VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1772 (2009)

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

----Ss.59 (1) & 13(1)(aa)---C.B.R. Circular No.7 dated 24-3-2003, para.9(a)(ii)---Self-Assessment---Selection of case of total audit---Addition---Assessee contended that case was selected for three reasons out of which the Assessing Officer had drawn adverse inference only to the extent of claim of foreign remittances and on other two issues, the Assessing Officer being satisfied with the submission of the assessee had accepted the assessee's stance---Declared version of the assessee had wrongly been put to the test of verification and profit and loss expenses were curtailed, as this was not the basis of recommendation for audit---Case of the assessee should have been accepted under Self-Assessment Scheme as the basis of selection of case for audit i.e. addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 had been deleted by the First Appellate Authority---Validity---Assessing Officer had accepted the declared business receipts of the assessee and drawn inference only to the extent of addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 on account of foreign remittance---Assessing Officer had also made routine Profit & Loss Addition on estimate basis which was not the very purpose of selection of case for audit through para.9(a)(ii) of the C.B.R. Circular No.7 of 2002---Since very basis of selection of case for audit was that of addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 which was deleted in appeal, there was no justification left with the department to process the case under normal law for routine addition on account of Profit & Loss expenses---No justification existed for processing the case under normal law by merely curtailment of profit and loss expenses on estimate basis which was not the basis for selection of the case in terms of para.9(a)(ii) of the C.B.R. Circular No.7 of 2002 dated 23-3-2003---Appellate Tribunal directed that the case of the assessee for assess ment years 2002-2003, be accepted under Self-Assessment Scheme.

I.T.A. No.386/LB of 2005, decided on 23-9-2005 ref. 2007 PTD (Trib.) 898 rel.

Suhail Mutee Babri, I.T.P. for Appellant.

S.A. Masood Raza Qizalbash, D.R. for Respondent.

ORDER

The instant appeal pertaining to assessment year 2002-03, has been filed by the assessee, arises out of order passed by the learned C.I.T.(A), Appeal Zone-I, Lahore, dated 31-1-2006.

2. Earlier the titled appeal has been disposed of by the Tribunal vide order dated 2-9-2008, but the assessee preferred miscellaneous application for recall of the Tribunal's order on the plea that additional grounds raised through miscellaneous application, had not been adjudicated by the Tribunal while deciding the appeal of the assessee. The Tribunal vide order contained in M.A. No. 41/LB of 2009, dated 16-4-2009, has recalled its earlier order to adjudicate the following grounds of appeals:--

(i) That without prejudice to above the Assessing Officer having not drawn any adverse inference on the issues made basis for audit the declared version should have been accepted under self-assessment.

(ii) That the Assessing Officer being satisfied on the issues made basis for audit had no other legal option but to accept the, declared version:

(iii) That the declared version has wrongly been put to the test of verification and profit & loss expenses curtailed, as this was not the basis of recommendation or audit.

(iv) That the learned Commissioner of Income Tax (Appeals) having deleted addition made under section 13 (1) (aa) of the Income Tax Ordinance, 1979, on of the basis for audit, should have ordered acceptance of the declared version under self assessment.

3. Briefly stated, the relevant facts are that the assessee in this case is an individual, derives income as authorized dealer of Messrs Pakistan Mobile Communication (Pvt.) Ltd., under the name and style of Messrs Cellular Links. Return for the year 2002-03, was filed under S.A.S. but the same was-set apart by the R.C.I.T. Eastern Region, Lahore, under para. 9 (a)(ii) of Circular No.7 of 2007, dated 24-3-2003. As per assessment order a number of statutory notices were issued but the same remained un-complied and the assessee continued to object to the order of the set apart. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee had claimed expenses under various heads of profit & loss account at Rs.12,484,816 but no detail/documentary evidence in support thereof has been furnished. It was also observed by the Assessing Officer that wealth reconciliation statement submitted by the assessee showed encashment of foreign remittances at Rs.5,098,300. In response thereto, the assessee filed details/documents as per notices but failed to file the proof of P & L expenses. The Assessing Officer completed the assessment under section 62, for assessment year 2002-03 and accepted declared business receipt of Rs.14,117,385, upon which expenses were allowed at.1/3rd on estimated basis. Addition. Under section 13(1)(aa) on account of foreign currency claim of Rs.5,098,300, was also made as the assessee had not submitted documentary evidence to substantiate his claim. As a result, net income for the year was computed at Rs.14,509,890.

4. Being aggrieved, the assessee preferred appeal before the learned C.I.T.(A) and challenged the treatment meted out at assessment stage. The learned C.I.T.(A) after hearing the arguments of the AR, has confirmed the selection of the case for audit in terms of para. 9(a)(ii) of Circular No.7 of 2002. As regards addition made under section 13(1)(aa) amounting to Rs.5,098,300 the learned C.I.T.(A) deleted the addition with the observation that the Assessing Officer's action in disallowing the certificates of foreign remittances is not based on correct appreciation of law. The contention of the assessee' with regard is time barred, the learned C.I.T.(A) rejected the same on the basis of ITAT decision contained in I.T.A. No.386/LB of 2005, dated 23-9-2005.

5. We have heard both sides and have perused the available record. The learned AR of the assessee strongly agitated the processing of the case for audit. It is contended by the learned AR that since the learned C.I.T. (A) had deleted the addition made under section 13(1)(aa), the very basis of selection of the case for audit, he should have ordered acceptance of the case under Self-Assessment Scheme. It is submitted by the AR that the case of the assessee selected by the R.C.I.T, for three reasons out of which the Assessing Officer drawn adverse inference only to the extent of claim of foreign remittances amounting to Rs.5,098,300 and on other two issues, the Assessing Officer being satisfied with the submission of the assessee had accepted the assessee's stance. It is contended by the learned AR that the declared version of the assessee has wrongly been put to the test of verification and profit & loss expenses. were curtailed, as this was not the basis of recommendation for audit. In view of the above, it is submitted by the learned AR that the case of the assessee should have been accepted under S.A.S. as the basis of selection of case for audit i.e. addition made under section 13 (1) (aa) has been deleted by the C.I.T. (A). To support his above, submissions, the learned AR of the assessee relied on the judgment of the ITAT reported as 2007 PTD (Trib.) 898.

6. We have looked into the matter and after due consideration, we are' in agreement with the arguments of the learned AR that the case of the assessee should have been accepted under Self-Assessment Scheme, as the very basis of selection of case under para. 9(a)(ii) is that of addition made under section 13(1)(aa) on account of foreign remittances which was deleted by the C.I.T. (A) and also confirmed by the ITAT in the order dated 2-9-2008. Here, we deem it necessary to reproduce the reasoning behind the selection of the case by the R.C.I.T. -vide order under para. 9(a)(ii) of Circular No.7 of 2002 dated 15-6-2002:--

(1) Business is being conducted at four branches established at Centre Point Gulberg, Lahore, Circular Road, Lahore Fortress Stadium, Lahore, and at Rawalpindi, three branches have been set up during the year under consideration incurring handsome amount investment thereon which needs investigation.

(2) The sales of mobile phones and accessories have not been declared for the year under consideration whereas these were declared in the previous assessment years of 1996-97, 1997-98, and 1998-99. It is general practice in this line of business that mobile phone connection providers also sell mobile phone sets and accessories for facilitating their customers. None declaration of sales need detailed examination.

(3) An increase in net wealth of Rs.4,462,886 has been shown in the wealth statement as on 30-6-2002., Acquiring of new assets during the year needs probe.

7. These are three reasons behind the selection of the case for audit. The bare perusal of the statement order, reveals that the Assessing Officer had accepted the declared business receipts of the assessee and drawn inference only to the extent of addition made under section 13(1)(aa) on account of foreign remittances. In addition to above, the Assessing Officer had also made routine P&L addition on estimate basis which is not the very purpose of selection of case for audit through para. 9 (a) (ii) of Circular No. 7 of 2002. Since, the very basis of selection of case for audit was that of addition made under section 13(1)(aa) which was deleted in appeal, there was no justification left with the department to process the case under normal law for routine addition on account of P & L expenses.

8. We find full support from the case law cited by the learned AR reported as 2007 PTD (Trib.) 898, which is "on all fours" applicable in the instant case. The relevant portion of the said judgment is reproduce below:--

" .three reasons for taking the case outside the scope of self-assessment scheme, these are hefty amount of rent, huge amount of salaries and heavy amount spent on repair and maintenance. When finally assessment was framed after having sought explanation of the assessee-appellant major reasons for taking out the case from the purview of S.A.S. were dropped and in this manner the department was left with little justification to proceed under normal law instead of accepting the declared version under Self-Assessment Scheme. This amounts to unnecessary tinkering. We have further observed that the case of the assessee-appellant was set apart in an indiscriminate manner and against the instructions' of C.B.Rs contained in its Circular No.7(7)/S. Asstt/2002, dated 17-12-2002, whereby the Board had directed its field formation to set apart only those cases which are revenue potential and where there is a sound basis for framing a normal law assessment. The application of higher gross profit rate and addition out of profit & loss account expenses are not in accordance with the provisions of the Income Tax Ordinance, 1979, and direction of the higher appellate authorities, hence, income computed by the Assessing Officer is disapproved. The case of the assessee was not a Revenue potential case and there was no bona fide reason to oust the same from the scope of the Self-Assessment Scheme. We may further observe that such kind of action by the department did not amount to sabotaging the Self-Assessment Scheme and confidence reposed by the State in the taxpayers."

9. In view of the above observations made by us and case law cited, we find no justification for processing the case under normal law by merely curtailment of P & L expenses on estimate basis which was not the basis for selection of the case in terms of para.9 (a)(ii) of the Circular No.7 of 2002. Accordingly, we direct that the case of the assessee for assessment year 2002-2003, be accepted under Self-Assessment Scheme announced for the year.

10. Appeal of the assessee succeeds in the above manner.

C. M. A. /77/Tax(Trib.)Appeal accepted.