I.T.As. Nos. 1093/LB and 150/LB of 2004, decided on 29th May, 2006. VS I.T.As. Nos. 1093/LB and 150/LB of 2004, decided on 29th May, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 553 (2006)

2007 P T D (Trib.) 553

[Income-tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member and Shaheen Iqbal, Accountant Member

I.T.As. Nos. 1093/LB and 150/LB of 2004, decided on 29/05/2006.

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

---S. 130(3)-Form of appeal and limitation---Sufficient cause for condonation of delay---Appeal against subsequent order under Ss. 62/135 of the Income Tax Ordinance, 1979 was not filed under the impression that the same was not warranted as the reference application before High Court in respect of order under S.62 of the Income Tax Ordinance, 1979 was pending---Delay condoned by the First Appellate Authority was upheld by the Appellate Tribunal as the assessee had shown reasonable cause for not filing the appeal in circumstances.

Messrs Laser Praxis Depilex Clinic v. Customs, Central Excise and Sales Tax Appellate Tribunal 2002 PTD 549 rel.

I.T.As. Nos. 1913 to 1915/LB of 1996-97; 1998 PTD (Trib.) 1951; Messrs Concord of India Insurance Co. Ltd, v. SMT. Nirmala Devi and others (.1979) 118 ITR 507; 158 ITR 75 (S.C.); Collector Land Acquisition v. Mst. Katiji and others (1987) 56 Tax 130; CIT v. Krud Sons Ltd. 1994 PTD 174; CIT v. Choudhri Brothers 1986 SCMR 443; Messrs Ayenbee (Pvt.) Ltd. v. ITAT 2002 PTD 407; Messrs PIMPA (Pvt.) Ltd. Karachi v. CIT 1994 PTD 123; MEJ Hazati and Sons v. CIT 1985 PTD 516; CIT v. Messrs Fateh Textile Mills, Hyderabad 1984 PTD 218; Messrs Printers Combine (Mercantile) Ltd., Karachi v. CIT 1984 PTD 276; S.M. Yousaf and Brothers v. CIT 1974 PTD 45; Messrs Barry Brothers v. CIT 2001 PTD 2612; 1998 PTD (Trib.) 2106; 1966 PTD (Trib.) 135 and 2005 PTD (Trib.) 1208 ref.

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

----S. 62(1), proviso---Assessment on production of accounts, evidence etc.---Rejection of accounts---Original assessment made under S.62 of the Income Tax Ordinance, 1979 was set aside with the direction to point out specific defects in the books of accounts through notice under S.62 of the Income Tax Ordinance, 1979 as per requirement of law contained in proviso to S.62(1) of the Income Tax Ordinance, 1979---Despite this specific direction, the Assessing Officer had failed to point out any defect in the books of accounts---Though the notice was issued but it did not contain any specific defect in books of accounts---Not only books of accounts but vouchers were also produced which were retained and were scrutinized---No specific defects based upon such scrutiny had been pointed out---Assessing Officer rather had tried to justify the rejection of accounts on the basis of non-production of certain record which was not maintained and not required to be maintained under the law/rules---Assessing Officer failed to make out a case for rejection of books of accounts in the light of criterion laid down by proviso to S.62(l) of the Income Tax Ordinance, 1979---First Appellate Authority rightly is approved the rejection of books of accounts/declared version and had deleted the trading addition.

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

----S.62(1), proviso---Assessment on production of accounts, evidence etc.---Rejection of accounts---Stock register---Book version could not be rejected for failure to maintain or to produce stock register.

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

----S. 62(1), proviso---Assessment on production of accounts, evidence etc.---Rejection of accounts---Gross profit rate---High gross profit rate declared in any other case or applied by the department could not be basis for rejection of books of accounts.

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

----S. 13(1)(d)---Addition---Payments made to ex-shareholders as purchase consideration of shares as well as to bank on behalf of subsidiary company in respect of their outstanding liabilities and were. shown under the heads "long term investment" and "due from subsidiary" respectively---Addition---Validity---Accounts of "due from subsidiary" were supported with ledger, audited final accounts as well as bank statement were very convincing that in the books/final account the payment stood reflected and by no stretch of imagination, it could be termed as unexplained investment---Addition was rightly deleted by the First Appellate Authority in circumstances.

2005 PTD (Trib.) 270; Messrs Allied. Matter Ltd. v. C.I.T. 2004 PTD 1173; I.T.A. No. 1405/LB of 2004; I.T.A. No.229/L of 2005 and (1995) 75 Tax (Trib.) 34 ref.

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

----Second Sched. Cl (118-D)---Exemption---Addition in respect of gain on sale of vehicle---Assessce contended that transaction had been made with the leasing company at book value and there was no clement of gain---Addition was made without rebutting the argument rather the Assessing Officer had taken the line that the gain was not exempt as only business profits of industrial undertaking were exempt---Validity---Assessing Officer had failed to rebut that the transaction was with the leasing company with buy back arrangement as a financing transaction involving no gain---Addition was not maintainable and had rightly been deleted by the First Appellate Authority.

(g) Income-tax---

----Disallowances out of profit and loss account---Additions were set aside with the direction to point out specific defects---In reassessment order, addition had not been made in some of the heads with the observation that vouchers were produced while the additions in some of the heads were repeated on the basis of failure to produce documentary evidence---Validity---Held, it was beyond comprehension that vouchers pertaining to some of the heads were produced and not in respect of the others---Since Assessing Officer had failed to point out specific instances so the additions under such heads merited deletion.

88 Tax 48 rel.

(h) Income-tax---

----Profit and loss expenses---Addition under the head telephone had been made by observing that there was element of personal and non-business calls---Validity---Addition was not maintainable as artificial juridical person the observation of personal element was irrelevant unless specific instances of non-business calls by the officials/directors were given.

88 Tax 48 rel.

(i) Income-tax---

----Profit and loss expenses---Addition on account of provisions of Workers Participation Fund---No such addition was made in the original assessment order---Addition was made despite the fact that such addition was outside the mandate of setting aside of specific addition---Validity---New addition was not legally tenable and had rightly been deleted by the First Appellate Authority---Appeal of the department was dismissed on this issue.

72 Tax 34 distinguished.

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

----S.62(1)---Assessment on production of accounts, evidence etc.---Rejection of accounts on the basis of non-production of stock inventory of finished goods---Validity---Non-production or non-maintenance of stock register could not be made the basis of rejection of accounts---Assessing Officer failed to bring on record any material to show that profits and gains could not be deducted in the absence of stock inventory and that too of finished goods only---Assessing Officer had also not discarded any single item of cost of sales to establish that cost of sales was unverifiable---Absence of stock inventory of finished goods only did not constitute a specific defect specially in the absence of corroborative evidence---Action to discard books of accounts on this basis could not be maintained.

1994 PTD (Trib.) 535 ref.

1996 PTD 1104; C.I.T. v. Krud Sons Ltd. 1994 PTD 174; 1994 PTD 517 and (1996) 74 Tax 227 rel.

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

----S.62(1)---Assessment on production of accounts, evidence etc.---Variation in sale rate---Rejection of accounts---Variation in sale rate did not constitute specific defect in terms of proviso to S.62(1) of the Income Tax Ordinance, 1979---Since a mandatory provision regarding rejection of accounts had not been fulfilled, said observation could not legally be made a basis for rejecting account version---Rejection of accounts on the basis of variation in sale rate was not valid.

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

----Ss.62(1) & 24(fff)---Assessment on production of accounts, evidence etc.---Rejection of accounts on the basis of difference of amounts between Director's remuneration claimed in the final audited account and shown in the books of accounts being' unexplained---Addition under S.24(fff) of the Income Tax Ordinance, 1979---Validity---By making such addition Assessing Officer accepted the claimed amount and addition was made on the basis that payments made otherwise than through crossed cheques---Such treatment was not only contradictory in 'itself, but was a conclusive proof that explanation of the assessee regarding difference was accepted---Since no adverse inference on the basis of earlier observation had been drawn, link of the said observation with the rejection of accounts automatically vanished---Rejection of account on this basis was not valid.

(m) Income-tax---

---Gross profit rate---Estimation of sales and application of gross profit rate at 25% was declared arbitrary, unjustified and unwarranted as against declared rate at 18.75% on the basis of parallel cases in which applied gross profit rate of 25% was reduced to 18% on declared sales.

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

---Ss. 24(fff) & 50(1)---Deduction not admissible---Director's remuneration---Payment through book adjustment---Addition---Validity--Addition was made because payments were made through cash but in spite of having books of accounts and bank statement, no detail of such cash payments were given---Documentary evidence had been produced showing Director's remuneration paid through book adjustment which had been accepted by the Assessing Officer and the remaining amount was paid through prescribed banking channel---Tax under S.50(1) of the Income Tax Ordinance, 1979 on total amount had been deducted and that was the reason that addition under S.24(c) of the Income Tax Ordinance, 1979 had not been made in this regard---Addition had rightly been deleted by the First Appellate Authority in circumstances.

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

---Ss.23, 24 & 111(1)(b)---Deductions---Salary expenses---Disallowance out of such salary expense on the ground that the same were overcharged and had increased three times that for the previous year---Such overcharging of expense constituted concealment---Assessee contended that quantum of an expense claimed did not provide justifiable ground for its disallowance under the law---Assessing Officer should have established the unverifiabiliy or inadmissibility of the expense for disallowance---Admittedly, salary sheets were produced wherein the requisite particulars of each employee were given and there was no requirement of either income tax law or of Companies Ordinance, 1984 to maintain salary register---Validity---Assessing Officer neither confronted the assessee on the point of unverifiability nor cited any instance of unverifiability---Nature of expenses was not such in which presumption of unverifiability could be allowed to be taken---Addition deleted by the First Appellate Authority was maintained by the Appellate Tribunal in, circumstances.

72 Tax 141 (Trib.) and 56 Tax 5 rel.

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

----Third Sched., Rr. 5 & 5B---C.B.R. Circular No. 7 of 1981, dated 6-7-1981---Depreciation allowance---Re-investment allowance---Initial depreciation was disallowed on the ground that the same was admissible where Plant and Machinery had been installed by 30-6-2000 and the same was also included in Capital Work-in-Progress till 30-6-2001---Validity---Assessec was entitled to reinvestment allowance under R.5B of the Third Schedule of the income Tax Ordinance, 1979---Addition in asset had been made during the prescribed period and the said asset had been used during year---Such being a statutory allowance did not require express claim and was admissible to the assessee---First Appellate Authority had rightly directed to allow , reinvestment allowance as admissible under R.5B of the Third Schedule instead of initial depreciation.

Mrs. Sabiha Mujahid D.R. for Appellant.

Sajjid Ijaz Hotiana D.K. for Respondent.

ORDER

Through these two appeals, the appellant has objected the impugned order, dated 22-12-2003 for the assessment year 2000-2001 and order, dated 27-10-2003 for the assessment year 2001-2002.

For the assessment year 2000-2001, the impugned order has been assailed on the following grounds:---

(1) That the order of the learned CIT(A-1), Faisalabad is bad in law and against the facts of the case.

(2) That the learned CIT(A-1), Faisalabad was not justified in accepting the barred by time appeal and the application for condonation of delay as the assessee has no sufficient and bona fide cause for delay.

(3) That the learned CIT (Appeals) was not justified to entertain the time-barred appeal in the circumstances that delay of 30-days was deliberately made.

(4) That the learned CIT(Appeals) was not justified to entertain the barred by time appeal and application for condonation of delay for 30-days ignoring the finding of the ITAT that each and every day has to be explained by sufficient cause which prevented the appellant from presenting a appeal within stipulated time [(2004) 89 Tax 186 (Trib.)].

(5) That the learned CIT(Appeals) was not justified in considering the reported case law by assessee 2002 PTD 549 as the same was totally different and distinguishable from the present case.

(6) That the learned CIT(Appeals) was not justified in deciding the appeal while the demand created by the re-assessment order was suspected by Honourable High Court till the decision of reference application filed by the assessee.

(7) That the learned CIT(Appeals) has erred in deleting the trading addition ignoring the fact that the specific defects and discrepancies noted from the books of accounts were duly confronted to the assessee through notice under section 62, dated 30-9-2002.

(8) That the learned CIT(Appeals) has erred in deleting the trading addition ignoring the fact that this case has been set aside by the learned ITAT on certain specific points which did not include the issue of application of GP rate at 25%.

(9) That the learned CIT(A) has erred in deleting the trading addition on the ground that assessee had produced vouchers before the Assessing Officer, ignoring the fact, that vouchers were actually related to some expenses claimed in the Profit and Loss Account only.

(10) That the learned CIT(Appeals) has erred in deleting the trading addition ignoring the fact that GP @ 25% was applied keeping in view the other parallel cases of this nature of business.

(11) That the learned CIT(A) has erred in deleting the trading addition by observing that it was unwarranted on the basis of non-maintenance of stock register only whereas Assessing Officer has clearly discussed in the body of assessment order regarding non-production of cash sale memos., stock register, inward/outward register, salary register, purchase and sales register.

(12) That the learned CIT (Appeals) has erred in deleting trading addition ignoring the fact that local purchases and sales other than two sister concern, were unverifiable as full particular of parties were not recorded in the books of accounts.

(13) That the learned CIT(Appeals) has erred in deleting the addition of Rs.38,00,000 under section 13(1)(d) of the Income Tax Ordinance, 1979 ignoring the fact that entry of that transaction/ investment has not been recorded in the books of accounts.

(14) That the learned CIT(Appeals) has erred in deleting the addition under section 13(1)(d) of the Income Tax Ordinance, 1979 ignoring the fact that no debtor of amounting to Rs.38,00,000 was recorded/ appeared in the list of debtors provided by the assessee.

(15) That the learned CIT(Appeals) has erred in deleting the gain on sale of vehicles at Rs.13,49,363 ignoring the fact that profit was on the sale proceeds of depreciated vehicles only.

(16) That the learned CIT(Appeals)' has erred in deleting the gain on sale of vehicles ignoring the fact that profit was over the sale proceeds less the W.D.V. and not on the book value of leased vehicles with buy back arrangement.

(17) That the learned CIT (Appeals) was not justified in deleting the trading addition of Rs.2,25,046 which is 15% of the claimed expenses of Rs.15,00309 on account of postage, telephone and telex ignoring the fact that addition was made due to unverifiable expenses and having element of personal nature.

(18) That the learned CIT(Appeals) has not appreciated the fact that the assessee claimed expenses round under the head postage, telephone and telex and 15% was disallowed as in other parallel cases.

(19) That the learned CIT(Appeals) was not justified in deleting the addition of expenses of Rs.1,00,000 out of claimed at Rs.1,88,616 on account of Fee, Subscription and periodicals, ignoring the fact that addition was made due to unverifiable expenses.

(20) That the learned CIT(Appeals) was not justified in deleting the addition of expenses of Rs.1,18,085 out of claimed expenses at Rs.5,90,426 on account of miscellaneous expenses, ignoring the fact that addition was made due to unverifiable nature of expenses.

(21) That the learned CIT(Appeals) was not justified in deleting the addition of Rs.25,54,738 in toto on account of provisions for Workers Participation Fund, which was created against legal provisions of Workers Participation Fund Act, 1968 as payment to this fund was to be made not later than 9-months after the close or that year but in this case, payments were made after the lapse of more than two years as discussed in the body of assessment order.

(22) That the learned CIT(Appeals) was not justified in deleting the addition made on account of provisions for Workers Participation Fund on the ground that it was new issue and outside the scope of set aside and re-assessment proceedings despite the fact that this issue was discussed in the body of assessment order by referring the reported case law in favour of Revenue.

While for the assessment year 2001-2002, following grounds have been framed by the appellant-Department:--

(1) That the order of the learned CIT(A-1), Faisalabad is bad in law and against the facts of the case.

(2) That the learned CIT(A) has erred in directing to reduce the GP rate from 25% to 18.76%, against the history of the case,

(3) That the directions of the learned CIT(A) for accepting the GP rate against the history of the case is nullified by the decision of the Tribunal in the cases reported as (i) 1991 PTD (Trib.) 669 (ii) 1991 PTD (Trib.) 643 (iii) 1994 PTD (Trib.) 47.

(4) That the learned CIT(A) has erred in directing to accept the declared GP rate ignoring the fact that in parallel case quoted in the body of assessment order (i.e. NTN/TR No.11314 Messrs Specialty Chemical (Pvt.) Ltd., Faisalabad GP rate at 25% was confirmed by ITAT vide No.I657/LB of 2001, dated 20-12-2002.

(5) That the learned CIT(A) has erred in directing to accept the declared trading results which is against the history of the case.

(6) That the learned CIT(A) has erred in directing to accept the declared trading results ignoring the fact that assessee failed to furnish stock inventory of finished goods 1994 PTD (Trib.) 535.

(7) That the learned CIT(A) has erred in directing to accept the declared trading results ignoring the fact that there is variation in rate of sale price of items sold to different parties.

(8) That the CIT(A) was not justified in directing to accept the declaring trading results ignoring the fact that books of accounts were found defective.

(9) That the CIT(A) has erred in relying at the case law quoted by assessee, ignoring the fact that all quoted cases are totally different and distinguishable on all fours, to, the instant case.

(10) That the CIT(A) has erred in deleting the addition of Rs.68,72,351 out of claim of Rs.1,74,00,000 under section 24 (fff) of the Income Tax Ordinance, 1979 on account of Directors remuneration ignoring the facts that, payments were not made through cross cheques/banking channel.

(11) That the CIT(A) has not appreciated the fact that payments made on account of Directors remuneration through book adjustment cannot be equated with payments made through banking channel/cross cheque.

(12) That the CIT(A) has not erred in observing that where deduction and deposit of tax under section 50(1) of the Income Tax Ordinance, 1979 on account of Directors remuneration has been made (even not through banking channel), provisions of section 24(fff) of the income Tax Ordinance, 1979 are , not attracted.

(13) That the CIT(A) was not justified in deleting the addition to the tune of Rs.48,50,000 under the head salaries, wages and benefits ignoring the fact that the claim of expenses as per books of accounts was at Rs.82,79,721, whereas in the statement of accounts, this amount was claimed at Rs. 1,23,82,505.

(14) That the CIT(A) has not appreciated the fact that assessee has claimed expenses which have not been actually incurred and this inflation in expenses attract the provisions of section 111(2)(b) of Income Tax Ordinance, 1979.

(15) That the learned CIT(A) has erred in reducing the addition under the head vehicle running from Rs.9,50,000 (out of total claim of Rs.23,83,347) to Rs.5,00,000 which was made due to unverifiability of expenses.

(16) That the learned CIT(A) has erred in reducing the addition under the head travelling from Rs.7,79,300 to Rs.3,00,000 which was made due to unverifiability of expenses.

(17) That the learned CIT(A) has erred in reducing the addition under the head depreciation on vehicle from Rs.2,08,908 (out of total claim of Rs.4,17,817) to Rs.1,04,454 which was made due to personal use of vehicles.

(18) That the learned CIT(A) has erred in directing to allow the reinvestment allowance, which was not claimed by the assessee in the return of income filed for the year under consideration.

(19) That the CIT(A) has erred in directing to allow the reinvestment allowance which the assessee was not entitled for such allowance during the charge year wider Rule 5(b) of 3rd Schedule to the Income Tax Ordinance, 1979.

(20) That the learned C.I.T.(A) has not appreciated the fact that claimed initial depreciation Rs.97,34,852 was not allowable after 30-6-2000 under the Law.

2. Brief facts of the case are that assessee, in this case, is a Private Limited Company deriving income from manufacturing of dyes, chemicals and allied items. Original assessment for, the assessment year 2000-2001 was made on 30-6-2001, wherein the period of exemption of the assessee-company. was curtailed, declared trading results were rejected making trading addition, addition under section 12(18) of the share deposit money, addition under section 13(1)(d), addition in gain on sale of vehicle and additions under certain heads of Profit and Loss A/c were made. The assessee tiled first appeal before the learned CIT(A), who vide his order, dated 11-2-2002 confirmed additions regarding curtailment of period of exemption, addition made under section 12(18) of share deposit money and addition of gain on sale of vehicle and set aside the assessment regarding other additions for fresh consideration by the Taxation Officer. The assessee went in second appeal before this Tribunal and vide order, dated 30-5-2002 in I.T.A. No.856/LB/2002, the addition of gain on sale of vehicle was set aside for fresh consideration. However, the treatment regarding other issues as made by the learned CIT(A) was upheld. The Taxation Officer in the second round of assessment under sections 62/135 of the repealed Ordinance, 1979 has assessed business income relatable to non-exempt period at Rs.47,483,582, addition under section 13(1)(d) at Rs.38,00,000, addition in gain on sale of vehicles at Rs.13,49,363 and has assessed total business income relatable to the new exempt period at Rs.82,332,945 including addition under section 12(18) at Rs.2,97,00,000 as already upheld by this Tribunal vide order, dated 16-1-2003 which has admittedly been served upon the assessee on 23-1-2003. The assessee filed appeal against that assessment on 22-3-2003 with the application for condonation of delay on the ground that on behalf of the assessee, a direct reference was filed before the Hon'ble High Court against the order of this Tribunal, dated 30-5-2002 and the Hon'ble High Court vide order, dated 6-2-2003 in Civil Miscellaneous Application No.106 of 2003 suspended recovery of tax demand subject-matter of assessment order, dated 16-1-2003 and the assessee was under the impression that appeal First Appellate Authority (learned CIT(A)) is not warranted as issues in reference and the re-assessment order are common, but as soon as after legal opinion for his counsel that appeal should be filed without prejudice to pendency of reference in the Hon'ble High Court, the appeal has been filed. The learned CIT(A) has allowed the application for condonation of delay in filing the appeal on the basis of decision of Hon'ble High Court reported as 2002 PTD 549 in the matter of Messrs Laser Praxis Depilex Clinic v. Customs, Central Excise and Sales Tax Appellate Tribunal, the principles regarding condonation of delay after detailed study on the subject referring may decide cases of the Indian as well as Pakistan Judiciary has been laid down. The concluding paras of that decisions are reproduced hereunder:

"(10) In re: Controller Land Acquisition v. Mst. Katiji and others (1987) 56 Tax 130 (S.C. India), their Lordship laid down general principles for adherence while deciding applications for condonation under section 5 of the Limitation Act. These principles in our opinion must be kept in mind by every judicial or quasi-judicial forum while dealing with questions of condonation of delays.

(11) M.P. Thakkar, J. Speaking for the Court favoured a justice oriented approach by finding that:

(i) Ordinarily, a litigant does not stand to benefit by lodging an appeal late.

(ii) Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties.

(iii) "Every day's delay must be explained, does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, common sense and pragmatic manner.

(iv) When substantial justice and technical considerations are pitted - against each other, the cause of substantial justice deserves to be preferred for the other side, cannot claim to have vested right in injustice being done because of a non-deliberate delay.

(v) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.

(vi) It must be grasped that the judiciary is respected not on account of its power to utilize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.

(12) To the above list we hold like to add our view expressed earlier that in Revenue matters the prayer for condonation by an assessee/citizen should all the more be considered sympathetically. Our reasons for leniency have already been counted above.

(13) Being in respectful agreement with the above findings of their Lordship and our own addition to the list, we are of the view that prayer for condonation of delay in the case in hand was neither contumacious of nor the appellant could possible gain anything by deliberately knocking at a wrong form."

In this regard, following decisions have also been referred:

(i) Order, dated 26-10-1998 in I.T.As. Nos. 1913 to 1915/LB of 1996-97, (ii) 1998 PTD (Trib.) 1951, (iii) 118 ITR 507 (S.C.) (iv) 158 ITR 75 (S.C.)

The learned CIT(A) has disapproved the treatment of the Taxation Officer rejecting the declared version/books of accounts, addition under section 13(1)(d) and addition made by the Taxation Officer in gain on sale of vehicle are deleted and also deleted the disallowances made in the Profit and Loss A/c.

3. Brief facts regarding assessment year 2001-2002 are that return was filed declaring net loss (Rs.6,95,22,968) besides statement under section 143-B regarding exports. Declared version was discarded by the Taxation Officer and the total income was assessed at Rs.4,24,42,752 estimating local sales at Rs.34,40,00,000 as against declared at Rs.34,19,28,897 and 25% was applied against 18.76% declared by the assessee. Learned CIT(A) during the course of first appeal has directed to accept the declaring trading version. The Taxation Officer also made certain additions out of' which during the course of first appeal before the learned CIT(A), the addition of Rs.68,72,351 out of claim of Rs.1,74,00,000 under section 24(fff) of the repealed Income Tax Ordinance, 1979 and the addition to the tune of Rs.48,50,000 under the head salaries, wages and benefits have been deleted, while the additions made under the head vehicle running at Rs.95,00,000 out of total claim of Rs.23,83,347 has been educed to Rs.5,00,000, addition under the head traveling has been reduced from Rs.7,79,300 to Rs.30,000 and under the head depreciation on vehicle has been reduced from Rs.2,08,908 to Rs.1,04,454 as against total claim of Rs.4,18,817. The learned CIT(A) has also directed to allow the re-investment allowance, which according to the appellant-Department not claimed by the assessee in the return of income. For this assessment year i.e. 2001,2002, the appellant-Department has also objected the directions of the learned CIT(A) to allow the claim of initial depreciation.

4. Mrs. Sabiha Mujahid, representing the appellant-Department has made the same contentions as have already been made in the grounds of appeal, while on the other hand, Mr. Sajjid Ijaz Hotiana, is supporting the impugned orders of the learned CIT(A). He has contended that the learned CIT(A) for the years under review has discussed all the agitated issues in detail and keeping in view the provisions of law, the case-law, the facts of the case and on the basis of the parallel cases, has allowed relief which according to him, requires no further interference. In support of his contention, learned counsel has placed before us the assessment order for the assessment year 2002-2003 in the case of the assessee, wherein the declared GP @ 18.48% has been accepted by the Taxation Officer himself and the declared version has been accepted. Learned counsel has placed before us the copies of the following decisions of this Tribunal, the Hon'ble High Courts and Supreme Court of India and Pakistan.

> Regarding the limitation and condonation of delay,

the decision of the Hon'ble High Court reported as 2002 PTD 549

the decision of the Supreme Court of India in the matter of Messrs Concord of India Insurance Co. Ltd. v. SMT. Nirmala Devi and others reported as (1979) 118 ITR 507 (Supreme Court, India).

(1987) 56 Tax 130 (S.C. India) in the matter of Collector Land Acquisition v. Mst. Katiji and Others.

> Regarding rejection or acceptance of declared trading version and estimation of sales and GP rate:--

1994 PTD 174 in the case of CIT v. Krud Sons Ltd.

1986 SCMR 443 in the case CIT v. Choudhri Brothers.

2002 PTD 407 (Karachi H.C.) in the case Messrs Ayenbee (Pvt.) Ltd. v. ITAT

1994 PTD 123, (Kar. H.C.) in the case of Messrs PIMPA (Pvt.) Ltd. Karachi v. CIT

1985 PTD 516 in the case of MEJ Hazari and Sons v. CIT

1984 PTD 218 (H.C. Kar.) in the case of CIT v. Messrs Fateh Textile Mills, Hyderabad

1984 PTD 276 in the case of Messrs Printers Combine (Mercantile) Ltd., Karachi v. CIT

1974 PTD 45 in the case of S.M. Yousaf and Brothers v. CIT

2001 PTD 2612. (Lah. H.C.) in the case of Messrs Barry Brothers v. CIT

1998 PTD.(Trib.) 2106

1966 PTD (Trib.) 135

2005 PTD (Trib.) 1208

Regarding the jurisdiction of the Assessing Officer and in respect of addition made under section 13(1)(d).

2005 PTD (Trib.) 270

2004 PTD 1173 (Karachi H.C.) in the matter of Messrs Allied Matter Ltd. v. CIT

the order of this Tribunal, dated 22-8-2005 in I.T.A. No.1405/LB of 2004 (Assessment year 1999-2000) filed by the assessee and I.T.A. No.229/LB of 2005 (Assessment year 2000-2001) filed by the Department in the matter of Messrs EnEm Enterprises v. CIT

The learned counsel for the assessee has also placed before us the copy of decision of this Tribunal reported as (1995) 75 Tax (Trib.) 34, which has been referred in the assessment order by the Taxation Officer and according to the learned counsel, this case is not relevant in the case of the assessee in respect of making addition under section 13(1)(d) of the repealed Ordinance, 1979.

5. We have heard the learned representatives from both the sides, have perused the impugned orders of the learned CIT(A), the assessment orders, the case law referred and all the other documents placed before us by both the parties.

6. The appellant-Department for the assessment year 2000-2001 through its Ground Nos. 2 to 5 has objected the application filed by the assessee for condonation of delay in filing the appeal, which has been allowed by the learned CIT(A) with the observations as under:-

"Appeal has been filed on 22-3-2003 whereas the demand notice was served on 23-1-2003 as such the appeal is late by 30 days. The application for condonation of delay and arguments thereof have been considered. I am of the opinion that the delay was not deliberate. It was under a bona fide impression though it was wrong, that in view of the pendency of reference application before the honourable Lahore High Court in respect of order under section 62 the fresh appeal against subsequent order under sections 62/135 is not warranted. In view of the peculiar circumstances as well as the principle laid down by the higher Courts and Appellate Tribunal in the judgments relied upon by the appellant especially 2002 PTD 549 the delay is condoned in the interest of substantial justice as there was sufficient cause for not filing the appeal within the stipulated period of 30 days."

We are of the view the learned CIT(A) in the circumstances of the case has rightly allowed the application for condonation of delay as the assessee has shown reasonable cause for not filing the appeal. The appeal filed by the Department on this issue is rejected.

Likewise we find no force in the ground of appeal No.6 which is regarding deciding the appeal by the learned CIT(A) while the demand created by the re-assessment order was suspended by the Hon'ble High Court till the decision of reference application filed by assessee as the Hon'ble High Court has not be stated to stay the proceedings before the learned CIT(A).

For this year the ground Nos.7 to 12 are regarding rejection of account/Trading addition. In this respect we have found that the original assessment made under section 62 was set aside with the direction to point out specific defects in the books of accounts through notice under section 62 as per requirement of law contained in proviso to section 62(1). In spite of this specific direction, the Assessing Officer has failed to point out any defect in the books of accounts. Though he has issued notice under section 62 but it does not contain any specific defect in the books of accounts. From the body of the assessment order as well as letter of the appellant, dated 23-10-2002 it is evident that books of accounts and vouchers were produced before the Assessing Officer. While discussing Profit and Loss Account additions, the Assessing Officer has observed that voucher in respect of certain expenses were produced and accordingly has not made additions under those heads. This supports the contention that not only books of accounts but vouchers were also produced. The Assessing Officer has himself further mentioned that the books of accounts produced were retained and were scrutinized. But based upon the aforesaid scrutiny, no specific defects have been pointed out. The Assessing Officer rather has tried to justify the rejection of accounts on the basis of non-production of certain record which was not maintained and not required to be maintained under the law/rules. It is settled proposition that book version cannot be rejected for failure to maintain or to produce stock register. Similarly, the higher GP rate declared in any other case or applied by the Department cannot be basis for rejection of books of accounts. Reliance on the parallel case is made for estimating the income after rejection of books of accounts on specific defects. This as such is not a basis for rejection. Considering the arguments as well as the case relied upon, we are convinced that the Assessing Officer has miserably failed to make out a case for rejection of books of accounts in the light of criterion laid down by proviso to section 62(1).

The learned CIT(A) has, therefore, rightly disapproved the rejection of books of accounts/declared version and has deleted the trading addition. We find no warrant for interference in this respect. The appeal on these grounds is also dismissed.

The grounds Nos.13 and 14 are regarding addition under section 13(1)(d). The addition made by the Assessing Officer is based upon misconception. The assessee has made two payments. Payment of Rs.9,000,000 was made to ex-shareholders of Fibre Dyeing (Pvt.) Ltd. as a purchase consideration of shares held by them. This amount is verifiable from agreement with the bank. Whereas the other payment of Rs.3,800,000 was made by the assessee to the bank on behalf of Fibre Dyeing (Pvt.) Ltd. in respect of their outstanding liabilities. In the accounts/balance sheet these payments have been shown Wider two different heads. One of Rs.9,000,000 represents long term investment and the other represents due from the subsidiary i.e. Fibre Dyeing (Pvt.) G Ltd. The arguments of the counsel of the assessee supported with ledger account of due from subsidiary, audited final accounts as well as batik statement are very convincing that in the books/final accounts the payment of Rs.3,800,000 stands reflected and by no stretch of imagination, it can be termed as unexplained investment liable to addition under any clause of section 13(1).

The learned CIT(A) in view of the above facts of the case has rightly deleted the addition. The appeal on this score is also dismissed.

The grounds Nos.15 and 16 are regarding deleting the addition in respect of gain on sale of vehicle. We have found that the addition in this respect made by the Taxation Officer was set aside by this Tribunal with the observation that as per argument it is a financing arrangement to enhance the liquidity. Before the Assessing Officer during the re-assessment proceedings, the assessee has reiterated its stance that the transaction has been made with the leasing company at book value and there is no element of gain whatsoever. However, the Assessing Officer has not rebutted this argument rather he has taken the line that the gain is not exempt as only business profits of industrial undertaking are exempt under clause (118D) Second Schedule to the Income Tax Ordinance, 1979. As the Assessing Officer has failed to rebut that the transaction was with the leasing company with buy back arrangement as a financing transaction involving no gain so the addition is not maintainable and has rightly been deleted by the learned CIT(A). The appeal on this issue also fails.

The grounds Nos.17 to 20 are regarding disallowances out of profit and loss account. In this respect we have found that in the original assessment additions were made under the following six heads:

(i) Postage/telephone/telex

(ii) Travelling and conveyance

(iii) Printing and Stationery

(iv) Fee, subscription and periodicals

(v) Vehicle maintenance

(vi) Misc. expenses.

These were set aside with the direction to point out specific defects. In re-assessment order, Assessing Officer has not made addition under the heads travelling and conveyance, printing and stationery and vehicle maintenance with the observation that vouchers were produced. However, additions under the heads fee, subscription and periodicals and misc. expenses have been repeated on the basis of failure to produce I documentary evidence. These are contradictory observations. It is beyond comprehension that vouchers pertaining to travelling, printing and vehicle maintenance were produced and not in respect of expenses of fees and misc. expenses. Since the Assessing Officer has failed to point out specific instances so the additions under these heads merits deletion in view of authoritative judgment of this Tribunal reported 88 Tax 48.

Whereas addition under the head telephone has been made by observing that there is element of personal and non-business calls. Here again in view of the aforesaid judgment, the addition is not maintainable as artificial juridical person the observation of personal element is irrelevant unless specific instances of non-business calls by the officials/ directors are given.

Grounds Nos.21 and 22 are regarding addition made on account of provisions of Workers Participation Fund Act, 1968. We have noted that in the original assessment order, no addition in this respect was made in the assessment order. The Assessing Officer has made a fresh K addition despite the fact that on behalf of' the assessee it was specifically contended during the re-assessment proceedings that the addition in this respect is outside the mandate of setting aside of specific additions. However, the Taxation Officer has rejected the explanation by relying upon the judgment of this Tribunal reported as 72 Tax 34. But we are of the view that principle laid down in the said judgment is not applicable in this case of assessee as the facts are different. In the said case the original assessment was set aside in Into for de novo consideration and while making fresh assessment, Assessing Officer made new additions also which were not made in the original assessment and the action of the Assessing Officer was endorsed by this Tribunal. But in the present case, only specific additions were set aside by the learned C.I.T.(A) or this Tribunal and the scope of re-assessment proceedings was restricted to the specific set aside additions. We are, therefore, of the considered view that this new addition is not legally tenable and has rightly been deleted by the learned CIT(A).

The appeal filed by the Department for the assessment year 2000-2001 is, therefore, dismissed.

Regarding the assessment year 2001-2002, we have found that the grounds Nos.2 to 9 are regarding directions of the learned CIT(A) to accept the declared trading accounts reducing the G.P. rate from 25% to 18.76%. In this respect we have found that the Assessing Officer while rejecting declared aces ants has given three basis i.e. non-production of m stock inventory of finished goods, difference in sale rate of certain items to associated company and others, and difference of claim under the head Directors' remuneration as per Profit and Loss Account and as per account books. From the first observation regarding non-production of qualitative and quantitative stock of finished goods, the Assessing Officer has drawn the following inference:

"Unless qualitative and quantitative stock of finished goods is provided by the assessee-company, the valuation of' stock as reported by the assesses-company in notes to the accounts (on the basis of average manufacturing cost method cannot he verified). Moreover the rational analysis of inflow of goods into stock and outflow to supplies/sales becomes practically impossible, resultantly the exact profit of transactions cannot be ascertained."

The above inference apparently means that cost of sale of the assessee was, in the opinion of' the Assessing Officer, not reliable as he has referred to the manufacturing cost. However, none of the items constituting cost of sales i.e. raw material consumed, power and fuel, packing material, stores and spares, repair and maintenance etc. etc. has been objected to, by the Assessing Officer. On the other hand, qualitative and quantitative details of finished stock can have impact on sales only, whereas sales are verifiable being mainly made to one party. The Assessing Officer has relied on a reported case 1994 PTD 535 (Trib.) wherein rejection of accounts was confirmed in the absence of stock register and stock tally. The learned counsel of the assessee on the other hand has relied on the case reported as 1996 PTD 1104 wherein this Tribunal has held that non-maintenance of stock register and consumption register are not sufficient reasons to warrant rejection of accounts. Even otherwise, there are innumerable authorities whereby superior Courts have disapproved rejection of account books merely on the basis of non-production or non-maintenance of stock register. The Hon'ble Supreme Court of Pakistan in its judgment reported as 1994 PTD 174 has laid down the principles on the basis of which accounts can be rejected. The apex Court has held as under:--

(a) If an assessee adopts a method of accounting from which income, profits and gains can be deduced, the Assessing Officer has no option but to accept it.

(b) The opinion is to be formed by the Income Tax Officer on the basis of the material available in the account books and on such facts which may justify such a conclusion and also establish that it is not possible to deduce correctly the income, profit and gains from the accounts books maintained according to the method employed by the assesses. However, such an opinion should not be whimsical or based on erroneous or mala fide grounds.

(c) It is the duty of the Income Tax Officer to determine whether the assessee has adopted method of accounting from which income, profit and gains can properly be deducted."

From the impugned order, it is evident that the Assessing Officer has failed to fulfil any of the above conditions for rejection of' accounts. In another judgment of Karachi High Court reported as 1994 PTD 517 it has been held as under:--

"We would like at the very outset to observe that mere non-maintenance of consumption and production account or non-supply of full addresses of persons from whom purchases have been made which are the sheet anchors of the orders of Income-tax Authorities and that of the Appellate Tribunal could not be taken as indicative of suppression of the production and export of garments."

It was further observed by the Hon'ble Court that in the absence of any omission, irregularity or other defect in the method of maintaining the accounts or positive evidence to show that the accounts did not disclose the whole income of the assessee, his books of accounts cannot be rejected. The Hon'ble Lahore High Court in its judgment reported as (1996) 74 Tax 227 has also held that income tax authorities have to establish by positive evidence that assessee's accounts are unreliable and that accounts cannot be rejected in the absence of such positive evidence. From the perusal of aforesaid authorities, it appears that the law regarding rejection of accounts where account books are produced as an evidence is almost settled in so far as non-production or non-maintenance of stock register cannot be made the basis for rejection of accounts. In the r'se under consideration, the Assessing Officer has failed to bring on record any material to show that profits and gains of the appellant company could not be deduced in the absence 'of stock inventory and that too of finished goods only which the appellant claimed was filed. Further, as mentioned above, the Assessing Officer has not discarded N any single item of the cost of sales to establish that cost of sales was unverifiable. We are also in agreement with the contention of learned counsel of assessee that absence of stock inventory of' finished goods only does not constitute a specific defect as contemplated in mandatory provision of proviso to subsection (1) of section 62 of the Income Tax Ordinance, 1979, especially in the absence of corroborative evidence. Under the circumstances, the impugned action to discard books of accounts on this basis cannot be maintained.

The second basis for rejection of accounts was the difference in sale rates of' certain items between sale to Sandal Bar Enterprises (Pvt.) Ltd., and other parties. The learned counsel of the assessee has vehemently criticized this observation and contended that 99% sales were made to Sandal Bar Enterprises (Pvt.) Ltd., which were fully verifiable as the said company was also being assessed under the same jurisdiction. It was further contended that purchases in the case of assessee's 'associated company and had been accepted by the Department. Since purchases of that Company are sales of the assessee-company, action of the department in accepting purchase price of the purchaser and discarding sale price of the seller is nothing except blowing hot and cold in, the same breath. The Assessing Officer in the impugned order has acknowledged that sales to the associated company are to the extent of 95% of the total sales. Perusal of impugned order further shows that whereas the Assessing Officer has virtually accepted the cost of sales, addition in sales has been made only to the extent of Rs.2,071,103 against declared local sales of Rs.341,928,897. As such, no logical inference appears to have been drawn by the Assessing Officer on the basis of his observation regarding sale rate difference. Again it is observed that such variation in sale rate does not constitute specific defect in terms of proviso to section 62(1). Since, a mandatory provision regarding rejection of accounts has not been fulfilled, the sai:'10 observation cannot legally be made a basis for rejecting account version. In view of the above discussion, the observation of the Assessing Officer regarding variation in sale rate and rejection of accounts on that basis is also not valid.

The third basis for rejection of account books relates to Directors' remuneration. The Assessing Officer has claimed that Directors' remuneration was claimed in the final audited accounts at Rs.17,400,000 whereas the same was shown in the books of accounts at Rs.19,176;631. There was thus a difference of Rs.1,773,136 under this head which the assessee-company, according to the Assessing Officer, failed to explain.

Perusal of assessment order shows that despite reaching the aforesaid conclusion, the Assessing Officer finally accepted the claimed p amount and went on to make addition under this head on account of section 24(fff) i.e. payments made under this head otherwise than through crossed cheques. This treatment is not only contradictory in itself, but is a conclusive proof that explanation of the assessee-company regarding aforesaid difference was accepted by the Assessing Officer. Since no adverse inference on the basis of earlier observation of the Assessing Officer has been drawn in the impugned order, link of the said observation with the rejection of accounts automatically vanishes. It is, therefore, concluded that even the third basis for rejection of books of accounts was not valid. It has been argued by the learned AR that the Assessing Officer on the basis of certain parallel cases and without specifically discarding cost of sales went on to apply gross profit rate of 25%. It means that to make both sides of Trading Account balance, corresponding addition was to be made in the declared sales. As a result, both sides of Trading Account will never tally, if recasted by taking declared cost of sales and applying GP rate of 25% on estimated of Rs.344,000,000. Therefore, application of GP rate is arithmetically incorrect. The learned counsel of the assessee has contended that the parallel cases of similar nature i.e. Tufail Chemicals (Pvt.) Limited, Karachi and Penta Industries (Pvt.) Limited, Karachi relied upon by the assessee have been brushed aside by the Assessing Officer unilaterally and arbitrarily wherein in a lesser GP rate than that of the assessee has been applied by the Department. He further pointed out that even in the parallel cases relied on by the Assessing Officer i.e. Specialty Chemicals (Pvt.) Limited, Faisalabad existing at NTN 31-64-11314, the applied GP rate of 25% has been reduced to 18% on declared sales by the learned CIT(A) vide appellate order No.76, dated 9-1-2001 whereas assessec's declared GP rate is 18.75%. After considering these facts and circumstances of the case, we are of the view that estimation of sales and application of GP rate at 25% is arbitrary, unjustified and unwarranted.

From the foregoing discussion, we are fully convinced that both on legal and factual premises, of the rejection of trading result/books of accounts was not justified as per law and case-law on the subject. The learned CIT(A) has rightly directed to accept the declared trading results of the assessee.

Grounds Nos.10 to 12 are against deletion of addition made under section 24(fft) of the late Ordinance, 1979. The Assessing Officer has disallowed an amount of Rs.6,872,351 under the head Directors' remuneration under section 24(fff) on the ground that the aforesaid amount was not paid to the Directors through cross cheque/banking channel. Perusal of written reply furnished by the assessee to Assessing Officer which has been reproduced in the assessment order shows contention of the assessee-company that payments under the aforesaid head were not only made through cheques/banking channel but evidence of tax, deduction under section 50(1) was also furnished. Copy of resolution passed by the company indicating the reasons for payment of remuneration as well as their responsibilities was also produced before the Assessing Officer. However, this contention of the assessee has nowhere been rebutted in the assessment order. It has been explained by the assessee that out of total amount comprising Director's remuneration at Rs.17,400,000, an amount of Rs.8,724,226 was adjusted against the amount receivable from the Directors whereas the remaining amount of Rs.8,675,744 was paid through banking channels. On behalf of assessee, it has been argued that complete documentary evidence to this effect was, produced before the Assessing Officer. However, the Assessing Officer accepted payment of Rs.1,803,423 only through banking channels thus making addition of Rs.6,827,351. Which means that as per Assessing Officer the payment of Rs.6,872,351 were made through cash. But in spite of having books of accounts and bank statement he has not given the detail of these cash payments of Rs.6,872,351. On the other hand on behalf of the assessee, documentary evidence have been produced showing that out of total Director's remuneration of Rs.17,400,000 an R amount of Rs.8,724,226 was paid through book adjustment which has been accepted by the Assessing Officer and the remaining amount of Rs.8,674,774 was paid through prescribed banking channel. Tax under section 50(1) on total amount of Rs.17,400,000 has been deducted and that is the reason that addition under section 24(c) has not been made by the Assessing Officer in this regard. It has also been contended that the Directors are also assessee of the same Circle and have filed their returns declaring income from this source. In view of all the facts and circumstances of the case, the addition under section 24(fff) has rightly been deleted.

Grounds Nos.13 and 14 are against deleting the addition made under the heads salaries, wages and benefits. In this respect we have found that the Assessing Officer disallowed an amount of Rs.4,850,000 out of the claim made under the head salaries, wages and benefits on the ground that the expense was overcharged to the extent of Rs.4,102,784 and that the expense under this head had increased three times that for s the previous year. The Assessing Officer at the same time concluded that overcharging of the expense to the above extent constituted concealment subject to action under section 111(1)(b) of the Income Tax Ordinance, S 1979. We have gone through the impugned order and have found that no~ valid basis for the aforesaid disallowance has been given by the Assessing Officer. The observation regarding difference in the claim as per accounts and as per books is also contradictory as while discussing the grounds for rejection of accounts, the Assessing Officer has acknowledged in the assessment order that the total claim under the head salaries, wages and benefits at Rs.12,382,505 had been scrutinized by him in a detail which comprised the following:

Salaries and wagesRs.6,710,622

Cost of living allowance:Rs.670,543

House rent allowance:Rs.1,003,570

Special allowance:Rs.197,922

Overtime and rewards:Rs.48,444

Education cess:Rs.2,567

Provident fund:Rs.151,250

Social security:Rs.91,548

EOBI:Rs.109,363

Earned leaves:Rs.79,086

Full and final settlement:Rs.23,013

Bonus under section 10(c):Rs.803,438

Salaries and wages arrears:Rs.21,937

CPLs:Rs.23,177

Managers salary:Rs.2,446,025

Total:Rs.12,382,505

Under the circumstances, the impugned addition is an arbitrary figure and is accordingly without proper basis. We find force in the contention of the learned counsel that quantum of an expense claimed by an assessee does not provide justifiable ground for its disallowance under the law. The Assessing Officer should have established the unverifiability or inadmissibility of the expense under this head in terms T of sections 23 and 24 of the Ordinance for disallowance. This has not been done by him. It has been admitted by the Assessing Officer that salary sheets were produced wherein the requisite particulars of each employee are given. There is no requirement of either income tax law or of Companies Ordinance to maintain salary register. In this respect the principle laid down by this Tribunal in 72 Tax 141 (Trib.) becomes applicable. Similarly this Tribunal in its order reported as 56 Tax 5 held that "when there is no objection in regard to the actual incurring of the justification and directed that the entire expenses claimed by the assessee should be allowed." In the light of aforesaid facts and circumstances as well as the principle laid down by the higher forums and as the perusal of record in this ease shows that the Assessing Officer neither confronted the assessee on the point of unverifiability nor cited any instance of unverifiability. The nature of expenses is not such in which presumption of unverifiability can be allowed to be taken. In these circumstances we do not find any reason to interfere with the finding of learned CIT(A) deleting the addition.

Grounds Nos.15 to 17 are against reducing the addition under the head vehicle running and maintenance, travelling and depreciation on vehicle. In his regard we have found that the disallowances have been made from other expenses claimed by the assessee in profit and loss account on various grounds including unverifiability of the claims. We have gone through the assessment order as well as grounds of appeal and written arguments of the assessee on this account. It is found that addition of Rs.950,000 under the head vehicle running and maintenance expenses and of Rs.779,300 under the head travelling and conveyance expenses being excessive have reduced by the learned CIT(A) to Rs.500,000 and Rs.300,000 respectively. Similarly addition of depreciation on vehicle for non-business use has also been reduced to 25%.

We find no warrant for interference in this respect as the relief allowed by the learned CIT(A) in this regard is reasonable keeping in view the facts and circumstances of the case.

The last grounds from 18 to 20 are against the direction of the learned CIT(A) to allow the reinvestment allowance. In this respect we have found that the Assessing Officer has disallowed an amount of Rs.9,734,852 as initial depreciation claimed on addition in Plant and Machinery to the tune of Rs.24,337,131. One of the reasons put forth for the aforesaid disallowance is Rule 5 of Third Schedule to the Income Tax Ordinance, 1979 which lays down that initial depreciation is admissible where Plant and Machinery have been installed by 30-6-2000. Another V reason for the said disallowance has been stated to be the fact that the Plant and Machinery were included in Capital Work-in-Progress till 30-6-2001. The learned counsel of the assessee has contended that amount in question represented reinvestment allowance admissible under Rule 5B of the Third Schedule and that the Assessing Officer has wrongly relied on Rule 5 pertaining to initial depreciation. It has further been contended that the Assessing Officer has failed to comprehend the accounting entries made at the close of the year when addition in Plant and Machinery was transferred from Capital Work-in-Progress. The learned counsel pointed out that detailed explanation was 'furnished by the assessee before the Assessing Officer in reply to notice under section 62 which has been reproduced in the assessment order. But the said explanation has neither been discussed nor controverted by 'the Assessing Officer and the disallowance has been made in an absolutely arbitrary manner, without considering the fact that the reinvestment allowance is admissible even if the new asset has been used for a single day in the income year. We have noted that the explanation on the issue has been made the part of order, yet no rebuttal thereof has been given by the Assessing Officer while making the aforesaid disallowance. It is further noted that the assessee was entitled to reinvestment allowance under Rule 5B of the Third Schedule as requirement of the law stands fulfilled that is addition in asset has been made during the year. This W being a statutory allowance does not require express claim by an assessee and is, therefore, admissible to the assessee under the circumstances of the case. The C.B.R. through Circular No.7 of 1981 has clarified the legal position in the following manner:--

"The condition for eligibility of 'depreciation that it must be claimed at the time of filing of returns has been dispensed with. In result the tax payer shall be allowed depreciation to which he is entitled under the law, notwithstanding the facts of his claim."

We are, therefore, of the concluded view that the learned CIT(A) has rightly directed to allow reinvestment allowance as admissible under Rule 5B of Third Schedule instead of initial depreciation. No interference in this respect is, therefore, required.

Both the appeals filed by the Department are dismissed for the reasons discussed supra.

C.M.A./150/Tax (Trib.)Appeals dismissed.