2010 P T D (Trib.) 1654
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Chairperson and Mazhar Farooq Shirazi, Accountant Member
I.T.As. Nos. 6405, 6406, 6407, 6408 6452, 6453 and 6454 of 2005, decided on 22/12/2009.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.13---Income Tax Ordinance (XLIX of 2001), S.111---C.B.R. Circular No.8 (Income Tax) dated 1-8-1973---Unexplained investment etc., deemed to be income---Hypothetical estimate of expenses---Validity---Revenue was firstly required to `find' that assessee had incurred expenses beyond his declaration and then to determine what his actual expenditure should be---If assessee was not in a position to satisfactorily explain its source, the procedure provided in law for addition of such a source could follow---Such was a mandatory procedure as it resulted in an addition which in normal course of business was not an 'income'-First Appellate Authority had already reduced the estimated figure which had replaced the estimate of Assessing Officer---Determination of different figures by two different officers alone made the addition as doubtful---Assessing Officer had felt that expenses should be to a figure for which he had absolutely no calculation in support---Both the authorities below ignored that under deeming income provisions hypothetical estimates were not allowed---For both the eventualities i.e. holding the declared figure to be as low and determination of actual figure of the expenses of the assessee require tangible evidence which makes the Assessing Officer believe and not suspect---Inference that there must have been such excess expenditure and estimate of the said amount was not permitted under the provisions of S.13 of the Income Tax Ordinance, 1979 and now under S.111 of the Income Tax Ordinance, 2001---Addition made under S.13(1)(e) of the Income Tax Ordinance, 1979 were deleted by the Appellate Tribunal.
1997 PTD (Trib.) 1850; (1997) 76 TAX 71 (Trib.); 2005 PTD 2336; 2005 PTD (Trib.) 965; Commissioner of Income Tax v. Messrs Smith, Kline and French of Pakistan Ltd. and others 1991 PTD 999; Civil Appeals No.104-K to 111-K of 1984; Karnani Property Ltd. v. Commissioner of Income Tax West Bengal (1971) 82 ITR 547; India Cement Limited v. Commissioner of Income-tax, Madras (1966) 60 ITR 52; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85 ref.
(1963) 8 Tax 1987 (Trib.)(sic); 1994 PTD 1268 and 1987 PTD (Trib.) 36 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.13 & 8---C.B.R. Circular No.8 (Income Tax) dated 1-8-1973---Unexplained investment etc., deemed to be income---Addition in defiance of binding instructions of Central Board of Revenue---Validity---Assessing Officer had not only exceeded beyond the authority and procedure provided under S.13 of the Income Tax Ordinance, 1979 but had also ignored the directions of his superior most authority the Central Board of Revenue---Assessing Officer had on the one hand proceeded against the mandatory procedure of law but had also slacked in following the instructions of the Central Board of Revenue---Such was an act of defiance of binding instructions of Central Board of Revenue---Additions made, in circumstances were not approved.
1982 (136) ITR page 652 H.C. Delhi and 1984 PTD (Trib.) 79 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.13 & 62---Unexplained investment etc., deemed to be income---Burden of proof---When assessee denied ownership, the burden to prove that the same belonged to him shifted to Revenue Department.
1982 (136) ITR page 652 rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss.13 & 62---Unexplained investment, etc., deemed to be income---Vehicle in the name of company---Addition of, in the hands of one director of the company on the basis of statement of third person (driver)---Validity---Statement by a third person that the asset which was in his possession, in fact, belonged to some body else should have been used against him and not against the assessee---Documentary evidence of ownership of vehicle if was in favour of some body else, stronger evidence was required to prove that it belonged to the assessee---Oral statement of the person should have not been used against the assessee when the record fully proved that the vehicle was registered in the name of company---No body but the said company was required to explain the source---Since the issue with regard to ownership was a factual controversy and .he claim of the assessee of its ownership by company stood proved, if the vehicle was in the name of some company the duty to explain its source was of the said company and not of the assessee who may be one of the Directors in possession of the same---Addition, in circumstances, was considered illegal and was deleted by the Appellate Tribunal.
1982 (136) ITR page 652 and 1984 PTD (Trib.) 79 rel.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arisen in Pakistan--Addition was made on the ground that assessee had received loan from company in the manner that liability of the assessee had increased by such amount---Since the increase was not supported by receipt of such amount through cross cheque it attracted the provisions of S.12(18)of the Income Tax Ordinance, 1979---Assessee explained that he had not received any cash at all front the company was totally ignored--Amount was paid by the company on behalf of assessee and that also through normal banking channels---Effect---Very requirement of addition was receipt of "sum" as loan, gift or advance---All other conditions were supplementary and after ascertainment that the amount received in said form was in cash---Use of word `sum' in S.13 of the Income Tax Ordinance, 1979 could not be applied on a book entry or on a transfer entry---Ledger account produced by the assessee had not been brought to discussion at all either by the Assessing Officer or by the First Appellate Authority---Mere claim that, assessee had not received such amount at all was a valid defence and the same should have been discarded with arguments and material---Section 12 (18) of the Income Tax Ordinance, 1979 was deemed income provision and it could be applied strictly after satisfying the requirements mentioned in the said provision of law; same should not be used for showing muscels of the department---In the present case, before the addition neither the evidence produced had been confirmed to be as untrue nor any specific show cause notice for the said addition had formally been issued---Such was an infringement of basic and fundamental right known as audi alteram partem---Assessee had not withdrawn any sum from company, there were certain payments made by the company on behalf of assessee which inter alia included payment of his medical bills, legal charges to his counsel and Auditor, travelling expenses etc.---Such payments were through cross cheques---Even if the same were in cash it could not be added under S.12(18) of the Income Tax Ordinance, 1979 as no "sum" had been received by the assessee---Addition waswithout any reason and itsconfirmation was alsowithout application of proper mind---Addition was deleted by the Appellate Tribunal.
Hansa Enterprises, Sialkot v. Revenue 2006 PTD 774 and Commissioner of Income Tax v. Saritow Pakistan Limited 2005 PTD 2386 rel.
2005 PTD (Trib.) 965 irrelevant.
Kh. Riaz Hussain for Appellant (in I.T.As. Nos. 6405 to 6408 of 2005).
Syed Mehmood Jaffar, D.R. for Respondent (in I.T.As. Nos.6405 to 6408 of 2005).
Syed Mahmood Jaffar, D.R. for Appellant (in I.T.As. Nos.6452 to 6454 of 2005).
Kh. Riaz Hussain for Respondent (in I.T.As. Nos.6452 to 6454 of 2005).
Date of hearing: 25th November, 2009.
ORDER
The appeals filed by the assessee are on the following grounds:-
Assessment year 1997-1998
1.That the impugned orders of the learned DCIT and Appellate Commissioner are patently and manifestly' unlawful on its face.
2.That the orders of the Assessing Officer and the Appellate Commissioner are void ab initio.
3.That the learned Assessing Officer and Appellate Commissioner has erred in applying section 13(1)(e).
4.That there is complete misapplication of law in the impugned order, hence order is not sustainable in law.
5.That the section of Income Tax Ordinance is misinterpreted, misconstrued by the assessing officer as well as by the Appellate Commissioner.
6.That the impugned order is unjust, unfair, unreasonable and arbitrary, hence illegal on its face.
7.That the statutory notice as required under law to make impugned additions is not issued to the appellant.
8.That the approval of the IAC is not made/obtained in accordance with the law.
9.That the impugned section is misread and misapplied in the case making the order unlawful on its face.
10.That the application of section 13(1)(e) of the Income Tax Ordinance, 1979 repugnant to the law of as laid down in various judgments of Higher Court.
ON MERITS
1. That the assessing officer has unjustifiably, illegally and erroneously made addition under section 13(1)(e) at Rs.1,128,080 and the CIT (Appeals) without appreciating the entire facts of the case has reduced the addition to Rs.800,000.
Assessment year 1999-2000
1.That the impugned orders of the learned DCIT and Appellate Commissioner are patently and manifestly unlawful on its face.
2.That the orders of the Assessing Officer and the Appellate Commissioner are void ab initio.
3.That the learned assessing officer and Appellate Commissioner has erred in applying section 13 (1).
4.That there is complete misapplication of law in the impugned order, hence, order is not sustainable in law.
5.That the section of Income Tax Ordinance is misinterpreted, misconstrued by the assessing officer as well as by the Appellate Commissioner.
6.That the impugned order is unjust, unfair, unreasonable and arbitrary, hence illegal on its face.
7.That the statutory notice as required under law to make impugned additions is not issued to the appellant.
8.That the approval of the IAC is not made/obtained in accordance with the law.
9.That the impugned section is misread and misapplied in the case making the order unlawful on its face.
10.That the application of sections 13(1)(b) & (13) (1)(e) of the Income Tax Ordinance, 1979 is repugnant to the law as laid down in various judgments of Higher Court.
ON MERITS
1. That the assessing officer has unjustifiably, illegally and erroneously made addition under section 13(1)(e) at Rs.2,200,000 and the CIT (Appeals) has without appreciating the entire facts of the case has reduced the addition to Rs.17,00,000.
2. That the assessing officer has unjustifiably, illegally and erroneously made addition under section 13(1)(b) at Rs.2,467,125 on account of ownership of Motor vehicle and the CIT (Appeals) has without appreciating the entire facts of the case has upheld the addition.
Assessment year 2000-01
1.That the impugned orders of the learned DCIT and Appellate Commissioner are patently and manifestly unlawful on its face.
2.That the orders of the Assessing Officer and the Appellate Commissioner are void ab initio.
3.That the learned assessing officer and Appellate Commissioner has erred in applying section 13(1)(e).
4.That there is complete misapplication of law in the impugned order, hence order is not sustainable in law.
5.That the section of Income Tax Ordinance is misinterpreted, misconstrued by the assessing officer as well as by the Appellate Commissioner.
6.That the impugned order is unjust, unfair, unreasonable and arbitrary, hence, illegal on its face.
7.That the statutory notice as required under law to make impugned additions is not issued to the appellant.
8.That the Approval of the IAC is not made/obtained in accordance with the law.
9.That the impugned section is misread and misapplied in the case making the order unlawful on its face.
10.That the application of section 13(1)(e) of Income Tax Ordinance; 1979 is repugnant to the law as laid down in various judgments of Higher Court.
ON MERITS
1. That the assessing officer has unjustifiably, illegal and erroneously made addition under section 13(1)(e) at Rs.1,504,298 and the CIT (Appeals) has without appreciating the entire facts of the case has reduced the addition to Rs.12, 00, 000.
Assessment year 2001-2002
1.That the impugned orders of the learned DCIT and Appellate Commissioner are patently and manifestly unlawful on its face.
2.That the orders of the Assessing officer and the Appellate Commissioner are void ab initio.
3.That the application of section 12(18) of the Income Tax Ordinance, 1979 is violative to section 12(18) itself.
4.That there is complete misapplication of law in the impugned order, hence order is not sustainable in law.
5.That the section of Income Tax Ordinance is misinterpreted, misconstrued by the assessing officer as well as by the Appellate Commissioner.
6.That the impugned order is unjust, unfair, unreasonable and arbitrary, hence illegal on its face.
7.That the statutory notice as required under law to make impugned additions is not issued to the appellant.
8.That the impugned section is misread and misapplied in the case making the order unlawful on its face.
9.That the application of section 12(18) of the Income Tax Ordinance, 1979 repugnant to the law as laid down in various judgments of Higher Court.
ON MERITS
1. That in the presence of valid evidence of payment of expenses through crossed cheque, copies of ledger accounts the assessing officer has unjustifiably, illegally and erroneously made addition under section 12(18) at Rs.649,942 and the CIT (Appeals) has unjustifiably upheld the said situation.
The arguments in support of the grounds by the assessee are that the era, of hypothetical assessments and bare estimates have now come to an end. The development in Commercial Laws internationally as well as new face of the F.B.R. now demands assessments based on definite information and the determination of income should be on the basis of findings. It is true that the taxpayer generally are not coming out with their correct particulars of income but on the basis of the mere assumptions that a person has not disclosed his true income, the department of Income Tax cannot be allowed to proceed with the figures which they feel suitable; to the name or personality of a person. The stock phrases like `social living', 'public impression', standard of living and `life style' etc, may be used to create a doubt but such a doubt should not end into estimates. The doubt howsoever strong it may be, can only create the impression that the declaration of a tax payer is not up to the mark; however, this cannot be considered as a guide or parameter for determining his actual income as well. It is true that the present taxpayer has a known family background. His name does bear the impression that he needs more than average means to meet with his requirements but while determining as to why it should be, it require equally strong argument or evidence. The applicant undoubtedly has got a back-ground in which his face before the public is that of a lucrative living with a very good life style but it does not give any right to the Revenue Department to determine figures of its own without going into the facts and figures and the other allied elements. The law which has been applied in this case in terms of `deemed income provisions of the Income Tax Ordinance, 1979' not only is very clear but the same has already been interpreted and applied by the higher and superior judiciary in a number of cases. These judgments and findings should not have been ignored by the revenue officers being the first stage of the judicial hierarchy. All the judgments which are in field are by the higher judiciary and have in un-equivocal terms held that the `deemed income' provisions cannot be applied sparingly and the use of connotation `as found' therein in fact closes down the chapter of estimates, gossips and hypothetical calculations.
In this case, the provisions of law, which have been applied, are of section 13. The language of section 13 is very clear and it is totally different from the main assessment provisions wherein the law itself has provided for certain leverages to the Revenue Department. Section 13 does not deal with the case of normal assessment of income of a business, a shop or a market etc. It applies only on a person who is `found' to be either owner of an item, the source of which he is not in a position to explain or has not correctly disclosed certain particular of his expenses like household expenses etc. The determination of the sources of the said income is obviously not definite at all.
Learned A.R. has relied upon various judgments including 1997 PTD (Trib.) 1850, (1997) 76. Tax 71 (Trib.), 2005 PTD 2336, 2005 PTD (Trib.) 965 and certain other un-reported judgments. The gist of all these judgments in his opinion remains that the total income of the assessee with special reference to expenditure cannot be presumed merely on the basis of surmises and conjectures. Further, the Courts have unanimity of opinion that no addition can be made on the basis of stock phrases that an assessee is living in a posh locality or leading a high standard of living or he is otherwise publicly known to be a rich man.
The departmental view on the other hand remains that the appellant is a public figure and has a rich background. Further that he has failed to satisfy the departmental officials as to how with a meager expenditure, which he has disclosed, he has managed his lavish requirements. It was asked from the learned DR that what in particular in the opinion of the department has given the impression that the addition, which has been proposed by the assessing officer and has further been reduced by the learned CIT (A) co-relates with his requirements. Is there any data with regard to his living standard in terms of utilities bills of his house, children school and college expenses, his travelling private and official, the number of vehicles which he is maintaining in his personal capacity etc. learned D.R. showed his inability to develop the nexus with the estimates. He, however, reiterated that in his opinion the expenses of the taxpayer are still not as per the general living standard of the appellant.
Before proceeding further recapitulating the facts of the present case shall be of help. The assessee is an individual and is Director of Chaudhry Sugar Mills Ltd. From the statement of assets and re-conciliation filed by the assessee the assessing officer observed that the personal/house-hold expenses of the appellant have been declared at Rs.88,000 while the foreign travelling expenses are Rs.283,290. The assessing officer claims having asked for the details and the break-up of the personal expenses as well as copy of the Passport etc, which, statedly have not been produced. The assessing officer further made effort for discarding the travel and personal expenses declared by the taxpayer and at page 2 of his order made the following discussion:-
"(1) Personal/Household Expenses
No details have been submitted. In this regard, only an amount of Rs.10,00,000 has been claimed to be available in common pools (chart enclosed), as the annual personal expenses of the entire claim (i.e.a total monthly expense of Rs.80,000 on average) there are 8 family units and hence the average monthly expense of single unit comes to Rs.10,000 which is too low to be accepted.
Since a break-up of this expense has not been provided there-fore an analysis is being made as under for purposes of estimation:-
Personal expenses of any family can safely be divided into four broad categories with the expense under each head varying according to the particular life-style.
(a) Kitchen food related expenses:
The family is well known for the taste for good food and is figured as great gourmands and gourmands with great relish for good food, variety; delicacy and abundance cannot be afforded with anything less than a fortune.
(b) Entertainment:
Moreover, it is also common knowledge that the family invites and attracts a regular stream of guests and visitors. There are frequent families and friends get together and parties apart from political activities and gatherings.
The expenses on the entertainment of such guests and visitors, parties and get together cannot be met out of the expenses declared.
(c) Conveyance:
The family is also known for the flair for flashy Automobiles, and move about in Mercedes Benz, BHW Limousines and other luxury cars. The maintenance and fuel of which cost a lot of money.
(d) Utility Bills:
The Utility bills of an average family these 4days are claiming the bulk of their incomes and for someone maintaining a huge bungalow and entertaining guests also the utility bills can easily cost an amount, which does not commensurate with declared expenses.
(e) Health:
The family enjoys the best of health facilities both locally and abroad and expenses under this head can reasonably be stated to be in lakhs of rupees.
(f) Servants/Salaries:
High living and an elitist life-style are not possible without a retinue servants and attendants ranging from Secretaries, to domestic helpers, drivers, cooks, maids etc, and their salaries cannot be met through expenses claimed.
In view of about and after giving the relaxation on account of joint family, I intend to estimate your personal expenditure at Rs.6,00,000 under section 13(2) of the Income Tax Ordinance, 1979.
(ii) Foreign Travel:
No expenses under this head have been disclosed. Despite repeated requests by this office no break-up whatsoever was provided. No details have been provided, despite repeated requests, as to:-
Exactly how many family members/dependants went abroad on each trip?
Which countries were visited?
What was the duration of each trip?
What was the mode of travel for the trip?
How much foreign exchange was required and spent in each foreign trip?
It is common knowledge that most of the members of the family undertake frequent foreign travel especially to U.K. and also to Saudi Arabia for the purpose of Umrah. Travels to the United States of America are also not uncommon.
An estimate of money spent on foreign trips is being made keeping in view the separate expenses on the following:
Air Tickets
Loading expenses, usually the best of hotels
The Limousines on hire
Shopping sprees in the most expensive and trendy fashion joints
Food and entertainment.
From the basis of above discussion the assessing officer ultimately estimated the household expenses at Rs.600,000 and the foreign travelling expenses at Rs.900,000 respectively. The reply of the petitioner that he is living in a joint family besides being single during the period under discussion was totally ignored.
In his appeal before the first Appellate Authority, the arguments of the petitioner's counsel remained that the taxpayer is single, he is living with his parents and that the provision of section does not give any un-bridled and un-controlled powers to the tax authorities for making the addition. The other argument before the learned CIT (A) was more or less the same as have already been mentioned by us in the earlier part of this judgment. The learned CIT (A) in his own style diagnosed the assessments for correct appraisal of the facts of the case and later opined that the additions under sections 13(2)/13(1)(e) are without pointing out any specific defects in the house-hold expenses/foreign travelling expenses. In his opinion it was a total guess work and on the basis of surmises and conjectures. He further observed that estimate of income for the year under consideration is higher if kept in view the period involved. He, however, after holding that the same does not meet the norms of justice and fair-play reduced the addition to Rs.800,000 from both the sources.
The claim of the assessee remains that neither there is any working for discarding the declared version nor there is any material for determining the estimates by the I.T.O. Further substitution of the estimates by the CIT (A) in itself dismantles the case of the assessing officer. The matter becomes more obvious and becomes just a bare proposal when the learned CIT (A) comes out with another estimate which is joint for both the transactions. He has neither bifurcated his estimates in personal and foreign expenses nor determined as to how he considers the figure of Rs. 800,000 to be as the additional income of the assessee from un-known sources. It was also reiterated that the taxpayer at the time of assessment had no free access to his personal record, which had been taken over by the Government Agencies; hence he could not produce various documents. In any case, since the information in terms of electricity bills and other expenses were already available before the tax authorities in terms of the record of the company which had given various facilities to the taxpayer, the assessing officer's claim that he was not properly assisted would still not grant him the authority to come for the bald 'estimates.
This Court and the superior Courts have never supported the departmental action of making estimates based on conjectures and surmises. In this regard, the judgments, which can be referred, include 1997 PTD (Trib.) 1850. The relevant para of which is as follows:--
"It is established principle of law that no addition can be made to the total income of an assessee and no expenditure can be presumed merely on the basis of surmises and conjectures. In large number of cases, it has been observed that no addition can be made under section 13(1)(e) with the use of stock phrases that an assessee is living in a posh .locality or is leading a high standard of living. It is incumbent on the department for the purpose of making such addition to collect the evidence and cite the instance of expenditure or bring on record such circumstances in which no inference can be drawn other than expenditure of particular amount. For the purpose of making addition under section 13(1)(e) on account of any expenditure which is not admitted by the assessee the onus of proof squarely lies on the department and until and unless this onus is discharged no addition can be made. Thus, to confirm the deletion of addition by the learned CIT(A) but not for the reason assigned by him. The addition is deleted because it is not sustainable on fact and law."
Although the language of section 13 has already been taken care of in a large number of judgments of this Court, yet bare perusal of the above judgment and section 13(1)(e) itself makes one thing clear and obvious that it deals with the things which are `found' by the assessing officer to be in the ownership or possession of a person. For example it deals with:--
"any sum found",
"found to have made any investment",
"found to be an owner of any money"
"found to be owner of a valuable article",
"found to have made any investment",
"found in respect of any year to be owner of any money and valuable article etc. etc".
The emphasis, therefore, remains on the word `found'. It is obvious that the term `found' cannot be equated with estimate, appraisal, approximation, estimates, guess, measurements, rough calculations or anything based upon assumptions, conjectures, impression, proposition, perception. It is second form of the word `Find' which means to acquire information about and is synonymous to the word `create' `decipher' `divergent' explore' or `expose' etc. The meanings of the word as per Legal thesaurus printed by William C. Burton are as follows:-
"FIND (Discover), verb
Acquire information about, answer, apprehend, ascertain, attain by effort, bare, become acquainted with, become apprised of, become informed, bring into the open, catch a glimpse of, chance upon, cognoscere, come upon, create, decipher, decode, detect, discern, disclose, disentangle, disinter, divine, divulge, elicit, encounter, explore, expose, fathom, ferret out, figure out, gather knowledge, get to the bottom of glimpse, happen upon, hit upon, identify, invenire, invent, ken, know, learn, light upon, locate, make certain, meet with, notice, observe, obtain by search, perceive, realize, recognize, reveal, run across, solve, strike, stumble on, trace, uncloak, un-conceal, uncover, understand, unearth, unfold, unlock, unmask, unravel, unscramble, un-screen, un-shroud, unveil, verify."
As already mentioned the meaning of the word makes one thing obvious that nothing in the above connotation .can include the apprehensions, estimates, gossips, or guess work. It speaks of something tangible, definite, form of information about which no further proof, discussion or arguments would be required. It speaks of existence of something which does not require arguments to prove its being. It also does not include such things about which one can form more than one opinion or different people can from different opinions. It is like pointing out the availability of furniture in a room, which can be seen with the naked eye and it would not include those non-tangible things, which require arguments to prove its existence. The assessing officer did make some effort by distributing the personal expenses in kitchen, entertainment, conveyance, utility bills, health services and salaries but in none' of the heads he has determined the figures separately. The effort to the extent of its intellectual discussion is definitely appreciable but non-determination of the actual figure in each head in itself makes the total effort as useless because it has ended in an estimate. Needless to mention that even for the said determination tangible effort to adopt the personal expenditure was required.
The facts which cannot be denied and about which the learned DR made no comments with regard thereto are:-
(i) That the record of the family of the appellant was with certain agencies access of which was not given to the appellant.
(ii) That the appellant was single (unmarried) during this period.
(iii) That certain facilities were granted to the appellant by the company.
(iv) That the appellant .does belong to an industrial and political family but he came to limelight much after the years under discussion.
Thus the facts would also not help the estimate of assessing officer. The discussion made by him with regard to his personal status, social set-up as well as other stock phrases even if given some weight factually would not apply on the person of the present assessee being in the age of dependence. This has been so confirmed by the assessee A.R. during the arguments before us. The higher Courts in such circumstances have never supported additions and one can refer with advantage 1997 PTD 300, which has subsequently been followed in a large number of judgments. Further, the honourable Supreme Court of Pakistan in the famous case of the Commissioner of Income Tax v. Messrs Smith, Kline & French of Pakistan Ltd. and others reported as 1991 PTD 999 has categorically held:-
"burden of proof of the fact that any receipt by a person is an "income" is on the Revenue."
While giving the above finding the Hon'ble august Court of the country had further relied upon Civil Appeals Nos.104-K to 111-K of 1984, decided on 23-54991, Karnani Property Ltd. v. Commissioner of Income Tax West Bengal (1971) 82 ITR 547, India Cement Limited v. Commissioner of Income Tax, Madras (1966) 60 ITR 52 and Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income Tax, Rawalpindi PLD 1981 SC 85 ref.
Further, the establishment of the fact that a person has incurred more expenses than the claim is one part and determination of the said expenses by the said assessee is the other part. The revenue, therefore, is firstly required to `find' that he has incurred expenses beyond his declaration and then to determine what his actual expenditure should be. Still further if he is not in a position to satisfactorily explain its sources the procedure provided in law for addition of such a source can follow. It is a mandatory procedure as it results in an addition which in normal course of business is not an `Income'. The learned CIT(A) has already reduced the estimated figure, which has replaced the estimate of the assessing officer. The determination of the different figures by the two different officers alone makes the addition as doubtful. Assessing Officer feels that the expenses should be to a figure for which he has absolutely no. calculation in his support. The CIT (A) says that addition is excessive and reduces it to another figure. Both have ignored that under deeming income provisions hypothetical estimates are not allowed. For both the eventualities i.e. holding the declared figure to be as low and determination of actual figure of the expenses of the assessee require tangible evidence, which makes the assessing officer believe and not suspect. The inference that there must have been such excess expenditure and estimate of the said amount, therefore, is not permitted under the provisions of section 13 of Income Tax Ordinance, 1979 (repealed) and now under section 111 of the Income Tax Ordinance, 2001. Reliance can be placed on (1963) 8 Tax 1987 (Trib.)(sic).
The subsequent judgments on the issue are more direct and relevant. This Court has already discussed the findings of the said judgments in the earlier part i.e. 1994 PTD 1268, 1987 PTD (Trib) 36. These judgments have subsequent approval of this Court in a chain of such judgments. In fact the Central Board of Revenue itself was conscious of such situations. Instruction in this regard, therefore, were separately issued. In this regard one can refer Circular No. 8 (Income Tax) 1st of August, 1973 which, bears following instructions:
"11.22 HOW TO DETECT-UNEXPLAINED EXPENDITURE CIRCULAR NO. 8 (INCOME TAX) DATED 1-8-1973.
ASSESSMENT OF INDIVIDUAL SCRUTINY OF PERSONAL EXPENDITURE"
While determining the income of an individual for purposes of income-tax assessment, it is important to take note of his personal expenditure. If his expenditure, savings, investments and taxes in any year exceed his income of that year, he has to account for the excess. It is regrettable that so far such enquiries were either not made at all or only in a cursory manner. Board desires that in future enquiries into the personal expenditure of every individual assessed in the Companies Circles and Special Circles should be invariably made every year. In other Circles such enquiries may be made in such cases as may be considered necessary. For this purpose the form appended to this Circular should be used. All personal and household expenses are not listed in the form. The main purpose of the form is to obtain a broad idea of the standard of living of the taxpayer and the Assessing Officer should make such field enquiries in appropriate cases, as he may consider desirable. After the return of income is received the Assessing Officer should send the assessee the form under a covering letter, which may read somewhat as below:
`Dear Sir,
Your return of income for the assessment year 19...19... has been received. I am enclosing herewith a form requiring Particular of Personal Expenditure incurred by you during the year to which the Return relates. It is requested that the form may be filled in and returned to the undersigned within 14 days of the receipt of this notice.
Yours faithfully
ASSESSING OFFICER
CIRCLE .."
Above circular is by C.B.R. as the then it was called. The addition on account of personal expenditure being determination of an income, a procedure was prescribed by the said highest administrative forum. The instructions and circulars of the Central Board of Revenue now re-designated Federal Board of Revenue, cannot be- ignored by the subordinate Officers. Non-observance of the binding instructions in terms of section 8 of the I.T. Ordinance, 1979 is also fatal. Reliance is on 1982 (136) ITR page 652 H.C.Delhi. This, however, is in addition to the discussion already made. The addition, therefore, is faulty on this score also. The assessing officer, therefore, has not only exceeded beyond the authority and procedure provided under section 13 but has also ignored the directions of his superior most authority. Thus he has on one hand proceeded against the mandatory procedure of law but has also slacked in following the instructions of the C.B.R. This is an act of defiance of the binding instructions of C.B.R. Higher Courts in such situation have never approved additions. Reliance is on 1984 PTD (Trib.) 79.
Following the same and obviously for the reason of detailed discussion in the earlier part of the order the additions under section 13(1)(e) are deleted.
Coming to the other issues the ownership of motor vehicle and statedly omission to prove its source has ended in addition of Rs.24,67,125. This issue, however, is only for the assessment year 1999-00. The departmental point of view remains that an information was received regarding purchase of vehicle for Rs.24,67,125 which was a Toyota Corolla Land Cruiser bearing No. BS9272 registered on 22-4-1999. The Departmental Representative says that the purchase of the same is Benami having been registered in the name of Mr. Muhammad Akram who was an employee of Mr. Shehbaz Sharif. Mr. Muhammad Akram denied the purchase of the same and said that it belonged to Mian Hamza Sharif. On the other hand, the same was not declared as a part of the assets of this assessee in his Wealth Statement. A notice was issued to the assessee under section 13/62 on 13-5-2002 through which he was required to explain the reasons for non-declaration of the same in his "Wealth Statement". The assessee in reply to the said notice through his counsel Mr. Kaleem and Company contended that he is not owner of the said vehicle and it had been-purchased by Sharif Group and has accordingly been registered. The reply was considered as un-satisfactory by the assessing officer by making following comments:--
"The above reply is considered unsatisfactory .for the following reasons:-
(ic) Statement by Mr. Muhammad Akram is available on record in which he has categorically stated that the vehicle was purchased by Mian Hamza Shehbaz Sharif.
(ii) Mr. Muhammad Akram has no sources which could enable to purchase the vehicle in question.
(iii) Sharif Group does not exist as an entity. It is neither an AOP, URF nor any company. No such entity exists on NTN Roll".
It is on the basis of aforementioned argument that the explanation of the assessee has been considered as unsatisfactory. The counsel says that this car has been registered in the name of Hamza Board which is a private limited company and is obtaining in the balance-sheet of the same. He produced copy of registration. This copy has been submitted at subordinate stage also. This proof in fact is clear and unequivocal. This car is registered in the name of Hamza Board Limited. It is registered on 28-4-1999 and it is its first registration. The learned A.R. has further commented that Mr. Muhammad Akram was driver and use of the car by Mr. Hamza Shehbaz is never denied.
The departmental arguments for the said addition are vague in the sense that neither the assessee ever claimed ownership of the said vehicle nor the assessee produced any evidence to confirm that it was in the name of the assessee. It was remarked that obtaining a copy of the registration from the Registration Authorities for the- Revenue Department is very easy. Further when the assessee denies ownership the burden to prove that the same belonged to him shifts to Revenue Department: Reliance in this regard is on the reported judgments as 1984 ITR 251, Mad. Relevant para is as follows:-
"Section 69A can apply when the gold is owned by the assessee and he is not in a position to explain the source of acquisition of that gold. If the ownership is not established, then the assessee is not bound to give an explanation as to the source if acquisition of the gold. Further, from mere possession of the gold the owner cannot be presumed in the person who possessed the gold at the particular point of time. From the mere fact that the assessee has not stated as to who is the owner of the gold, it cannot be assumed that the assessee is the owner of the gold. It may be that the assessee himself may not "know as to who is the owner and may be one of the carriers passing on the gold without knowing as to who is the true owner of the gold. Where Income Tax Authorities did not produce any material to indicate that gold found in possession of a person belonged to him, they could not invoke section 110 of the Evidence Act to place burden on such a person to prove that he was not owner of such gold."
Above para gets further support from the judgment reported as (1989) 59 Tax 112 (H.C.) re: CIT v. General Steel Industries.
Further, statement by a third person that the asset which is in his possession, in fact, belonged to some-body else should have been used against' him and not against the present assessee. The documentary evidence of the ownership of the vehicle if was in favour of some body else stronger evidence was required to prove that it belonged to this assessee. The oral statement of the said person should have not been used against the present assessee when the record, fully proves that this vehicle was registered in the name of Hamza Board Mills. Obviously no-body but the said company is required to explain the source.
Since the issue with regard to ownership is a factual controversy and the claim of the assessee of its ownership by Hamza Board stands proved, this Tribunal feels that it could not be added in the hands of this assessee. Obviously if the vehicle is in the name of some company the duty to explain its source is of the said company and not of the assessee who may be one of the Directors in possession of the same. This addition, therefore, is also considered as illegal and is deleted.
This leaves us to the issue of the addition under section 12(18) for the year 2001-02. So far the case of the department with regard to the credit of a sum of Rs.649,942 is concerned, the departmental claim remains that the assessee has received this loan from Chaudhary Sugar Mills in the manner that liability of the assessee has increased by the said amount. Since the increase is not supported by receipt of the said amount through cross cheques it attracts the provisions of section 12(18) of erstwhile Income Tax Ordinance, 1979. The assessee's explanation that he has not received any cash at all from the said company was totally ignored. The A.R. "claims that the amount was paid by Chaudhary Sugar Mills on behalf of the assessee and that also through normal banking channels. Furthermore, the addition is on the basis of vague arguments and without- any proper discussion. The learned CIT (A) has also ignored this assertion. He has mentioned the arguments of the assessee that the said amount has not been withdrawn personally by the appellant and has been paid on his behalf by the said company through normal banking channels and in this regard proper ledger account of the company was also submitted.
There appears to be a total mis-conception in the minds of the assessing officer. The very requirement of the said addition is receipt of "sum" as loan, gift or advance. All other conditions are supplementary and after ascertainment that the amount received in the said form is in cash. The use of the word `sum' in the said section obviously cannot be applied on the book entry or on a transfer entry. The ledger account produced by the assessee has not been brought to discussion at all either by the assessing officer or by the CIT (A). The mere claim that he has not received this amount at all is a valid defence and the same should have been discarded with arguments and material. Section 12(18) again is deemed income provision. It can be applied strictly after satisfying the requirements mentioned in the said provision of law. It should not be used for showing, muscels of the departments. Two orders one by the assessing officer and other by the CIT (A) both are totally silent with regard to the contents of the ledger. However, both of them have registered the arguments of the assessee that his personal ledger was produced and the assessee has not received any sum. In this regard, judgment of the High Court in terms of 2006 PTD 774 re; Hansa Enterprises, Sialkot v. Revenue can be referred with advantage. The Hon'ble High Court in very clear terms has held that "payment made by a sister concern of assessee to third party on behalf of the assessee under advice to the assessee for their entries in its books of accounts was not a sum received by the assessee". The findings of the judgment now referred by us are on the basis of same facts as are in the present case. Moreover, before addition of the said amount neither the evidence produced has been confronted to be as un-true nor any specific show-cause notice for the said addition has formally been issued. This is infringement of the basic and fundamental rights popularly known as Audi Alteram Partem which means no one can be condemned un-heard.
The A.R. has referred certain other judgments also including 2005 PTD (Trib) 965 which being irrelevant is hereby ignored. However, judgment in terms of 2005 PTD 2386 re: Commissioner of Income Tax v. Saritow Pakistan Limited "also explains the circumstances of section 12(18) in the same spirit. The relevant para of the said judgment is as follows:
"Reverting to the facts of the case, the entire superstructure of the assessment has been built on presumption that withdrawal of money by the member/partner from the Firm's accounts, consequent upon which capital balance sheet stood in negative, is a loan. Factually the members of the firm have pooled their resources in order to execute business, under the name and style of Messrs Atif Mushtq and Co., and to share profit and losses on a specified percentage. For this purpose; they have contributed their capital to the firm and in this manner their accounts were credited to the extent the capital was contributed by them. In order to meet the household expenses and payment to taxes, each one of them was drawing money from the personal ledger account. Meaning thereby this is a running account of the members maintained with the firm, which has inherent characteristic of being adjusted against future profit or losses. In fact the firm has never lent any amount to its member(s) rather the drawings are made by the assessee respondent for meeting his personal expenses and taxes from his capital account resulting in negative capital which do not fall within four corners of the words used in section 12(18) as "loan" or "advance", as are interpreted by the higher Appellate Courts in their orders."
The upshot of the above discussion is obvious. The assessee has not withdrawn any sum from the company. There are certain payments made by the company on his behalf, which inter alia include payment of his medical bills, legal charges to his counsel and Auditor, travelling expenses to Saima Enterprises and Rehmar Travels etc. etc. These payments are through cross cheques. However, even if the same were in cash it could not be added under section 12(18) as no "sum" has been received by this assessee. Besides the payment by cross cheques even otherwise deprives the department from this addition.
There was absolutely no reason for this addition by the assessing officer and its confirmation also is without application of proper mind. The same, therefore, is also deleted.
This disposed all the appeals of the assessee in the manner and to the extent mentioned above.
Regarding departmental appeals, the same are against the relief allowed by the CIT (A). We have now deleted the earlier additions in entirety being illegal. As a result said appeals have merged in our order above. The same are, therefore, rejected and are accordingly disposed.
C.M.A./84/Tax (Trib.)Order accordingly.