2005 PLP (Trib (PTD)

(e) Stationery Rs. 4,148 Rs. 1,382 (f) ' Conveyance Charges Rs: 7,200 Rs. 2,400 (g) Books & Periodicals Rs. 2,489 Rs.830 (iv) Disallowance of Rs.200,675 out of Staff Salaries amounting to Rs.501,687 is arbitrary. The disallowances out of following P&L expenses without pointing out any specific defects is unjustified:‑‑ (a) Telephone Rs.136,341 Rs.20,452 (b) Vehicle Maintenance Rs.149,232 Rs.59,693 (c) Entertainment Rs. 48,274 Rs.25,000 (d) Printing and Stationery. Rs. 20,969 Rs.7,500 (e) Directors Travelling Exp. Rs. 12,615 Rs. 4,500 (f) Staff Travelling Rs. 7,503 Rs. 3,500 (g) Postage Rs. 3,637 Rs. 1,500 (h) Medical Expenses Rs. 25,653 Rs.10,500 (i) Books & Periodicals Rs. 9,467 Rs. 5,500 (j) General Expenses Rs. 11,526 Rs. 5,200 (v) Disallowances of Rs.1,75,000 out‑of depreciation claim on the ground of personal use of business assets is contrary to the facts of the case. (vi) The Income has been wrongly computed as the learned Assessing Officer has not deducted from income Loss on Sale of Fixed Assets under section 7(b)(i) of Third Schedule of the Income Tax Ordinance, 1979 and Gain on Sale of Fixed Assets as per accounts. (vii) Depreciation claimed at Rs.328,029 allowable under the law has not been allowed.

14. Brief facts of the case are that the assessee deriving income from construction of town houses and their sale besides income from commission on sale of P.O.L. and related items, filed return for the year under consideration declaring a loss of Rs.7,859,851 by disclosing commission on sale of P.O.L at Rs.369,908, direct costs shown at Rs.385,051 and administrative and general expenses at Rs.2,008,

822. The Assessing Officer finding the declared version not supported by books of accounts, rejected the same and finalized assessment under F section 62 of the Income Tax Ordinance, 1979 by estimating commission on sale of P.O.L. and related items at Rs.2,589,

356. The Assessing. Officer after making certain additions out of expenses shown as direct cost and out of P&L expenses finalized assessment at total loss of Rs.4,371,

486. In appeal, the learned CIT(Appeals) Zone‑11, Lahore confirmed the treatment meted out to the assessee by the Assessing .Officer in toto.

15. First we take up the issue of commission on sale of petroleum products. The learned AR has vehemently argued that estimation of commission on sale of P.O.L at Rs.2,589,356 against declared at Rs.369,908 is quite unjustified because the Assessing Officer neither requisitioned the documentary evidence nor confronted the assessee with proposed treatment by issuance of notice under section 62 of the Income Tax Ordinance, 1979 as required under the law. He further contends that the petroleum products are purchased and sold on the rates fixed by the Government of Pakistan and the Government has also fixed the amount of commission. He stresses that since the payments are made through banks, therefore, question of receiving excess commission does not arise. In order to know, veracity of the declared version of the assessee the Assessing Officer was at liberty to verify the amount of commission from the principal but he did not do so. In order to lend credence to his version he has furnished before us a certificate issued by the principal which fully supports the commission declared by the assessee. The learned DR supports the orders passed by both authorities below on the issue under consideration but has not been able to dislodge the line of arguments adopted by the learned AR.

16. We are in full agreement with the learned AR of the assessee and are of the considered view that the Assessing Officer was quite unjustified in discarding declared version of the assessee in respect o commission received on sale of P.O.L without ascertaining the veracity of the same from the principal. It is surprising to note that since the petroleum products are purchased and sold on the rates fixed by the Government and the payments are made through bank, therefore, how could the unfair means be adopted for earning more‑commission against the rates fixed by the Government. Therefore, by giving conscious consideration to the certificate issued by the principal we are left with no other alternative except to direct the assessing authority for accepting the declared version of the assessee in respect of commission on sale of P.O.L. Consequently, the assessee's appeal on the' issue under consideration succeeds.

17. With regard to addition amounting to Rs.45,550 out of staff salaries, the perusal of the record reveals that out of total claim of expenses at Rs.136,650 the said addition was made for want of complete details and payment of EOBI/Social Security. The sole contention of the learned AR is that the details required by the Assessing Officer are not applicable in case of the assessee because proper salary register has been maintained. He stressed that while disallowing staff salaries the Assessing Officer was bound to confront the assessee with specific defects but he did not do so. The most important aspect of the case, which has been apprised the Court is that in the earlier assessments no such addition has been made.

18. On the other‑ hand, the learned DR opposes the contentions raised on behalf of the assessee but has not been able to put forth any plausible arguments which may persuade us to have a contrary view to that of the learned AR.

19. We find ourselves in agreement with the arguments advanced by the AR which are legally tenable and forceful. We are also of the considered view that before making such addition the Assessing Officer must have confronted the assessee with proposed treatment by pointing out specific defects in the salary register maintained by the assessee company. Furthermore, the action of both authorities below is contrary to history of the case because no such addition has been made in the earlier years. In view of foregoing reasons we are inclined to delete the unjustified addition amounting to Rs.45,550 made of staff salaries and we order accordingly.

20. On the issue of add backs made under the head administrative heads as well as P&L expenses it has been observed by us that the additions had been made without evolving any proper basis. The expenses claimed by the assessee have been curtailed by the Assessing Officer on the basis of unverifiable nature of the same but it is pertinent to note that not a single instance of unverifiability has been quoted in the body of assessment order. Similarly, the learned CIT(Appeals) while disposing the appeal on the issue under consideration has also not applied his independent mind and upheld the unjustified treatment meted out by the Assessing Officer merely on stock phrases which is not sustainable in the eye of law. Both authorities below have disposed off the issue under consideration in an arbitrary manner which in no way can be endorsed by us. The learned AR of the assessee contends that the expenses claimed by the assessee are fully verifiable and vouched. In view of the foregoing reasons we find that some relief is due to the assessee under the following heads and we order accordingly:‑‑ Running & Maintenance Rs. 5,717 Confirmed Petrol for Generator & Car Rs. 46,870 Rs.30,000 General Charges Rs. 1,541 Confirmed Entertainment. Rs. 6,962 Rs. 5,000 Stationery Rs. 1,382 Rs. 10,000 Conveyance Charges Rs. 2,400 Confirmed Books and Periodicals Rs. 830 ‑do - Telephone Rs. 20,452 Rs.15,000 Vehicles Maintenance Rs. 59,693 Rs.40,000 Entertainment Rs. 25,000 Rs.15,000 Stationery Rs. 7,500 Rs. 5,000 Directors Travelling Exp. Rs. 4,500 Rs. 3,000 Staff Travelling Rs. 3,500 , Rs. 2,500 Postage Rs. 1,500 Rs. 1,000 Medical Expenses Rs. 10,500 Rs. 8,000 Books and Periodicals Rs. 5,500 Rs. 4,000 General Expenses Rs. 5,200 Rs.3,000 Depreciation Rs.175,000 Deleted

21. On the issue of computation of income on sale of fixed assets under section 7(b)(i) of the Third Schedule, the learned AR has objected that both authorities below have dealt the matter in an arbitrary and unjust manner. He has vehemently asserted that the assessee is a public limited company and accounts of the assessee are subjected to thorough audit. Therefore, both Revenue Authorities have grossly erred while making the computation on this issue regarding fixed assets of the assessee. He maintains that neither the Assessing Officer nor first appellate authority have pointed out defects in the account of the assessee and have taken resort to general phrases, which have not approved under the law.

22. On the contrary, the learned DR supports the treatment meted out to the assessee by both authorities below by contending that the issue regarding computation of income on sale of fixed assets under section 7(b)(i) has been dealt in a justified manner keeping in view unverifiability of the version of the assessee. He therefore, prays for upholding of the action of both authorities below and dismissal of the assessee's appeal on the issue under consideration.

23. In our considered view the version of the assessee is convincing as his contentions carry legal weight that no defects were pointed out in the accounts maintained by the assessee and that the treatment of the Assessing Officer is based on stock phrases. Likewise the learned CIT(Appeals) have also not appreciated the facts in true perspective of the case by ignoring the settled law on the issue under review. In view of the foregoing reasons it will be judicious and fair to accept the appeal of the assessee on the issue under consideration by deleting the impugned addition. The appeal of the assessee succeeds.

24. On the issue of depreciation, it has been observed by us that the depreciation claimed by the assessee has been rejected by the Assessing Officer without quoting plausible reasons or any instance of unverifiability in the body of impugned order. Similarly, while confirming the treatment meted out by the Assessing Officer on the issue under consideration the learned CIT(Appeals) has also not applied his independent mind and has passed sketchy order. Therefore, in the absence of any plausible reasons in support of the treatment meted out by both authorities below, we are left with no other alternative except to accede to the claim of depreciation raised by the assessee and we order accordingly.

25. The appeals filed by the as lessee as well as department stand disposed off to the extent and manners as indicated above. C.M.A./308/Tax (Trib.) Order accordingly.