VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 885 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Ss.62 & 24(ff)---Assessment on production of accounts, evidence etc.---Rejection of accounts---Additions/disallowances---Assessing Officer in the assessment order had accepted that in response to notice, assessee had filed reply along with necessary documents and details, but in the assessment order; nowhere it had been mentioned that the Assessing Officer, after considering that evidence, had issued any further notice confronting the assessee regarding defects in the evidence/ documents/details furnished by him---Assessment order showed that returns of the assessee were accompanied by details of trading, profit & loss accounts, wealth statement, personal expenditure statement, bank statement, copies of tax payment challans and evidence of deduction of tax, but nowhere in the assessment order, it had been pointed out that the assessee was ever asked by the Assessing Officer to produce any further evidence in this regard---Likewise, Assessing Officer made the disallowances out of telephone, transportation, hiring charges and washing charges, without giving any specific reason for disallowance under each of the expenses claimed by the assessee---For making disallowances, reason under each of the expenses should be given---No reason for the disallowance made by the assessee was given---First Appellate Authority ignored all these facts and assessment had been made, without considering previous history of the case as well as without giving any reason for the estimation---Receipts declared by the assessee were directed to be accepted, additions made under S.24(ff) of the Income Tax Ordinance, 1979 were deleted and the disallowance under all the heads were deleted by the Appellate Tribunal in circumstances.

2005 PTD (Trib.) 814; 1998 PTD 390; 2002 PTD 407; 2004 PTD (Trib.) 1642; 1997 PTD (Trib.) 853; 2006 PTD (Trib.) 2179; 2006 PTD (Trib.) 2344; 2003 PTD (Trib.) 2157; 2003 PTD (Trib.) 1803 and 2003 PTD (Trib.) 1586 ref.

Ijaz Ali Bhatti for Appellant.

Rai Tallat Maqbool, D.R. for Respondent.

ORDER

Through these two appeals, the appellant has objected to the consolidated impugned order of the learned C.I.T. (A), dated 17-11-2005 for the assessment years 2001-2002 and 2002-2003 on the following common grounds:---

(2) That the learned C.I.T. (Appeals) decided the appeal on 17-11-2005 whereas notice for hearing was issued on 27-2-2006 which is contrary to the facts of the case.

(3) That the learned C.I.T. (A) was not justified in rejecting the issue with regard to complete disregard of directions issued by the Commissioner of Income Tax, Zone-B, Lahore through the Order No.632/03, dated 6-9-2003 under section 122A of the Income Tax Ordinance, 2001 to the assessing officer.

(3) That the learned C.I.T. (A) was grossly erred in confirming the receipts of Rs.67,30,258 as against declared at Rs.51,46,938 for the assessment year 2001-2002 and at Rs.40,00,000 as against declared at Rs.17,80,164 for the assessment year 2002-2003, which were assessed by the assessing officer without pointing out any ,specific defect/confronting and the estimate is without any basis, highly excessive and unjustified.

(4) That without prejudice to the above, the learned C.I.T. (A) was not justified to uphold the additions out of trading account on the basis of stock phrases without confronting by the assessing officer.

(5) That the learned C.LT. (A) was not justified in upholding the provisions of section 24(M of the Income Tax Ordinance, 1979 as the assessing officer has invoked without correct appreciation of facts and confronting.

(6) That the learned C.I.T. (A) was not justified in upholding the disallowing 60% of claimed trading account expenses, without any cogent reason and confronting.

(7) That the learned C.I.T. (A) was not justified in upholding the disallowances made by the assessing officer from the expenses claimed in trading account without pointing out specific instances of unverifiability/without confronting.

(9) That the learned C.I.T. (A) was not justified in upholding the add backs out of telephone expenses at Rs.13,823 for the assessment year 2001-2002 and at Rs.15,081 for the assessment year 2002-03 out of claimed at Rs.92,155 and at Rs.1,00,540 for the two years respectively.

We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned C.I.T. (A), the assessment order, the case law referred by the learned counsel for the appellant and other relevant record of the case.

The appellant, in this case, is an individual deriving income from providing tent services as well as rental income: Facts leading to the appeals for the assessment years 2001-0Z are that the appellant filed return declaring net income at Rs.75,000. Subsequently, the appellant revised return declaring net loss of (Rs.1,67,344) and the assessing officer completed the assessment at net income of Rs.67,93,597. Later on, the Commissioner, Income Tax as per order under section 122A remanded back the case for de novo proceedings with the directions to make assessment afresh after providing due and adequate opportunity to the appellant. The assessing officer in compliance to the directions of the Commissioner completed the assessment rejecting declared version and estimating receipts and has made the additions out of P&L A/c expenses. Income for this year has been determined by the assessing officer at Rs.30,18,075.

For the assessment year 2802-03, the appellant filed return declaring net loss at (Rs.1,80,000) which was revised later on declaring loss of (Rs.5,92,176). Due to declaration of loss, the case was processed under normal law. The assessing officer for this year has determined income of the appellant at Rs.99,85;184 with the observation that the appellant declared net wealth of Rs.2,11,06,088 as on 30-6-2002 against Rs.2,21,25,506 as on 30-6-2001 so no change occurred in immovable assets owned by the appellant. It has further been observed by the assessing officer that the appellant has again revised his return to declared net loss of (Rs.8,78,850). The assessing officer after comparing results with the original and revised returns for the assessment year 2001-2002 has observed that the appellant not only increased claimed mark up, but also decreased declared receipts in the revised return, without giving any reason regarding prompt reduction in receipts in the revised return.

The appellant agitated the assessment orders passed by the assessing officer for the two years before the learned C.I.T. (A), who has upheld the treatment meted out by the Taxation Officer, hence these two appeals for the years under review.

Mr. Ijaz Ali Bhatti, Advocate has appeared on behalf of the appellant and has at the very outset submitted that he is not pressing the ground taken for the both years regarding deciding the appeal on 17-11-2005 and issuing notice for hearing on 27-2-2006.

The appeal on this ground is, therefore, dismissed being not pressed.

He has contended that assessment for the assessment year 2001-02 has been finalized by the assessing officer in complete disregard of directions issued by Commissioner of Appeals through order passed under section 122A of the Income Tax Ordinance, 2001. He has in this respect referred the directions/observations in that order, wherein it has been directed that assessment framed for the year under consideration need reappraisal of all the facts of the case, but the assessing officer while making fresh order has not considered these directions.

Regarding rejection of accounts, it has been contended by the learned counsel for the appellant that declared version of the assessee has been rejected on the basis of stock phrases, without specifically pointing out any defect, as all the receipts for the two years are through banking channels and are verifiable duly supported by bank statement for the periods under review, but the assessing officer has not specified any material instances/specific defects while making arbitrary additions in the receipts. The learned counsel has contended that there are plethora of case law decided by the various appellate authorities, wherein it has been held that additions cannot be made on mere surmises and conjectures.

Regarding disallowances out of P&L A/c expenses and application of section 24(ff) of the repealed Ordinance, 1979, it has been contended that the assessing officer has failed to point out any specific defects in the details/documents produced by the assessee at the time of hearing and the assessing officer has made the additions on the basis of stock phrases in trading as well as P&L A/c expenses. He is of the view that the reasons given in the body of the assessment order for both the years are baseless. He has contended that the appellant hired services of other parties by hiring items from various parties and declared expenditure, which were actually incurred. He is of the view that the assessing officer has ignored the settled law of the Superior Courts that disallowance of 60% treating expenditure on the basis of conjectures and surmises cannot be made. He has contended that the assessing officer has ignored the true spirit of section 24(ff).

Regarding disallowances out of P&L A/c expenses for both the years, the learned counsel has contended that the assessing officer has not given reasons under each of the head for both the years and therefore disallowances should be deleted, as has been consistently held by this Tribunal in many cases as well as by the Honourable Supreme Court. The learned counsel for the appellant has also placed before us the order passed by the Commissioner of Income Tax under section 122A of the Income Tax Ordinance, 2001, the assessment orders in the case of the assessee for the assessment years 1992-93 to 1994-95, Circular No.11 of 1998, dated 25th July, 1998, decision of this Tribunal reported as 2005 PTD (Trib.) 814, wherein it has been. held that "once the assessing officer in the previous years having accepted method of accounting adopted by the assessee and having found it possible to deduce and determine the receipts, therefrom, he could not reject the same in the subsequent assessment years". It has further been held in this decision that "while formulating the assessment, the Assessing Officer is not vested with the powers to make pure guesswork and also to make assessment without reference to any evidence or any material at all". In another case referred by the learned counsel reported as 1998 PTD 390 in which, it has been held that GP rate at 0.56% is directed to be accepted, as same has been applied in other cases and also in the case of the assessee in the previous assessment years and without distinguishing features of other case as well as case of the assessee, no higher GP rate can be applied. In another decision reported as 2002 PTD 407 (H.C. Kar.) referred by the learned counsel for the appellant wherein, it has been held that "Law does not cast non-application on the assessee to maintain accounts and no adverse inference can be drawn for failing to maintain accounts. However, where accounts are maintained and the same are not produced or processed adverse inference can be drawn". In another reported as 2005 PTD (Trib.) 1642 wherein, it has been held that "estimation on the basis of conjectures and surmises cannot be approved". In another case reported as 1997 PTD (Trib.) 853 in which, it has been held that "it is by now a well settled that even after rejection of declared version, the assessing officer must bring on record the 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". In a decision reported as 2006 PTD (Trib.) 2179, it has been held that. "Since D.C.I.T. has not issued any notice under section 62, which is mandatory and condition precedent for making additions in the total income of the assessee, the correct legal course for the learned Commissioner, Income Tax (Appeals) was to delete the addition instead of setting them aside. Accordingly, the additions are hereby deleted. The learned counsel in this regard has also placed before us the following reported decisions:---

(a) 2006 PTD (Trib.) 2344; (b) 2003 PTD ('Trib.) 2157; (c) 2003 PTD (Trib.) 1803 and (d) 2003 PTD (Trib.) 1586

On the other hand, learned DR is supporting the impugned orders of the officers below.

After considering the above submissions, we have found that the assessing officer in the assessment order has accepted that in response to notice of the assessing officer, the learned representative of the assessee appeared and filed reply along with necessary documents and details, but in the assessment order for both the years, nowhere it has been mentioned that the assessing officer after considering that evidence has issued any further notice confronting the assessee regarding defects in the evidence/documents/details furnished by the assessee. It has also been admitted in the assessment order that returns of the assessee were accompanied by details of trading, profit and loss A/c, wealth statement, personal expenditure statement, bank statement, copies of tax payment challans and evidence of deduction of tax, but nowhere in the assessment A order, it has been pointed out that the assessee was ever asked by the assessing officer to produce any further evidence in this regard.

Likewise, we have found that the assessing officer for both the years has made the disallowances out of .telephone, transportation, higher charges and Washing Charges, without giving any specific reason of disallowance under each of the expense claimed by the assessee: We find force in the arguments of the learned counsel for the appellant that this being the consistent view of this Tribunal as well as by the higher Courts that for making disallowance, reason under each of the expense 'should be given. We, therefore, find no reason for the disallowance made by the assessee. We have further found that the learned C.I.T. (A) has also ignored all these facts of the case. The assessment in this case has been made, without considering previous history of the case as well as without giving any reasons for the estimation.

In view of these facts and circumstances of the case, receipts declared by the assessee for both the years under review are directed to be accepted, additions made under section 24(ff) are deleted and the disallowances under all the four heads of accounts i.e. Transportation, Hiring Charges, Washing Charges and Telephone are deleted.

Both the appeals filed by the assessee are allowed.

C. M. A./19/Tax(Trib.)Appeals accepted.