2015 PLP (Trib (PTD)

CH. SHAHID IQBAL DHILLON JUDICIAL MEMBER.

This appeal has been filed by the Department for the tax Year 2010 against the order passed by the learned CIR (Appeals), Gujranwala dated 28-10-2013 on the grounds that CIR(A) was not justified to delete the additions made under sections 111(1)(a) and 111(1)(b) of the Income Tax Ordinance, 2001 "Ordinance".

2. Brief facts of the case are that taxpayer is a private limited company derives income from manufacturing of ball points. The case was selected for audit and assessment was amended by Inland Revenue Audit Officer "IRAO" under section 122(1) of the Ordinance by making certain additions and net income was determined at Rs.58,954,0251. Being dissatisfied with the treatment given by IRAO, the taxpayer preferred appeal before the learned CIR(A), who, after considering the facts and examining the record, deleted the additions made under sections 111(1)(a) and 111(1)(b) of the Ordinance amounting to Rs.5,427,258 and Rs.81,684,612 respectively.

3. Feeling aggrieved with the treatment given by the learned CIR(A) the department has come up in appeal before this Tribunal on the above two grounds.

4. The learned D.R. contested the order of learned CIR(A) and contended that he has deleted the addition without taking into account the facts available on record. DR further contended with vehemence that a thorough and detailed deliberation made by the IRAO have been ignored by the learned CIR(A) which is not justifiable.

5. The learned AR on his turn contested the appeal on legal as well as factual grounds. He vehemently pleaded his case with similar set of arguments which was presented before the learned CIR(A) on the basis of which relief has been allowed by the Learned CIR(A), however, the role of IRAO was specifically argued being highly unjust, while making vague additions under section 111 of the Ordinance, it has been termed as severe mal-administration of justice at the part of IRAO by the A.R

6. The learned A.R. of the taxpayer further supported the order of the learned CIR(A) and brought the attention of the court to pages 2, 4, 5, 6 and 7 of the order. He submitted that the additions made under sections 111(1)(a) and 111(1)(b) of the Ordinance by the IRAO have been fully explained before the CIR(A) with corroborative documentary evidence which was also duly provided to the IRAO during the course of audit proceedings. He reiterated his arguments by saying that the facts of the case, applicable law on the issue and verdict of the Hon'ble High Court has been molded/ignored /discarded intentionally by the IRAO solely to harass the fully compliant taxpayer.

7. We have heard the both sides, also perused the amended assessment order and the appeal order. Before dilating upon the findings of learned CIR(A) we deem it appropriate to highlight certain aspects of the order of IRAO which carry serious legal implications.

8. A plain reading of the order passed by IRAO makes it abundantly clear that the completion of assessment by the officer is not an oversight or mistake but it is the result of the thought process by which the officer has been guided and conducted the proceedings in an arbitrary manner. Taxpayer is not to be put under fear that he has to remember scenario of each and every entry at the end of year. Rather he has to work freely and concentrate upon his business to earn money. If he will earn something, he will pay to government exchequer because in corporate sector taxpayers each and every unit is in-fact a partner of the exchequer for 35% of their profits. Such like attitude of Tax department to show the muscle neither serves the public exchequer nor the economy of the country. Strange enough that without considering the clearly worded order issued by the Hon'ble High Court a huge amount of Rs.81,684,612 has been taxed as deemed income solely by misapplying the provisions of the Ordinance which is patently illegal.

9. In case of addition under section 111(1)(a) when all of the parties/creditors are registered taxpayers under the Ordinance as well as under the Sales Tax Act, 1990 and all payments have been routed through cross-cheques in accordance with the provisions of section 73 of Sales Tax Act, 1990 and the taxpayer had also provided complete documentation/record relevant to the purchases and payments made to the creditors including ledgers accounts of the parties, which clearly shows that payments to the creditors against the outstanding balances shown in the ledgers as on June 30, 2010, there is no justification for the addition under section

111. It is quite strange that deptt. has contested the deletion to the extent of Rs.307,238 while the learned CIR(A) deleted the whole addition of Rs.5,427,258 made by the IRAO meaning thereby department itself confessed the illegal intervention by the IRAO.

10. Other addition in income for Rs. 81,684,612 under sec-tion 111(1)(b) of the Ordinance also appears to be an act of mal-administration of justice at the part of IRAO, who intentionally molded the fact against the legal and factual position, It is inevitable to reproduce the relevant provisions of the law:-- Unexplained income or assets.

(1) Where - (a) any amount is credited in a person's books of account; (b) a person has made any investment or is the owner of any money or valuable article. The IRAO added the difference of liability recorded by the taxpayer in the books of accounts and as communicated by the bank, however, the IRAO miserably failed to identify the nature of investment or valuable article before making huge addition under section 111(1)(b) of the Ordinance in the hands of taxpayer company. The Law on the issue is very much clear, where a person has made any investment or is the owner of any money or valuable article and the person offers no explanation about the nature and source of the investment, valuable article, or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory, value of the investment/article, shall be included in the person's income chargeable to tax under head "Income from Other Sources" to the extent it is not adequately explained. In this case the IRAO intentionally ignored the basic fact which goes to the roots of the case and wrongly invoked the provisions of section 111(1)(b) of the Ordinance. In the instant case, Hon'ble Lahore High Court, Lahore vide Order in Case No. C.O. 46-2010 titled SECP v. Messrs Innovative Investment Bank has decided the settlement terms of Liability Subject to Finance Lease payable by the respondent taxpayer. On the basis of final order by Hon'ble Lahore High Court in C.M. No. 17/2013 resultant payment schedule including amount of liabilities subject to finance lease and the relevant amount of mark-up comes to as under:-- Description Amount as per audited accounts 2010 Amount as decided in-case Amount Waived off Liabilities subject to Finance Lease 81,667,159 70,900,000 10,767,159 Mark-up-payable 42,589,312 0 42,589,312 Total 124,256,471 70,900,000 53,356,471 10-A. IRAO by misconstruing the law has proceeded to add the said amount into taxable income under section 111(1)(b), holding the taxpayer as owner of investment or valuable article is devoid of any legal sanction behind it but also it is a transgression which cannot be approved and stand the test of appeal. This bent of mind at the part of IRAO reflects poor appreciation of law and facts which being based on surmises and stock phrases does not find place in the Ordinance. Even the IRAO does not know the basic accounting principles that it is not only compulsory condition that against each and every liability there must be some investment or asset. Expenditures viz-a-viz assets both can be financed through a liability, however, it appears the IRAQ has his own accounting, principles and interpretation of fiscal laws like Ordinance. Additions under section 111 made by the IRAO are not only vindictive, capricious, biased but also patently illegal and nullity in the eyes of law, therefore, intervention by the CIR(A) to delete the same is in accordance with the applicable law on the issue.

11. These legal flaws in the assessment are in addition to the facts mentioned in the order of CIR(A) which is clear and unequivocal. The respondent taxpayer has explained, all the factual issues and the so called discrepancies pointed out by the IRAO in assessment order, to the satisfaction of the CIR(A) against which no mentionable argument has been advanced before us by the department. In addition thereof the assessment is not in strict compliance of the provisions of the law, the deletions, therefore, are unexceptionable.

12. In view of the foregoing facts we are of the considered opinion that additions made by the IRAO suffer from factual infirmities and legal defects. The upshot of the above discussion is that IRAO has arbitrarily and contrary to the provisions of law, ignored the facts and completed the assessment blindly. The order of the learned CIR(A) is reasoned one since he has decided the case purely in view of documentary evidence provided by the taxpayer not only before the IRAO but also in appeal proceedings which was also duly cross examined in the presence of IRAO who is the author of the order. The learned D.R. has failed to rebut the assertions made by the A.R as well as observations made by the learned CIR(A) in his order. Keeping all these facts in view, we are of the opinion that the learned CIR(A) was amply justified in deleting the additions under section 111 of the Ordinance, thus no interference is required in the impugned order which is hereby maintained.

13. Appeal of the Revenue is dismissed being devoid of any merit. CMA/115/Tax(Trib.) Appeal dismissed.