OCEANIC CONSTRUCTION CO., KARACHI VS COMMISSIONER OF INCOME TAX, ZONE `C', KARACHI
2009 P T D 1656
[Karachi High Court]
Before Muhammad Athar Saeed and Arshad Siraj Memon, JJ
Messrs OCEANIC CONSTRUCTION CO., KARACHI
Versus
COMMISSIONER OF INCOME TAX, ZONE `C', KARACHI and others
Income Tax Appeal No.225 of 1997, heard on 21/05/2009.
Income Tax Ordinance (XXXI of 1979)---
----Ss.12(12) & 13(2)---Verifiable transaction, discarding of---Effect---Assessing officer was, not empowered to ignore the sale price in case of verifiable transaction unless it was proved to be sham or of collusive and corroborative nature to deprive exchequer of its lawful dues and taxes---In the present case, not only the assessing officer acted against law by estimating the value of property sold, but he had also failed to bring on record any convincing evidence to prove that there was collusion between the seller and purchaser---Mere reference to some transactions would not ipso facto justify discarding a verifiable transaction---Heavy onus lay on the assessing officer to place evidence on record that the other party (purchaser) to the transaction had paid a higher price than recorded by the seller---Income Tax Appellate Tribunal, in circumstances, had no jurisdiction and power to estimate the sale price of the property and answer the question in affirmative in favour of department---Principles.
Muhammad Farid for Appellant.
Jawaid Farooqui for Respondents.
Date of hearing: 21st May, 2009.
JUDGMENT
ARSHAD SIRAJ MEMON, J.---This income tax appeal arises out of the order passed by the Income Tax Appellate Tribunal in I.T.A. No.549/KB-1988-89 dated 10-4-1997 for the assessment year 1987-88. By order dated 10-2-1999 this Court had admitted this Income Tax Appeal to consider the following question:--
"Whether the estimate of sale/purchase price of the plot in dispute made by the Appellate Tribunal is not based on any evidence and material on record but on the conjecture and whims of the Appellate Tribunal."
2. We have heard Mr. Muhammad Farid, learned Advocate for the appellant and Mr. Jawaid Farooqui, learned Advocate for the respondent.
3. Brief facts of the case are that the appellant is a registered firm which had purchased a plot of land No.FL-9 Block-2, Clifton, Karachi during the assessment year 1986-87, which was sold during the assessment year under consideration i.e. assessment year 1987-88 to Messrs Sassi (Pvt.) Limited for consideration of Rs.1,000,000 vide sale-deed, dated 4-1-1986.
4. During assessment proceedings it was noted by the Income Tax Officer that he received a verification note from Deputy Director (Survey), Karachi, regarding the said transaction of the appellant/ assessee with Messrs Sassi (Pvt.) Limited and in the said verification note it was revealed that fair market value of plot for flat site ranges between Rs.1200 to Rs.1500 per sq. yard in the same locality. It appears that on the basis of the said verification note, the appellant was confronted' during the course of the proceedings that in same vicinity commercial plot 7/8 in Block No. II Clifton; Karachi was sold on 12-9-1985 by National Construction Limited at Rs.1,970 per sq. yard and on assumption that prices must have gone up, intention was shown to estimate the said plot at Rs.2000 per sq. yard. In response to the said notice the appellant contended that presumption of understatement was not based on any material evidence and was based purely on guess work and conjectures. It was also pointed out that the example cited by the Income Tax Officer was of commercial plot whereas the appellant had sold flat site which on fact was distinguishable and cannot be compared. It was also brought on record that the appellant has sold the plot to a private limited company and transaction of sale is fully verifiable duly supported by sale agreement and same cannot be rejected and ignored without any evidence and material. It was also brought on record that the Department has accepted purchase price in the hands of the purchaser. Nevertheless, the Assessing Officer did not find the appellant's contention satisfactory and estimated sale price of land on the basis of another transaction of flat site estimated the value of plot at Rs.1,500 sq. yard and after reducing the earlier estimate, made valuation of the said plot and difference thereon was added in the income of the appellant.
5. Being aggrieved, against the said treatment, the appellant preferred appeal before the Commissioner of Income Tax (Appeals-IV), Karachi. In the said appeal it was contended that the Income Tax Officer by misconception has compared flat site with a commercial plot and that since the transaction was admittedly between two identifiable as well as verifiable parties properly documented, the Income Tax Officer has not placed any evidence on record that the two parties had any blood relationship or mutual financial interest to show that the 'deal was not at arms length, therefore, Assessing Officer has no authority under law to dictate the appellant at what amount it should sell its stock in trade or what margin of profit should it charge from its customers.
6. The Commissioner of Income Tax (Appeals) after consideration of the facts and circumstances of the case found that Assessing Officer had no authority under law to reject the version of verifiable sales and apply any rate of such sales unless there is definite evidence on record that the transaction was sham and after holding there was no proof that the deal was sham the rejection of declared version of sale was found to be unwarranted and accordingly, addition made in the income was deleted.
7. The Income Tax Officer/Department preferred appeal before the learned Income Tax Appellate Tribunal. After considering the transaction in another case, it directed the Income Tax Officer to reduce the sale price to the extent of Rs.600 per sq. yard and accordingly directed the Income Tax Officer to adopt rate of Rs.1400 per sq. yard instead of Rs.2000.
8. The learned counsel for the appellant submitted that in the instant case under consideration, the appellant had sold property to a verifiable private limited company and the department has not brought anything on record to demonstrate that the transaction between the appellant and the purchaser was sham. It was vehemently argued that the learned Income Tax Appellate Tribunal instead of reducing the value as determined by the Assessing Officer should have deleted the same as there was no material evidence available against the appellant. He further submitted that the narration of the facts would show that even estimates made by the Income Tax Officer and the learned Tribunal are based on presumption, conjectures and on their own whims without correctly applying the judicial mind in the instant case.
9. On the other hand learned counsel for the respondent supported the action of reduction of value by the Income Tax Appellate Tribunal. The learned counsel for the respondent was confronted to show the provision of law under the repealed Income Tax Ordinance, 1979, for making estimate of such transaction in case of sale where both the parties i.e. seller and buyer are fully verifiable and without bringing on record' any material facts that the transaction is sham action of valuing the property can be made. The learned counsel for the respondent was unable to refer any provision of law which authorizes the Assessing Officer to reject the transaction in aforesaid circumstances.
10. We have carefully examined the facts of the present case and have also 'gone through the records available in the present case. The appellant has sold plot of land No.FL-9 Block-II Clifton Karachi through sale-deed dated 4-1-1986 to Messrs Sassi (Pvt.) Ltd. The perusal of the records shows that no incriminating evidence has been brought on record to show that transaction between the appellant (seller) and the purchaser was a sham transaction. The perusal of the Income Tax Ordinance, 1979 shows that under subsection (12) of section 12 and under subsection (2) of section 13 legislature has granted power to discard recorded and verifiable price of transaction or value of acquisition being less than the fair market value or too low than its reasonable value. The said two sections apply to the purchaser and not to the seller. There is another provision though not relevant is section 79 which deals with and applies exclusively to the business carried on between a resident and non-resident.
11. The law does not empower the Assessing Officer to ignore the sale price in case of verifiable transaction unless it is proved to be sham or of collusive and corroborative nature to deprive exchequer of its lawful dues and taxes. In the present case not only the Assessing Officer acted against law by estimating the value of property sold, but he has also failed to bring on record any convincing evidence to prove that there was collusion between the seller and purchaser. Mere reference to some transactions would not ipso facto justify discarding a verifiable transaction. We may further add that heavy onus lies on the shoulders of the Assessing Officer to place evidence on record that the other party (purchaser) to the transaction has paid a higher price than recorded by the seller.
12. Keeping in view the above discussion, we fail to understand as to how verifiable transaction, between two parties can be discarded without bringing any evidence on record that the transaction between the two parties was a sham transaction. The Income Tax Appellate Tribunal has not considered this vital proposition of law while deciding the appeal of the appellant and were mainly influenced by certain transactions made by the other parties for which they have themselves stated in the order that they are not sure about the exact location of the referred compared flat site.
13. Keeping in view the above discussion we hold that there was no evidence against the appellant which warranted discarding of the sale price made by the verifiable party.
14. In view of the above discussion we answer the question in the terms that learned Income Tax Appellate Tribunal had no jurisdiction and power to estimate the sale price of the plot in dispute under the facts and circumstances of the present case and answer the question in affirmative in favour of the appellant and against the respondent. These are the reasons for which we had allowed the appeal vide our order, dated 21-5-2009.
15. A copy of this judgment under the seal of this Court and with the 'signature of the Registrar of this Court be sent to the Income Tax Appellate Tribunal for passing an appropriate order in conformity with the directions contained in this judgment.
M.B.A./O-4/KAppeal accepted.