2001 PLP (Trib (PTD)

The assessee is a public limited company which is engaged in the manufacture and sale of industrial gases and chemicals. The comparative position of the original assessment is given as under: Sales Rs.407,26,582 Rs.450,00,000 G.P. rate 3.43% 30% And Addition of Rs.40,00,000 out of the P&L expenses was made thereby determining the net income at Rs.31,30,242 against the declared loss of Rs.1,25,72,

745. The, assessment was made in a summary manner for the alleged non-production of the record. It was set aside in appeal. Re-assessment has been made by only repeating the original figures of Rs.31,30,242 without giving computation or any other figures whatso ever. Natural corollary of this is that the discussion as well as the computation which was made in the original order had become a part and parcel of the order under sections 63/132 and it is the figures of the original order which have been contested in the grounds of appeal. The first objection is that the assessment should not have been framed under section 63 because the alleged notice under section 62 was served on the ex-Chief Accountant on 29-12-1993. The second objection is that the order has not been passed in accordance with the contents of the notice under section 62 and that the I.T.O. has repeated the original figures of assessment. Both these objections are rejected. The I.T.O. had no mean of knowing that the ex-Chief Account who received the notice under section 62 had left the service of the assessee-company. In any case proceedings went on till 25-1-1994 and the representative of the assessee company kept, attending the office of the Income-tax Officer. No such objection was raised during these further proceedings. The contents of the notice' dated 29-12-1993 have been perused and it, is found that the various points mentioned therein pertaining to assessment years 1990-91 and 1991-92 also because this was a combined notice which was issued for the charge years 1989-90 to 1991-92. The only observation made by the Assessing Officer in respect of 1989-90 was as under:

"You have failed to provide details in respect of assessment year 1989-90 (set aside case) despite ample opportunities. Please explain why original assessment should not be repeated." The last order sheet entry reads as under:

"None attended. In view of the assessment for 89-90 is finalized under sections 132/63. Assessment year 1990-91 is to be finalized under section 62 as part details have been furnished." Final order was passed on 1-2-1994. In view of the facts discussed above I am .of the considered opinion the I.T.O. discharged his legal responsibility of giving adequate opportunity of representation to the assessee and waited for a sufficiently long time for compliance on its behalf which was not forthcoming for which reason he was constrained to proceed on ex parte basis. The ex parte action of the Assessing Officer is, therefore, upheld. In the grounds of appeal it has been contended that the I.T.O. was not justified in estimating sales at Rs.4,50,00;000 against declared at Rs.4,07,26,582 because the sales were entirely verifiable. It- has also been pleaded, that in the immediately preceding year the sales were declared at almost 1/2figure which were accepted because of their verifiable nature. These contentions are found to be without any merit. The past history of the case does not help the assessee in this situation. Its duty is to submit complete and comprehensive details of the sale pertaining to the year under consideration and to satisfy the I.T.O. regarding their verifiability. This was not done. Hence the assessee cannot take the plea that its declared version merits acceptance. The enhancement made in the sales is quite commensurate with the reputation and overall production capacity of the assessee-company for which reason these are confirmed. G.P. of 30% has been applied against declared rate at 3.43% Mr. Nadeem Akhtar Sheikh, A.R. vehemently contended that Calcium Carbide plant of the company had remained document in the past many years and had been re-activated during the year. There was heavy expenditure on its repairs. Because of the teething problems faced on account of restarting of the plant its production was inadequate which resulted in an unusually low G.P. rate. He vehemently argued that there was no justification for the application of G.P. rate of 30% which was highest ever applied in the history of the case. He further contended that due to litigation between the directors the assessee was not in a position to produce record. In the light of these arguments the A.R. vehemently requested that the G.P. rate should be reduced to 15 % which had been applied by the Assessing ' Officer in the succeeding years. Due consideration has been given to the above observations. However, these are not found fully convincing for the following reasons: The willing cooperation of an assessee does prove prima facie its bona fide intention. Without a doubt it is felt that for the year under consideration the assessee did not cooperate at all to produce the record to help the Assessing Officer in framing the assessment. Even if there was a tussle going on between the directors the assessee could easily have arranged for the production of the record to which its directors placed at Lahore had access to. This was not done. The fact that the Calcium Plant was operated only for a period of two months goes to show that the main manufacturing activity of the company was in respect of other products like Oxygen etc. The G.P. rate declared by the company for Oxygen in the years 1986-87 and 1987-88 were about 28% and 23% respectively. Mr. Naeem Akhtar Sheikh was not able to give convincing answer as to why the gross profit available on the company products like oxygen should not be considered to be of the same level as in the previous years. Keeping in view the above discussion the request of the A.R. for reduction of G.P. rate to 15% is hereby firmly rejected. Taking notice of the partial adverse effect of the starting up of Calcium Carbide Plant, non -production of account books as well as production record it is deemed fit and reasonable to reduce the G. P. rate to 25%. On ad hoc basis an amount of Rs.40,00,000 has been disallowed. Mr. Nadeem Akhtar Sheikh submitted the following chart:

Reference Year Declared sales Claimed Disallowed. 1988-89 2,09,91,000 9,651,000 -738,150 Assessment years 1989-90 4,07,26,582 11,589,000 4,000,000 1990-91 7,75,02,000 8,944,000 1,774,000 1990-91 7,56,51,000 8,700,000 2,100,000 1992-93 8,69,99,000 10,005,000 2,501,250 1993-94 3,47,98,000 7,308,000 1,827,000 He argued that on proportionate basis the Assessing Officer has made highly excessive addition. This objection is found to have some weight. The addition is, therefore, reduced to Rs.30,00,000 Rs.30 lacs. 1990-91 Assessment year The Company declared income of Rs.12,91,000 which has been assessed at Rs.1,42,71,

072. Declared Assessed Sales 5,85,52,885 8,98,16,324 G. P. rate 21.2 % 21.2% Gas Unit Sales 1,89,48,900 2,65,00,000 G.P. rate 8.32% 15% With the return the assessees submitted unaudited accounts, However, the books of accounts on the, basis of which these were comphea were not produced before the Assessing Officer. Neither production' record was submitted for his scrutiny. The Assessing Officer took initiative of obtaining necessary information with regard to the consumption of electricity from Karachi Electric Supply Corporation. He also developed co-relationship between the consumption of electricity and production of Calcium Crbide. He noted fluctuations in the production pattern which were unnatural and could not be satisfactorily explained. He took cognizance of consumption of various components which were required to manufacture Calcium Carbide like coke, electrode paste, limestone and packing material. In this connection the assessee itself gave certain information regarding the ratio and proportion of consumption of the components and it was found by the I.T.O. that the production pattern which evolved viz-a-viz the consumption of electricity was at variance with the declared formula. On the basis of these blatant and patent discrepancies he felt justified to throw out the declared version. He adopted the basis for calculating the production sales which is given in page 9 of the order. These facts were verbally confronted to Mr. Naeem Akhtar Sheikh and he had no plausible answer to rebut the basis and treatment given by Assessing Officer both in rejecting the declared version and in adopting the sales as per the order in respect of Calcium Carbide as well as oxygen gas. As far as the question of applied rates is concerned there can be no cavil at these. In respect of Calcium Carbide the declared rate has been adopted. In respect of oxygen gas 15 % has been applied against declared rate of 8.32 % which is in accordance with the, history of the case. In view of the above discussion the treatment meted out by the Assessing Officer is held to be reasonable. Here C.I.T.(A) has made an mistake, because in previous year he applied 25% G. P. Add backs: Itemwise discussion of add backs is not being made. It is considered that these are consistent with the objective realities of the appellant's business and are otherwise also reasonable. I confirm all the add backs. In this case I have my hats off to the Assessing Officer for having discreetly obtained and intelligently marshalled the vital information regarding the consumption of electricity as well as the formula of production in respect of the components of coke, electrode paste, limestone and packing material. With almost no support from the assessee the single handedly and intelligently obtained the necessary information from the concerned quarters and placed together the missing links of the jigsaw puzzle to form a composite picture, of the assessee's production of Calcium Carbide as well as industrial gases. The basis adopted for working out the production has been explicitly given in the order which is rational and reasonable. Mr. Naeem Akhter Sheikh could not point out harshness of treatment of any contradiction in figures of logic of the Assessing Officer. Before parting I would like to say that the Assessing Officer does deserve a pat on his back for framing a logical as well as reasoned order. In view of the above discussion, the appeal is held to be without any merits and is dismissed. 1991-92 Assessment year: Unmistakably the assessee-company made supplies of Calcium Carbide to Pakistan Oxygen Limited and Pakistan Railways as under: Pakistan Oxygen Ltd. Rs. 579..88 tons Pakistan Railways 26.60 tons Total 606.48 tons It is worth noting that the nature of assessee's products is such that these can be utilized only by known industrial concerns which thus, makes its sales primarily in the nature of supplies'. Since the assessee had not exercised its option in clause (9) Part IV of the Second Schedule, therefore, its case fell within the ambit of section 80C. Even in this year the assessee-company failed to produce books of accounts alongwith necessary documentary evidence. The Assessing Officer was left with no alternative but to resort to the estimation of the overall production as well as the sales on the basis of sketchy information provided by the appellant as well as the past history of the case. In the absence of the books of accounts it is maintained that the Assessing Officer was justified in rejecting the declared trading results. The details of the figures are not being discussed because it is felt to be unnecessary in the circumstances of the case. Suffice it to say that the production as well as sale rate adopted by the Assessing Officer appear most reasonable and are, therefore, confirmed. However, certain computational errors which are apparent from the order are being removed. Show-cause notice under section 62 dated 19-6-1994 was issued. The details are contained at pages 2 and 3 of the order. In it the Assessing Officer gave facts and figures to justify the proposed production and sales which he intended to estimate. At serial No.6 of this notice he stated "Sales to own unit -20 % of production as per history @ 11,000 Rs.1,02,85." The contention of the assessee is that the Assessing Officer failed to give effect to it while computing the sales of Calcium Carbide. In his -written arguments the learned counsel has stated as under: "The Assessing Officer also erred by assuming that the entire production made by -the assessee has been sold to 'the outsiders whereas in fact the Calcium Carbide is basic raw material- which is used by the, assessee in its own units for production of industrial gases. As no Calcium Carbide was imported during the year, therefore, even production was used in gas units as per practice in the past. This fact also stands confirmed from the notice issued under section 62 in which the assessee has been given an allowance of heavy consumption equal of 20% based on the history of the case. However, while computing the tax, this factor was ignored by the Assessing Officer. " The argument of the A.R. is correct both factually and logically. Calcium Carbide being raw material for the production of industrial gases it is natural to conclude the part of the total production of Calcium Carbide was diverted towards the production of gases 20% production of Calcium Carbide has been considered as self-consumption even in the past. The Assessing Officer failed to give effect to this important observation made himself in the notice, under section 62 at serial No.6 as discussed above. Therefore, relief is given to the assessee on this score. At page 4 of the order the total production of calcium cabridge has been worked out, at 3939.17 tons. 20 per cent. of this production is to be considered as sales to own unit for purposes of self-consumption of manufacture of industrial gases. Necessary effect to it will be given by the I.T.O. On the sales to Pakistan Oxygen, Pakistan Railways as well as to other parties, the I.T.O. had adopted deduction of 3 % under section 80C. It is the contention of the A.R. that the correct rate is 2.5 % within the meaning of the Board's Circular No. 11 of 1991 dated 30-6-1991. It is also observed that the I.T:O.. Circle 8 Companies Zone-II, Lahore who is currently holding charge of the case vide her Letter No.427 dated 19-2-19 (sic) has stated as under: "As far the application of rate of 3 %a on supplies is concerned the contention of the A.R. seems to tie correct because on supplies of goods. 2.5% tax should be deducted." In view of this admission of the incumbent I.T.O. rate is reduced from 3% to 2.5%. The assessee has declared an amount of Rs.12;00,000 as income from sale of scrap and cylinder bodies etc. Since no details were furnished; this has been estimated at Rs.13,00,

000. The A.R. stated that the estimate was excessive. However, in the absence of the record it is considered to be reasonable and is confirmed. Mr. Naeem Akhtar Sheikh, A.R. submitted additional ground of appeal in which 'he argued that this income should not be considered as a separate income assessable under section 62, rather it should be taken as part and parcel of the supplies which have been taxed under section 80C. His additional ground is reproduced as under: "During the above years, the assessee's income included receipts on account of sale of scrap and profit on sale of fixed assets shown under the head Miscellaneous Income. The Assessing Officer while framing the assessment under section 80C estimated the above receipts and subjected them to tax under. normal law. We wish to submit that the above treatment is against the spirit of section 80C. Under subsection. (4) of section 80C, where assessee does not have any other income, then the income taxed under, section. 80C, the same is considered as a full and final discharge of tax under the Ordinance. Your honour will appreciate that in the above case, the entire sales of the assessee has been subjected to tax under section 80C, and therefore, in light of the above subsection, the estimate of Miscellaneous Income is patently, illegal and unwarranted by law. We, submit that Miscellaneous Income is nothing but additional business. The clause (IV) of Circular No.8 relevant to the above issue. Is reproduced as under: The tax deducted or collected at source shall be deemed to be the final discharge of tax liability in respect .of all persons including company and registered firms who have no other receipt or source of income. It is submitted that the word other receipts used in the above circular refers to sales which are non-supplies and are to be taxed under normal law on prorata basis. Similarly, other sources of income represents the income derived from sources other than those subjected to tax under section 80C. It is interpretation taken by the Department is considered as correct then there will be almost no assessee liable to tax under section 80C as the Miscellaneous Income accrues to all the businesses. Therefore, the interpretation taken by the Department if assumed to be correct will make the application of 80C as redundant.". This contention is found to be absolutely illegal and is firmly rejected. Circular No. 12 of 1991 makes a clear-cut distinction between the supplies and other receipts. Sales of scrap and cylinder bodies were not made to known parties in the shape of supplies. These, therefore, be taxed under, normal law under section

62. The treatment of the Assessing Officer is hereby confirmed. Total amount of Rs.87,00,000 has been claimed as expenses out of which Rs.66,00,000 have been allowed which means an amount of Rs.21,00,000 has been disallowed. Keeping in view the total turn over from all the sources, the past history, as well as the absence of the documentary evidence in support of the claimed expenses the treatment is considered reasonable and is confirmed. 1992-93 Assessment year. For the purpose of brevity the detail of the case for the year under consideration are not being given. Suffice it to say that the issues involved and the decisions made are the same as in the year 1991-92. Briefly the assessee-company indulged in the manufacture' and sale of Calcium Carbide and oxygen, but did not produce 'the books of accounts and the accompanying documentary evidence. Also it did not file the option as contemplated in clause (9) part IV of the Second Schedule because of which fact its case falls within the four corners of section 80C. A specific mention to this effect has also been made by the I.T.O, in the assessment order itself. The: treatment given by the Assessing Officer in rejecting the trading results, in estimating sales, in applying G.P. rate, the add backs are confirmed because no worthwhile rebuttal was pleaded or given at the appeal stage. Furthermore, the plea of the appellant that other income should be considered to be part and parcel of the supplies and be taxed under section 80C is considered to be unacceptable and is rejected for the same reasons as given in the order for 1991-92. However, partial relief is given in the computational errors on the same lines as in the preceding years and in the following manner. The rate of tax is reduced from 3 % to 2.5

2. The assessee is to be given relief to the extent of 20% of the production of Calcium. Carbide as intimated in the show-cause notice dated 15-6-1994 at serial No.6 but no given while calculating the production and sales in the subsequent part of the order. 1993-94 Assessment year. The facts and circumstances of the case are almost identical to those of 1991-92 and 1992-93' and for that reason are not being given or repeated in detail. It is enough to say that the I.T.O. was justified in rejecting the declared version of the assessee for the reasons recorded in the order and subjecting the sales to tax-under section 80C because the option contained in clause (9) of Part IV of the Second Schedule was not exercised by the assessee. Therefore, the entire treatment given in .the order is held to be fair and reasonable except the issues which are discussed hereunder: (1) ' Rate of tax is reduced from 3 % to 2.5 % .as in the earlier years. ' "The assessee's plea that sales in respect of the other income should be considered an integral part of the section 80C sales is hereby rejected for the same reasons as have been recorded in the earlier orders." The C.I.T.(A) has thoroughly examined all aspects of the case and has given a detailed judgment thereon. The appeals having not been substantiated by the appellant and after hearing the LA/DR for 'the Revenue and going through the record, we are not inclined to interfere for the assessee. The order of the C.I.T.(A) on all the grounds of assessee taken before us being exhaustive and with proper application of take and mind, we uphold it and dismiss all the appeals of the assessee on merits as well. The upshot of this discussion is that all the appeals of the assessee are dismissed. C.M.A./M.A.K./84)/Tax(Trib.) Appeals dismissed.