I.T.A. No.684/KB of 2003, decided on 29th April, 2006. VS I.T.A. No.684/KB of 2003, decided on 29th April, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 578 (2006)

2007 P T D (Trib.) 578

[Income-tax Appellate Tribunal Pakistan]

Before Syed Hasan Imam, Judicial Member and S. A. Minam Jafri, Accountant Member

I.T.A. No.684/KB of 2003, decided on 29/04/2006.

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

----Ss. 62 & 4-A---Assessment on production of accounts, evidence

etc.---Hospital -Appointment of firms of Accountants---Audit by chartered accountant---Loss of books of accounts by the tax authorities---Payments received on behalf of doctors or pharmacy by the assessee---Addition---Validity---Payments received on behalf of doctors or pharmacy could not be treated as the income of the assessee---Doctors did not attend the patients without fee and no medicine could be supplied free of cost---Assessing Officer commented that "neither transaction of corresponding cost disbursement had been highlighted in the books of accounts.... "---Books of accounts were in possession of the department which could provide one of the predominant basis for defence to assessee-company---Indefinite retention of books of accounts by the tax authorities could not be called a legal act---Any query arising from the books of accounts could not be termed as a lawful approach with regard to tax authorities objective---No cause of action may be founded upon an immoral or illegal act---Said axiom vitiates tax authorities action in these typical and deviant circumstances---Assessee had history of acceptance of declared version---Addition in receipts could not be sustained and was deleted by the Appellate Tribunal.

Zam Zam Traders v. I.T.O. 1997 PTD 40; CIT v. Moon Mills Ltd. (S.C.) 1966 I.T.R. 574 ref.

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

----S. 13(1)(aa)----Unexplained investment etc., deemed to be income--Addition on account of bogus overdraft liability without confronting the bank certificate---Validity---Contention was that without showing or providing a copy of the bank certificate obtained by the tax authorities, assessee had been denied the opportunity to know its precise contents and to get it clarified from the bank, was a substantive grievance---Principle of `audi alteram partem' had been violated---Assessing Officer had failed to confront the copy of bank's letter to the assessee and no appropriate opportunity had been provided for submission of necessary clarification along with bank statements and other supporting evidence--Such addition warranted appreciation of system of accounting adopted by assessee which was mercantile---Such position was not rebutted by the department---Assessment order showed that Assessing Officer had obtained such information from the bank statement and relevant books of accounts---Paradoxically assessee had no access to its books of accounts which was necessary for its defence---Addition, view of one sided approach, could not be sustained---In absence of reasonable opportunity and considering typical circumstances of the case the addition being not tenable under the law was deleted by the Appellate Tribunal.

Asia Petroleum Ltd. v. FOP 1999 PTD 1313; Siemens Pakistan Engg. Co. Ltd. v. Pakistan 1999 PTD 1358 and En Em Stores (P.) Ltd. v. DCIT 1999 PTD 2762 ref.

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

----S. 13(1)(c)---Unexplained investment etc., deemed to be income---Advances and deposits---Admittedly, amount receivable was wrongly recorded as advance instead of sundry debtors---Correction of---Addition was made on the ground that assessee was suggesting it merely correcting entry whereby a transaction had been re-characterized---Validity---Addition based upon presumption was not sustainable---Section 13(1)(c) of the Income Tax Ordinance, 1979 specifically mention, "found" which implied a status of certitude and the same aspect was missing---Statutory provision envisaged condition of `not recorded' which has not the situation---Addition being not tenable on legal plane, was deleted by the Appellate Tribunal.

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

----Ss. 23, 4-A & 112(2)(b)---Deductions---Profit and loss expenses---Repair and maintenance--Loss of books of accounts by the tax authorities---Assessing Officer, on the basis of audit report found that repair and maintenance expenses had been enhanced in the revised return---Addition was made on the ground that fake vouchers in support of the claim were furnished and expenses had been inflated---Validity---Assessing Officer, while making addition did not confront assessee with the alleged bogus vouchers as well as the vouchers not related to the business in whose names they were issued as the tax authorities had lost those vouchers---Doctrine "No one maintains an action arising out of his own wrong" was attracted in the case---By retaining books of accounts vouchers etc. and asking the assessee to defend the addition, was not logical and justified--Additions were deleted by the Tribunal.

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

----Ss. 13(1) & 4A---Unexplained investment etc., deemed to be income---Auditor pointed out that assessee deposited cash in bank on various dates but failed to declare in final accounts--Addition was made on the ground that cash deposit obviously reflected the income of the assessee which was beyond the scope of normal business operations as the cash had not been reflected in the books of accounts and ultimately in the final accounts---Validity---In view of reconciliation the amounts had already been incorporated in the declared receipts in the second revised return of income---Income declared through second revised return of income had already been increased by such amount--Such addition would mean double taxation of same income which was not permissible under the law---Addition was deleted by the Appellate Tribunal.

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

----Ss. 13(1)(c) & 4-A---Unexplained investment etc., deemed to be income---Addition on the ground that cash on the closing day as per bank statements and the books of accounts did not tally by rejecting assessee's affirmation that "difference was existing because of factum that cheques were issued but not presented" same being the afterthought had remained unsubstantiated---Validity,--Issuance of cheques and not having been presented and corresponding reconciliation could not be diverted to falsifying declared version of assessee---Books of accounts and vouchers were in possession of the Department from which Assessing Officer could have verified the plea taken by the assessee---Addition was deleted as retention of assessee's books of accounts were not in favour of upholding the Departmental treatment---Legal course shall follow in case of proven falsification of any of itemized reconciliation statements filed by the assessee.

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

------S. 19(1)---Income from house property---Assessing Officer noted that Medical College was independent entity and housed in the building of assessee hospital without payment of any rent---Charge of "income from house property" was on the basis of "annual value" and not the factual receipt of rent---Validity---Factual position remained that Medical College was located in the assessee's premises---Assessing Officer was justified to make addition---Addition should be restricted to ALV unless Department substantiated alternative treatment on legal and factual plane after due observance of procedure required in this behalf.

CIT v. H.P Sharma 1980 122 ITR 675 rel.

(h) Income tax---

----Addition---Addition being made on account of service charges of fans was deleted by the Appellate Tribunal as the same was already included in the receipts.

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

----Ss. 13(1)(a) & 4-A--Unexplained investment etc., deemed to be income---Liabilities---Loss of books of accounts by the department---Addition on account of bogus liabilities---Validity---Provision of law related to the certain credits as apparent from the books of accounts of an assessee---Books of accounts were in possession of the Department as such the plea of such addition could not be entertained---Addition was deleted by the Appellate Tribunal with the observation that if any discrepancy emerged later on, same could be dealt by remedial action via statutory provisions available in this behalf.

Shaikh Jalaluddin, C.A. and Agha Faqir Muhammad for Appellant.

Rehmatullah Khan Wazir, D.R. for Respondent.

ORDER

S.A. MINAM JAFRI (ACCOUNTANT MEMBER).---This appeal has been filed at the instance of assessee a private limited company. Principally following issues via grounds of appeal have been taken up before this Tribunal:

*????????? That the learned Commissioner of Income Tax (Appeals-V) Karachi is not justified to set aside the order under sections 52/86 and under sections 63/132 of the Income Tax Ordinance, 1979 passed by the Deputy Commissioner instead of annulling it when the learned CIT (Appeals-V), Karachi.

*????????? That the CIT Appeals failed to appreciate that the learned Deputy Commissioner of Income Tax has wrongly charged tax under sections 52 and 86 of the Income Tax Ordinance, 1979 amounting to Rs.1,102,276 and Rs.317,892 respectively.

*????????? That the CIT(Appeals) failed to appreciate that the ACIT has almost repeated the same order which was passed under section 62 of the Income Tax Ordinance, 1979 by his predecessor while passing order under sections 63/132 of the Income Tax Ordinance, 1979 the first order was set aside by the CIT(Appeals) on the ground of insufficient evidence.

*????????? That the CIT Appeals failed to appreciate that the learned ACIT has erred in not returning the books of accounts retained by the Assessing Officer vide entry, dated 6-2-2000 although the appellant/AR requested for the return of the books vide letters, dated 12-4-2002, 2-5-2002, 24-5-2002, 29-5-2002 and 24-6-2002.

*????????? That the CIT Appeals failed to appreciate that the ACIT has erred in making an addition of Rs.17,100,512 in the declared receipts of the appellant.

*????????? That the CIT Appeals .failed to appreciate that the ACIT has erred in making an addition of Rs.1,851,070 under section 13 (1)(aa) of the Income Tax Ordinance, 1979 on account of alleged liabilities payable to Habib Bank Limited.

*????????? That the CIT Appeals failed to appreciate that the learned ACIT has erred in making an addition of Rs.850,776 under section 13(1)(c) of the Income Tax Ordinance, 1979 on account of advance and deposits.

*????????? That the CIT Anneals failed to appreciate that the ACIT has erred in making addition/disallowance of Rs,1,269,882 out of repair and maintenance.

*????????? That the CIT Appeals failed to appreciate that the ACIT has erred in making an addition of Rs. 2,365,829 under section 13(1)(a) of the Income Tax Ordinance, 1979 on account of alleged bogus liabilities.

*????????? That the CIT Appeal failed to appreciate that the ACIT has erred in making an addition of Rs.3,588,044 under section 13(1)(c) of the Income Tax Ordinance, 1979 on account of alleged difference in cash balance as per bank statement and the books of accounts.

*????????? That the CIT Appeal failed to appreciate that the ACIT has erred in estimating and making addition of Rs.960,000 on account of alleged rent received from Jinnah Medical College.

*????????? That the CIT Appeals failed to appreciate that the ACIT has erred in directing to issue the notice under section 116(b) for alleged concealment and for alleged non compliance of notice under section 61 of the Income Tax Ordinance, 1979.

2. Brief facts depict that the assessee-company filed their income tax return for the assessment year 1998-99 declaring income at Rs.1,934,031. Central Board of Revenue under section 4A of the Income Tax Ordinance, 1979 appointed Mr. Abdul Wahid and Co. FCA as Auditor in the case of the assessee-company and that scope of the audit was incorporated in the C.B.R.'s order authorizing to exercise the powers under sections 144, 145, 146 and 148 of the Ordinance.

3. The auditors, vide letter, dated 5-6-1999 required the assessee ?company to produce the books and documents which was complied.

The auditor completed the proceedings and submitted the audit report to the Assessing Officer but incidentally neither the auditor nor the Assessing Officer returned the books of accounts and allied documents to the assessee-company. On the substratum of audit report the Assessing Officer served notice under section 62 requiring the assessee-company to produce the books and documents. Simultaneously a notice under section 62 was issued for compliance.

4. The assessee-company in acquiescence to statutory notices informed that books and documents have already impounded by the auditor appointed under section 4A of the Ordinance, 1979 and the same have not been returned to the assessee-company. Thus the assessee ?company was not in a position to produce the same before the Assessing Officer and neither can reply notices of the Assessing Officer issued under section 62 of the Ordinance, 1979. Assessee-company requested for return of all books and related documents so that compliance could be made but the same were not returned.

5. The Assessing Officer thereafter passed the impugned order, dated 28-6-2000 under section 62 of the Ordinance, 1979, by estimating Income of the applicant assessee-company at Rs.32,566,170 as against the declared income of Rs.1,934,003 after making various additions.

6. Latterly invoking another aqueduct for grievances, assessee ?company filed petition before the Federal Tax Ombudsman where the Assessing Officer admitted of having received the books of accounts and made statement that the same were lost. On the recommendation of the Federal Tax Ombudsman services of Assessing Officer were terminated.

7. The assessee-company preferred appeal under section 129 of the Ordinance, 1979 against the impugned assessment order. Learned CJT (Appeals) set aside the entire assessment order vide appellate order, dated 2-11-2000 with direction to provide books to the assessee-company.

8. The Assessing Officer again initiated re-assessment proceedings and issued notices under sections 61 and 62 of the Income Tax Ordinance. Assessee-company repeated earlier request before Assessing Officer as well as the auditor for return of the books and related documents but failed to get the same.

9. The Assessing Officer iterated ex parte assessment order and the assessee company again filed appeal before the Commissioner of Income Tax (Appeals) who set aside the entire ex parte assessment.

During same period assessee-company filed a Suit bearing, No.723 of 2004 in the Honourable High Court of' Sindh for recovery of books of accounts.

10. The learned A.R. urged that besides making correspondence with the ACIT in respect of non-availability of' the books of accounts and allied documents, correspondence has been made with higher authorities as well with the Chairman, Central Board of Revenue etc. but the grievance of the appellant regarding return of books of accountant had not been looked into. On the contrary ex parte orders were finalized under sections 63 and 52/86 of the Income Tax Ordinance, 1979. More or less similar orders, have been iterated in the second round.

11. Learned CIT(A) while delivering decision in second instance observed as under:

"After careful and conscious examination of the contentions of both the parties I am of the opinion that despite my direction vide orders passed by me as Commissioner of Income Tax (Appeals-II), Karachi, dated 2-11-2000 and 27-11-2000 the impugned orders have been passed in haste and directions contained in orders, dated 2-11-2000 and 27-11-2000 have not been followed in letter and spirit. I, therefore, have no alternative to set aside the impugned orders with the directions that the available books should be returned and proper opportunity should be provided to the appellant.

Both the Assessing Officer and the appellant are once again directed to adhere to the directions contained in the orders mentioned supra. Further, it appears that if the Assessing Officer finds it a somewhat difficult case he is directed to re-do the assessment in line with the ratio of the decision reported as (1996) 74 Tax 21 (H.C. Lah.) = 1997 PTD 40, 43 (Lahore H.C.) Zam Zam Traders v. ITO by seeking guidance under section 7 from his immediate supervisory officer also while re-adjudicating the issues.

The appeal succeeds as set aside as above."

REVISION OF RETURN

12. The learned Authorized Representative has vehemently challenged the inference drawn in assessment order that the return was twice revised on pinpointing of the auditor Messrs Abdul Wahid and Co., Chartered Accountants who had been appointed auditors within the meaning of section 4A of the Income Tax Ordinance, 1979.

The learned A.R. farther argued that on examination of the said section it becomes clear that under the provision of section 4-A of the Income Tax Ordinance, firm of Chartered Accountants is empowered to conduct the audit as per requirement of the Income Tax Law. The Auditor has no power of assessment proceedings within the meaning of Chapter-VII of the Income Tax Ordinance, 1979 and as such the said firm is not empowered to issue any notice under sections 56, 58, 61, 52 and 65 and also not empowered to make any assessment under sections 59, 62, 63 and 65 and/or 66A and so on as defined in Chapter VII. Learned A.R. emphasized that any revision of income under section 57 of the Income Tax Ordinance, 1979, before initiation of the assessment proceedings cannot be called revision on pointation by the Assessing Officer during the assessment and as such drawing of any adverse inference is unjustified and without lawful authority.

It is contended that the Assessing Officer on the other hand has drawn adverse inference on revision of income under section 57 of the Income Tax Ordinance, 1979, and assessed the income of the appellant on the basis of income declared through second revised return of income. Learned A.R. termed such treatment as clearly arbitrary.

The learned A.R. then taking up the various additions made submissions which have been considered vis-a-vis Departmental viewpoint.

ADDITION IN GROSS RECEIPT RS.17,100,512

13. Assessing Officer made an addition of Rs.17,100,512 to the receipts of the appellant on the basis of findings of the Auditors appointed under section 4-A of the Income Tax Ordinance, 1979. A show-cause notice was issued by the Assessing Officer confronting the appellant as to why addition as determined by the auditors may not be made. The appellant submitted a reply along with reconciliation figures and explained their position making plea that the addition should not be made. The learned DCIT did not find the reply of the appellant as satisfactory on the following grounds:

(a) The A.R's argument is that a sum of Rs.4,686,264 was received on behalf of the consultants/surgeons and passed on to them. The A.Rs have therefore, not denied the fact of the income to the extent of Rs.4,686,264 having been received by assessee. It is cardinal principle of Income Tax Law that any amount received by Mr. A. is his income unless he can validly establish that such receipts/income does not belong to him. Thus assessee, however, has merely pointed out that income to the extent of Rs.4,686,264 was received by it but distributed to the consultants/surgeons of the hospital. The point could not be??????? , substantiated through the plausible documentary evidence as neither the names and addresses of such surgeons have been furnished nor the transaction has been established with the help of the books of accounts.

(b) Neither transaction of corresponding cash disbursement has been highlighted in the books of accounts nor the return of income of the surgeon/doctors showing such income have been furnished in support. The reply offered in this regard is, therefore, found to be devoid of merits.

(c) That the refunds to patients/consultants were issued to the tune of Rs.3,580,883 which though form part of the receipts but do not qualify as income because the cash to the extent of Rs.3,580,883 was disbursed back to the patients. The reply of the assessee is of general nature.

(d) The contention remains unsubstantiated in the absence of necessary details i.e. names and addresses of the patients. The explanation under this head is also found to be devoid of force.

(e) The assessee pointed out a third fact which has reportedly led to difference in gross receipts as worked out by the auditors and be declared by the assessee. The assessee claims that an amount of Rs.4,366,257 was receivable balance as on 30-6-1997, which was received in the year under consideration. The A.Rs., therefore, contend that the amount of Rs.4,366,257 though received in the year under reference does not relate to this year. The contention of the assessee in this regard appears satisfactory because the assessee has shown receivable of Rs.4,366,257 in the balance sheet as on 30-6-1997 and the same could have been realized during the year under consideration. The reply of the assessee is found to be satisfactory in this regard.

(f) To the extent of Rs.6,664,062 the A.Rs. contended that the amount represents the cost of medicine collected on behalf of Messrs Sindh Commercial Enterprises. The explanation offered by the A.Rs is merely an opinion and the same cannot be relied upon. The explanation offered in this regard is., therefore, rejected.

(g) That a sum of Rs.4,063,253 was received on behalf of the doctors and passed on to them. The A.Rs, have, therefore, not denied the fact of the income to the extent of Rs.4,063,253 by Mr. A is his income unless he can validly establish that the receipts does not belong to him. A.Rs. of the assessee however, has merely pointed out that income to the extent of Rs.4,063,253 was received by it but distributed to the consultants/surgeons of the hospital. The point could not be substantiated through the plausible documentary evidence as neither the names and addresses of such surgeons have been furnished nor the transaction has been established with the help of books of accounts.

(h) Neither transaction of corresponding cash disbursement has been highlighted in the books of accounts nor the returns of income of the surgeons/doctors showing such income have been furnished in support. The reply offered in this regard is, therefore, found to be devoid of merits.

(i) The A.Rs. have further pointed out that a sum of Rs.382,941 was not reflected as income because of loss on account of robbery. The contention is plainly incorrect for want of necessary documentary evidence on the one hand and the accounting treatment given to the loss on account of robbery on the other. Had there been a loss on account of robbery the same should have been debited as expenses in the accounts and not by way of under-statement of income. The explanation tendered in this regard is also rejected.

(j) Explanation regarding difference of bills of June, 98 is also immaterial as far as reconciliation gross receipts is concerned. Explanation of the assesses in this regard is also rejected."

14. The learned A.R. submitted that the Assessing Officer while making the assessment order has estimated the gross receipts at " Rs.74,610,613 as against declared gross receipt of Rs.57,510,101 thereby making an addition or Rs.17,100,512 in the declared trading result. The addition was made by the Assessing Officer on the following grounds:--

Medicines cost paid to Sindh Enterprises?????????? Rs.6,664,062

Doctor fee paid??????????????????????????????????????????????? Rs.4,063,223

Payment to consultants????????????????????????? Rs.4,686,264

Refunds to Consultants???????????????????????? Rs.3,580,883

The learned counsel of the appellant at the first instance submitted that after completion of audit within the meaning of section 4A of the Income Tax Ordinance, 1979 and even after completion of assessment, the hooks of accounts and supporting vouchers have not been returned to the appellant and hence he is facing hardship to present his point of view in his defence. Additionally assessee-Company requested the auditor and as well DCIT to return the books of accounts and other allied documents back to the appellant.

The learned Authorized Representative further submitted that on examination of above narrated position it becomes clear that the addition made towards gross receipts were on account of the medicine cost paid to Sindh Commercial Enterprises (Pharmacy), Doctors fee paid in cash, payment made to consultants through cheques.

The addition was made' in total disregard of history of the appellant. In the past 27 years the returned version has always been accepted by the department.

MEDICINE COST PAID TO SINDH COMMERCIAL ENTERPRISES.

15. Learned A.R. deposed that the medicines are supplied to private in-patients directly by Sindh Commercial Enterprises. While discharging patient, the data of medicines supplied is provided to Medicare for collection purpose only on behalf of Sindh Commercial Enterprises Medicare deducted 10% of the total collection of medicines being service charges which is duly incorporated into the books of accounts and as well the statements of accounts.

The collection of pharmacy amount from the patients by staff of Medicare is simply a facility extended to Sindh Commercial Enterprises and in no way can be treated as the receipt of Medicare. The amount collected by Medicare is deposited into the bank account of Sindh Commercial Enterprises and this fact can be cross-verified from Sindh Commercial Enterprises. A. certificate confirming the receipt of Rs.6,664,042 was provided to the Assessing Officer. The DCIT without verifying the matter from the books of accounts or Medicare Pakistan (Pvt.) Ltd., has wrongly and illegally endorsed the unreasonable findings of the tax auditors.

Without prejudice to what has been explained above. Learned A.R. asserted that the amount of Rs.6,664,042 was collected on behalf of Sindh Commercial Enterprises which was subsequently transferred to the said entity. The said concern is verifiable and bears NTN .33-08-3310659. The Sindh Commercial Enterprises has duly shown this income in its return of income and paid tax thereon. Same amount cannot be taxed twice.

DOCTORS' FEE PAID IN CASH.

16. Learned A.R. explained that the doctor's fee is collected by the staff of the hospital with a view to extend a facility to the consultant' is they are not available at the time of discharge of patients. This collection on behalf of the consultants is paid to them without any charge by the hospital. The documentation is done exclusively for control purposes. If this facility was not extended to the consultants then secretaries and peon of consultants would be roaming around in all parts of the hospital and at the time of discharge of patient creating thereby a chaos in the hospital as some patient may even doubt about their authority for such collection. Thus these ugly scenes are to be avoided as well as avoiding risk that these dozens of people would be collecting all bills leaving no control for the hospital to collect its own 'bills.

In respect of the above, referred receipts and its subsequent transfer to the concerned doctor/consultant complete details and evidences viz memorandum record was duly provided to creditors which are still in Department's possession. Assessing Officer has not been able to point out any payment which in his opinion was not verifiable and as such he has himself failed to substantiate his claim that this receipt belongs to the appellant.

PAYMENTS MADE TO CONSULTANTS THROUGH CHEQUES.

Besides the additions made in the cash receipt of the appellant. Assessing Officer, has also made an addition of Rs.52,162,46 in the income of the appellant. Learned A.R. pointed out that this quantum stands declared in appellant's income in the second revised return. This is the amount, which the hospital recovers from various companies .on behalf of the Consultants and at the time of payment. Also the appellant withholds the tax under section 50(4) of the Income Tax Ordinance, 1979. During the assessment proceedings complete details and evidence of the deductions were duly furnished to the Assessing Officer. The addition in the gross receipt is nothing but a duplication of income. The learned A.R. also cited the following cases which he claims as supportive to his point of view.

CIT v. Moon Mills Ltd. (Cal.) 1962, 46 ITR 77

Affirmed in CIT v. Moon Mills Ltd. (S.C.) 1966 I.T.R. 574.

The above citations transpire that a receiver is an impartial person appointed by the Court to collect and receive, pending the proceedings, the rents, issues and profits of land or personal estate of other things in question which does not seem reasonable to the Court that either party should collect or receive. The title of the real owner is in no way affected either in theory or on principle by the appointment. Assessee-Company being recipient of money on behalf of consultants cannot be assessed under section 9 as "owner" on the income of the property he manages.

17. Divergent viewpoint of both the sides have been heard and considered. It is reality that Hospitals follow a definite accounting pattern and procedure. In the case of assessee-Company, the gross bills for patients are prepared including doctor's fees and pharmacy. The position could not be refuted by learned D.R. that payments to doctors and pharmacy are made by the appellant through cross cheque after deduction of income tax. In the case of pharmacy 10% service charges are collected. The private patients are billed only for hospital room, operation theatre etc. The doctors' fees and pharmacy supplies are collected by the receptionists and paid to them directly. The payments received on behalf of doctors or pharmacy cannot be treated as the income of the appellant. Obviously the doctors do not attend the patients without fee and no medicine could be supplied free of cost. Conversely Assessing Officer has commented: "Neither transaction of corresponding A cost disbursement has been highlighted in the books of accounts????????? " But the books of accounts are in possession of the Department which can provide one of the predominant basis for defence to assessees-Company. Indefinite retention of books of accounts etc., by the Department cannot be called a legal act. So any query arising from the books of accounts cannot be termed as a lawful approach with regard to Departmental objective. In the circumstances an analogy is derived from the principle envisaged in `EX TURPI CAUSA NON ORITUR ACTIO' (No cause of action may be founded upon an immoral or illegal act). The said axiom vitiates Departmental action in these typical and deviant circumstances. Also assessee-Company has history of acceptance of declared version. Thus in the above referred background addition of Rs.17,100,512 in receipts cannot be sustained and is hereby deleted.

ADDITION OF Rs.1,851,175 UNDER SECTION 13(1)(AA).

18. Assessing Officer relying upon the auditor report observed that the liability shown as payable to Messrs HBL on account of overdraft balance at Rs.9,201,233 is not fully substantiated. The information obtained from the bank statement and the relevant books of accounts revealed that such liability was payable to the bank for Rs.7,350,163 instead of Rs.9,201,233 as claimed by the assessee. Department presumed that in order to reconcile the assets in the balance sheet the assessee has deliberately introduced a bogus liability. The assessee was, therefore, confronted vide notice under section 62 as to why addition of Rs.1,851,070 (difference of Rs.9,201,233 and 7,350,163) be not added under section 13(1)(aa) because the source of assets to that extent remained unexplained. While disallowing the same Assessing Officer observed as under:--

"In response thereto, the A.Rs. have produced a letter from the concerned HBL to the effect that O.D. balance is at Rs.9,201,233. The HBL's Letter No. THS/SAM/1660, dated 10-5-2000 referred to in the notice under section 62 clearly falsifies the contention of the assessee banker has admitted the O.D. payable at only Rs.7,350,163.

The explanation offered by A.Rs is, therefore, found to be unsatisfactory. Addition of Rs.1,851,070 is, therefore, made in the total income of the assessee under section 13(l)(aa) after obtaining statutory approval of I.A.C."

19. The learned Authorized Representative submitted that on being confronted the assessee-Company furnished a certificate/letter from Habib Bank Limited stating thereby that no mark-up has been charged by the bank during the period ending June 30, 1998. On the other side the certificate obtained by the Department was never shown or confronted to the appellant. Thus it was not possible for the assessee-Company to make such inquiry from the bank and then submit relevant explanation or reconciliation, therefore such addition is unlawful and unjustified.

It is further argued that the appellant requested the Assessing Officer to summon the Auditor for cross-examination and appellant was denied such vested right within framework of natural justice.

In support, appellant also cited the following judgments reported as 1999 PTD 1313 (Kar. H.C.) Asia Petroleum Ltd. v. FOP 1999 PTD 1358, 1365 (Kar.) Siemens Pakistan Engg. Co. Ltd. v. Pakistan and 1999 PTD 2762 (Lah. H.C.) En Em Stores (P.) Ltd. v. DCIT.

Learned A.R. emphasized that the Assessing Officer failed to furnish the copy of the certificate received from the bank whereas the appellant has submitted the bank certificate which in all fairness should have been relied upon.

20. The appellant's contention that without showing or providing a copy of the Bank Certificate obtained by the Department, assessee-Company has been denied the opportunity to know its precise contents and to get it clarified from the Bank, is a substantive grievance. Principle of audi alteram parlem has been violated. Assessing Officer has failed to confront the copy of the Bank's letter to the appellant and no appropriate opportunity has been provided for submission of necessary clarification along with Banks statements and other supporting evidence. Such addition warrants appreciation of system of accounting adopted by assessee-Company which is Mercantile. The learned D.R. could not rebut such position. It is evident from assessment order that Assessing Officer has obtained his information from the bank statement and relevant books of accounts. Paradoxically assessee-Company has no access to its books of accounts which is necessary for its defence. In view of one-sided approach the addition cannot be sustained. Hence in absence of reasonable opportunity and considering above referred typical circumstances of the case the aforesaid addition being not tenable under law is hereby deleted.

ADDITION OF Rs.850,776 UNDER SECTION 13(1)(C)

21. Assessing Officer observed that the assessee-Company has been continuously revising the return of total income and the related accounts. In the balance sheet appended with the original return, the advances and deposits were shown at Rs.2,269,798 whereas the same were reduced to Rs.1,419,022. The assessee was asked to explain the reasons for downward revision of the advances and deposits in the balance sheet. The assessee-Company was also confronted to explain as to why the addition of Rs.850,776 being the amount of difference not reflected in the balance sleet as an asset, be not taxed under section 13(1)(c) of the Income Tax Ordinance, 1979

Assessing Officer recorded the matter as under:---

"The reconciliation shows that the contention of the assessee is that an amount of Rs.1,486, 388 was receivable from M/s. JMC which was wrongly recorded as advance instead of Sundry Debtors. It appears that the assessee is suggesting that it is a mere correcting entry whereby a transaction has been re-characterized. The contention of the A.Rs. is not correct because it is not in conformity with the books of accounts as found by the auditors. The assessee has proved to have omitted to disclose an asset (Advance/Deposits) in the balance sheet, which attracts the provision of section 13(1)(c) of the Income Tax Ordinance, 1979. The assessee was confronted on this point vide notice under section 62 read with 13(1)(c), dated 22-6-2002. As no response is filed, it is perused that the assessee has nothing to offer as defence. Addition of Rs. 850,776 is, therefore, made in the total income of the assessee with the approval of IAC vide her letter No.IAC/RIII/COS-V/2001-2002/320, dated 29-6-2002."

The learned counsel of the appellant submitted that position was explained to Assessing Officer. This difference was due to wrong allocation of certain head of accounts. Assessee-Company had furnished the details, which were reflected in his written arguments to the CIT (Appeals). The provisions of section 13(1)(c) read as under:

"(c) the assessee is found in respect of any income year to be the owner of any money or valuable arti ale which is not recorded in the books of accounts, if any, maintained by him or is not shown by him in any wealth statement or return of wealth furnished under section 58 in respect of that year; or"

Whereas Assessing Officer has admitted that an amount of Rs.1,486,388 was receivable from Messrs JMC which , was wrongly recorded as advance instead of Sundry Debtors. Admittedly assessee has recorded basic figure of Rs.14,86,388 as receivable from Messrs JMC which was wrongly recorded as advance instead of debtors. Assessing Officer has explicitly mentioned:--

"The above reconciliation shows that the contention of the assessee is that an amount of Rs.1,486,388 was received from Messes JMC which was wrongly recorded as advance instead of Sundry Debtors. It appears that the assessee is suggesting that it is a mere correcting entry whereby a transaction has been re-characterized."

An addition based upon presumption is not sustainable. Further the provision under section 13(1)(c) specifically mentions "found" which implies a status of certificate. This aspect is missing in the instant case.

The statutory provision envisages condition of `not recorded' which is not the situation in the instant case. Thus considering overall circumstances, the addition under section 13(1)(c) is not tenable on legal plane and is hereby deleted.

ADDITION OF Rs.1,269,792

22. Assessing Officer, on the basis of audit report found that Repair and Maintenance expenses in the Profit and Loss statement have been claimed at Rs.2,868,768 whereas in the revised return, the same has been enhanced to Rs.4,138,650. The assessee-Company was required to explain the reasons for this revision. He was also asked to furnish complete documentary evidence in support of the claim by the auditors Messrs Abdul Wahid and Co. Assessing Officer observed that assessee furnished fake vouchers in support of the claim and such expenses have been inflated by i.e. Rs.1,269,882. He inferred that the assessee has claimed an expenditure which, in fact, was not incurred and as such committed concealment in terms section 111(2)(b) of the Income Tax Ordinance, 1979. In this view of the matter, the assessee was required to explain as to why the fake expenditures on account of repair and maintenance at Rs.1,269,882 be not disallowed and the proceeding for the concealment of income and prosecution proceedings for furnishing fabricated evidence be' not initiated.

The learned A.R. 'submitted that the addition has been made on the ground that the supporting vouchers in respect of repairs and maintenance had nothing to do with the business of the persons in whose names the vouchers are issued. The addition was set aside by the learned CIT(A) for fresh decision in accordance with law and assessee was to be confronted with the bogus vouchers not related to the business in whose name they stand issued etc. Assessing Officer did not confront the vouchers to the appellant on the ground that the same were misplaced.

The issue has been considered. Principle of audi alteram partem have not been observed. While making addition Assessing Officer did not confront assessee-Company with the bogus vouchers as well as the vouchers not related to the business in whose names they stand issued as the Department has lost those vouchers.

In the circumstances we derive guidance from the doctrine envisaged as `Nemo Ex Proprio Dolo Consequitur Actionem'. (No one maintains an action arising out of his own wrong), which is well established in jurisprudence and is attracted in the instant case. By retaining books of accounts vouchers etc. and asking the assesses to defend the above-referred impugned addition, is not logical and justified?

He the background the addition being not sustainable is hereby deleted. However issue of revision of return can be dealt separately on legal plane.

ADDITION OF Rs.2,365,879.

23. During the course of proceedings it was pointed out by the auditor that the assessee has deposited cash in the bank on various dates but failed to declare in final accounts. Assessing Officer cerebrated that the assessee is in possession/ownership of an asset i.e. cash which has not been reflected in the books of accounts and ultimately in the final accounts. He educed that this cash deposit obviously reflects the income of he assessee which is beyond the scope of normal business operations. Assessee-Company was, therefore, asked to explain via additional notice under section 62, dated 22.6-2002 as to why no addition of Rs.2,365,829 be not made in its total income.

No response whatsoever was furnished by the assessee to the above said notice. Assessing Officer putatively presumed that the assessee has nothing to offer in its defence and made addition of Rs.2,365,829 in the total income of the assessee.

Learned A.R. challenged this presumption that the deposit in bank is the income of the appellant.

Learned A.R. added that in the second revised return of income, which had been filed before the initiation of the assessment proceeding by the Assessing Officer within the meaning of sections 61 and 62 of the Income Tax Ordinance, 1979, the said amounts were duly incorporated in the declared revenue receipts i.e. treatment of Rs.56,710,101 as against declared revenue receipts of Rs.55,004,173 in the original returns filed on 3-2-1999. The learned A.R. elucidated his point of view as under:---

Reconciliation of treatment charges 1997-98

As per Original Return????????????????????????? Rs.55,004,173

As per Second revised Return?????????????????????????? Rs.56,910,010

Rs.(1,905,928)

Add; DRS of 25/6 to 30-6-2008 not

Recorded in Bank book??????????????????????????????????? Rs.263,078

Cheques not recorded in Bank book

*??????? Habib Bank Limited????????????????????????????? Rs.222,742

*????????? Allied Bank Limited.???????????????????????????? Rs.1,950,105

Less: Adjustment difference of????????????? Rs.2,435,928

Consultation and surgery?????????????????????????????????? Rs.530,000

Rs. 1,905,928

It is accentuated that in view of the above reconciliation the amounts of Rs.2,365,871 had already been incorporated in the declared receipts in the second revised return of income. As a result the income I declared through second revised return of income had already been increased by Rs.2,527,785. Thus the addition of Rs.2,365,879 being allegedly eluded income of the appellant is nothing but a duplications and not warranted. Which is required to be deleted.

As stated on behalf of the appellant that the figures of the total receipts as taken by the Assessing Officer are the revised figure as shown by the assessee in the Second Revised Return at Rs.57,510;101 which according to the A.R. is inclusive of the figures of Rs.6 lakhs which are service charges. The other amount of Rs.2,365,879 also stands included in the said second revised figure of receipts, is the unrecorded amount appearing in the Bank Statement. It is explicated that as the said amount has been included in the second revised figure of total receipts, therefore, its addition again tantamount to double addition, should be deleted.

The assessee-company revised the return after pinpointing of matter by the Auditor. But factual position remains that said quantum was offered for taxation-via revised return. So this addition would mean I double taxation of same income content which is not permissible under the law. However other statutory options attracted to revision of return are not ousted. Thus addition of Rs.2,365,879 is hereby deleted.

ADDITION UNDER SECTION 13(1)(C) RS.3,588,044.

24. Relying upon Auditor's finding Assessing Officer observed that the cash on the closing day as per bank statements and the books of accounts does not tally. There was a cumulative difference of Rs.3,588,044. On Auditor's query regarding reconciling the difference assessee-Company explicated that following three cheques which were issued but not presented because the same were issued on 29th and 30th June, 1998.

???????????????????????

Cheques Amount????????????????????????????????????????????????????????? Rs. 368,044

Rs. 1,400,000

Rs. 1,820,000

Rs. 3,588,044

Assessee-Company was asked to explain this omission. Also a show-cause notice was issued as to why addition of Rs.3,588,044 be not made in total income under section 13(1)(c) of the Income Tax Ordinance, 1979. Learned A.R. has affirmed that the difference is existent because of factum that cheques were issued but not presented. Assessee-Company has provided the subsequent dates on which such cheques were enchased or the names and addresses of the persons in whose favour such cheques were issued or the purpose for which such K payment was made. Assessing Officer deduced conclusion that any transaction representing such payment has also not been linked with he issuance of such cheques. He inferred that as a matter of afterthoughts, the assessee, has introduced his plea, which remains unsubstantiated. Rejecting assessec's explanation Assessing Officer made an addition for Rs.3,588,044 in the total income of the assessee under section 13(1)(c) of the Income Tax Ordinance, 1979.

The learned counsel of the appellant submitted that the above additions have been made with remarks/observation that the cheques issued in favour of various vendors/consultants but not presented in the bank for clearance. The addition of' the unpresented cheques in the hand of appellant is not valid in view of proper reconciliation.

The learned counsel of the appellant explicated that in the month of June, 1998, the management has decided to pay outstanding liabilities as on 30-6-1997 and in this respect of issued cheques amounting to Rs.1,400,100 and Rs.1,820,008 in favour of vendors/consultants/doctors which either they did not present with the bank and or were not received by the payee.

The learned counsel of the appellant further submitted that not of cheques issued amounting to Rs.1,400,100 to various .vendors the unpresented cheques amounting to Rs.368,044. The cheques issued to doctors/consultants amounting to Rs.1,820,008 were also not presented into the bank for clearance.

The learned counsel of the appellant vehemently argued that the Assessing Officer besides making the addition of the unpresented cheques of Rs.1,367,924 and Rs.1,820,088 have also made addition of Rs.368,044 without incorporating any provision of law. The addition/disallowance are made without taking into consideration the various explanations filed, and/or evidence furnished during the assessment proceedings. No provision of income tax law has been cited under which the Assessing Officer has an authority to add the payment made to various vendors in connection with the outstanding liabilities which are duly verifiable and as such the addition made are not in accordance with facts as well. Learned A.R. urged that the said addition should be deleted.

Matter has been considered. Assessee-Company has issued cheques to various parties against outstanding liabilities on the last day of the closing year and such cheques were stated to be recorded in the books of accounts of the appellant which is in possession of the Department. It is stated that concerned parties presented the cheques in July or August next year as such the bank balance was showing more than the balance indicated in the cash book Assessing Officer did not consider the fact that the appellant has adopted the mercantile system of accounting. Bank reconciliation would have cleared the position, while the Assessing Officer failed to evaluate the same. If Assessing Officer had any doubts then he could have verified the narrated version of assessee-Company in this behalf, The learned D.R. was not in a position to justify the addition. In the instant case Assessing Officer has admittedly mentioned that above differences in.the Bank Statements have arisen from books of accounts.

In the quintessential circumstances issue arising from the above referred omission or factum of cheque issuance and not presented ' and corresponding reconciliation cannot be diverted in falsifying declared version of assessee-Company in this behalf. Further the books accounts vouchers etc. are in possession of the Department from which Assessing Officer could have verified the plea taken by the assessee. In these typical circumstances the addition under section 13(1)(c) of Rs.3,588,044 is hereby deleted as retention of assessee-Company's of books of accounts are not in the favour of upholding the Departmental treatment in this behalf. However legal recourse shall follow in case of proven falsification of any of itemized reconciliation statement filed by assessee?company.

PROPERTY INCOME RS.960,000

25. Assessing Officer observed that during the course of Auditor's visit to assessee's premises, it was noted that Jinnah Medical College although independent entity, is housed iii the building of the hospital. The said Jinnah Medical College is under occupation of 30,000 (thirty thousand) sq., ft. area of the building without payment of any rent to the M appellant. The basis of chargeability of "income from house property" under section 19(1) of the Income Tax Ordinance, 1979 is the "annual value" and not the factual receipt of rent. The assessee-Company was, therefore, confronted to explain as to why addition of Rs.960,000 be not made in the total income of the assessee.

The learned counsel of the appellant submitted that the Medicare Hospital is an amenity and not a commercial property. It has no rental values for the commercial establishment. Moreover, the college is situated in between the hospital wards and cannot be let out for any business purposes. The presence of the college in the hospital is for the mutual benefits. In view of the above facts the annual letting value of the property is nil or maximum it could be Rs.141,600 as assessed by the Excise and Taxation Department under Urban Immovable Property Tax Act, 1958, which is the competent authority to assess the annual letting value of the property.

The learned A.R. further submitted that besides above, the assessee-Company has invested Rs.3,725,565 for the establishment of the medical college in hospital premises and in the result thereof the following benefits are being drawn:--

(1) A medical college recruits highly qualified specialists in every department as required by the Pakistan Medical Council, and their appointments are approved by the Council. These specialists treat the hospital patients without any charge. The incomes from the patients come to the hospital whereas their salaries are paid by the college, this is a continuing large source of income generation.

(2) Medical colleges undertake various researches as apart of their activities. Their research findings are published in the national and international medical journals as originating from hospital in which they work. Consequently, the reputation of the hospital is enhanced due to their work.

(3) Medical colleges have to purchase state of the art equipment so that their specialists can use them in treating the hospital patients. The income from these hi-tech treatments also comes to the hospital.

The learned A.R. vehemently submitted that in fact financial benefits have accrued to assessee-Company and will go on accumulating. The assessee-Company in its long-term interests, has allowed the trust to establish the college in small portion of the hospital which is about 15% of the total covered area of the hospital without any charge. Any private hospital like any where in the world, would go out of the way to have a medical college established on its premises and affiliated to the hospital as the financial benefits are much higher than the rent of the space.

The learned counsel of the appellant that in consideration to the investment of Rs.3,729,565 besides the benefits as discussed above, the assessee-Company has also earned service charges of Rs.1,486,388 admittedly which is part and parcel of revenues of the appellant and duly declared for tax purposes as mentioned in the assessment order. According to learned A.R. charging of any rent from the JMC is not

ethically and morally desirable. In support of the appellant also cited the following judgment:--

CIT v. H.P. Sharma??????(Del) (1980), 122 ITR 675.

Learned A.R. contended that the Assessing Officer did not consider that this is an amenity plot. The Excise and Taxation Department has valued the ALV of property at Rs.141,600 under Urban Immoveable Property Tax Act, 1958. The Assessing Officer did not verify the rates of other amenity plots in that area.

26. Divergent viewpoint has been considered. Factual position remains that Medical College is located in the assessee's Company's premises. Thus Assessing Officer is justified to make addition. However the addition should be restricted to ALV unless Department could substantiate alternative treatment' on legal and factual plane after due observance of procedural requirement in this behalf.

ADDITION OF RS.161,250

27. The learned A.R. submitted that the Assessing Officer has made addition of Rs.161,250 being the amount of which the fans were provided to Jinnah Medical College (JMC). The said fans were to remain the property of the appellant and due depreciation was claimed.

The learned A.R. of' the appellant submitted that fans were provided to the JMC on which service charges have been received and the said receipt is the part of service charges of Rs.486,388 declared in the account and without appreciating the actual facts has made such addition.

The matter has been considered, It is obvious that fans remained property of assessee-Company. Depreciation is being charged thereon. However, its usage is done by another entity for which service charges are received. The D.R. could not controvert the arguments of learned A.R. Thus the addition being without any justification, is hereby deleted.

ADDITION (BOGUS LIABILITIES) RS.249,220.

The addition has been made under section 13(1)(a) of Income Tax Ordinance, 1979. The learned A. R. argued that the liabilities are genuine and are fully verifiable. Complete details were provided and payments were subsequently made to parties through cross cheques. Incidentally learned D.R. could not justify the addition in absence of relevant books of accounts which are in possession of the Department.

The provision of section 13(1)(a) of Income Tax Ordinance reads as under:-

"(a) any sum is found to be credited in the books of an assessee maintained for any income year, or (aa) the assessee is found to have made any investment or is found to be the owner of any money or valuable article, in any year; or"

The above provision of law relates to the certain credits as apparent from the books of accounts of an assessee. In the instant case books of accounts are in possession of the Department as such the plea of p such addition cannot be entertained. Hence the addition is hereby deleted. However, if any discrepancy emerges later on, same could be dealt by he remedial action via statutory provisions available in this behalf.

ORDER UNDER SECTIONS 52/86.

The learned CIT (Appeal) has already set aside the order under sections 52/86 Assessing Officer is directed to review the order accordingly.

The appeal of the assessee stands disposed of as above.

C.M. A./157/Tax (Trib.)?????????????????????????????????????????????????????????????????????? Order accordingly.