of 2003, 2419/LB, 5891/LB, 3254/LB and 2657/LB of 2004, decided on 28/12/2005.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 111 & 13---C.B.R. Circular No.6 of 1987, dated 5-7-1987---Penalty for concealment of income etc.---Addition---Set off against loss---Department contended that addition under S.13 of the Income Tax Ordinance, 1979 was assessable under the head "income from other sources" and the same could not be set off against the brought forward loss of the previous year and addition having been separately made under the head "income from other sources" penalty under S.111 of the Income Tax Ordinance, 1979 was rightly made---Assessee contended that loss was declared and assessed and after including brought forward losses, the carry forward loss was determined therefore, no tax was payable on the declared or the assessed income, as both these figures represented the loss and in case of loss, no tax was payable by the assessee, therefore, no penalty could be levied---Validity---No tax was found payable as the assessment proceedings simply resulted in curtailment of loss declared---In absence of any tax found to have been evaded, no penalty could be imposed, as the amount of penalty was directly co-related with the amount of tax evaded or sought to be evaded---Quantum of penalty had a nexus with the amount of tax evasion or for that matter, tax evasion in itself---Assessing Officer had calculated notional evaded tax and had imposed penalty thereon which was notional tax only because no such tax was levied or worked out by the Assessing Officer---Notional tax did not fit in the definition of tax sought to be evaded because whether any tax was evaded or sought to be evaded should flow from the order---Assessing Officer was not required to read into the order giving rise to the penalty proceedings or to impute or attribute something which was purely and simply notional in character and spirit---Tax evaded had reference to a set of completed transactions where assessment had resulted in the levy of tax at a certain specified amount, which was identifiable---Penalty could not be imposed on the basis of some notational tax and First Appellate Authority had rightly cancelled the penalty order---Appeal of the department was dismissed by the Appellate Tribunal on this issue.
1992 PTD Note 12 dated 7-5-1987 and 1994 PTD (Trib.) 688 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc.---Purpose, of the law was to curb and prevent the tax evasion as reflected in, and determined by the amount of tax sought to be evaded through concealment of income and furnishing of inaccurate particular of income---No penalty could be imposed merely on the basis of finding on the point of concealment in the assessment proceedings.?
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 111---Penalty for concealment of income etc.---Onus in penalty proceedings---Onus lies on the department in the penalty proceedings to prove independently the guilty intent by showing deliberate commission or omission on the part of the assessee resulting in concealment of income or furnishing of inaccurate particulars of income, which may result in avoidance of tax---If there is no evasion of income tax as represented by the difference in amount of tax originally assessed and the amount of tax subsequently assessed or found payable, there cannot be any penalty.?
(d) Income-tax---
----Rate of tax---Cotton yield---Taxation Officer himself applied rate of 85% on the basis of parallel case and the assessee had failed to rebut the reason as given by the Assessing Officer---No interference was made by the Appellate Tribunal in the order of First Appellate Authority, as he had reduced the rate to 85% in view of the parallel cases and the previous history of the case.?
(e) Income-tax---
----Sale rate--Cotton yarn---Sale rate for the assessment year 1999-2000 as reduced by the First Appellate Authority to 82.85% was upheld---Sale rate of P.C. Yarn adopted by the Taxation Officer at 88.72% as against declared at 88.72% was reduced to 82.85% for the assessment year 2001-2002---Sale rate of cotton yarn for said year declared at 94% was upheld by the Appellate Tribunal.?
(f) Income-tax---
----Sale rate---Cotton yarn---Sale rate for assessment year 1999-2000 reduced by the First Appellate Authority to 82.85% was upheld by the Appellate Tribunal and the sale rate of P.C. yarn by the Taxation Officer at 88.72% as against declared at 88.72% was reduced to 82.85% for the assessment year 2001-2002; sale rate of cotton yearn for this year declared at 94% was upheld.
(g) Income Tax Ordinance (XXXI of 1979)---
----S. 13(1)(e)---Unexplained investment etc., deemed to be income---Addition on account of manufacturing of combed yarn from outside parties---Validity---Law required a piece of information covered under the term "definite information", which leads to believe that the income of the assessee had either escaped or under-assessed--Commissioner of Income Tax had not controverted the incorporation of expenses on account of manufacturing of combed yarn from outside parties in the subsequent period, after settlement of payment, there was no basis to reduce the expenses for addition and there was no basis for addition either with the assessing panel or with the First Appellate Authority---Addition made was deleted by the Appellate Tribunal having been made without any proper basis.?
2000 PTD (Trib.) 2905 rel.
(h) Income Tax Ordinance (XXXI of 1979)---
--- S. 13(1)(c)---Unexplained investment etc., deemed to be income---Addition on account of difference in the stock recorded in the books of accounts and the stock hypothecated with the banks---Assessee contended that no addition could be made in respect of stock relating to period when the income was exempt and therefore addition was not maintainable regarding un-explained stock relating to exempt period---Validity---Difference in the stocks recorded in the books of accounts and the stocks pledged with the banks, in quantitative terms, was out of books and addressable as `deemed income' under S.13(1)(c) of the Income Tax Ordinance, 1979---Issue of brought forward of losses was taken up before the First Appellate Authority who observed that "the matter of losses of previous years did not relate to this assessment year, therefore, the appellant may apply to the Assessing Officer directly for credit and brought forward of said losses"---Appellate Tribunal agreed with such observations of. First Appellate Authority but the issue of brought forward of losses was not before the Appellate Tribunal for adjudication---Addition made on account of unexplained pledged stocks, in quantitative terms; was upheld by the Appellate Tribunal in the manner in which the First Appellate Authority maintained.?
C.T.R. No.137 of 1998; I.T.A. No.146/LB of 2005; I.T.A. No.4793/LB of 2003; I.T.A. No 5570/LB of 2005; 1997 PTD (Trib.) 1985 and (1995) 71 Tax 7 (Trib.) ref.
(i) Income-tax---
----Addition---Stock---Market price---Purchase price---Calculation for addition.?
(j) Income-tax---
----Tax liability---Nature---Tax was not a forced liability, but in fact was a responsibility to owe to the State a proportionate share given by the tax-payer for utilizing and consuming the services provided by the State---Determination of tax must be made with a view to keep such principle intact and to maintain confidence and to boost the encouragement in the tax paying society so that the tax should not be taken by the concerned public to be a harsh imposition but a duty.
(k) Income-tax---
----Addition on account of purchase rate---Taxation Officer had unnecessarily without bringing on record, blamed the taxpayer/assessee that "a collusive arrangement existed between the assessee and the parties and a good chunk of profit was suppressed by virtue of declaring low sale rate"---Both the officers below had neither looked for any relevant positive evidence nor for any significant basis for making a case against the assessee---Addition made on account of purchase rate was deleted by the Appellate Tribunal.?
(l) Income-tax--
---Addition-Sale of waste---Sale of waste was made admittedly to registered parties and all the receipts against sales of waste were through proper banking channels---Copies of sale tax invoices along with sales tax registration had been furnished for verification and there was no justification for the addition---Addition made on account of sale rate of waste was deleted by the Appellate Tribunal.?
(m) Income-tax--
----Disallowance---Disallowance of profit and loss account expenses were dismissed by the Appellate Tribunal as the grounds in this respect were vague and no disallowance had been specifically mentioned.?
Muhammad Iqbal Hashmi and Yousaf Ali Ch. ITP for Applicant (in I.T.A. No.2503/LB of 2002, I.T.A. No.3551/LB of 2003, I.T.As. Nos. 2419 and 5891/LB of 2004).
Sabiha Mujahid, D.R. for Respondent (in I.T.A. No.2503/LB of 2002 and I.T.A. No.3551/LB of 2003, I.T.As. Nos. 2419 and 5891/LB of 2004).
Sabiha Mujahid, D.R. for Appellant (in I.T.As. Nos. 2862/LB, 3898/LB of 2003 and I.T.As. Nos. 3254/LB, 2657/LB of 2004).
Muhammad Iqbal Hashmi and Yousaf Ali Ch. ITP for Respondent (in I.T.As. Nos. 2862/LB, 3898/LB of 2003 and I.T.As. Nos. 3254/LB, 2657/LB of 2004).
ORDER
Out of these eight appeals, six are the cross-appeals for the assessment years 1998-99 to 2000-2001 against three separate impugned orders of the learned CIT(A), dated 2-4-2003 for the assessment year 1998-99, dated 2-6-2003 for the assessment year 1999-2000 and order, dated 5-3-2004 for the assessment year 2000-2001. The seventh appeal has been filed by the assessee for the assessment year 2001-2002 against the impugned order, dated 1-9-2004 regarding assessment order passed under sections 61/80D/8000 of the repealed Ordinance, 1979. While the eighth appeal is for the assessment year 1998-99 filed by the Department against the impugned order, dated 1-4-2004 cancelling the penalty order passed by the Assessing Officer under section 111 of the repealed Income Tax Ordinance, 1979.
2. Before adjudicating upon the issues as raised in the cross-appeals for the assessment years 1998-99 to 2000-2001, we are first taking the appeal filed by the Department for the assessment year 1998-99 against cancellation of penalty order.
In this respect, the learned representative of the appellant department has contended that the learned CIT(A) has failed to appreciate the fact that the addition under section 13 was assessable under the head "income from other sources" and the same could not be set off against the brought forward loss of the previous year. According to the learned D.R., the addition under section 13 having been separately made under the head "income from other sources" penalty under section 111 of the repealed Ordinance, 1979 was rightly made by the Assessing Officer and there is no justification to cancel the same.
On the other hand, supporting the impugned order of the learned CIT(A), learned counsel for the assessee has contended that the loss was declared and assessed and after including brought forward losses, the carry forward loss was determined. He has contended that no tax was payable on the declared or the assessed income, as both these figures represented the loss and in case of loss, no tax is payable by the assessee, therefore, no penalty can be levied. He has, in this respect, referred C.B.R.'s Circular No.6 of 1987, dated 7-5-1987 and the decision of the Indian Punjab and Haryana High Court reported as 1992 PTD Note 12 - 183 ITR 69 wherein, it has been held that penalty cannot be levied under section 271(1)(c) of the Indian Income Tax Act, 1961, (which is the para meteria of section 111 of the repealed Income Tax Ordinance, 1979) where "only the loss returned by the assessee had suppressed any income which would have attracted liability to tax". Learned counsel for the assessee has pleaded that in the instant case, learned CIT(A) has rightly cancelled the penalty order. In this respect, he has also placed reliance on the decision of this Tribunal reported as 1994 PTD (Trib.) 688.
3. We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT(A), penalty order made under section 111 of the repealed Income Tax Ordinance, 1979, the case-law referred and other relevant record of the case. Before considering the case-law referred by the learned counsel, we reproduce herewith the extract from C.B.R.'s Circular No.6 of 1987, dated 7-5-1987:--
"Until now penalty for concealment of income or furnishing of inaccurate particulars of income was leviable on the amount representing the difference in tax as calculated on the returned income and on the assessed income. In other words, penalty was also imposed in respect of that part of the assessed income which represented additions on account of application of a gross profit rate which is higher than the one declared or additions on account of disallowances, part of whole, of some items of expenditure in the profit and loss accounts, etc. by an amendment in subsection (1) of section 111, the penalty under the said section shall now be leviable only with reference to the amount of tax that the taxpayer sought to evade by concealment of income or furnishing of un-accurate particulars of income. In other words, for the purposes of penalty under section 111, only such income will. be taken into consideration which is attributable to concealment of income or furnishing of inaccurate particulars of income by the assessee. The tax on the concealed income will be calculated at the average rate of tax applicable to the total assessed income of the assessee".
We have found that in the present case as a result of assessment, no tax was found payable by the assessee, as the assessment proceedings, simply resulted in curtailment of loss declared by the assessee. We are, therefore, of the view that in the absence of any tax found to have been evaded by the assessee, no penalty can be imposed, as the amount of penalty is directly co-related with the amount of tax evaded or sought to be evaded. Quantum of penalty has a nexus to the amount of tax evasion or for that matter, tax evasion in itself. We are of the view that the purpose of the law is to curb and prevent the tax evasion as reflected in, and determined by the amount of tax sought to be evaded through concealment of income and furnishing of inaccurate particulars of income No penalty can be imposed merely on the basis of finding on the point of concealment in the assessment proceedings. The onus lies on the department in the penalty proceedings to prove independently the guilty intent by showing deliberate commission or omission on the part of the assessee resulting in concealment of income or furnishing of inaccurate particulars of income, which may result in avoidance of tax. If there is no evasion of income tax as represented by the difference in amount of tax originally assessed and the amount of tax subsequently assessed or found payable, there cannot be any penalty. In the present case, Assessing. Officer has calculated notional evaded tax and has imposed penalty @ 100% thereon which is notional tax only because no such tax was levied or worked out by the Assessing Officer. We are further of the view that notional tax as worked out by the Assessing Officer does not fit in the definition of tax sought to be evaded because whether any tax was evaded or sought to be evaded should flow from the order. It is not upon the Assessing Officer to read into the order giving rise to the penalty proceedings or to impute or attribute something which is purely and simply notional in character and spirit. Tax evaded has reference to a set of completed transaction where assessment has resulted in the levy of tax at a certain specified amount, which is identifiable. The penalty cannot be imposed on the basis of some notional tax and the learned CIT(A) has rightly cancelled the penalty order.
The appeal filed by the Department for the assessment year 1998-99 regarding penalty order is, therefore, dismissed. ?
4. The assessee and the Department both have objected the treatment of the learned CIT(A) regarding the yield of cotton, which has been reduced to 85% from 92% for the assessment years 1998-99 to 1999-2000 as against declared rate at 82.22% and 81.62% respectively and for the assessment years 2000-2001 and 2001-2002 as against declared at 81.12% and 82.07% respectively, the applied rate of 85% has been upheld by the learned CIT(A) for both the years against which the assessee has filed appeals for these two years.
After hearing the learned representatives from both the sides, we are of the view that as the Taxation Officer has himself applied the rate of 85% for the assessment years 2000-2001 and 2001-2002 on the basis of parallel case and the assessee has failed to rebut the reason as given by the Assessing Officer, therefore, no interference in this respect is required in the impugned order of the learned CIT(A), as he has reduced the rate to 85% in view of the parallel cases and the previous history of the case. All the four appeals for the assessment years 1998-99 to 2001-2002 filed by the assessee and the two appeals for the assessment years 1998-99 and 1999-2000 on the issue of yield in cotton are dismissed. Consequently, the grounds as raised by the assessee regarding rejection of account for all these assessment years are also dismissed.
5. Both the parties have objected the setting aside of the assessment on the issue of sale rate for the assessment years 1998-99 and 2000-2001 through cross-appeals, which has been objected by the assessee for the assessment years 1999-2000 and 2001-2002 also, but has not been objected by the Department for these two years. While perusal of the impugned orders of the learned CIT(A), we have found that he has set aside the assessment on the issue of sale rate for the assessment years 1998-99 to 2001-2002 for the reasons that the Taxation Officer has not made any attempt to verify the sale rate direct from parties in spite of the fact that the proper addresses of the parties were provided by the assessee. Learned counsel for the assessee has contended that every company produce different count, different quality and charge different rate. He has pleaded that the sale rate prevailing at one date cannot be compared with sale rate on the next date. According to him, even on the same date, rates fluctuate from party to party. He has contended that sales of the assessee are subjected to sales tax and proper invoices are issued. On the other hand, learned representative of the Department is supporting the assessment order of the Taxation Officer.
After hearing the learned representatives from both the sides, perusal of the impugned orders of the learned CIT(A), the assessment orders, the case-law referred by the learned counsel for the assessee reported as 2005 PTD (Trib.) 1437 and the other relevant record of the case, we have come to the conclusion that for the assessment year1999-2000, learned CIT(A) has reduced the sale rate to 82.85% as against declared rate of 105%, but no appeal has been filed by the Department. Likewise, no appeal has been filed by the Department for the assessment year 2001-2002 despite the fact that the learned CIT(A) has set aside the rate of 104/88.72% for this year as against 94/81.72%. In view of these facts and circumstances of the case, we find no justification for setting aside the assessment for the years 1998-99, 2000-2001 and 2001-2002. The impugned order of the learned CIT(A) for these three years is, therefore, vacated and the Taxation Officer is directed to accept the declared sale rate for the assessment years 1998-99 to 2000-2001. The sale rate for the assessment year 1999-2000 as reduced by the learned CIT(A) to 82.85% is upheld and the sale rate of P.C. Yarn adopted by the Taxation Officer at 88.72% as against declared at 88.72% is reduced to 82.85% for the assessment year 2001-2002. For this year, the sale rate of cotton yarn declared at 94% is, however, upheld. The cross-appeals for the assessment years 1998-99 and 2000-2001 and the appeals of the assessee for the assessment years 1999-2000 and 2001-2002 on the issue of sale rate are decided in the manner as indicated above.
6. Both the parties have objected the treatment of the learned CIT(A) regarding addition made under section 13(1)(e) in respect of combed yarn from outside parties for the assessment years 1998-99 and 1999-2000. In this respect, we have found that the Taxation Officer has made the addition on account of manufacturing of combed yarn from outside parties. Assessee has pleaded that matter in this respect was under dispute for billing, hence no amount was incorporated and as soon as settlement in this regard was reached, the expenses were accounted for in subsequent period. The Assessing Officer has, however, rejected the plea and has made the addition by adopting a rate of Rs.10 per kg for the assessment year 1998-99 and Rs.12 per kg. for the assessment year 1999-2000 as against Re. 1 per kg. which has been claimed by the assessee on account of settlement and has been incorporated as expenses in the books of account of the subsequent period. Learned CIT(A) has reduced the rate to Rs.5 per kg. and Rs.6 for the assessment years 1998-99 and 1999-2000 respectively on the ground that no basis was given for adopting the rate of Rs.10 per kg. by the Taxation Officer. Learned CIT(A) has also directed that the addition in this regard is adjustable against the trading addition and loss assessed by the assessee? company.
Learned counsel for the assessee in this regard has contended that this was a disputed amount and was not paid and certificate from the party was provided to tax Taxation Officer. He has contended that the addition in this respect is liable to be deleted, as there is no evidence with the Department that alleged amount of expense was paid by the assessee. According to the learned counsel, even otherwise, expenditure not shown does not justify any addition under section 13(1)(e). He has, in this respect, placed reliance on the decision of the Tribunal reported as 2000 PTD (Trib.) 2905.
On the other hand, learned representative of the Department is supporting the assessment order. He has contended that there is no justification for reducing the addition in this respect. Learned DR has also objected the direction of the learned CIT(A) regarding adjustment of additions against assessed loss and trading addition.
We have heard both the sides and have also perused the relevant record. We are of the view that the law requires a piece of information covered under the terms "definite information", which leads to believe that the income of the assessee has either escaped or under-assessed. Since the learned CIT(A) did not controvert the incorporation of expenses on account of manufacturing of combed yarn from outside parties in the subsequent period, after settlement of payment @ Re.1 per k.g., there was no basis to reduce the expenses from Rs. 10 per K.g. to Rs.5 per K.g. for addition under section 13(1)(e). There was no basis for addition either with the assessing panel or with the CIT(A). The addition made under section 13(1)(e) is, therefore, deleted having been made without any proper basis. The two appeals for the assessment years 1998-99 and 1999-2000 filed by the Department are dismissed, while the cross-appeals for these years filed by the assessee are allowed.
7. For these two years i.e. 1998-99 and 1999-2000, both the parties have also objected the treatment regarding additions under section 13(1)(c), which has been made by the Taxation Officer for alleged difference in the stock recorded in the books of accounts and the stock hypothecated with the banks. In this respect, on behalf of the assessee, it has been contended that in the assessment year 1995-96, the declared gross loss was not accepted by the department and therefore the intangible addition of Rs.29,532,000 was available with the assessee due to which sources being available to justify unexplained additions for both the years under review, there is no justification for the additions. He has, in this respect, placed reliance on the decision of the Hon'ble Lahore High Court, dated 26-7-2000, in C.T.R. No. 137/98. Learned counsel has contended that even otherwise, the addition on account of pledge of goods is not maintainable, as has been held by this Tribunal in order, dated 12-8-2005 in I.T.A. No.146/LB of 2005 (Assessment year 1998-99), I.T.A. No.4793/LB of 2003 (Assessment year 2000-2001) and I.T.A. No.5570/LB of 2005 (Assessment year 1999-2000). Learned counsel has further contended that the excess stock of 871 bales was available as on 16-12-1995 up to which date income of the assessee was exempt. He has, therefore, contended that no addition can be made ink respect of stock relating to period when the income was exempt and therefore addition under section 13(1)(c) of the repealed Ordinance, 1979 is not maintainable regarding explained stock of 871 bales relating to exempt period.
On the other hand, learned DR is supporting the treatment as hasbeen made by the Assessing Officer. He has contended that the Assessing Officer has given full justification for the treatment meted out by him.
After the hearing both the sides, we are of the view that the difference in the stocks recorded in the books of accounts and the stocks pledged with the banks, in quantitative terms was out of books and assessable as deemed income under section 13(1)(c). However, the assessing period erred in calculating the value of the stocks for the year 1999-2000 at Rs.4,49,83,387 on market price instead of purchase price and not deducting such difference detected and added at Rs.1,31,79,027 in the year 1998-99. We, therefore, tend to agree with the directions of the learned CIT(A) that total value of difference in stocks taken by the Taxation Officer at Rs.4,49,83,387 at market rate was inflated one. In fact, it should have been calculated at purchase price and difference already taxed in the year 1998-99 reduced therefrom. In this way, the purchase price of cotton would work out at Rs.2,69,96,267 i.e. Rs.1,31,79,027 for the year, 1998-99 and Rs.1,37,17,240 for the year 1999-2000 for addition under section 13(1)(c) in the respective years. Although there cannot be any disagreement with the ratio settled in the judgment of the Honourable High Court cited supra and judgments of the Tribunal reported as 1997 PTD (Trib.) 1985 and (1995) 71 Tax 7 (Trib.) holding that intangible additions for the past years can be adjusted to explain addition under section 13 of the repealed Income Tax Ordinance, 1979 but the alleged claim of intangible additions for Rs.295,32,000 representing gross loss for the year 1995-96 is not available with the tax-payer. In fact, the loss declared for the year, 1995-96 was Rs.8,03,66,032 which was accepted by the Department and turnover subjected to tax under section 80D, not only in the said year but in the prior and subsequent years as well, till assessment year 1997-98. The issue of brought forward of losses for all these years including 1995-96 was taken up before the First Appellate Authority who observed on this very ground as under:--
"The matter of losses of previous years amounting to Rs.21,27,43,223 do not relate to this assessment years. Therefore, the appellant may apply to the Assessing Officer directly for credit and brought forward of said losses".
We agree with the above observations of CIT(A) but the issue of brought forward of losses is not before us, in the memo. of appeal, for adjudication. Therefore, in view of the above stated facts and?????????? circumstances of the case as well as the legal position the addition made under section 13(1)(c) on account of unexplained pledged stocks, in quantitative terms, is upheld in the manner in which the learned CIT(A) maintained it for the year 1998-99 and 1999-2000 i.e. Rs.1,31,79,027 for 1998-99 and Rs.1,37,17,240 for 1999-2000. The appeals filed by the Department as well as the taxpayer for both the years on this issue stand disposed of accordingly.
8. For the assessment year 2000-2001, both the parties have objected through cross-appeals the treatment of the learned CIT(A) regarding addition in respect of purchase rate, which has been set aside for the assessment year 2001-2002 and the assessee has also filed the appeal against setting aside the assessment. While perusal of the assessment orders, we have found that the Taxation Officer has made the addition on account of purchase rate for the two years under review inter alia on the following observations:--
"------Although you have furnished detail of cotton ginners from whom purchases have been made, yet the same cannot be considered as reliable and definite evidence, as the cases of cotton ginners are covered under section 143-B and simply a statement is filed by them without any accounts. It is, therefore, believed that a collusive arrangement existed between you and the parties and a good chunk of profit was suppressed by virtue of declaring low sale rate. Please show cause as to why the purchase rate declared by you may not be curtailed?------"
The assessee, in response to the above show-cause notice, has specifically explained that "The company has no cash finance from any bank in the year under assessment and has purchased cotton on credit to meet day to day requirement". The assessee also submitted all the details required in the matter, but the Assessing Officer, without any justification only on presumption and surmises has not accepted the declared purchase rate and the learned CIT(A) has also not considered these facts and for the assessment year 2000-2001 has reduced the addition, while for the assessment year 2001-2002, the assessment has been set aside on this issue for fresh consideration. In this case, we have found that admittedly the purchases have been made from verifiable parties registered in Sales Tax as well as Income Tax Departments, proper deduction of tax at source has not been disputed by the Department, payments have been admittedly made through banking channels, no defects have been pointed out in books of accounts and the rates as declared by the assessee are less than the rates of Karachi Cotton Association, but even then the officers below without bringing forward any substantial record of reasons in support of the impugned assessment have made the additions. We have held time and again that the tax is not a forced liability, but in fact is a responsibility to owe to the State a proportionate share given by the taxpayer for utilizing and consuming the services provided by the State. Its determination must be made with a view to keep the above said principle intact and to maintain confidence and to boost the encouragement in the tax paying society so that the tax should not be taken by the concerned public to be a harsh imposition but a .duty.; In this case, the Taxation Officer has unnecessarily without bringing on record, blamed the taxpayer/assessee with the following observations:--
"It is, therefore, believed that a collusive arrangement existed between you and the parties and a good chunk of profit was suppressed by virtue of declaring low sale rate".
We are of the view that in this case, both the officers below have neither looked for any relevant positive evidence nor for any significant basis for making a case against the assessee. The addition made by the Taxation Officer on account of purchase rate is, therefore, deleted. The appeals filed by the assessee for the assessment years 2000-2001 and 2001-2002 are allowed, while the cross-appeal filed by the Department for the assessment year 2000-2001, is dismissed.
9. Similar position is regarding the addition made on account of sale of waste for the assessment years 2000-2001 and 2001-2002. Learned CIT(A) has upheld the addition made by the Taxation Officer for the assessment year 2000-2001, while for the assessment year 2001-2002, the addition in this respect has been set aside for fresh consideration. The assessee has objected the treatment of the Officers below for both the years. We have noted that the learned CIT(A) has specifically mentioned in the impugned order that "It was pleaded that the company is maintaining proper books of accounts and the Assessing Officer has not pointed out any defect in the books. All the sales are subject to sales tax and without pointing out any defect, the sale rate cannot be estimated. It was explained that in textile processing industry, different wastes are produced having different sale rate. The Assessing Officer had not confronted that type of waste has been disposed of in a parallel case quoted by him. The appellant company properly filed quality of waste and party-wise details and the Assessing Officer failed to point out any defect". But after the above said observations has upheld the addition for the assessment year 2000-2001 and has set aside the same for the assessment year 2001-2002 without any justification. We have found that the sales of waste for these two years is admittedly to registered parties and all the receipts against sales of waste are through proper banking channels. Copies of sales tax invoices along with sales tax registration has been furnished for verification. There is no justification for the addition. The addition made for the two years on account of sale rate of waste is, therefore, deleted and both the appeals filed by the assessee on this issue for the assessment years 2000-2001 and 2001-2002 are allowed.
10. The assessee for the assessment year 2001-2002 has also objected the setting aside of disallowance made by the Taxation Officer on account of mark-up on short term borrowings. While perusal of the impugned order of the learned CIT(A), we have found that this issue has been set aside for reappraisal in view of the plea of the appellant/assessee that "Mark-up on export finance relates to the mark up incurred on the borrowings from the bank for day to day operation. This short term borrowing cannot be related only to export. The classification of export finance is only due to the fact that collateral security given to the banks. There is no restriction in the utilization of these funds. In fact, these borrowings were utilized by the appellant for purchase of raw material, payment of salaries and other expenses, which are allocable to exports as well as local business. He pleaded that these expenses are, therefore, to be prorated to export and local operation".
As the assessee has pleaded that these expenses to be prorated to local as well as export business, therefore, we find no warrant for interference in the impugned order of the learned CIT(A) in this respect, which is upheld and the appeal filed by the assessee for the assessment year 2001-2002 is dismissed on this issue.
11. The appeals filed by the assessee for the assessment years, 2000-2001 and 2001-2002 regarding disallowances of profit and loss s account expenses are dismissed, as the grounds for both the years in this respect are vague and no disallowance has been specifically mentioned. The appeals filed by the assessee for the assessment years 1998-99 and 1999-2000 on the issue of disallowances out of profit and loss account are dismissed being not pressed by the learned counsel for the 'assessee.
12. All the six cross-appeals for the assessment years 1998-99 to 2000-2001, the appeal filed by the assessee for the assessment year 2001-2002 and the appeal filed by the Department for the assessment year 1998-99 against the cancellation of penalty order are disposed of in the manner as referred supra.
C.M.A./81/Tax (Trib.).???????????????????????????????????????????????????????????? Order accordingly.