M.As. (AG) Nos.600/LB to 602/LB of 2006 and I.T.As. Nos.7393/LB to 7395/LB of 2005, decided on 6th October, 2006. VS M.As. (AG) Nos.600/LB to 602/LB of 2006 and I.T.As. Nos.7393/LB to 7395/LB of 2005, decided on 6th October, 2006.
2007 P T D (Trib.) 776
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Istataat Ali, Accountant Member
M.As. (AG) Nos.600/LB to 602/LB of 2006 and I.T.As. Nos.7393/LB to 7395/LB of 2005, decided on 06/10/2006.
(a)Income Tax Ordinance (XXXI of 1979)---
----S. 62---Assessment on production of accounts, evidence etc.---Disallowance on the basis of stock phrases---Declared trading results had been accepted with the observation that complete books of accounts had been produced along with necessary documentary evidence in support of the declared version, but disallowances regarding expense out of Profit and Loss account expenses had been made on the basis of stock phrases like partial unverifiable, element of personal use, excessiveness and past history etc., and no instances of personal expenses or unverifiable receipts had been pointed out---Validity---No disallowance could be based upon stock phrases like partial unverifiability, personal use etc. and should not be made in the arbitrary manner---Neither there was any justification for the disallowances made in the claims of expenses out of Profit and Loss Account expenses nor remanding the issue of disallowances for further consideration.
2002 PTD 1496; 2004 PTD 2231; 2002 PTD 407; 1991 PTD (Trib.) 643; PTCL 1998 CL 193; 1989 PTD (Trib.) 39 and (2002) 88 Tax 48 (Trib.) ref.
(b) Income-tax---
---Tax is not a forced liability and in fact is a responsibility to owe the State a share given by the taxpayer for the development of the nation and for providing services to the State.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 62---Assessment on production of accounts, evidence etc.---Disallowances out of Profit and Loss Account without specifically confronting the defects in the books of accounts---Remand of such assessment order---Validity---Once the assessee had furnished books of accounts, no addition should be made. without specifically confronting the assessee regarding the defects in the books--Remanding the matter would, have meant that the assessee would have been subjected to another round of cumbersome proceedings, which was deprecated in law, as no body should be vexed twice for the same cause--Details submitted before the Taxation Officer were not rebutted---Appellate Tribunal vacated the order of First Appellate Authority remanding the issue of disallowances and assessment for all the three years under review regarding disallowances out of Profit and Loss Account expense, which was annulled directing to allow the expenses claimed by the assessee---Appeal of the assessee on the issue was allowed.
2002 PTD 1496; 2004 PTD 2231; 2002 PTD 407 (Kar. H.C.); 1991 PTD (Trib.) 643; PTCL 1998 CL 193; 1989 PTD (Trib.) 39 and (2002) 88 Tax 48 (Trib.) ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Income deemed to accrue or arise in Pakistan---Receipt of cash payment from Directors by the company---Addition was made for ,he reason that assessee-Company had received cash payments from Directors, which were hit by the provisions of S.12(18) of the Income Tax Ordinance, 1979 not received through normal banking channel---Explanation of the assessee that the 'amounts paid by the Directors were not loans but the repayments of the expenses already made by the company on behalf of the Directors was not accepted--Validity---Taxation Officer without establishing that the amounts were fictitious had made the addition, despite the fact that books of accounts were produced and examined---Taxation Officer should have pointed out the fictitious transaction, if any---Addition under S.12(18) of the Income Tax Ordinance, 1979 could not be made where Directors made any payment directly to a third party on behalf of the company and vice versa, and in such cases only it had to be seen whether the payments were genuine or bogus and if the payments were genuine made from explained sources, no addition could be made---Addition was deleted by the Appellate Tribunal in circumstances.
2002 PTD 63; 2003 PTD 1372 (Trib.) and 2004 PTD 1572 (Trib.) rel.
(e) Income Tax Ordinance (XXXI of 1979)---
---S. 24(fff)---Deductions---Salary---Assessee contended that nowhere it has been said as in S.24(fff) of the Income Tax Ordinance, 1979 that if salary exceeding was paid otherwise than through a crossed cheque the same shall be disallowed rather provision of law says that if the payment of salary exceeding Rs.5,000 was made through a crossed cheque, the same shall be disallowed---Validity---Contention of the assessee was repelled as 24(fff) of the Income Tax Ordinance, 1979 was the continuity of subsection (ff) of S.24 of the Income Tax Ordinance, 1979, which was regarding payments on account of expenditure under a single head of account, which in aggregate exceeds Rs.50,000 made otherwise than through a crossed cheque---Intention of the legislator was the documentation of the economy---Wording of the statute may not be properly drafted, but the intention in this regard was clear---Assessee having not paid salary through cross cheques, the provisions of S.24(fff) of the Income Tax Ordinance, 1979 were applicable and expense was rightly disallowed being inadmissible---Contention that "proper tax regarding salary had been deducted and deposited in accordance with law, the addition should not be made" was repelled, as the salaries had not been paid through banking channels---Assessee's appeal was dismissed by the Appellate Tribunal on this ground.
(f) Income Tax Ordinance (XXXI of 1979)---
----S. 24(ff)---Deductions---Medical expenses---Addition was illegal even on the face of it, as the entire payment was only Rs.10,000 whereas provision of S.24(ff) of the Income Tax Ordinance, 1979 was attracted only where the amount of payment exceeds Rs.50,000---Addition of Rs.10,000 made in respect of medical expense was deleted by the Appellate Tribunal.
(g) Income Tax Ordinance (XXXI of 1979)---
----S. 24(ff)---Deductions---Motor Vehicle expenses---Individual payments were not exceeding Rs.500, but the total amount in this regard had became Rs.71, 480, which in total had been disallowed---Addition made was deleted being not justified by the Appellate Tribunal.
Sajid Ijaz Hotiana for Applicant.
Rana Javed Iqbal, CIT (LTU) for Respondent.
ORDER
The appellant has objected against the consolidated impugned order of the learned CIT(A), dated 30-7-2005 for the assessment years 1999-2000 to 2001-2002 on the following common grounds for all the years:
(2) That the learned Commissioner of Income Tax (Appeals) Zone-V, Lahore was not justified to remand the case for de novo consideration.
(3) That in view of clause (a) of subsection (1) of section 129 of the Income Tax Ordinance, 2001, the learned Commissioner of Income Tax (Appeals) Zone-V, Lahore had no jurisdiction to .remand the case.
(4) That, in view of the fact that complete books of accounts were produced and the case-law referred the learned Commissioner of Income Tax (Appeals) Zone-V, Lahore should have ordered deletion of the additions made under various heads of Profit and Loss Account instead of remanding the case for' de novo consideration.
While in addition to the above common grounds for all the three years, for assessment 2000-2001, remanding the case regarding the additions made under section 12(18), and upholding the additions made under section 24(ff) and under section 24(fff) of the repealed Income Tax Ordinance, 1979 have also been objected.
Miscellaneous Applications for all the three years under review regarding additional grounds have also been. filed by the assessee, wherein the remanding of the case for all the three years under review on the issue of disallowances made out of Profit and Loss A/c expenses have been objected, for the reason that despite the fact that the assessee was not being confronted through notice under section 62 and no specific instances of unverifiability have been given, while making the disallowances out of P&L A/c expenses, therefore, the disallowances should be deleted instead of remanding the same for re-adjudication by the Taxation Officer.
As the additional grounds are arising out of the orders of the Officers below and are directly relevant in the case, therefore, all the three miscellaneous applications filed in this respect are allowed.
Mr. Sajid Ijaz Hotiana, Advocate has appeared on behalf of the appellant and has contended that the assessee, in this case, is a Public Limited Company deriving income from manufacture and sale of electricity meters. Return of income for all the three under review were filed along with the supporting details. After detailed scrutiny of accounts of the company, the declared manufacturing/trading accounts were accepted. However, the declared Profit and Loss A/c expenses were not accepted, despite the fact that books of accounts are being maintained by the assessee, which have been produced and examined and on the basis of these books of accounts, the declared manufacturing/trading accounts have been accepted, the disallowances out of Profit and Loss A/c expenses have been made employing stereotype stock phrases such as "not open to verification", "element of unvouchedness", "non-business use" etc. He has in this respect placed before us all the details of the expenses. Learned counsel has contended that reason given for the disallowances of the above expenses are illegal, mala fide and against the clear provisions of subsection (l) of section 62 of the repealed Income Tax Ordinance, 1979 as well as the precedent of this Tribunal and the Hon'ble Superior Courts on this issue. He has contended that the Hon'ble High Courts as well as this Tribunal has time and again ruled that no add-backs from Profit and Loss A/c expenses can be made by relying on such stock and hackneyed phrases such as "history of the case", "personal use "partially verifiable", "non-maintenance of property vouchers etc." He is of the view that the assessee is a Public Limited Company whose accounts are properly maintained, which fact has also been acknowledged by the Taxation Officer accepting in the assessment order that the books of accounts have been maintained and are produced and on the basis of books of accounts, manufacturing / trading accounts after thorough scrutiny has been accepted, but the disallowances have been made in the Profit and Loss A/c expenses without pointing out instances of unverifiabity etc. under each of the expense nor the assessee has been confronted regarding the add-backs made by the Taxation Officer. He has argued that there was absolutely no justification for making the impugned add-backs on the concocted and absured basis. He has, in this respect, placed reliance on the following reported decisions:
(i) 2002 PTD 1496
Wherein, it has been held that:--
"The assessee appears justified in claiming that no disallowance could be based upon stock phrases like partial unverifiability and alleged presence of an element of personal use. Learned Tribunal also failed to take into consideration that assessee being a juristic or legal person its personal use of a facility like telephone, vehicles, needed all the more strict test to bring home that any employee/director of the company had in fact used or availed the same which was not directly or indirectly connected with the business of the company."
(ii) 2004 PTD 2231
Wherein, it has been held that:--"No addition could be made by relying on sock phrases such as unverifiability, excessiveness, and element of personal use without specific instance...". In this case, this Tribunal has allowed the entire expenses claimed under the Profit and Loss Account.
(iii) 2002 PTD 407 (Kar. H.C.)
In this judgment, the Hon'ble Karachi High Court was pleased to hold that no additions can be made out of Profit and Loss Account without proper reasoning..
(iv) 1991 PTD (Trib.) 643
Wherein, it has been observed by this Tribunal that:--
"This brings us to the last grievance of the assessee regarding disallowances made in the profit and loss account expenses in the charge years, 1987-88 and 1998-99. A perusal of the impugned orders reveals that details of the assessee's claimed expenses were not considered. Disallowances were made in a stereotype manner by holding the same as to be unverifiable. It is high time that the Assessing Officers should learn that disallowances in the profit and loss account expenses are not to be made without any basis and without examining the claim in detail. We have noticed that invariably in all the cases disallowances in P & L account expenses are made in a slipshod manner without assigning any reason and the assessees are constrained to contest these disallowances in first and second appeals. As in both the years disallowances have been made in the arbitrary manner, we vacate the impugned orders."
(v) PTCL 1998 CL 193
It has been held that:--
"In the presence of properly audited accounts in accordance with the relevant provisions of law, the Department cannot be allowed the liberty to reject it without sound reasoning."
(iv) 1989 PTD (Trib.) 39
It has been held that:--
"Disallowing amounts as personal expenses and unverifiable receipts--Validity---when details of such expenses and receipts are available on record, Assessing Officer or the Appellate Authority, without pointing out the items of personal expenses and unverifiable receipts, cannot reject the accounts by simply using stock phrase "expenses personal and unverifiable."
(vii) (2002) 88 Tax 48 (Trib.)
Wherein, after making the following observations, the dis allowances made by the Taxation Officer have been deleted:--
"Even otherwise no instance of unverifiability or unvouchedness have been cited by the Assessing Officer. The Assessing Officer used common jargon i.e. "personal element" and unvouched, ignoring the fact that it was a case of Public Limited Company, which being a juristic and legal person cannot be equated with the case of an individual, because a juristic person cannot be attributed the element of personal use and as already held by Hon'ble High Court in the case of Coca Cola, it would require stricter test to bring any employee/director of the company had in fact used or availed the same which was not directly or indirectly connected with the business of the company."
Learned counsel for the appellant in this regard has also referred the Article 1(2) of the Qanun-e-Shahadat Order, 1984, which according to him is applicable even to quasi-judicial proceeding including income tax proceedings. He has submitted that in the case where an assessee furnishes duly audited books of accounts in support of his declared version, his discharges his burden of proof so far as the expenses claimed are concerned and if Taxation Officer does not agree with any portion of the declared version, the burden of proof lies on him to adduce credible evidence that the claimed expenses or a portion thereof has actually not be incurred by the assessee. According to the learned counsel, Article 118 of the Qanun-e-Shahadat Order is very clear on this issue. Learned counsel has argued that the Taxation Officer in this case has failed to bring any such evidence or record, which could prove that the duly audited accounts of the assessee are not reliable so far as a portion of the expenses claimed under administrative and selling are concerned. He has contended that in the absence of any such proof, the basis of the additions is without any justification, which are liable to be deleted.
Regarding the assessment year 2000-2001 wherein apart from the disallowances, the additions made under section 12(18), 24 (ft) & 24 (fff) have also been objected, learned counsel has contended that heavy additions have been made without considering the explanations offered by the assessee. According to him, the additions have been made in utter disregard of the legal provisions and the fact of the case. He has argued that an addition made under section 12(18) of the repealed Income Tax Ordinance; 1979 on the allegation that this amount represents various loans given by the Directors of the assessee-Company otherwise than through normal banking channel, is not justified. According to the learned counsel, it was explained to the Taxation Officer that this was not loan and was actually a reimbursement of the expenses already incurred by the assessee-Company on behalf of the Directors. He has contended that without holding that this amount represents fictitious amounts, which is the requirement of provisions of law, the amount has been added to the income of the assessee. According to the learned counsel, by now it is a settled law that addition under section 12(18) of the repealed Income Tax Ordinance, 1979 cannot be made where Directors make any payment directly to a third party on behalf of the company and the vice versa. Furthermore, in such cases, it has to be seen whether the payments are genuine or bogus. If the payment is genuinely made from the explained sources, no addition can be made under this provision of law. Reliance in this respect has been placed on the following reported decisions:
(i) 2002 PTD 63 (Pesh. H.C.), (ii) 2004 PTD 1372 (Trib.) and (iii) 2004 PTD 1572 (Trib.)
Regarding additions made under section 24(fff) of the repealed Income Tax Ordinance, 1979, the learned counsel has contended that the addition in this regard has been made by the Taxation Officer for the reason that the assessee failed to fulfil the conditions as provided in section 24(fff) of the repealed Ordinance, as the salary exceeding Rs.5,000 has not been paid through crossed cheque. In view of the learned counsel, section 24 nowhere says that if salary exceeding Rs.5,000 is paid otherwise than through a crossed cheque, the same should be disallowed rather according to the learned counsel, this provision of law says that if in case of sub-clause (1), the payment of salary exceeding Rs.5,000 is made through a crossed cheque, then the same shall be disallowed and not where salary exceeding Rs.5,000 is made otherwise than through a crossed cheque. He has argued that where the language of a statute is clear without any ambiguity, the same has to be given effect to without any ifs and buts. He has contended that the disallowances in this regard made under section 24(fff) are without any lawful jurisdiction and liable to be deleted.
Regarding the addition made under section 24(ff) for the reason that the payments have not been made through cross cheque, the learned counsel has contended that two payments have been referred by the Taxation Officer one is on account of Motor Vehicle (Rs.71,480) and the other is of Medical Expenses (Rs.10,000). He has submitted that the addition on account of Medical Expenses is illegal even on the face of it, as the entire payment in this regard is Rs.10,000, whereas the provisions is attracted only where the amount of payment exceeds Rs.50,000.
Regarding the Motor Vehicle Expenses, he has submitted that the expenses in this regard cannot be paid through cross cheque, as the workshop owners do not accept the cheques having no bank accounts and due to this hardship, the disallowance made in this respect may please be deleted.
On the other hand, Mr. Rana Javed Iqbal has appeared on behalf of the Department and is supporting the impugned orders of the Offices below. He has contended that the learned CIT(A) has already remanded back the issues of disallowances out of P&L A/c expenses and addition made under section 12(18) of the repealed Income Tax Ordinance, 1979 for the assessment year 2000-2001 for de novo consideration and the assessee may explain his position before the Taxation Officer. He tits contended that the additions made under section 24(ff) and 24 (fff) of the late Ordinance, 1979 have been upheld by the learned CIT(A), as the payments have not been made through cross cheque or normal banking channel, which is the requirement of law. Regarding the contention of the assessee that subsection (fff) of section 24 of the repealed Income Tax Ordinance, 1979 nowhere says that. if salary exceeding Rs.5,000 is paid otherwise than through a cross cheque, the same shall he disallowed, the learned DR has contended that subsection (fff) of section 24 is the continuity of subsection (ff) of section 24 and if three conditions as provided under the law are not fulfilled, it will not be allowed. According to the learned DR, in this case, the intention of the legislature, has to be considered. According to the learned DR, the Officers below have rightly made the additions.
We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT(A), the assessment order, the case-law referred by the learned counsel for the assessee and other relevant details of the case.
We have found that the appellant in this case is a Public Limited Company deriving income from manufacturing and supply of electric meters. For the three years under review, the declared trading results have been accepted by the Taxation Officer with the observation that complete books of accounts have been produced along with necessary documentary evidence in support of the declared version, but the disallowances regarding expenses out of Profit and Loss A/c expenses have been made by the Taxation Officer on the basis of stock phrases like partial unverifiable, element of personal use, excessiveness and past history etc. and no instances of personal expenses or unverifiable receipts have been pointed out by the Taxation Officer. We have already held in so many cases that no disallowance could be based upon stock phrases like partial unverifability, personal use etc. Up to now, it is a settled principle of law that the disallowances should not be made in the arbitrary manner. We, therefore, keeping in view the decisions of this order and the Hon'ble High Courts referred in the above paras of this order find no justification for the disallowances made in the claims of expenses out of Profit and Loss A/c expenses by the Taxation Officer. We also find no justification to uphold the remanding of the issue of disallowances for further consideration. We are of the view that tax is not a forced liability and in fact is a responsibility to owe the State a share given by the taxpayer for the development of the nation and for providing services to the State. As has been observed by this Tribunal in so many cases that it is high time to develop the culture in the working classes which will help the enforcement of self-assessment at large and the tendency of concealment of taxes shall be gradually discouraged and public would rather prepare to be the taxpayer instead of tax swallowers. We are, therefore, of the view that once the assessee has furnished books of accounts, no addition should be made without specifically confronting the assessee regarding the defects in the books. Remanding the matter back to the Taxation Officer would have meant that the assessee would have been subjected to anther round of cumbersome proceedings, which is deprecated in law, as nobody should be vexed twice for the same cause. The details have been submitted before the Taxation Officer by the assessee, which have not been rebutted. We, therefore, vacate the impugned order of the learned CIT(A) remanding the issue of disallowances and assessment for all the three years under review regarding disallowances out of P&L A/c expenses is annulled directing to allow the expenses claimed by the assessee out of Profit and Loss A/c. The appeals filed by the assessee for the assessment years 1999-2000 to 2001-2002 on the issue of disallowances are, therefore, allowed.
Regarding the addition made under section 12(18) of the late Ordinance, 1979 for the assessment year 2000-2001, we have found that the addition in this respect has been made by the Taxation Officer for the reason that the assessee-Company has received cash payments from Directors, which are hit by the provisions of section 12(18) not being received through normal banking channel, not accepting the explanation of the assessee that the amounts paid by the Directors referred in the books of account are not loans but the repayments of the expenses already made by the company on behalf of the Directors. We have observed that the Taxation Officer without establishing that the amounts are fictitious has made the addition, despite the fact that the books of accounts were produced and examined by the Taxation Officer. He should have to point out that there was any fictitious transaction. It is a settled law that addition under section 12(18) cannot be made where Directors make any payment directly to a third party on behalf of the company and vice versa, and in such cases only it has to be seen whether the payments are genuine or bogus and if the payments are genuinely made from explained sources, no addition can be made. In this regard, following reported decisions have been referred:
(i) 2002 PTD 63
(ii) 2004 PTD 1372 and 1572
In view of these facts and case-law referred by the learned counsel, the addition made under section 12(18) of the repealed Income Tax Ordinance, 1979 for the assessment year 2000-2001 is deleted and the appeal in this regard is allowed.
Regarding the addition made under section 24(fff) of the repealed Income Tax Ordinance, 1979 on behalf of the appellant referring the relevant section, it has been contended that nowhere, it has been said that as per wording of that section, if salary exceeding Rs.5,000 is paid otherwise than through a cross cheque, the same shall be disallowed. Rather according to the learned counsel, this provision of law says that if in case of clause (1), the payment of salary exceeding Rs.5,000 is made through a cross cheque; the same shall be disallowed. We are of the view that this contention of the learned counsel cannot be accepted, as subsection (fff) of section 24 is the continuity of subsection (ff), which is regarding payments on account of expenditure under a single head of account, which is aggregate exceeds Rs.50,000 made otherwise than through a crossed cheque. We are, therefore, of the view that in this case, we have to see the intention of the Legislature and in this case, the intention of the legislator is the documentation of the economy. We are of the view that the wording of the statute may be not properly drafted, but the intention in this regard is clear. We, therefore, find no warrant for interference in this respect. While perusal of the assessment order, we have found that the Taxation Officer has given all the details in this respect, as the assessee not paid salary through cross cheques, therefore, the provisions of section 24 (fff) are applicable and the expense in this regard is disallowed being inadmissible. We find no force in the contention of the assessee that proper tax regarding salary has been deducted and deposited in accordance with law, the addition in this regard should not be made. We are of the view that this contention cannot be accepted, as the salaries have not been paid through banking channels. The appeal filed by the assessee for the assessment year 2000-2001 on this ground is, therefore, dismissed.
Regarding the addition made under section 24(ff) of the repealed Income Tax Ordinance, 1979 for the assessment year 2000-2001, we have found that the disallowance in this respect has been made under to heads of accounts i.e. Motor Vehicle Expenses and Medical Expenses. The contention of the assessee in this regard is that proper tax has been deducted wherever applicable and therefore, there was no justification for the addition. It has been further contended that out of two payments, the addition on account of Medical Expenses is illegal even on the face of it, as the entire payment in this regard is only Rs.10,000, whereas this provision is attracted only where ,the amount of payment exceeds Rs.50,000. We, therefore, find no justification for the addition of Rs.10,000 made in respect of Medical Expenses which is, therefore, deleted.
Regarding the addition on account of Motor Vehicle Expenses, it has been contended by the appellant that individual payments in this regard are not exceeding Rs.500, but the total amount in this regard has become Rs.71,480 which in total has been disallowed. In view of this position, we also find no justification for the addition. The addition made regarding Motor Vehicle Expenses is, therefore, also deleted. The appeal filed by the assessee for the assessment year 2000-2001 regarding addition under section 24(ff) is allowed. However, the appeal regarding addition made under section 24 (fff) is dismissed.
All the three appeals filed by the assessee are decided in the manner as indicated above.
C.M.A./226/Tax (Trib.)Order accordingly.