2013 PLP (Trib (PTD)

This appeal is directed against order No.44 dated 18-12-2010 passed by the Commissioner Inland Revenue (Appeals-II) Karachi. The department has agitated the following grounds of appeal:-- "(1) That the learned Commissioner Inland Revenue (Appeals-II) Karachi was not justified to annul order under section 122(1) of the Income Tax Ordinance, 2001. (2) That the learned Commissioner Inland Revenue (Appeals-II), Karachi was not justified to delete an amount of Rs.9,957,720 being suppressed receipts in view of the fact that the ACIR had duly taken into account all the reverse entries in the bank before making the addition. (3) That the learned Commissioner Inland Revenue (Appeals-II), Karachi was not justified to restrict addition under section 21(m) of the Income Tax Ordinance, 2001 to Rs.983,200 as against Rs.2,423,200 made by the ACIR in disregard to the Dr. Zulfiqar H. Tanio, prop; Messrs Laser Inn Aesthetic Centre."

2. The learned D.R. stated that the learned CIR(A) was not justified in annulling the order passed by the Additional Commissioner. He submitted that the order of the learned CIR(A) factually and legally incorrect. It was further contended that the learned Commissioner Inland Revenue (Appeals-II), Karachi was not justified to delete an amount of Rs.9,957,720 being suppressed receipts and before making said addition, the ACIR had duly taken into account all the reverse entries in the bank. Therefore, the learned CIR (A) was not justified in deleting the addition. It was further contended by the learned D.R. that the learned CIR(A) was not justified in restricting the disallowance made out of salaries paid to the employees. He contend that Clause (m) of section 21 is clearly speaks that no salaries expenses can be allowed if the amount paid other than cheque is exceeded Rupees ten thousand. He submitted that the entire amount is to be disallowed rather restricting the same by the CIR(A).

3. On the contrary, the learned counsel for the respondent strongly supported the order of the learned CIR(A). It was submitted by him that the difference between bank statements and return of income has duly been reconciled. He further submitted that the Additional Commissioner failed to apply his mind that the withdrawn amount has been re-deposited by the respondent. He further submitted that even if he not satisfied with the explanation the Additional Commissioner could only pick the peak deposits as held by the superior courts. This having not been done, the learned CIR (A) was fully justified in deleting the addition. As regards, restricting the addition under section 21(m), it was submitted by the learned counsel that the learned CIR (A) keeping in view the said section was justified in restricting the disallowance exceeding Rupees Ten Thousand paid other than crossed cheque. He submitted that the learned CIR(A) correctly worked out the disallowance to be made. He, therefore, prayed for maintenance of the order of the learned CIR(A).

4. We have heard the learned representatives of both the sides and have also perused the record. Our findings on these issues are as under:-- (I) As regards first ground of appeal pertaining to annulment of the Order passed by the CIR(A), the perusal of the order of the learned CIR(A) depicts that no such finding has been recorded by the CIR(A) in his order, therefore, the ground is vague and does not arise from the order of the learned CIR(A). The departmental appeal on this ground stands dismissed. (II) As regards deletion of an amount of Rs.9,957,720 being suppressed receipts we have found that the learned CIR(A) deleted the said amount on the grounds that firstly, the difference between bank deposits and its receipts declared in the return has been reconciled by the respondent by submitting reconciliation before him. Secondly, the learned CIR(A) has not picked the peak credit entry of the bank and only that peak credit entry was to be added in the income of the respondent and not total deposit appearing in the bank account of the respondent. Thirdly, the contention of the respondent that the withdrawal amount had been re-deposited by the respondent has not been rebutted by the Department. In this view of the matter we deem it appropriate to vacate the order of the learned CIR(A) and remand the case back to the Additional Commissioner with direction to strictly examine the bank statements and reconciliation to be submitted by the respondent and if there is any difference between the bank deposits and receipts declared in the return then pick the peak credits entries appearing in the bank account and add back the same after providing reasonable opportunity of being heard to the respondent and pass the judicious order after taking into consideration the arguments of the learned counsel for the respondent and directions given by us in this order. The departmental appeal on this point is, therefore, stands disposed of as above. (III) So far as reduction/restriction of disallowance under section 21(m) of the Income Tax Ordinance, 2001 from Rs.24,23,200 to Rs.9,83,200 is concerned, we have found that the first appellate authority was not justified to restrict the same. The relevant provision of section 21(m) is reproduced below: "Deductions not allowed-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- .. .. (m) Any salary paid or payable exceeding ten thousand rupees per month other than by a crossed cheque or direct transfer of funds to the employee's bank account." From a plain reading of the above quoted Clause (m) of section 21 it is manifest that while calculating the income from Business the deduction shall not be allowed, if the salary exceeding Rupees Ten Thousand is paid other than by a crossed cheque. In the instant case admittedly the salaries were paid in cash as per details mentioned in the body of the order exceeded Rupees Ten Thousand and as per provision of above said subsection (m) the same cannot be allowed as business expense. The learned CIR(A) mis-interpreted the law and restricted the disallowance made by the Additional Commissioner. What is the intention of legislature while enacting this subsection has to be seen? It is cardinal principle of interpreting the law that the intention of the legislature should be seen. The intention of the legislature is obvious from reading of the above said section. The above said section was enacted purposely to thwart the fraudulent or sham transactions. The said Clause (m) may be read in conjunction with its main section 21 of the Income Tax Ordinance which unequivocally states that "no deductions shall be allowed in computing the income from Business" if any salary paid or payable is exceeded Rupees Ten Thousand per month other than through crossed cheque. The intention of the legislature in enacting this Clause is to have the economy documented. The learned CIR(Appeals) misinterpreted the law by restricting the disallowance. We are, therefore, of the considered view that the salaries paid to employees in cash are not allowable expenditure. In this view of the matter we vacate the order of the learned CIR(Appeals) in restricting the disallowance to Rs.983,200 as against Rs.2,423,200 made by the ACIR. The order of the Additional Commissioner is hereby restored on this issue.

5. The departmental appeal stands disposed of to the extent and in the manner indicated above. CMA/163/Tax(Trib.) Order accordingly.