VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 901 (2007)

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

----S.62---Assessment on production of accounts, evidence etc.---Flour Mill---Rejection of sales---Assessee filed detailed documents regarding declared version, which had been mentioned in the assessment order itself---All required documents were furnished in response to notice under S.62 of the Income Tax Ordinance, 1979 but the Taxation Officer in concluding paras had given observation that "A.R. did not furnish books of accounts on the plea that the same had not been properly maintained"; moreover, no evidence in respect of expenses claimed was produced except of electricity bills, and salaries paid to employees---Taxation Officer had nowhere mentioned that except the documents which he was admitting and were produced by the assessee, he had further asked the assessee to furnish further documents and the declared version had been rejected---For the assessment year 2001-02, assessment had been made on the basis of Inspector's report, who had reported that the factory had worked only for three months, but the Taxation Officer had rejected the declared version without any justification---Substantial increase had been shown in sales declared, which had been 'rejected without justification---Appellate Tribunal directed Taxation Officer to accept the declared sales for both the years in circumstances.

(b) Income Tax---

----Gross profit rate---Flour Mill---Declared gross profit rate at 2.9% seemed to be very reasonable---Many cases of Flour Mills had been placed before Appellate Tribunal wherein gross profit rate less than what was declared by the assessee had been declared or accepted, despite the fact that the years under review were first years of the assessee; while the cases furnished by the assessee were of the established Flour Mills.

(c) Income Tax---

----Profit & Loss expenses---Details furnished in respect of Profit & Loss expenses had been in the assessment order, but in the concluding paras, disallowances had been made with the observation that no evidence in this respect had been furnished by the assessee---No justification existed for rejection of accounts and the First Appellate Authority had also not considered these facts while upholding the treatment meted out to assessee by the Taxation Officer---Declared sales, gross profit rate and claim of expenses out of Profit & Loss account 'were directed to be accepted for both the years---Assessee's appeal was allowed by the Appellate Tribunal.

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

----Third Sched., R. 1(3)(b)---C.B.R. Circular No. 6 of 1979 dated 8-9-1979---Allowances for depreciation---Depreciation allowance of machinery claimed for the whole year was not allowed but was restricted only for three months, for the period of working and the rest of the amount was added-back----Validity---Taxpayer shall be allowed deprecation to which he was entitled under the law, notwithstanding the fact of his claim---Through Finance Ordinance, 1980, certain words were omitted and now repreciation was admissible on assets even if used for a single day during the income year---No justification existed for disallowing the claim of depreciation---Appellate Tribunal directed the Taxation Officer to allow depreciation claimed by the assessee.

Sh. Muhammad Yousaf, I.T.P., for Appellant.

Mrs. Sabiha Mujahid, DR for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---Through these two appeals, the consolidated impugned order of the learned C.I.T. (A), dated 31-8-2005 for the assessment years 2001-2002 and 2002-2003 has been objected regarding estimated sales, applied GP rate and disallowances out of P&L A/c expenses.

The learned counsel for the appellant has contended that the years under review are the first years of business of the assessee which is Flour Mills. He has contended that sales declared at Rs.2,05,060,200 for the assessment year 2001-2002 have been estimated at Rs.2,36,79,967 while sales declared at Rs. 6,39,91,731 for the assessment year 2002-2003 have been estimated at Rs.7,67,07,121. While against declared GP rate of 2.97% for the two years under review, the Taxation Officer has applied 4% without any justification. The learned counsel has contended that the years under review being the first years of the business of the assessee cannot be compared with the other established Flour Mills. He is of the view that once the assessee has furnished all details, there was no justification for rejection of books of accounts. He has, in this respect, referred the assessment order, wherein it has specifically been mentioned that during assessment proceedings, on behalf of the assessee, documents like wealth statement, balance sheet, depreciation chart, demand notice from LESCO, Trading/Profit and Loss A/c details, electricity bills, bank statement, proof of security, copy of bank loan credit were furnished and in response to notice under section 62, photocopies of identity cards of employees; sales register, machinery receipts, sales invoices etc. as requisitioned by the Taxation Officer were furnished, but the Taxation Officer has rejected the declared version, estimates sales and applied GP rate and has made disallowances out of P&L A/c expenses without any Justification, despite the fact that all the evidences in this regard were furnished before the Taxation Officer. The learned counsel regarding the claim of depreciation for the assessment year 2001-2002 has contended that Taxation Officer has disallowed Rs.5,37,997 out of total claim of Rs.7,17,329 for the reason that the assessee has claimed depreciation allowance of machinery as a whole for the whole year, which cannot be allowed. The said allowance has, therefore, been allowed for three months for the period of working and the rest of the amount has been added-back. The learned counsel for the appellant referring sub-clause (b) of sub-rule (3) of Rule 1 has contended that depreciation will be allowed for the income year and not for the period under use. He has, in this respect, referred Circular No.6 of 1979, dated 8-9-1979 wherein it has specifically been mentioned that "In case period falls short of 12-months, the allowance shall be allowed in full".

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

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

I have found that in this case for both the years under review, the assessee has filed detailed documents regarding declared version, which have been mentioned in the assessment order itself. Likewise, in response to notice under section 62 of the repealed Ordinance, 1979, on behalf of the assessee, all the required documents were furnished, but the Taxation Officer in the concluding paras has given observation that "AR did not furnish books of account on the plea that the same have not been properly maintained. Moreover, no evidence in respect of expenses claimed except for thereof electricity bills, and salaries paid to employees was furnished". While perusal of the assessment order, I have found that the Taxation Officer has nowhere mentioned that except the documents which he is admitting that were produced by assessee, he has further asked the assessee to furnish any documents and the declared version has been rejected. For the assessment years 2001-2002, assessment has been made on the balls of Inspector's Report, who has 40rted that the factory has worked only for three months, but the Taxation Officer has rejected the declared version without any justification. I have further noted that assessee has shown substantial increase in sales declared, which have been rejected by the Taxation Officer without any justification.

Likewise, declared GP rate at 2.9% seems to be very reasonable', as on behalf of the assessee, many cases of Flour Mills have been placed before me wherein GP rate less than the declared by the present assessee has been declared or accepted, despite the fact that the years under review were the first years of the assessee, while the cases furnished by the learned counsel for the appellant are of the established Flout Mills.

Same is the position regarding disallowances out of P&L A/c expenses. Details furnished in this regard have been admitted in the assessment order, but in the concluding paras, disallowances have been made with the observation that no evidence in this respect has been furnished by the assessee.

Considering all these facts and circumstances of the case I, therefore, find no justification for rejection of accounts and the learned C.I.T. (A) has also not considered these facts while upholding the treatment meted out by the Taxation Officer. The declared sales, GP rate and claim of expenses out of P&L A/c expenses are directed to be accepted for both the years under review. Both the appeals filed by the assessee are allowed in this regard.

Regarding the issue of depreciation for the assessment years 2001-2002, I have found that the assessee has claimed depreciation of Rs.71,73,329 out of which Rs.5,37,997 have been disallowed with the following observations:---

"The assessee mill worked only for three months. Contrary to it, the assessee in its P&L A/c has claimed depreciation allowance of machinery as a whole (you the whole year) which cannot be allowed. The said allowance is, therefore, review (sic) only for three months, for the period of working. The rest of the amount is added-back".

While perusal of 3rd Schedule to the repealed Ordinance, 1979, which is regarding Rules for the computation of depreciation allowance and under sub-clause (b) of sub-rule (3) of Rule l regarding allowances for depreciation, it has been said that "Where in income year, any building, machinery, plant or furniture owned by the assessee is used for purposes of any business or profession carried on by him or in income year commencing on or after the 1st day of July, 1982, any machinery or plant is given on lease by the assessee, being a scheduled bank, financial institution or such Modaraba or leasing company as is approved by the Central Board of Revenue for the purposes of this Schedule, on such conditions as may be specified, an allowance for depreciation shall be made in computing the profits and gains of the business or the profession of the assessee in the manner hereinafter provided:---

(2) ------------------

(3) No allowance under this Rule shall be made unless:---

(a) -------------------

(b) Such building, machinery, plant or furniture has been so used during the income year.

I have further found that C.B.R. in Circular No.6 of 1979, dated 8-9-1979 has specifically directed in para 15 that "In cases where the income year for. 1980-81 for one or more sources of income exceeds 12 months, depreciation allowance shall be increased in the same proportion as the period exceeds 12 months. In case the period falls short of 12 months, the allowance shall be allowed in full". Although, these directions were for the income year 1980-81, but I am of the view that the position of claim of depreciation has subsequently been changed and the condition for eligibility of depreciation that it must be claimed at the time of filing of return has been dispensed with. In result, the taxpayer shall be allowed depreciation to which he is entitled under the law, notwithstanding the fact of his claim. I have further noted that through Finance Ordinance, 1980 omitting certain words, now depreciation is admissible on assets even if used for a single day during the income year. I, therefore find force in the contentions raised by the learned counsel for the appellant that there was no justification for disallowing the claim of depreciation. In view of this legal position, the Taxation Officer is directed to allow depreciation claimed by the assessee.

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

C.M.A./14/Tax(Trib.)Appeals allowed.