2005 PLP (Trib (PTD)

MUHAMMAD JAHANDAR (JUDICIAL MEMBER).

This order shall dispose of above mentioned cross appeals which have been filed both by the assessee and the department against an order, dated 18-12-2002 passed by learned CIT(A), Zone-II, Islamabad relating to assessment year 2000-2001.

2. Relevant brief facts are that the assessee being an individual deriving income from packing, freight and forwarding agency filed return showing net income at Rs.3319488. Books of accounts comprising ledger and expense voucher were also filed. During assessment proceedings the Assessing Officer found certain receipts from companies diplomats and Government organizations to be verifiable and other receipts were observed to be unverifiable. Some defects in the books of accounts, to the effect that addresses of some customers were not available and some payments had been made in cash were detected. Along with that discrepancies in the ledger and cash books were pointed out. A notice under section 62 of the Ordinance was then issued. The Assessing Officer showed his intention to estimate other receipts at Rs.50,00,000 and G.P. rate at 24.85 per cent and process of receipts from companies etc. under section 80C of the Ordinance. The assessee filed a reply to the said notice by contending that complete addresses of the customers are identifiable and that payments in cash were only 2.98% of the total receipts. Further the basis of the estimation of the other receipts at Rs.50,00,000 were challenged. The assessee also agitated the processing of the receipts from companies etc., under section 80C of the Ordinance. The Assessing Officer found the reply to be not satisfactory and framed assessment by holding other receipts at Rs.50,00,000 and processed receipts from companies etc., under section 80C of the Ordinance. Certain add-backs under different heads of 'Profit and Loss Accounts were also made. The assessee challenged this treatment before the learned CIT(A) who through the impugned order set aside the issue of the treatment of receipts from the companies etc. under section 80C of the Ordinance. Most of the declared other receipts were directed to be accepted and modified some of the add-backs made under different heads of Profit and Loss Account. He also upheld the rejection of the declared version. The assessee is in appeal before this Tribunal challenging the aforesaid findings of the Assessing Officer. The department is also in appeal challenging a direction of the learned CIT(A) to accept the declared receipts under the heads packing, other income, income from storage and agency commission including that of the modifications in the add-backs. The question of setting aside of the treatment of some receipts under section 80C of the Ordinance has also been impugned.

3. Learned AR maintained that the Assessing Officer in his notice under section 62 of the Ordinance mentioned that addresses of certain customers were not identifiable but in reply it was assured that the same are identifiable and can be clarified. Further, some receipts were at Rs.843256 which was 2.98% of the total other receipts and was negligible. Learned AR added that, the Assessing Officer had shown his intention to treat other receipts at Rs.50,00,000 while relying on the assessment for the year, 1997-98 but the same could not be done as it was no basis. In respect of receipts from companies etc., which had been processed under section 80C of the Ordinance, it was contended that through the Finance Act, 1999 an amendment was made in section 80C whereby in subsection (2) the services rendered which were exempt from being treated under presumptive tax regime were clarified by an addition of the words, doctors, lawyers, accountants, auditors, architects, actuaries, engineers, surveyors, advisers and consultants. This made the services of persons other than those mentioned above amenable to be processed under section 80C of the Ordinance but importantly no corresponding amendment was made in the first schedule specifying the rate of tax which was necessary in order to charge the same. Moreover, this amendment in subsection (2) of section 80C of the Ordinance was withdrawn through the Finance Ordinance, 2000 i.e. in the assessment year which is relevant to the assessee. He argued that in this eventuality the receipts from the company etc., could not be processed under section 80C of the Ordinance and learned CIT (A) should have directed to process the same under normal law. Regarding add-backs learned AR reiterated that the same have been made without pointing out any specific defects in the accounts. As against this learned DR maintained that the impugned order is self-contradictory as on the one hand the declared version which was rejected by Assessing Officer has been upheld by learned CIT(A) but at the same time, other declared receipts from packing, income from storage and agency commission have been directed to be accepted.

4. After hearing the arguments we take up first the question of taxability of certain receipts, on account of services provided to companies diplomats and Government organizations under presumptive tax regime. The Assessing Officer did not accept a contention of the assessee that in absence of any corresponding amendment in first schedule as to the rate to be applied for the services rendered certain receipts from companies etc. could not be processed under section 80C of the Ordinance. In first appeal by the learned CIT(A) found that the Assessing Officer did not address this issue properly and set aside the same to be reconsidered afresh. There is no denying the tact that the contention of the learned AR that prior to the Finance Act, 1999 receipts on account of services rendered could not be processed under the presumptive tax regime. However, the expression service rendered excluded from purview of section 80C were clarified through the Finance Act, 1999 by giving details of certain persons which are doctors, lawyers, accountants, auditors, architects, surveyors, actuaries, engineers, advisers and consultants. This amendment implied that the services of persons who did not fall within the above mentioned category could hence-to-fore be processed under the presumptive tax regime. According to the learned AR, for the receipts that were taxable under section 80C of the Ordinance prior to the Finance Act, 1999 and were on account of supplies and execution of contracts there was a mention of rates to be applied in the first schedule. In this respect, he referred to clause (CCC) of the first schedule and there was no mention of any rate to be applied on the services rendered. Now after amending subsection (2) of section 80C through the Finance Act, 1999 a corresponding amendment in first schedule either in clause (CCC) or at some appropriate place was necessary which was incidentally not done. We find that in presumptive tax regime as regulated among others by under section 80C certain categories of receipts had been held chargeable in a different manner than the receipts chargeable under the normal tax regime and the rates under the presumptive tax regime were also specified in the clause (CCC) of the first schedule. Through the Finance Act, 1999 when services rendered to be taxed under PTR were clarified by detailing certain categories of persons, it was obligatory on the legislature to make chargeable the services of the persons not detailed by the amendment a rate should also have been given in the first schedule. In the absence of giving any rate a rate chargeable as per clause E of first schedule which is relevant to that of normal tax regime for the services rendered under subsection (4) of the section 50 of the Ordinance cannot be applied. Learned CIT(A) has set aside this issue to be reconsidered which in the given circumstances cannot be approved and the receipts from companies etc., should have been directed to be treated under the normal tax regime. Consequently both the findings of the forums below in this respect are vacated and it is directed that the receipts from companies diplomats and Government organizations be assessed under the normal law.

5. In respect of the estimation of packing receipts according to the findings of learned CIT(A) the assessee had declared packing receipts at Rs.65,93,075 which included an amount of Rs.44,35,384 from which tax under subsection (4) of section 50 of the Ordinance was deducted and out of the balance amount of Rs.2157691 a sum of Rs.13,83,357 was admittedly through cheques which was verifiable and that left only a sum of Rs.7,74,334 about the verifiability of which the Assessing Officer had doubts. The Assessing Officer accepted the receipts at Rs.44,35,384 from which tax under section 50(4) of the Ordinance had been deducted and the remaining amount of Rs.21,57,691 allegedly stood unverifiable which was rejected and was estimated at Rs.50,00,

000. It was an increase at 131.7% and if a sum of Rs.13,83,357 is excluded as is claimed to be through cheques the balance amount of Rs.7,74,334 was enhanced to Rs.36,16,643 which shows an increase of 545.9%. After these observations the Learned CIT(A) found the estimation to be illogical and irrational and did not agree with the estimation of packing receipts at Rs.50,00,

000. In the given circumstances he directed that the declared packing receipts be accepted. Learned DR has not been able to dispel these findings and we feed constrained to approve the findings of the First Appellate Authority. In respect of estimation of other income, the assessee declared total receipts in this head of account at Rs.11,71,102 which was rejected and assessed at Rs.18,00,

000. Learned AR pointed out that these receipts were shown from various airlines and were totally verifiable and in the assessment years, 1993-94 to 1995-96 the declared version was accepted. In this situation the First Appellate Authority directed to accept the declared receipts. No defect has been pointed out by learned DR in this regard. Thus no exception can be taken thereto. So far as the income from storage charges is concerned, the declared receipts were at Rs.34,76,703 which were assessed at Rs.50,00,

000. Learned CIT (A) accepted the contention of the assessee that all receipts were recorded under proper invoices and did not find any basis for rejecting the same and estimating those to be at Rs.50,00,

000. Learned CIT(A) in this background directed to accept the declared receipts and learned DR has not been able to dislodge the said findings of the learned CIT(A). In respect of agency commission, the declared receipts were at Rs.1,22,65,202 out of which withholding tax under section 50(4) of the Ordinance was deducted on an amount of Rs.1,15,28,615 which was accepted by the Assessing Officer and the balance amount of Rs.7,36,587 was discarded which was then estimated at Rs.40,00,

000. This was an increase of 444.07% which was found by learned CIT(A) who was shown that in the assessment years 1994-95 and 1995-96 the declared version was accepted. Learned CIT(A) in the given circumstances did not find any basis to enhance the balance amount of Rs.7,36,587 to Rs.40,00,000 and directed the declared receipts to be accepted. Again nothing has been pointed out to disagree with the findings of learned CIT(A), which in consequence are approved.

6. The next issue is rejection of the declared book version by the Assessing Officer which has been upheld by learned CIT(A). This finding has been contended by the learned DR to be self-contradictory as while commenting on the question of acceptance of the books of accounts learned CIT(A) agreed that the Assessing Officer did point out certain specific defects and upheld the same but while deciding the appeal he did not give any weight to this aspect by observing that the appeal is however, decided on alternate grounds taken up by the assessee. We find that this issue in view of the aforesaid discussion gets diluted and need not to be commented upon.

7. Regarding add backs claims of the expenses of assessee under certain heads out of profit and loss account, add-backs made and modified by learned CIT(A) are mentioned below:-- Claimed Add back Modified a. Out of Vehicle Running 2,051,229 512,807 Confirmed b. Out of Communication 2,199,009 329,849 Confirmed c. Out of Repair and Machinery 646,285 161,571 64,628 d. Out of Printing and Stationery 460,787 69,118 46,079 e Out of Advertisement 1,234,664 308,666 123,466 f Out of Office/Warehouse 302,610 60,522 30,261 We find regarding that the add-backs made under the head vehicle running, communication repair and maintenance, printing and stationery stock phrase of unverifiability has been used without pointing out any specific defect which cannot be sustained. Consequently the add-backs under these heads are directed to be deleted. However, the add-backs made under the head advertisement and out of office where house security need to be re-examined which we set aside for re-examination by the Assessing Officer.

8. From the above discussion the appeal of the assessee is partly accepted and that of the department is rejected. C.M.A./264/Tax (Trib.) Appeal partly accepted.