2010 PLP (Trib (PTD)

KHALID WAHEED AHMED, JUDICIAL MEMBER.

The above titled cross appeals pertaining to assessment year 2001-2002, at the behest of assessee as well as Revenue, are directed against the order dated 21-7-2003 of CIT(A), Rawalpindi.

2. Mr. Sikandar Hayat Khan, Advocate the learned A.R. appeared on behalf of the assessee and Mr. Abdul Shakoor, the learned DR appeared on behalf of the Revenue.

3. The assessee in this case in an AOP which dervies income from sale of jewellery. Return for the year under consideration was filed to declare net income Of Rs.4,17,019 under SAS. The case of the assessee was however not accepted under S.A.S. as it was selected for Total Audit through computer 'random ballot. The declared version in the absence of any documentary evidence having been produced in support thereof was not accepted by the Assessing Officer. The assessment was finalized through an ex parte order passed under section 63 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) at net income of Rs.20,66,

275. Sales were estimated at Rs.1,86,55,260 at 6 times of average of opening and closing stock against those declared by the assessee at Rs.50,03,

023. Gross profit was worked out by applying GP rate of 15%. Some add-backs out of P&L account under the heads telephone, entertainment and miscellaneous were also made by the assessing officer. The assessment framed by the Assessing Officer was challenged by the assessee by filing appeal before the First Appellate Authority. It was the contention of the assessee before the First Appellate Authority that the estimate of sales adopted by the Assessing Officer was unjustified and without any basis. The estimation of turnover at six times of average stock was contended to be against the principle of accounting and of having no legal sanctity. The sales estimated by the Assessing Officer on the basis of rotation of the average of opening and closing stock at six times were held to be excessive by the CIT(A) which were ultimately reduced to Rs.1,00,00,

000. The assessee, being dissatisfied with the relief allowed, assails the order of CIT(A) on the following grounds: "(i) That neither any omission having been detected in either opening and closing stock figures of the appellant, nor its purchases, declared sales should have been accepted by the learned CIT(A). (ii) That on account of what has been stated above, relevant case-law and order recorded by the learned F.T.O. vide Complaint No.279/2003 dated 12-8-2003, trading account should have been accepted, as no suppression of sales was established/proved. (iii) That there is no principle of accountancy which prescribes lays down that estimate of turnover could be made on the basis of average stock, because the stock valuation is simply meant for determination of trading results for a tax year as it is a misconception to think that any profit accrues out of valuation of closing stock." On the other hand; reduction allowed by the CIT(A) in the estimate of sales is contested to be unjustified through the grounds of departmental appeal.

4. Learned AR, in his arguments, before the Bench supported the contentions raised through the grounds of assessee's appeal. The arguments put forth by learned AR of assessee were mainly based on same pleas as taken before learned First Appellate Authority According to learned AR the estimate of sales adopted by the assessing officer by rotating the average of opening and closing stock was, without any legal footings and against the principle of accounting. Case-law of the courts of the Indian jurisdiction was referred by the learned AR in support of his contention. Learned AR submitted that it was held by the Supreme Court of India in its judgment reported as (1953) 24 ITR 481 that no profit could be derived from the stock. As per contention of learned AR of the assessee the estimation of sales must be based on some solid material and according to him estimation of sales on the basis of stock could not to be considered as having been made on any material basis. According to learned AR the estimation of sales on the basis of stock and the profit worked out therefrom was a notional income. By quoting the judgment of Indian High Court reported as (1996) 59 ITR 120 Gujarat High Court, learned AR contended that notional income could not be charged to tax. Learned AR also contended that the assessee was entitled to know the basis of estimates to be adopted by the Assessing Officer and also to be provided with the opportunity to rebut the same. In this context, the decisions of the courts of Indian jurisdiction reported as (1954) 26 ITR 775 SC India and (1966) 62 ITR 528 Andhra Pradesh High Court were quoted by the learned AR of the assessee. It was also the contention of learned AR that the Assessing Officer failed to establish that the assessee had made more purchases than those declared by it and as such had disturbed the whole method of accounting. According to learned AR of the assessee the sales cannot be enhanced without first establishing that the assessee had made more purchases as against those declared by him. The estimation of sales fixed by the learned CIT(A) was also contended to be on excessive side in view of the history of the case. Learned AR, stated the sales of the assessee-company for the assessment year 1994-95 which were assessed at Rs.1,12,50,000 against the declared sales of Rs.39,94,470 were reduced by the CIT(A) to Rs.44,00,

000. Learned AR further stated that for assessment years 1995-96 and 1996-97 the sales assessed at Rs.1,25,00,000 and Rs.1,40,00,000 respectively were reduced by the CIT(A) to Rs.47,00,000 and Rs.52,50,000 which were confirmed by the ITAT vide order dated 23-4-2002 in I.T.A. No.1408 and 1409/IB/98-99. However, learned AR was unable to provide any information regarding the sales declared by the assessee for the assessment years 1997-98 and 1998-99. Similarly, no information was provided with regard to sales declared or assessed for the assessment years 1999-2000 and 2000-2001. However, learned AR submitted that for the subsequent assessment year i.e. 2002-2003 the declared sales of Rs.32,63,000 were accepted on the directions of the F.T.O. vide order in Complaint No.279-2003 dated 12-8-2003. Learned DR, in his arguments, contended that the relief allowed by the CIT(A) was unjustified. It was the contention of learned D.R. that the rejection of the declared version by the Assessing Officer was justified because no books of accounts or any other evidence was produced before him. According to learned D.R the estimate of sales adopted by the Assessing Officer on the basis of six times rotation of stock by quoting parallel cases which were confirmed to the assessee through notice issued under section 62 of the repealed Ordinance was justified and reasonable. Learned DR also contended that estimation of sales adopted by the Assessing Officer on the basis of rotation of average stock was not illegal. Learned DR further contended that the estimation of sales on the basis of rotation of stock has been confirmed by the ITAT in a number of cases and in this regard the order No.605/IB/92-93 dated 26-4-1995 of the ITAT was referred by him. Learned DR contended that the CIT(A) was not justified in reducing the estimation of sales which was adopted by the Assessing Officer in view of the similar treatment being accorded in other parallel cases. According to learned DR, the assessee was confronted on the issue of estimate of sales through notice issued under section 62 of the Repealed Ordinance and since no objection was raised by the assessee to the proposed estimate of sales by filing any reply, the CIT(A) was not justified to reduce the same.

5. Arguments of learned representatives of both the parties have been heard. The facts available on record before, us have also been taken into consideration and the case law cited by the learned AR of the assessee have also been perused. The perusal of the assessment order reveals that the ex parte assessment was framed by the TO, Circle-17, Rawalpindi because as stated therein the assessee failed to make the compliance of statutory notice issued under sections 61 & 62 of the repealed Ordinance. No books of accounts or any kind of documentary evidence in support of the declared version was produced by the assessee before the Assessing Officer. It is pointed out here that the issues with regard to framing of ex parte assessment under section 63 of the repealed Ordinance or the service of above mentioned statutory notices issued by the Assessing Officer under sections 61 and 62 had not been raised by the assessee through the grounds of its appeal. The perusal of impugned order of CIT(A) further reveals that the above mentioned issues were not raised or discussed before the first appellate authority meaning thereby that the action of Assessing Officer to frame the ex parte assessment and service of above mentioned statutory notices issued by the Assessing Officer is not disputed by the assessee. In our considered opinion under the circumstances and facts of the case as mentioned above the assessing officer was justified in rejecting the declared version, which was not supported with the books of accounts and other documentary evidences. The perusal of the assessment order reveals that the Assessing Officer by quoting the parallel cases of jewelers and also relying on the decision of the I.T.A.T. dated 26-4-1995 in I.T.A. No.605/IB of 1992-93 whereby the sales estimated 5 to 6 times of the stock were confirmed by the I.T.A.T. estimated the sales of the assessee for the year under consideration at Rs.1,86,55,620 at 6 limes of the average stock. Before the framing of ex parte assessment the assessee was confronted with the proposed estimate of sales worked out on the basis of rotation of stock through notice dated 4-2-2003 issued under section 62 of the repealed Ordinance, against which no objection was raised by the assessee as already 'mentioned above. In our opinion the assessee accepted the estimate of sale confronted to him through notice issued under section 62 of the Ordinance because no objection against the sales proposed to be adopted by the Assessing Officer was raised during the course of assessment proceedings. It is important to point out here that the service of above mentioned notice issued under section 62 of the Ordinance remains undisputed because neither the issue regarding service of notices was raised in appeal filed before the First Appellate Authority nor it had been agitated by assessee before Tribunal. Under the circumstances and considering the facts of case as discussed above we are inclined to accept the departmental appeal. It is, therefore, held that CIT(A) was not justified to allow the impugned relief because no objection was raised against the proposed estimate of sales specifically confronted to the assessee through notice issued under section 62 of the repealed Ordinance. The assessee once having accepted the estimate of sales proposed by the assessing officer was not entitled to dispute the same by challenging the basis of estimate adopted by the Assessing Officer. In view of above, the order of the CIT(A) on this issue is hereby vacated and the original estimate of sales adopted by the Assessing Officer stands restored.

6. As a result, the departmental appeal stands accepted and that of the assessee fails. C.M.A./106/Tax (Trib.) Order accordingly.