2010 P T D (Trib.) 587
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Abdul Rauf, Accountant Member
I.T.As. Nos. 381/LB to 383/LB of 2006, decided on 06/10/2009.
(a) Income Tax Ordinance (XXXI of'1979)---
---Ss. 61 & 62---Notice for calling. for of documents---Notice for production of books of accounts, etc.---Nature of notices---Although notice had been titled as notice under S.62 of the Income Tax Ordinance, 1979, in essence it was a notice under S.61 of the Income Tax Ordinance, 1979 because it was under this section (61) that books of accounts record and documentary evidence etc. were called for.
(b) Income Tax Ordinance (XXXI of 1979)---
---S.62---Assessment on production of accounts, evidence etc.---Issuance of notice before examination of books of accounts---Notice was issued before the examination of accounts and record whereas proviso to S.62(1) of the Income Tax Ordinance, 1979 made it obligatory for Taxation Officer to issue the said notice after examination of the books of accounts---Department could not rebut the observation of First Appellate Authority 'regarding fatal legal flaw in the assessment proceedings because of which First Appellate Authority did not approve of the treatment accorded by the Assessing Officer---Direction of First Appellate Authority regarding acceptance of declared version was well based and unexceptionable and was upheld by the Appellate Tribunal.
(c) Income Tax---
----Gross profit rate---Acceptance of Gross Profit rate as reasonable by the assessing officer amounts to implied acceptance of all the expenses claimed under the head (cost of sale) appears to be the logical and inevitable inference which was upheld by the Appellate Tribunal.
(d) Income Tax---
----Sugar Mill---Purchase rate---Reliance of parallel cases---Validity---Reliance on the declared purchase rate of other Sugar Mills for the purpose curtailing, the purchase rate of assessee-Company was not sustainable firstly because the Assessing Officer could not find any fault with the record of the company to justify the curtailment in purchase rate and secondly because the circumstances under which the alleged parallel companies operated their factories were not similar because of the factor of location.
(e) Income Tax---
----Depreciation allowance---Addition of---First Appellate Authority deleted the addition made out of depreciation allowance with the observation that the same had been made on flimsy and conjectural basis without pointing out any defect in the books of account or establishing that plant and machinery installed by the assessee-Company had not been used by it during the income year---Such type of addition made with general and casual remarks were neither sustainable nor approved---Deletion of addition was upheld by the Appellate Tribunal in circumstances.
Sajjad Haider Rizvi, L.A. and Muhammad Asif, D.R. L.T.U. for Appellant.
Shahid Pervaiz Jami for Respondent.
ORDER
These departmental appeals have been filed against the orders of learned C.I.T(Appeals) Zone-I, Lahore, dated 1-10-2005 and 5-10-2005 pertaining to the assessment years 2000-01, 2001-02 and 2002-03, respectively. In the first year i.e. 2000-01 the department feels aggrieved by the direction of learned C.I.T(Appeals) to accept the declared version of the assessee-Company on the ground that the statutory specific notice under section 62 of the late Ordinance of 1979 as required under proviso to section 62 of the late Ordinance of 1979 was not issued confronting the assessee-Company with the deficiencies and defects in the accounts on the basis of which declared version was rejected. In the assessment years 2001-02 and 2002-03 the Department has agitated against the deletion of addition by the learned C.I.T(Appeals) which was made by way of curtailment of declared purchase price of sugarcane. In the assessment year 2001-02, the department has also assailed the deletion of addition of Rs.39,13,644 made on account of disallowance of depreciation.
2. Facts of the case pertaining to assessment years 2000-01 are that the Taxation Officer issued notice under section 62 of the late Ordinance of 1979 on 10-4-2003 through which some documentary evidence/clarification was requisitioned from the assessee. Although the said notice has been titled as notice under section 62 of the late Ordinance of 1979, in essence it is a notice under section 61 because it is under this section (61) that books of accounts record and documentary evidence etc. etc. are called for. Notice under section 62, which contains observations regarding deficiencies and defects in the books of accounts and record of an assessee is issued after the examination of record. Record shows that the books of accounts were produced by the company for examination before the Taxation Officer on 16-4-2003, whereas the notice captioned as notice under section 62 was issued on 10-4-2003 i.e. before the production of record etc. The learned C.I.T(Appeals), on the basis of above discussed sequence of facts held that the declared version of the assessee company was rejected by not following the procedure laid down in the proviso to section 62(1) of the late Ordinance of 1979 which for the sake of reference is reproduced hereunder:-
"Provided that where the assessee produces Books of accounts as evidence in support of the return, the Deputy Commissioner shall, before disagreeing with such accounts, give a notice to the assessee of the defects in the accounts and provide an opportunity to the assessee to -explain his point of view about such defects and record such explanation and the basis of computation of total income of the assessee in the assessment order."
3. The observation of the learned C.I.T(Appeals) is based on the fact that the notice dated 10-4-2003 titled as notice under section 62 of the late Ordinance of 1979 was, in essence not a notice under section 62. Besides the said notice, even if it is considered to be notice under section 62 it was issued before the examination of the accounts and record whereas proviso to section 62(1) reproduced supra makes it obligatory for the taxation officer to issue the said notice after examination of the books of accounts. The learned DR could not rebut the observation of the learned C.I.T(Appeals) regarding the fatal legal flaw in the assessment proceedings because of which the (C.I.T(Appeals) did not approve of the treatment accorded by the Assessing Officer. We, are, also of the considered view that the direction of the learned C.I.T(Appeals) regarding acceptance of the declared version is well based and unexceptionable and is accordingly upheld.
Assessment years 2001-02 & 2002-03:
4. The Assessing Officer was not satisfied with the average declared purchase rate of Sugarcane of Rs.1,024.86 and 1,398.77 per M.Tonne in both the years, respectively and confronted the assessee-Company with curtailment thereof on the basis of comparative declared purchase rates of other companies. As per notice under section 62 of the late Ordinance of 1979 issued by the Assessing Officer purchases of Sugarcane were considered to be unverifiable because of being predominantly on cash. Besides, particulars of the growers who had supplied sugarcane to the assessee-Company were also not found complete and verifiable. When. confronted, the assessee submitted a detailed reply in both the years contending that complete particulars of the growers who had supplied sugarcane to the assessee company were available in record because all the growers who had supplied sugarcane to the company were registered before the start of the crushing season and a pass book containing the following particulars were issued to everyone of them:
"(a) NIC No. with copy of NIC pasted on pass book
(b) Name with son of
(c) Chak No. Sector No.
(d) Khata No.
(e) Pass book No.
(f) Landholding"
Explaining the procedure of purchase of sugarcane the assessee further intimated the Assessing Officer that at the time of supply of sugarcane CPRs which contained the address, Pass Book No., indent No. and Seal of the Banker were issued to all the sellers. On the basis of these CPRs each grower was paid off through bank and there was hardly any payment which was made through cash. The learned A,R. of the assessee, on the basis of above explanation, contended that elaborate record of growers was maintained by the company and 100% payments were made to them through banking channel. In the presence of this record question of unverifiability of purchases could not arise. He, further pleaded that the remarks of the Assessing Officer were not based upon facts and he had not laid his finger even on a single transaction which could be termed as unverifiable. This plea of the learned A.R. was accepted by the C.I.T(Appeals) firstly because the record of purchases of sugarcane was found to have been maintained meticulously in an immaculate manner and secondly because all the payments to the growers were also found to have been routed through banking channel. Reference to other parallel mills and the purchase rate disclosed by them was also considered to be irrelevant by the C.I.T(Appeals) because the referred sugar mills were located at Bhalwal and Gojra respectively, far away from the factory of the assessee-Company.
5. The learned C.I.T(Appeals) also quoted the following paras from the assessment orders of 2001-02 and 2002-03 to highlight the assessing officer's view about the record of the company:
"The explanation put forth by the A.R. of the assessee has been considered and the due consideration has been given. Copies of sales tax returns for the period relevant to the assessment year under consideration have been submitted. The assessee has also furnished complete addresses of the parties to whom sales are made. In the preceding year the sales were estimated and G.P. was also applied keeping in view the history of the case. The contention of the A.R. of the assessee is that a pattern of assessment is prevalent in most of the cases in this line of industry. The estimation of sales and application of G.P. rate in the pat was deviation from treatment given by the department to the other cases of the Circle. Books of accounts and other details of sales have been re-examined in view of the contention of the assessee and treatment given by the department to the other cases of the Circle. The details furnished are completely verifiable and it would not be fair to estimate the sales and apply G.P. rate merely on the basis of decreased trading results from the preceding year. Keeping in view the verifiable nature of sales, therefore, the declared sales as well as G.P. rate is accepted.
Books of accounts and other details of sales have been re-examined in view of the contention of the assessee and treatment given by the department to other cases of the Circle. The details furnished are completely verifiable and it would not be fair to estimate the sales and apply G.P. rate merely on the basis of decreased trading results from the preceding year. Keeping in view the verifiable nature of sales, therefore, the declared sales as well as G.P. rate is accepted."
The above quoted extracts clearly indicate that the G.P. rate disclosed by the assessee-Company was considered to be fairly reasonable and accepted in both the years. Concurrence of the learned C.I.T(Appeals) with the plea of the learned A.R. of the assessee-Company that acceptance of G.P. rate as reasonable by the assessing officer amounts to implied acceptance of all the expenses claimed under the head (cost of sale) appears to be the logical and inevitable inference which we also uphold.
6. In the circumstances discussed above we are of the view that the learned C.I.T(Appeals) had rightly directed to accept the declared version of the assessee-Company as it was backed by elaborate record with which the assessing officer could not find any fault. Reliance on the declared purchase rate of other sugar mills for the purpose curtailing the purchase rate of the assessee company is also not sustainable firstly because the assessing officer could not find any fault with the record of the company to justify the curtailment in purchase rate and secondly because the circumstances under which the alleged parallel companies operated their factories were not similar because of the factor of location.
7. In the assessment year 2001-02 the department has also agitated against the disallowance of Rs.39,13,644 out of depreciation allowance. The said disallowance was made by the Assessing Officer with the following observation:-
"The company made addition under the head "Plant & Machinery" worth Rs.83,43,950 and claimed normal, initial and extra shift allowance. It is contended by the A.R. of the assessee that addition in plant and machinery is made before start of crushing season and is entitled for allowance of depreciation as claimed. It has been observed in the number of cases of this line of business and of the assessee that addition in plant and machinery is made after the close of crushing season and depreciation on account of addition is claimed whereas the factual position in this context is normally vice versa. In the absence of any documentary evidence, it is established the t the said addition is made after the' crushing season, therefore, normal initial and triple shift depreciation on addition made during the year amounting to Rs.3,913,644 is disallowed and added back."
8. The learned C.I.T(Appeals) deleted the addition made out of depreciation allowance with the observation that the same had been made on flimsy and conjectural basis without pointing out any defect in the books of account or establishing that plant and machinery installed by the assessee company had not been used by it during the income year. We, also agree with the observation of the learned C_I.T(Appeals) that such type of addition made with general and casual remarks are neither sustainable nor have they approved by the Courts. We accordingly uphold the deletion of addition of Rs.39,13,644.
9. For the reasons discussed above we do not find any merit in the departmental appeals which are dismissed.
C.M.A./156/Tax(Trib.)Appeal dismissed.