I.T.As. Nos. 4009/LB and 4010/LB of 2003, decided on 19th August, 2006. VS I.T.As. Nos. 4009/LB and 4010/LB of 2003, decided on 19th August, 2006., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 835 (2006)

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

----S.62---Assessment on production of accounts, evidence etc.---Estimation of sales---Rejection of declared version with the observation that "although purchases from the Government Department were verifiable yet chances of other local purchases could not be ruled out"---Validity---Rejection of declared version was without giving any specific reason---Taxation Officer had admitted that "the reply of the assessee was incorrect, although the purchases from the government departments were verifiable yet all other local purchases could not be ruled out"---Assessing Officer without bringing on record any substance had observed that the other local purchases could not be ruled out---Taxation Officer had to prove through evidence that purchases had been suppressed and the declared version should not be rejected merely by a general observation and if the purchases were verifiable, at the most it would be reasonable to apply Dandakar formula---Where the accounts were rejected the Assessing Authorities were required to spell out their belief that accounts were fictitious and not reliable and their such belief should he judicious and not capricious---No justification in circumstances was available for remanding the matter by the First Appellate Authority with the direction to consider the matter in accordance with other parallel eases---Directions of the First Appellate Authority were vacated and the Taxation Officer was directed to proportionally adjust the sales considering the G.P. rate applied in accordance with Dandakar formula and previous history of the case.

1994 PTD (Trib.) 47; 1992 PTD (Trib.) 739 and 1994 PTD (Trib.) 1228 rel.

2001 MLD 1257; 1986 CLC 1042; 2005 PTD (Trib.) 1364 and Mrs. Naureen Hajra Bibi v. DCIT (I.T.A No.3392/LB of 1998) ref.

(b) Income Tax---

----Lump sum addition out of Profit & Loss Account---Validity---Disallowance if made in the Profit & Loss Account same should be alter giving specific reasons under each head of the Accounts---Such disallowance made were deleted by the Appellate Tribunal.

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

----S. 23(1)(v)---Deductions---Depreciation---Assessee claimed depreciation in the return but Taxation Officer had failed to allow the claim and the First Appellate Authority had also not given any specific observation despite the fact that assessee had specifically contended before the First Appellate Authority that disallowance of depreciation was unjustified---Taxation Officer was directed by the Appellate Tribunal to allow the claim of depreciation under S.23(1)(v) of the Income Tax Ordinance, 1979.

Amir Abbas for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent

ORDER

Through these two appeals consolidated impugned order of the learned C.I.T.(Appeals) dated 28-6-2003 has been objected on the common ground for both the years that the First Appellate Authority has erred in law and, in fact, to remand the issues and to set aside the formula assessments made by the Taxation Officer. The appellant has also objected the estimation of sales, the lump sum addition made on account of expenditure out of P&L account and not allowing the depreciation as claimed in the returns for both the assessment years.

Mr. Amir Abbas, Advocate along with Mr. Amir Naseem, Advocate have appeared on behalf of the appellant and has contended that the assessee has declared sales at Rs.2,64,31,353 for the assessment year 1998-99 and at Rs.203,93,490 for the assessment year 1999-00 which has been estimated at Rs.3,75,98,633 and at Rs.4,10,00,000 for the two years under review. He has contended that the purchases in the case of the assessee are fully verifiable as are from Government Departments from whom the assessee has obtained certificate in this respect, which has been furnished before the Taxation Officer and the Taxation Officer in the assessment order has admitted that "although purchases from the Government Department are verifiable yet chances of other local purchases cannot be ruled out". According to the counsel the Taxation Officer only on the basis of presumptions and surmises has given the above observation without bringing on record any material fact. According to learned counsel in reply to the notice sent by the Taxation Officer on behalf of the assessee, the audited accounts along with the copies of the certificates with original issued from the Government Department from where the purchases were made, were submitted and this fact has been mentioned in the assessment order itself. The learned counsel has contended that the Taxation Officer has to point out specific defects in the accounts while rejecting the declared version. He has in this respect placed reliance on the decision of this Tribunal reported as 1994 PTD (Trib.) 47. In another decision referred by the learned counsel for the appellant reported as 1992 PTD (Trib.) 739 it has been held that the purchases and sales can only be rejected if it is established that these are not verifiable and the Assessing Officer had to prove through evidence that purchases had been suppressed and the accounts should not be rejected merely by giving a general observation. Another decision reported as 1994 PTD (Trib._) 1228 it has been held by this Tribunal that if the purchases are verifiable the Dandakar formula can be applied. The learned counsel has submitted that on behalf of the assessee before the Assessing Officer an affidavit was submitted but the declared version has been rejected without rebutting the contents of the affidavit. He has contended that the statement supported by affidavit ought to be accepted unless rebutted by another statement on oath, as has been held by the Hon'ble Karachi High Court in a Division Bench decision reported as 2001 MLD 1257 (Karachi). In this regard the learned counsel has also placed reliance on another decision of the Karachi High Court reported as 1986 CLC 1042 wherein it has been held that where an affidavit in support of the petitioner has not been controverted through counter affidavit to controvert the facts stated in the affidavit it would amount to admission of averments made in such petition. In this regard a decision of this Tribunal reported as 2005 PTD (Trib.) 1364 has also been placed before this Bench wherein it has been held that in absence of counter affidavit the averments supported by an affidavit are presumed to be true and the statement supported by an affidavit ought to be accepted unless rebutted by another statement on oath.

Regarding the lump sum disallowance made in the P&L account for both the years under review, the learned counsel has contended that the lump sum addition made by the Taxation Officer have never been approved by this Tribunal or the Hon'ble higher authorities/Courts and this Tribunal as well as the superior Courts have held that the disallowance if made by the Taxation Officer should have to be made giving specific reason under the each of the head of account.

Regarding the claim of depreciation the learned counsel has submitted that the appellant has specifically claimed the depreciation in the return which have not been allowed by the Taxation Officer which should have to be allowed under the law. The learned counsel has referred to section 31(1)(5) of the repealed Ordinance, 1979. The learned counsel has contended that the set aside of the assessment order should not be made for fulfilling of the lacunae on the part of the officers which amounts to sheer harassment to an assessee. According to learned counsel as the assessee has furnished the explanation and evidence along with affidavit the Taxation Officer without rebutting the contentions made by the assessee only on the basis of presumption should not reject the declared version and there was no justification for setting aside the assessment. He has in this respect placed reliance on the decision of this Tribunal dated 17-10-1998 in I.T.A. No.3392/LB of 1998 (Assessment year 1994-95) in the case of Mrs. Naureen Hajra Bibi v. D.C.I.T.

On the other side the learned D.R. is supporting the impugned orders of the officers below. She has contended that the learned C.I.T.(A) has already set aside the case for both the assessment years with the directions that facts of the case should be considered on merits and keeping in view the treatment meted out in other parallel cases of this line of the business and the fresh assessments should be refrained according to law. According to learned D.R. the learned C.I.T.(A) has directed the Taxation Officer to afford reasonable opportunity of being heard to the assessee and the assessee may explain these all facts and the law before the Taxation Officer.

We have heard the learned representatives from both the sides and have perused the impugned order of the learned C.I.T.(A) and the assessment order. We have found that in this case the Taxation Officer has rejected the declared version without giving any specific reason. In the concluding para. it has been held by the Taxation Officer that "the reply of the assessee is incorrect, although the purchases from the Government Departments are verifiable yet all other local purchases cannot be ruled out". We have noted that the Assessing Officer without bringing on record any substance has observed that the other local purchases cannot be ruled but.

On the other side it has been contended that an affidavit was furnished before the Taxation Officer to the effect that all the purchases are verifiable. We have noted that in this case the books of accounts comprising of cash book ledger, wages, sales registers and other relevant documents were furnished by the assessee which have admittedly been perused and examined and the Taxation Officer has discussed the relevant issues in detail. The notice under section 62 issued by Taxation Officer has also been duly replied by the appellant/assesses but the Taxation Officer has found the reply of the assessee unsatisfactory. We are of the view that the Taxation Officer had to prove through evidence that purchases have been suppressed and the declared version should not be rejected merely by a general observation and if the purchases are verifiable, at the most it will be reasonable to apply Dandakar formula. In this case no specific defect has been pointed out. As has already been held by this Tribunal as well as by the Hon'ble superior Courts that where the accounts are rejected the Assessing Authorities are required to spell out their belief that accounts are fictions and not reliable and their such belief should be judicious and not capricious. In view of these facts and circumstances of the case we find no justification for remanding back the matter by the learned C.I.T.(A) with the direction to consider the matter in accordance with other parallel cases. The directions of the learned C.I.T.(A) in this regard are, therefore, vacated and the Taxation Officer is directed to proportionally adjust the sales considering the G.P. rate applied in accordance with Dandakar formula for both the years under review. The Taxation Officer is also directed to consider the previous history of the case.

Regarding the lump sum addition made in the disallowance out of P&L account we find no justification in this regard as this Tribunal as well as Hon'ble superior Courts have never approved the lump sum addition in the P&L account, holding that the disallowances if made in the P&L account should be after giving specific reasons under each head of the accounts. So, the disallowances made by the Taxation Officer are, therefore, deleted for both the years under review.

Regarding the claim of depreciation, it has been contended that the appellant has claimed the depreciation for both the years in the return but the Taxation Officer has failed to allow the claim in this respect and the learned C.I.T.(A) has also not given any specific observation in this regard despite the fact that the assessee has specifically contended before the C.I.T.(A) that the disallowance of depreciation is to be illegal and unjustified. The Taxation Officer is, therefore, directed to allow the claim of depreciation under section 23(1)(v) of the repealed Ordinance, 1979.

Both the appeals filed by the assessee are allowed to the extent and in the manner as indicated above.

C.M.A./227/Tax(Trib.)Appeals accepted.