VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 634 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss.29(3)(b), 5(1)(c) & Third Sched. Rr.7/8(5)---Cost of acquisition and consideration for transfer, how to be determined---Estimation of sale rate of fabrics. by the Inspecting Additional Commissioner as Assessing Officer without prior approval of concerned Commissioner of Income Tax---Validity---Where prices of assets were not ascertainable for determining the price in accordance with fair market value approval of the Inspecting Additional Commissioner in writing was a mandatory requirement---Admittedly, the price of asset as per assessment order was not ascertainable and for determining the price in accordance with the market value the approval was pre-requisite which had not been fulfilled---Order passed by the Additional Commissioner had become nullity in the eyes of law as the mandatory provision of law had been ignored but the First Appellate Authority, without any justification, had remanded the matter to the Assessing Officer giving further chance to fill in lacunae which was not permissible under the law---Orders of First Appellate Authority and the Assessing Officer to the extent of determination of the value of sale of fixed assets were vacated and the Taxation Officer was directed to accept the value declared by the assessee.

1997 PTD (Trib.) 853 ref.

Shahbaz Butt for Appellant.

Mrs. Sabiha Mujahid, D.R. for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).--The appellant through this appeal has objected to the impugned order of the learned C.I.T. (A), dated 20-10-2004 on the following grounds:---

"(1) That the learned Commissioner of Income Tax (Appeals-III) Lahore was not justified to set aside the assessment on point of estimation of fair value on sale of fixed assets at Rs.1,146,000 without obtaining approval of the Commissioner as required under Rules 7, 8(5) of the third schedule read with section 2(3)(b) of the Income Tax Ordinance, 1979.

(2) That the learned Commissioner of Income Tax (Appeals-III) was not justified to set aside the case on the issue of application of higher rate."

On behalf of the appellant/assessee an application seeking permission for the acceptance of the following additional ground has also been filed:--

"That the very assumption of jurisdiction for initiation and completion of proceedings is unlawful in view of repeal of Income Tax Ordinance, 1979 read with sections 230, 210 and 211 of the Income Tax Ordinance, 2001."

Mr. Shahbaz Butt, advocate, has appeared on behalf of the assessee and at the very out-set that he is not pressing the application regarding the additional ground which is, therefore dismissed.

Regarding the ground of appeal in respect of valuation of the sale of fixed assets, the learned counsel has contended that the appellant-company has declared the sale of Fabrics at Rs.65,91,772 @ Rs.37, per meter. The assessing officer has observed in the assessment' order that the valuation of this stock was made in the previous year as well @ Rs.37 per meter at Rs.65,82,528. The Taxation Officer has accepted the plea of the, assessee that if the sale rate is applied @ Rs.48 per meter, it will result in enhancing gross profit to the extent of 30%. He also observed that processing of the Fabrics was undertaken in assessee's own factory and on own account which resulted enhancement of assessee's margin of profit. Therefore, he rejected the declared version of the assessee-company and adopted the sale rate @ 42 per meter. It was contended by the learned counsel for the appellant that the sale rate of .Fabrics has been estimated at Rs.42 per meter against the declared rate of Rs.37 per meter without any justification. In this respect the decision of this Tribunal reported as 1997 PTD (Trib.) 853 has, been referred wherein it has been held "It is by now a well settled that even after rejection of declared version the assessing officer must bring on record sufficient material to support his own estimation. This exercise was not done in this case. Therefore, the element of guess has remained present with full force." It was further contended that learned I.A.C. has passed the order as assessing officer. As per section 5(1)(c) the assessing officer was required to obtain written approval from the concerned Commissioner of Income Tax under section 29(3)(b) of the Income Tax Ordinance, 1979." But in the present case the assessing officer has failed to adopt the prescribed procedure while making addition in profit on sale of fixed assets under rules 7/8(5) of the 3rd Schedule to the Income Tax Ordinance, 1979 read with section 29(3)(b) of the repealed Ordinance, 1979. The addition on account of sale of assets can only be made after determining the fair value with the prior approval of the competent authority where the declared version is not accepted. It was further contended that the declared sale of assets is fully detailed, vouched and verifiable. The addition in sale of fixed assets is without any justification being illegal is not sustainable at law and liable to be deleted but the learned C.I.T. (A) without giving due consideration to the arguments put forth by the learned representative has remanded back the matter to the assessing officer for reappraisal with the direction to decide the same after affording opportunity of being heard to be appellant.

On the other hand learned DR is supporting the impugned order of the learned C.I.T. (A) on the ground that the appellant may explain his position before the Taxation Officer as an opportunity of being heard is already available to the assessee:

I have heard the learned representatives from both the sides and have also perused the impugned order of the learned C.I.T. (A), the assessment order and the provision of law referred.

On the perusal of rule 7 of the Third Schedule to the Income Tax Ordinance, 1979 which is regarding disposal of assets and treatment of resultant gains or losses, I have found that in Clause I of sub-rule (b) it has been said that where the assets is disposed of by an assessee "if the .sale proceed thereof exceed the written down value the excess shall be deemed to be the income of the assessee of that year chargeable under the head "Income from business or profession"; and if the sale proceeds are less than the written down value, the deficit shall be deemed to be an expenditure deductible from the profits and gains of the business or profession of that year and the business or profession for the purposes of which the said asset was used before its disposal shall be deemed to be carried on by the assessee during that year and all the provisions of this Ordinance shall apply accordingly." While in rule 8 of the Third Schedule in sub-rule (2) it has been said that "fair market value: has the same meaning as in subsection (3) of section 29."

While perusal of section 29 the repealed Ordinance, 1979 which is regarding cost of acquisition, and consideration for transfer, how determined, I have found that in subsection (3) it has been said that for the purposes of subsections (1) and (2) and subsection (12) of section 12, "fair market value" means:---

(a) the price which the capital assets would ordinary fetch on sale in the open market on the relevant date; and

(c) where the price referred to in clause (a) is not ascertainable, such price as may be determined after obtaining the approval of the Inspecting Additional Commissioner in writing.

After perusal of the above provisions of law, I am of the view that in the cases where the prices of the assets are not ascertainable for determining the price in accordance with fair market value, an approval of the Inspecting Additional Commissioner in writing is a mandatory requirement. In the present case admittedly the price of the asset as per the assessment order is not ascertainable and for determining the price in accordance with the market value the approval was pre-requisite which has not been fulfilled in the present case. Even otherwise while perusal of the assessment order I have found that in this case the assessment has been framed by the Additional Commissioner and the propriety demands that approval in this respect should be from the Commissioner. This being not done so the order passed by the Additional Commissioner has become nullity in the eyes of law as the mandatory provision of law has been ignored but learned C.I.T. (A) without any justification has remanded back the matter to the assessing officer giving further chance to fill in lacunae which is not permissible under the law. The impugned orders of the learned C.I.T. (A) and the assessee officer to the extent of determination of the value of the sale of fixed assets are, therefore, vacated and the Taxation Officer is directed to accept the value declared by the assessee.

The ground of appeal regarding setting aside the issue of application of higher GP rate is, however, dismissed, as the learned counsel has failed to give any plausible reason to reverse the order, the appellant may explain his position before the Taxation Officer who is directed to afford reasonable opportunity to the assessee to explain his position before passing the fresh order.

The appeal and application filed by the assessee are decided in the manner as indicated above.

C.M.A./15/Tax(Trib.)Order accordingly.