2004 PLP (Trib (PTD)

1993‑94 Rs.16,55,000 1994‑95 Rs.16,90,000 1995‑96 (under appeal) Rs.25,76,900 The Assessing Officer has also drawn adverse inference regarding incurring of more personal expenditure by the members of the U.R.F. In this regard it was observed that the expenses claimed were understated. In no way this factor can be made basis for estimating sales in the case of a firm because the firm and the members of U.R.F. are two separate and independent assessable entity. If on assessment of: the firm it is found that any members of U.R.F. has understated the, expenses, then the suppression so worked out shall be added in terms of section 13 of the Income Tax Ordinance, 1979 in his individual hands rather drawing adverse inference in the case of firm. Above all it is evident from the assessment order that the assessee was never confronted with the proposed treatment before formulating the assessment. The only notice which was statedly to have been issued under section 62, dated 23‑10‑1999 was nothing except requiring the assessee to furnish break‑up party‑wise names and addresses to whom the sales were made, details of P&L expenses, holding of agency of branded names, if any, etc., this notice cannot be equated with the notice to be issued confronting the assessee with the proposed treatment. Merely mentioning section 62 on top of the notice without adhering to the principle of audi alterum partem would not absolve the Assessing Officer from his responsibility to, confront the assessee with the basis of computation of income to be adopted. In absence thereof it would mean that the assessment was suffering from legal infirmity for the reason it is obligatory on the part of the Assessing Officer to confront the assessee with the treatment to be accorded, once he disagrees with the declared results. Admittedly, the Assessing Officer has not taken any such step in the present case which is violative of the principle of natural justice. Resume of foregoing discussion is that we declare the enquiry report to be null and void having no legal sanctity in the eye of law. This view is strengthened from the case‑law reported as (1984) 50 Tax 44 (Trib.) and 1997,PTD (Trib.) 2197. The ratio and the principle laid down in these two cases is that burdening a subject with heavy taxation on personal views of the official involved irrespective of the position held by him in the income tax hierarchy, cannot be sustained. Since, the Assessing Officer has estimated the sales on the whimsical inference drawn from certain set of facts and a wild guess as well as of a fanciful estimate, therefore, such estimation of sales cannot be held good and made basis for adoption of sales for the year under appeal. As a natural sequel the sales should be adopted considering history of the case and having taken regard to the encouraging results declared by the assessee from year after year. The Assessing Officer is, accordingly, directed to adopt the sales at Rs.28,00,000 for the year under appeal. Since we have granted further relief in the estimation of sales, therefore, the departmental contention that the relief allowed by the First Appellate Authority in the estimation of sales was un‑called for loses its force. The next contention of the learned counsel for the assessee was that additions made out of certain heads of the P&L expenses were un justified. Having taken regard to the volume of turnover we deem it appropriate to restrict the additions made under the heads. Misc, expenses, stationery and printing, entertainment, subscription, conveyance expenses, packing expenses and business tour expenses to the extent of 20% of the claims in these heads being the claims were nominal. So far as the addition made under the telephone expenses is concerned, the same is hereby maintained being in order. In the result, the assessee's appeal succeeds to the extent and in the manner indicated above while the departmental appeal is dismissed having no force. (Sd.) (Sd.) (Amjad Ali Ranjha) (Rasheed Ahmad Sheikh) Accountant Member Judicial Member As per Amjad Ali Ranjha, Accountant Member: I beg to differ with the findings of my learned brother (Judicial Member) in accepting the assessee's appeal by further reducing sales to Rs.28,00,000 against declared at Rs. 25,76,900 and rejecting departmental appeal. Accepting my learned brother's order would mean giving a total relief of Rs. 4,05,000 in income to the assessee and reducing net income already assessed at Rs.5,71,604 to Rs.1,66,604 which is again the glaring facts as discussed in detail by the Assessing Officer. Personal expenses declared by a member of URF out of three Mr. Bashiruddin, at Rs.137,600 are ridiculous low when electricity expenses out of it are worth Rs.63,287, especially when he is residing in a 2‑kanal house at 90‑Shadman, Lahore. I also do not agree with the other findings of my learned brother, as he has completely ignored the departmental arguments in assessing the income, when personal expenses of the other two members of URF declared are also very low. It definitely means that income is not being declared properly, as they are not getting income out of air in meeting with their day to day expenses. It is a no accounts case and the assessee is declaring daily sales at Rs.8,590 only. He is occupying a three floor shop in the heart of the city of Lahore at Naqi Market, Anarkali, and sales at Rs.8,590 means the sale of only about 17‑garments per day if average price is taken at Rs.500 or on average one and a half garment per hour. In my humble view even estimate of sales at Rs.55,00,000 giving an average of Rs.18,333 per day of about 37‑garments per day or three garments per hour is still on the lower side. Hence, having considered all the facts, I am inclined to accept the Departmental appeal by restoring sales at Rs.55,00,000 and rejecting assessee's appeal in toto, being against facts. (Sd.) (Amjad Ali Ranjha) Accountant Member As the difference of opinion has arisen between the members of this Bench, hence the case is referred to the Hon'ble Chairman for nomination of a third member to resolve the following question:‑‑‑ Whether in view of the facts and circumstances of the case, assessee's appeal or departmental appeal need to be accepted or rejected? (Sd.) (Sd.) (Rasheed Ahmad Sheikh) (Amjad Ali Ranjha) Judicial Member Accountant Member MAZHAR FAROOQ SHIRAZI (ACCOUNTANT MEMBER).‑ The titled cross‑income‑tax appeals pertaining to the assessment year 1995‑96 have been referred to me by the worthy Chairman for resolving the difference of opinion which arose between the Learned Judicial Member and the learned Accountant Member on the issue whether in view of the facts and circumstances of the case assessee's appeal of departmental appeal need to be accepted or rejected?

2. The brief facts giving rise to the present appeals are that the assessee a URF derives income from dealing in ready made garments. Assessment was finalized by determining sales at Rs.5,500,000, as against declared by the assessee at Rs.2,576,900, to which GP rate was applied at 15 %. Some addition in the P&L expenses. On being aggrieved with the treatment meted out by the Assessing Officer the assessee preferred appeal before the learned First Appellate Authority who reduced the sales to Rs.5,000,000 whereas rest of the treatment was upheld. The learned Judicial Member for the reasons recorded (supra) reduced the sales estimate to Rs.2,800,

000. The learned Accountant Member disagreed with the findings of the learned Judicial Member as it was completely ignored the arguments of the department for assessing the income. It was observed by the learned Accountant Member that the learned Judicial Member also ignored the fact that the personal expenses declared by a member of URF and the other two members were ridiculously low and that the shop was located in the heart of city. The learned Accountant Member, therefore, accepted the departmental appeal by restoring the sales estimate at Rs.5,500,

000. I have heard both the parties and have also gone through the orders passed by my learned brother, the Judicial Member and the learned Accountant Member. I agree with the findings recorded by my learned brother the Judicial Member for the reasons recorded by him in detail while passing the order. The sales as reduced by my learned brother, the Judicial Member were in accordance with the history of the case, hence the same are upheld. The appeal filed by the assessee is allowed as per majority view whereas the appeal filed by the department is dismissed being devoid of merits. C.M.A./63/Tax (Trib.) Order accordingly.