2010 P T D (Trib.) 96
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Khalid Siddiqui, Accountant Member
I.T.A. No. 186/KB of 2009, decided on 25/07/2009.
Income Tax Ordinance (XLIX of 2001)---
----Ss. 21(1) & 231-A---Deductions not allowed---Cash withdrawal from Bank---Withholding tax by the Bank under S.231-A of the Income Tax Ordinance, 2001---Addition was made by the Taxation Officer on the ground that cash withdrawn from the Bank attracted the provisions of S.21(1) of the Income Tax Ordinance, 2001 despite the fact that assessee explained that Bank had deducted the tax after excluding withdrawal below Rs.25,000 in each withdrawal and out of total withdrawals the assessee had utilized certain amounts in payment of salaries etc., of various employees and the balance amount was re-deposited in the Bank on various dates---Validity---Assessee had not only produced books of accounts but also the Bank statements, deposit slips and date-wise statements of deposits in the bank accounts---Assessee had never tried to take shelter of second proviso to S.21(1) of the Income Tax Ordinance, 2001 as they had never made a claim under the said provision---Since the assessee had produced all the evidence before the Taxation Officer, it was the duty of the Taxation Officer to prove that the statement made by the assessee was not correct but he had failed to point out any defects or discrepancies in the details filed by the assessee and had made the addition on the basis of presumptions and surmises---After examining the books of accounts and Bank statements the Taxation Officer was not justified to make addition on the basis of assumption regarding the factual position specifically when he had failed to detect any expenditure to the extent it was incurred in cash---Taxation Officer had totally misdirected himself on incorrect assumptions and the First Appellate Authority had upheld the treatment meted out by the Taxation Officer without any justification---Order of the First Appellate Authority was vacated by the Appellate Tribunal and addition made under S.21(1) of the Income Tax Ordinance, 2001 was deleted.
(1970) 21 Tax (S.C. Pak) rel.
1998 PTD 2969 ref.
Sulman Pasha, along with Nadeem Ahmed Daudi for Appellants.
Rehmatullah Wazir, D.R. for Respondent.
ORDER
The appellant through this appeal has objected to the impugned order of the learned CIT(A), dated 25-2-2009 for the tax year, 2006 on the following common grounds:--
(1) "That the Commissioner of Income Tax (Appeals) has erred in confirming the treatment meted out by the Taxation Officer while applying the provisions of section 122(5A) to the case of the appellant.
(2) That the Commissioner of Income Tax (Appeals) has erred in confirming the application of section 122(5A) of the Income Tax Ordinance, 2001 to the case of the appellant although prior to delegation, the Commissioner of Income Tax (Appeals) has neither examined the record and the alleged show-cause notice, nor has considered and proved that the order passed was erroneous in so far it is prejudicial to the interest of Revenue.
There being no finding to the contrary by the Commissioner of Income Tax, the order passed under section 122(5A) being illegal and without jurisdiction is liable to be annulled.
(3) That the Commissioner of Income Tax (Appeals) has erred in confirming the application of section 21(1) of Income Tax Ordinance, 2001 to the case of the appellant whereby addition of Rs.90,875,904 in respect of re-deposit of balance amount was confirmed without appreciating the factual aspect and evidence produced by the appellant.
The quantum of additions made under section 21(1) and confirmed in appeal besides being unjustified are not excessive and exorbitant, but also based on assumptions, surmises and conjectures, hence the addition made is liable to be deleted.
(4) That the order passed under section 122(5A) is entirely based on prejudicial approach as the Additional Commissioner of Income Tax and Commissioner of Income Tax (Appeals) both have intentionally ignored the exhaustive details, breakup and documentary evidences including the Bank deposit slips, Bank statement and as well as the extract from cash whereby the "deposits in bank" out of cash withdrawn and from hotel receipts etc. although had been extensively identified by the Taxpayer as mentioned in the body of order. These documents and evidences were again produced before the Commissioner of Income Tax (Appeals), but both the officers have acted illegally and with a bias whereby the evidences were rejected for the reasons best known and with a totally mala fide and prejudicial approach.
(5) That there being no violation of section 21(1), nor section 231-A, nor any other provision of law, the appellant is free to run and carry his business according to his own wishes, the Taxation Officer has no jurisdiction to dictate his terms unless gross irregularities are detected and then confronted, which do not exist in this case, the Commissioner of Income Tax (Appeals) has erred in confirming the addition of Rs.90,875,904 to the income of the appellant.
(6) That the addition of Rs.90,875,904 made to the income of the appellant under section 21(1) read with section 231-A and confirmed in appeal by Commissioner of Income Tax (Appeals) with a mala fide and prejudice and also with a biased approach is an illegal addition, without any basis, hence, the same is liable to be deleted."
The appellant in this case is a private limited company deriving income from hotel business. As per the assessment order the Taxation Officer issued notice under section 122(9) of the Income Tax Ordinance, 2001., dated 19-4-2008 to the Act that the assessment record of the taxpayer was examined and it was noted that the deemed assessment order under section 120 of the Income Tax Ordinance, 2001 for the tax year, 2003 was erroneous so far as it was prejudicial to the interest of Revenue. The contents of notice as mentioned in the assessment order are reproduced hereunder:--
"The order taken to have been made under section 120(1) of the Income Tax Ordinance, 2001 is erroneous in so far as it is prejudicial to the interest of Revenue for the following reasons:--
(1) During the year you have deducted capital loss on investment in shares of Rs.21,878,000 as per noted No..27 of audited statement of accounts. This loss is a notional loss in the first place and secondly the capital gain on sale of shares listed on Stock Exchange is not taxable, therefore, the capital loss on sale of such shares as claimed by you is not admissible as deduction from your business income. The provision in diminution in value of' investment is thus liable to be added to your Income Tax Appellate Tribunal, Lahore.
(2) Provision for gratuity has been paid at Rs.6,189,000 which is not admissible in view of the specific bar on allowability of such provision in terms of section 21(1) of the Income Tax Ordinance, 2001.
(3) On the basis of withholding tax by banks of Rs.110,062 under section 231-A of the Income Tax Ordinance, 2001 your cash withdrawal during the year comes to Rs.110,062,000 which is hit by the provision of section 21(L) of the Income Tax Ordinance, 2001, please furnish your reply in this respect. In the purview of the above, please explain on or before 27-4-2008 as to why action under section 122(5A) may not be taken in your case for tax year, 2006. "
In response to the above notice the assessee submitted his reply through letter, dated 26-4-2008 which is reproduced hereunder:--
(1) "The deemed assessment order under section 120 of the Income Tax Ordinance, 2001 has attained finality and the subject taxpayer has acquired a vested interest and right in the same. The protection of the vested right is guaranteed by the Constitution of the Pakistan and cannot be taken away except under expressed provisions of law and after due process law. The subject order is not suffering from any error and is not erroneous or prejudicial to Revenue.
(2) Your observation that the capital loss on investment in shares amounting to Rs.21,878,000 is deducted from the business income of the taxpayer for the subject year is erroneous and is contrary to the facts of the case. This loss of capital is inclusive in the audited accounts of the taxpayer but is excluded from the business income in the tax computation. The business income offered to tax at Rs.193,209,715 is exclusive of the loss on the investment in shares. Your attention is invited to Item No.29 of Part IIC of the Form of Return where an amount of (Rs.8,590,000) is excluded from the all inclusive income of the taxpayer to allow for the effect of the net loss of investment and other incomes chargeable under heads of income other than business income. The amount of (Rs.8,590,000) consists of the following income or loss which are either taxable under heads of income other than business or are not admissible losses.
| Property Income | Rs. 9,175,000 |
| Dividend Income | Rs. 4,113,000 |
| Loss From Investment | Rs. 21,878,00 |
| | Rs. 8,590,000 |
(3) Your observation that an amount of Rs.6,189,000 has been paid as gratuity and claimed as admissible expense in the tax computation in violation of the provisions of section 21(e) of the Income Tax Ordinance, 2001 is contrary to the facts of the taxpayer. In fact the amount of Rs.6,189,000 represents the difference of the total accumulated and deferred liability of the taxpayer on account of gratuity as at the close of the year on 30th June, 2006 and the provision of expense gratuity in the accounts of the year, 2006. This is not the amount of claim of expense on account of gratuity during the current tax year. Your attention is invited to item No.4 of Part IIC of the Form of Return of Income for the subject tax year wherein the amount of Rs.1,521,000 has been added back to the accounting income on account of provision of gratuity as inadmissible expense and the claim of the gratuity as per item No.36 of Part-IIC of the Form of Return is restricted to Rs.1,654,000 as admissible gratuity actually paid to the parting workers.
(4) Your observation that mere existence of the fact of cash withdrawal from bank leads to inadmissibility of expenses under clause 21L is based on presumption as well as surmises and reflects a distant view of the facts of the taxpayer without taking into considering the second proviso to the section 21(1) of the Income Tax Ordinance, 2001. In fact the taxpayer is engaged in the hospitality business where assured availability of all the utilities at all the time is an essential requirement of business and where a large number of low paid employees are engaged in business on contract as well as otherwise. To meet these business exigencies, a large amount of cash is required to be available with the management of the business. A large part of the expenditure of the taxpayer involve the situation catered by the second provision to the section 21(1) of the Ordinance, 2001 and the claim of expenses has been made in accordance with the admissibility criteria keeping in view the provisions of the law as contained in the whole of the section 21 and not part of it. Besides, the cash withdrawn from bank during the year has also been re-deposited to the extent of Rs.92 million into bank without utilizing on the disbursement of the expenditures.
In view of the above submission regarding the factual and legal position, the subject deemed order of assessment does not deserve to the' be modified and amended under section 122(5A) of the Income Tax Ordinance, 2001. You are, therefore, requested to please file the proceedings initiated by your notice under reference."
The Taxation Officer treating the above said explanation offered by the taxpayer to be unsatisfactory made the addition under section 21(1) of the Income Tax Ordinance, 2001 while amending the assessment under section 122. The taxpayer filed an appeal before the learned CIT(A) who has upheld the treatment meted out by the Taxation Officer hence this appeal.
Mr. Sulman Pasha, Advocate has appeared along with Mr. Nadeem Ahmed Daudi, Advocate and has contended that in response to notices of the Taxation Officer the appellant filed a detailed reply vide his letter, dated 26-4-2008 and 30-9-2008 and the Taxation Officer dropped the queries made in the above referred notices at Serial Nos.1 and 2 whereas in respect of withholding tax by the bank under section 231-A the Taxation Officer was of the view that the cash withdrawn from the bank attracts the provisions of section 21(1) despite the fact that the appellant had explained that the bank had deducted the tax after excluding withdrawal below Rs.25,000 on each withdrawal and out of total withdrawals the appellant has utilized certain amounts in payment of salaries etc., of various employees and the balance amount was re-deposited in the bank on various dates. He has in this respect placed before us the details of cash withdrawals from the banks as re-deposited from July, 2005 to June, 2006. He has also placed before us the deposit slips and the bank statements regarding this period. Learned counsel has contended that after considering the explanation, various details, evidences, bank statements and examining the books of accounts the Taxation Officer had accepted the explanation to the extent of certain amounts but has rejected the explanation regarding the balance amounts with the observation that the appellant had failed to submit the plausible explanation assuming only that the said amount was withdrawn to meet the expenses which according to the Taxation Officer had been incurred in cash and has therefore added that amount to the income. Learned counsel is of the view that the Taxation Officer has totally misdirected himself by invoking the provisions of section 21(1) and had made the addition to the income of the appellant by misreading to the fact of the case and the explanations filed by the appellant through the above referred letters. The contention of the learned representative of the taxpayer is that regarding Taxation Officer's view that the withdrawals from the bank were utilized for payment of expenses in cash there is no proof nor there is any evidence with department in this regard therefore the entire observations of the Taxation Officer as based on incorrect assumptions and -surmises. Learned counsel has submitted that the taxpayer throughout has categorically submitted before the Taxation Officer as well as before the learned CIT(A) that the above referred amount was re-deposited in the bank account maintained with my bank. He has in this respect referred the relevant statements issued by the bank showing date-wise deposits of various amounts in bank accounts which are confirmed by the deposit slips. According to him these documents and evidences were also produced before the Taxation Officer as well as before the learned CIT(A) and. therefore there was no justification for making addition under section 21(1) in the case of the appellant especially when there is no iota of evidence available on record contrary to the submissions made by the appellant. As regard the observations of the learned CIT(A) in the impugned order that "even no bank statement in support of their contention was produced to establish the appellant's contention that the same cash withdrawals were re-deposited in the bank on different dates,". Learned counsel has contended that these observations are contrary to the findings of the Taxation Officer made in the order passed under section 122(5A) as in that order the Taxation Officer has admitted' that the copies of supporting vouchers of the cash withdrawals, deposits and relevant books of accounts were placed during the course of proceedings under section 122(5A). He is of the view that the learned CIT(A) has misdirected himself while confirming the addition as reasons given by learned CIT(A) is not on any basis. Learned counsel has also referred the discrepancies in the order passed by the Taxation Officer under section 122(5A) referring the para-1 of the order where the Taxation Officer has mentioned the Tax year, 2003 which according to him, he has examined and found that the deemed assessment under section 120 of the Income Tax Ordinance, 2001 is prejudicial to the interest of revenue. Likewise, according to learned counsel the amount estimated by the Taxation Officer is not correct and entire proceedings are based on misdirected facts. He has therefore requested for the deletion of the addition made to the income of the appellant. Learned counsel in support of his contention has placed reliance on the decision of the Honourable Supreme Court of Pakistan reported 'as (1970) 21 Tax (S.C. Pak).
On the other hand learned D.R. is supporting impugned orders of the officers below. He has contended that both the officers below after giving sufficient opportunity of being heard has made the addition which is liable to be upheld. Learned counsel in this regard has placed reliance on the decisions of Balochistan High Court reported as 1998 PTD 2969.
We have heard the learned representatives from both the sides and have also perused the. impugned order of the learned CIT(A), the assessment order and order relevant record of the case.
We have 'found that the Taxation Officer has reopened the deemed assessment order under section 120 and has amended the order under section (5A) which has been objected by the appellant but the learned counsel representing the appellant has not pressed the ground regarding the illegality of the order passed under section 122(5A) but has only objected to the addition made under section 21(1) which is regarding Deductions not allowed and according to which "except as otherwise provided in this Ordinance, no deduction shall be allowed in computing the income of a person under the head "Income from Business" for
(1) any expenditure for a transaction, paid or payable under a single account head which, in aggregate, exceeds fifty thousand rupees made other than by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order of any other crossed banking instrument showing transfer of amount from the business bank account of the taxpayer.
We are of the view that the Taxation Officer has failed to point out any expenditure made by the taxpayer and has made the addition. Likewise, the learned CIT(A) has referred section 231-A which is regarding cash withdrawal from the bank which according to our humble view is not relevant in the case of- the taxpayer. Learned counsel representing the appellant has referred the decision of the Honourable Supreme Court reported as (1970) 21 Tax (S.C. Pak) although this decision is regarding repealed Income Tax Ordinance but the observation made regarding expenditure is relevant to the subject to certain extent which is reproduced hereunder:
"The only thing that the Department is entitled to examine is whether the amount claimed was spent wholly and exclusively for the purpose of the business. It is open to the Department to ascertain whether the amount was spent on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business but nothing more. The onus of showing that the amount .was spent for such a purpose is, no doubt, upon the assessee. This, however, does not mean that the Department by applying some subjective standard of reasonableness can disallow such an expenditure. If, however, it is found on evidence that the expenditure was not incurred on grounds of commercial expediency but for a consideration other than that it is open to the Income-tax Officer to disallow such an expenditure."
We have found that in this case the appellant had not only produced books of accounts but the bank statements, deposit slips and also date-wise statements of deposits in the bank accounts before the Taxation Officer, the learned CIT(A) as well as before this Tribunal. We have found that the appellant had never tried to take shelter of second proviso to section 21(1) as they had never made a claim under the said provision. We are of the view that since the appellant had produced all the evidences before the Taxation Officer, it was the duty of the Taxation Officer to prove that the statement made by the appellant was not correct but he has failed to point out any defects or discrepancies in the details filed by the appellant and has made the addition on the basis of presumptions and surmises. We are of the view that after examining the books of accounts and bank statements the Taxation Officer was justified to make addition on the basis of assumption regarding the factual position specifically when he has miserably failed to detect any expenditure to the extent it was incurred in cash. We are therefore of the view that the Taxation Officer had totally misdirected himself on incorrect assumptions and the learned CIT(A) has upheld the treatment meted out by the Taxation Officer without any justification. The impugned order of the learned CIT(A) in this respect is therefore vacated and the addition made to the income of the taxpayer under section 21(1) of the Ordinance, 2001is deleted.
The appeal filed by the assessee is allowed to the extent and in the manner referred above.
C.M.A./120/Tax(Trib.)Order accordingly.