VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 918 (2008)

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

----S. 12(18)---Addition---Loan---Assessee claimed that loan was received from the company through cheque, which stance was duly verified by the bank but Assessing Officer found that the word `cash' used in the bank statement necessitated an action under S.12(18) of the Income Tax Ordinance, 1979---Proceedings were initiated and addition was made---Validity---Routing of loan amount through banking channel had been proved to an undeniable extent, as far as the splitting of the amount of crossed cheque by crediting to two different persons though husband and wife under the instructions of the issuing company could also not be proved as false in the light of written instructions of issuing company duly certified by the banks---Assessing Officer had not at all stated that such exercise by the assessee was to make back-dated entries in an attempt to cover up some transactions---Provisions of S.12(18) of the Income Tax Ordinance, 1979 were not attracted in such cases because money had been routed through proper banking channel.

2007 PTD 1377 rel.

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

----S. 12(18)---Income deemed to accrue or arise in Pakistan---Addition in the case of Director of company had been made under S.12(18) of the Income Tax Ordinance, 1979 where the company in which he was Director had directly made certain payments on his behalf to the third parties---Such transactions did not attract the provisions of S.12(18) of the Income Tax Ordinance, 1979---Appellate Tribunal directed that such addition shall be deleted.

2007 PTD 1377 rel.

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

----S.13(1)(d)---Unexplained investment etc., deemed to be income---Addition---Addition was made by discarding price as recorded in the registered purchase deed but by simply referring to other cases without specifying the locality---For dislodging the price as recorded in the registered sale deed, the reference was to be based on the exact location, size and ambient circumstances which had not, been done---Appellate Tribunal directed that addition under S.13(1)(d) of the Income Tax Ordinance, 1979 shall be deleted in circumstances.

Asim Zulfiqar Ali, A.C.A. and Zulfiqar Ali Sheikh, I.T.P./A.Rs. for Appellant/Assessee.

Javed Iqbal Rana, D.R. for Respondent/Department.

ORDER

EHASAN-UR-REHMAN, (JUDICIAL MEMBER).---Through this consolidated order, we intend to dispose of the titled two cases where commonly the facts are same and also inter-linked to each other having directed against even dated two separate impugned orders i.e. 22-5-2007.

2. Commonly, both the appellants are directors of the same company which is a two member private limited company i.e. husband and wife and the issues involved pertain to invoking the provisions of section 12(18) on receiving the loans from the company, where both are the Directors.

3. The facts which we are able to get from the record and also the statements made before us are that undisputedly crossed cheques have been issued by the company from its Bankers Messrs MCB but these cheques though duly drawn in favour of Mr. Shahid Anwar (appellant in I.T.As. Nos.749 and 750/LB/07) whereas the amount specified in the cheque was credited to both the accounts in their respective bank accounts maintained in Emirates Bank International. In both the respective recipients' bank accounts the crediting of the amount has been given with the narration "cases" whereas in MCB Statement i.e. the issuing bank, the payments were against cheque. The assessing officer noticing that in the bank statement it is the cash which has been narrated as credited, the proceedings under section 12(18) were initiated and ultimately the addition under section 12(18) was made in both the individual in person separately for the amount each claimed as received through cross cheque as loan from the company.

4. It is pertinent to mention that it is the complete second round of appeal as earlier this Tribunal vide order dated 22-11-2004 in I.T.A. No.2578/LB of 2004 for the assessment year 1999-2000 in both the cases as appellants, the cases were remanded to the learned first appellate authority with directions. The learned first appellate authority disposed of the appeals in the second round but without complying with the specific instructions which were issued commonly for both the cases. So in this second round, the assessment record was requisitioned and had been produced before us which was duly examined in the presence of the learned D.R. To resolve the controversy of issuing of cross cheques by the MCB and creating the amount in the account of both the recipients as cash that the assessing officer made inquiries and in response to it certificates from Emirates Bank International were produced before the assessing officer acknowledging that the cross cheques though issued in personal name of Mr. Shahid Anwar (I.T.As. Nos.749 and 750/LB/07) but under the instructions of loan giving company the credit for whole amount was given to two respective accounts of the appellants for the amount as specified in instructions and secondly it was by special collection arrangement that the cash was collected by the Emirates Bank International acknowledging for which the credit was given, and, it is a misnomer that the word `cash' is appearing in the recipients' respective bank accounts. Earlier to it, the assessing officer also wrote directly to the State Bank of Pakistan bringing the whole series of facts into its notice for verification and the State Bank of Pakistan in reply asked for approaching the respective banks. It is how that the assessing officer wrote directly to both the banks i.e. MCB and Emirates Bank International. Both the banks responded by verifying the stance of the assessee but yet the assessing officer found that the word `cash' used in the bank statement necessitated an action under section 12(18). In this background of the matter that the issues have reached again before the Tribunal in the second round, the learned A.R. with the exhaustive arguments submitted that the questions arose are firstly (i) as to whether the amount advanced was through crossed cheque then why cash was collected and secondly (ii) as to whether the cash can be collected or not in the background when the collecting bank has verified through duly signed by two responsible officers, the receiving of cross cheques and its collection through special collection rights when the recipient bank account is also maintaining its bank account with the MCB and splitting of the amount to two different individuals under the instructions of the issuing company. To explain it, the learned A.R. has submitted that the loan has been claimed to have been received through crossed cheques and it stood proved on verification from the payer's bank statement where it is showing the debiting by cheque for all such amounts received as advance/loan. The learned A. R. submitted by highlighting the sequence of events that when no doubt is left about the issuance of a cross cheque, then the provisions of section 12(18) have duly been complied with. Secondly, that cash has been collected under special collecting rights and the credit for the same was given to two appellants assessees separately under the directions of the issuing company. The assessing officer could not find any thing contrary to such stance as had he any doubt the record of the issuing company could have been examined. The learned A.R. produced before us the Ledger copies of the personal accounts of both the appellant-assessee maintained in the books of company duly depicting the receiving of the loan amount by cheques which were split up as per directions in both the respective accounts. The learned A.R. further argued that involvement of banking channels has been especially proved when both the bankers have acknowledged the events as has been contended, so the additions are unwarranted. The learned A.R. supported his stance by referring to the judgment of the Hon'ble Supreme Court of Pakistan reported as 2007 PTD 1377.

5. The learned A.R. further explained that in the Income Tax Ordinance, the word banking channel has been described which is quite distinct to the banking instrument as given in section 73 of the Sales Tax Act, 1990.

6. The learned A.R. has argued further that as per provisions of section 12(18) as interpreted by the Hon'ble Supreme Court of Pakistan that the involvement of banking channel is enough to exclude the amounts given/received as advance/loan from the rigours of the section [2(18).

7. The learned D.R. conversely opposed the submissions made by the learned A.R. but failed to rebut the steps taken by the assessing officer by ignoring the evidence placed during the course of the assessment proceedings. The learned D.R. also could not refer to any judgment contrary to what has been held by the Hon'ble Supreme Court of Pakistan.

8. We have heard the learned representatives of both the parties on the issue of addition under section 12(18) in both the cases and have perused the available record. On examination of the assessment record, the learned D.R. has found that all the evidence in the form of bank certificates and correspondence with the State Bank of Pakistan were available on record. The attested photocopies of the cross cheques issued were also available on record. The assessing officer has himself accepted the stance that it is a loan which is actionable under section 12(18) but has failed to implement in letter and spirit the exact provisions of law which though have been interpreted by the Hon'ble Supreme Court of Pakistan by allowing relief in the manner that section 12(18) would not be attracted where banking channel is involved. This sequence of events could not be disapproved/dispelled by any of the authorities below and more pertinently by the assessing officer who was competent to make further probes. His not making further probes makes us to believe that he felt satisfied with the available evidence but yet has preferred to draw adverse inference instead resorting to more verification measures. It is here he misdirected himself. The routing of the loan amount through banking channel has been proved to an undeniable extent, as far as the splitting of the amount of crossed cheque by crediting to two different persons though husband and wife under the instructions of the issuing company could also not be proved as false in the light of written instructions of issuing company duly certified by the banks. The assessing officer has not at all stated that this exercise by the assessees/appellants was to make back-dated entries in an attempt to cover up some transactions.

9. So keeping in view the discussion supra and by following the law on the subject as cited before us, we hold that the provisions of section 12(18) are not attracted in both the cases because money has been routed through proper banking channel. The learned first appellate authority in the second round by not complying with the specific instructions has not performed its judicial obligations in proper manner. The other addition in the case of Mr. Shahid Anwar in assessment year 2000-01 has been made under section 12(18) where the company in which he is Director has directly made certain payments on his behalf to the third parties. Such transactions do not attract the provisions of section 12(18) as has already been held by this Tribunal in the order cited as 2004 PTD 1377 (Trib.), so by placing reliance on the cited order, it is directed that this addition shall be deleted. In assessment year 1999-2000, in the case of Mr. Shahid Anwar, the addition under section 13(1)(d) has been made .by discarding the price as recorded in the registered purchase deed but by referring to simply other cases of Chak No.204 without specifying the locality of the same. For dislodging the price as recorded in the registered sale deed, the reference was to be based on the exact location, size and ambient circumstances which have not been done. So, it is directed that the addition under section 13(1)(d) shall also be deleted.

10. The appeals filed in both the titled cases succeed accordingly in the above manner.

C.M.A./34/Tax(Trib.)Appeals succeeded accordingly.