2004 PLP (Trib (PTD)
N/A
| Citation | 2004 PLP (Trib (PTD) |
| Forum / Court | Income‑tax Appellate Tribunal Pakistan |
| Bench Members | S. Hasan Imam, Judicial Member and Shaheen Iqbal, Accountant Member |
| Parties | N/A |
Q1: What are the key laws and sections cited in 2004 PLP (Trib (PTD)?
This judgment primarily cites: statutory provisions as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 2004 PLP (Trib (PTD)?
The case was heard and decided by the Income‑tax Appellate Tribunal Pakistan bench comprising: S. Hasan Imam, Judicial Member and Shaheen Iqbal, Accountant Member.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 2004 PLP (Trib (PTD) (N/A). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Representation
- Shahid Pervaiz Jami for Appellant (in I.T.As. Nos. 1331/KB and 1332/KB of 2002).
- Ali Husnain, D. R. for Respondent (in I. T. As. Nos. 1331/KB and 1332/KB of 2002)
- Ali Husnain, D.R. for Appellant (in I.T.A. No.1820/KB of 2002).
- Shahid Pervaiz Jami for Respondent (in I.T.A. No.1820/KB of
- Date of hearing: 7th August; 2003.
- "I have examined the contentions and objections raised by the learned counsel Mr. Salman Pasha. Advocate, assisted by the Mr. Nadeem Ahmed Dawoodi, on legal and factual issues which have substantial force and is obvious from the copies of order sheet entries provided by the learned A.R. I have also examined the assessment record and the copy of order‑sheet entries provided are the same. Before proceeding further, J have also examined the relevant provisions of clause (CC) of subsection (i) of section 5 of the Income Tax Ordinance, 1979 by virtue of which the learned Commissioner of Income Tax can assign jurisdiction to the Income Tax Panel which was duly assigned, but under the second proviso to clause (cc) of subsection (i) of section 5 any order passed by the Income Tax Panel has to be made by the Inspecting Additional Commissioner of Income Tax as Chairman of Panel.. Similarly under the 3rd proviso to section 5(i)(cc) the Chairman of Panel has to issue the notices and it was incumbent on the Chairman of Panel to be present on every hearing and he alone can sign conduct by the Assistant Commissioner of Income Tax and there is no affiliation of Inspecting Additional Commissioner of Income Tax or the Chairman of Panel.
Headnotes / Summary
(a) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 5‑‑‑Jurisdiction‑‑‑Scope‑‑‑Court or Tribunal is always clothed with certain jurisdiction, which is defined as power of Court to hear and determine a cause to adjudicate or exercise power in relation to it which includes power to hear and determine issues of law and fact in accordance with settled provision of law‑‑‑Once the Court or Tribunal has jurisdiction, it possesses inherent power to decide the question of their own jurisdiction and its adjudication, right or wrong, is binding upon the parties and the remedy against incorrect or wrong decision is provided by way of appeal, revision and review and in case remedies are not exhausted, the order, even if erroneous, will attain finality, and shall be binding upon the parties‑‑‑If the term `jurisdiction' refers to be legal authority to administer justice in accordance with the means provided by law subject to the limitation imposed by law and subject to certain terms, such terms must be complied with in its real spirit while recording order and in case mandatory conditions for the rightful exercise of jurisdiction are not fulfilled, the order would riot be treated as void but voidable and in such circumstances, the proceedings cannot be termed as illegal and without jurisdiction‑‑‑Absence to inherent jurisdiction, is distinct from exercise of jurisdiction ignoring law of procedure, the former would render the judgment a nullity and the latter would be an irregularity and if not objected to in time would be accepted as a legal order. (b) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 5(1)(cc), third proviso & Chaps. IV, VII & IX‑‑‑Income Tax Rules, 19824 Part IIIA, Rr. 35C, 35D, 35E(2) & 35F(1), (2), (3), (4), (5)‑‑‑Jurisdiction of Income‑tax Authorities‑‑‑Existence of jurisdiction‑‑ Exercise of jurisdiction‑‑‑Income Tax Panel‑‑‑Proceedings were carried out by the Assessing Officer in his individual capacity‑‑‑Assessment was finalized by the income‑tax panel‑‑‑First Appellate Authority set aside the assessment order‑‑‑Assessee contended that First Appellate Authority was not justified to set aside the assessment after holding that assessment proceedings and the order subsequently passed had become illegal and void in view of third proviso to S.5(l)(cc) of the Income Tax‑Ordinance, 1979‑‑‑Because of jurisdictional defects, there was no other course except to cancel the assessment order instead of providing opportunity to panel to fill in lacunas and to remove fatal jurisdictional defects‑‑ Validity‑‑‑Jurisdiction was vested with the .panel but panel had improperly exercised its jurisdiction and while making distinction between the existence of jurisdiction and the exercise of jurisdiction in an irregular manner, the laws shall not permit to declare the proceedings to be impugned at the behest of the person who invoked it in an irregular manner‑‑‑Once an authority had jurisdiction, an irregularity in the exercise of it will not vitiate the decision‑‑‑Such was a procedural lacuna which was curable by all means ‑‑‑Assessee's appeal was dismissed with the observation that there was gross negligence on the part of the Chairman and Members of the panel being senior officials of the Income Tax Department, their act required attention of the superiors. 1998 PTD (Trib.) 1878; 2001 PTD (Trib.) 1059; 1990 PTD 62; 1971. SCMR 681; 1990 PTD 889; 1990 PTD 389; 2001 SCMR 838 and 1996 PTD (Trib.) 18 ref. PLD 1979 SC (AJ&K) 109 rel. (c) Income‑tax ‑‑‑ ‑‑‑‑Setting aside of an order‑‑‑Jurisdiction‑‑‑Principles‑‑‑Term `void' is distinguishable with voidable ‑‑‑Order which is void is nullity i.e. an order made by the Court possessing `no jurisdiction, whereas a voidable order is an order made by an authority which possesses jurisdiction but passed the order in illegal or irregular manner, such order could be set aside on sufficient cause being shown‑‑‑Deviation from the procedure or causing procedural lapse is mere irregularity in exercise of jurisdiction which may be rectified or corrected by affording another opportunity of hearing to the parties. Messrs Hashwani Hotels Ltd.'s case I.T.A. No.1791/KB of 2001 rel (d) Income‑tax‑‑‑ ‑‑‑‑Proceedings‑‑‑Void ab initio‑‑Effect‑‑‑Limitation‑‑‑Where the proceedings are found to be void ab initio, an Appellate Authority cannot set aside the same for a fresh round if in the meanwhile the prescribed limitation for the action, had expired. 1996 PTD 18 rel. (e) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 5(l)(cc), third proviso‑‑‑Jurisdiction of Income Tax Authorities‑‑ Income Tax Panel‑‑‑Proceedings were carried out by the Assessing Officer in his individual capacity‑‑‑Assessment was finalized by the Income Tax Panel;.‑‑Procedural‑ irregularities‑‑‑Limitation bar‑‑ Validity‑‑‑No limitation bar existed as the order had been finally passed by the panel although notable procedural irregularities had been committed during the proceedings. (f) Income‑tax‑‑‑ ‑‑‑‑Appeal‑‑‑Limitation‑‑‑ Assessment‑‑‑ Reassessment‑‑‑ Principles‑‑ Appeals are continuation of assessment and reassessment, as assessment includes reassessment and additional assessment and if any appeal is preferred from the assessment order, the limitation shall not run against the Department to reassess the matter in follow up of the appellate order‑‑‑De novo fresh assessment would not be barred by law of limitation. (g) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 23‑‑‑Deductions‑‑‑Food and beverage cost‑‑‑Addition in cost of sales was made by reducing the cost of food and beverage to 35% of revenue‑‑‑Setting aside of addition by First Appellate Authority‑‑ Validity‑‑‑First Appellate Authority was‑justified to set aside the issue instead of deleting the addition and cancelling the assessment with direction to ‑re‑assess the' matter keeping in view the history of assessee‑‑‑Setting aside order was confirmed by the First Appellate Authority. (h) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑Ss. 24(c) & 50(7B)‑‑‑Deductions not admissible‑‑‑Rent, rates and taxes‑‑‑Claim was disallowed on account of assessee's failure to furnish complete details and evidence of tax deduction under S.50(7B) of the Income Tax Ordinance, 1979‑‑‑Order was set aside by the First Appellate Authority on the ground that order was silent in respect of instances where deduction under S. 50(7B) of the Income Tax Ordinance, 1979 was attracted and was not made, was confirmed by the Appellate Tribunal. (i) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 24(i)‑‑‑C.B.R. Circular No.16 of 1990, dated 4‑12‑1990‑‑ Deductions not admissible‑‑‑Excess perquisites on account of free meal‑ Deletion of addition on account of free meal by the First Appellate Authority was confirmed by the Appellate Tribunal. I.T.A. No.89/KB of 2002 rel. (j) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 24(i)‑‑‑Deductions not admissible‑‑‑Legal and professional charges‑‑‑Opportunity of hearing‑‑‑Issue set aside by the First Appellate Authority on the ground that assessee had not been given opportunity of hearing was confirmed by the Appellate Tribunal. (k) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 24(i)‑‑‑Deductions not admissible‑‑‑Addition in repairs and maintenance expenses out of capitalized amount‑‑‑Ten per cent. disallowance of on account of unverifiability‑‑‑Validity‑‑‑No case was made out that expenditures were capital in. nature‑‑‑Since 10% disallowance had been made on account of unverifiability, Appellate Tribunal maintained the order of the First Appellate Authority. I.T.A. No.2294/KB of 1997 rel. (l) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑Ss. 24(c) & 50(1)‑‑‑Deductions not admissible‑‑‑Accrued expenses‑‑ Disallowances were made on the ground that expenses were accrued expenses but deduction under S.50(1) of the Income Tax Ordinance, 1979 was not deposited within the income year and secondly these were merely provisions‑‑‑First Appellate Authority maintained the. order in respect of provision for vacation pay and ex gratia provision for the reason that they were merely provision and not actual expenditure within the income year and, shall be allowable in the year of their actual payment‑‑‑Addition in respect of bonus and salary wages was deleted‑‑ 'Such findings were not interfered by the Appellate Tribunal. (m) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑S. 19‑‑‑Income from house property‑‑‑Shop licence fee‑‑‑Shop licence fee was claimed as business income‑ Department treated the same as income from house property assessable under S.19 of the Income Tax Ordinance, 1979 and liable to deduction under S.20 of the Income Tax Ordinance, 1979 only‑‑‑Such order of Department was upheld by the First Appellate Authority and the same was confirmed by the Appellate Tribunal. (n) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑‑Third Sched., R.1‑‑‑Depreciation allowance, computation of‑‑‑Hotel building .and furniture‑‑‑Normal, initial and triple shift depreciations were claimed on building and furniture being plant of hotel was disallowed by the Assessing Officer‑‑‑First Appellate Authority found that building had been separately classified as class of assets as per table annexed to R.2 of Third Sched. of the Income Tax Ordinance, 1979 and Assessing Officer had rightly allowed 5% depreciation on building as normal depreciation admissible under R.1 of the Third Sched: of the Income Tax Ordinance, 1979‑‑‑Order of First Appellate Authority was maintained by the Appellate Tribunal. (1995) 21 ITR 145 ref. (o) Income Tax Ordinance (XXXI of 1979)‑‑‑ ‑‑‑S. 23‑‑‑Deductions‑‑‑Exempt income‑‑‑Allocation of expenses by the Department to exempt income from WADPA Bonds, DSCs and foreign exchange administrative and selling and general expenses were deleted by the First Appellate Authority and the same was upheld by the Appellate Tribunal. 1992 PTD (Trib.) 1141 rel.
Judgment & Decree
(h) Addition in maintenance and repair expenses in respect of property income. (i) Further addition in repair and maintenance expenses. > That the learned CIT(A) was not justified to give only partial relief in respect of following additions which warranted outright deletion: (a) Addition in repairs and maintenance expenses of Rs.60,58,550 out of the capitalized amount. (b) Addition under section 24(c) of accrued expenses of Rs.2,46,48,990. > That the learned CIT(A) was not justified to hold the shop licence fee as income from house property instead of income from business. > That the learned CIT(A) was not justified to reject the claim of depreciation on building wherein it was claimed as plant instead of building.
18. The Department has taken following objections to the order of the learned CIT(A):‑‑ > That the learned CIT(A) has erred in setting aside an addition of Rs.58,157,000 holding that no notice under section 62(1) was issued whereas notice under section 62, dated 12‑6‑2001 was issued/served confronting specific defects: > That the learned CIT(A) 'has erred in deleting the expenses amounting to Rs.2,508,30G allocated to exempt income. > That the learned CIT(A) has erred in deleting an addition of Rs.1.2,186(M) made under section 24(c) for non‑deduction of tax under section 50(7B) of the Income Tax Ordinance, 1979. > That the learned CIT(A) has erred in deleting the expenses of Rs.60,585(M) capitalized nut of "Repairs and Maintenance" claimed at Rs.121,171 (M). > That the learned CIT(A) has erred in reducing addition made under section 24(c) from Rs.29,184,712 to Rs.24,648,990. > That the learned CIT(A) has erred in deleting disallowance of Rs.59,652,296 out of financial charges. REJECTION OF ACCOUNT AND ADDITION UNDER THE HEAD FOOD & BEVERAGE COST
19. This is a common objection and subject‑matter of cross‑appeals. Assessee's receipts mainly comprise of food and beverage revenue and room revenue. These receipts have been declared at Rs.144,55,392 (M) whereas addition in cost of sales i.e. Food and Beverage expenses amounting to Rs.58,157,000 has been made by reducing the cost of food and beverage to 35 % of revenue. The learned CIT(A) set aside 'the matter for de novo decision observing that it was mandatory for the Panel to confront the assessee of the specific defects through notice under proviso to section 62(1) of the Income Tax Ordinance, 1979.
20. It is argued that the learned CIT(A) was not justified in setting aside the matter for de novo decision when no specific defects have been pointed out, books of account have been rejected on the basis of general observations, sales have been accepted and no notice provided it proviso to section 62 has been served. The learned D.R. On the other hand rebutted the arguments stressing that notice under section 62(I) containing all the defects forming basis of order was issued and served whereby the assessee was confronted through specific defects.
21. Record reveals that notice under section 61 was duly complied with the books of account initially not produced were produced on 19‑6‑2001 alongwith reply to notice under section 62, as such assessee was confronted and called upon to justify the fall in G. P. rate with facts and figures duly supported by documentary evidence. After perusal of the documents, the Assessing Officer arrived at a conclusion that the assessee failed to substantiate its claim by facts and figures or documentary evidence as comparative cost of various items and selling rates were also not made available. The Assessing Officer after going through the record noted that food and beverage cost has‑ increased by 0.36 % as compared to last year, in the assessment year 1996‑97 cost percentage was 43.17% and. as such cost of food and beverage has increased. Record further reveals that assessee further confronted and asked to state through notice under section 62 that why declared results, may not be rejected and food and beverage cost may not be reduced to 35 % as last year and in view of parallel cases assessed at NTN 28‑6‑0700949. The reply was duly considered before rejection of declared version keeping in view the low G.P. rate declared and unverifiability of purchases. The Assessing Officer in the circumstances further considered food and beverage cost as excessive and over charged whereby curtailed it to 35 % of the revenue on the basis of parallel case.
22. In the circumstances supra, we are of the considered opinion that the notice served does not contain the headline "Notice under proviso to section 62". However, it is not fatal as notices have been served in real spirit of proviso above as ingredients of the notices served reveal that before disagreeing with the accounts, entire defects, were conveyed to the assessee providing an opportunity to explain its viewpoint about all such defects, besides in the year 1996‑97 order setting aside the addition was confirmed by the Tribunal and because of this order present issue, has been set aside in the assessment year 1997‑98, hence in the similar circumstances, it would be justified to confirm the setting aside order passed by the learned CIT(A) on this issue instead of deleting the addition and cancelling the assessment, with directions to reassess the matter keeping in view the history of assessee, explanation duly furnished to support declared version, reply to the notices and further confronting the assessee.
23. This issue is common. The Department has challenged the deletion of addition whereas the learned CIT(A) has set aside this issue. Expenses have been claimed at Rs.13,000,000 as against Rs.12,657,000 last year. The Assessing Officer disallowed the claim of Rs.12,186(M) under section 24(c) on account of assessee's failure to furnish complete details and evidence of tax deduction under section 50(7B). The assessment order reveals that referring assessment under section 141, the Assessing Officer noted that assessee has deducted paid rent as under;
Amount of tax deducted Mrs. Shakila A. Peswani 264,000 19,800 Mr. Farooq Ibrahim Bhura 550,000 41,250 Total 814,000 61,050
24. The learned CIT(A) set aside the issue for the reason that facts have not been appreciated correctly. The order is silent respect of instances where deduction under section 50(7)(b) was attracted and was not made. On the contrary the expenses of Rs. 814,000 are on account of rent on which tax under section 50(7)(b) is alleged to have been deducted whereas remaining, expenses are on account of property taxes. In the circumstances, the learned CIT(A) was justified to set aside the issue with directions to scrutinize the details furnished and then to allow the claim if substantiated after confronting the assessee. ADDITIONS UNDER SECTION 24(i) (i) Excess perquisites on account of free meal .
25. The ITAT in ITA No.89/KB of 2002 vide order, dated 25‑10‑2002 was pleased to delete the addition on account of free meal to the employees in case of associated company of the assessee and departmental appeal against the deletion of the addition was rejected observing that in view of Circular No.16 of 1990 of the C.B.R., such statutory obligations should not be treated as excess perquisites, in the circumstances, we see reasons to delete the addition on account of free meal. (ii) Excess Perquisites of General Manager.
26. It is an admitted fact that in other years, the issue has been set aside in the similar circumstances, we, therefore, find reasons to set aside the issue for decision afresh after going through the evidence and affording an opportunity of bearing to the assessee. (iii) Excess Perquisites of other employees
27. This issue was not pressed by the learned counsel for the assessee during the course of arguments. (iv) Addition in respect of legal and professional charges
28. The learned CIT(A) maintained the addition observing that addition is made due to non‑deduction of tax. The assessee has not been given opportunity of hearing on this issue, hence we find reasons to set aside the order for fresh adjudication after affording an opportunity of hearing to the assessee. (v) Addition for provisioti of doubtful debts
29. Addition for provision of doubtful debts is a mere provision, besides in the assessment year 1997‑98 the assessee had voluntarily offered doubtful debts for tax, hence order confirming the addition is maintained. (vi) Addition in recent of communication expenses
30. There is history of 10% in case of communication expenses, hence disallowance be maintained at 10% of the claim. (vii) Addition in respect of entertainment expenses
31. The additions are as per history, hence we find reasons to maintain the same. (viii) Addition in maintenance & repair expenses in respect of property income and addition in repair & maintenance expenses
32. The learned CIT(A) has maintained the addition considering the history of the assessee, however, record reveals that in the immediate preceding year, the matter was set aside to determine whether it is a property income or not? Hence we find reasons to set aside the issue for fresh adjudication affording an opportunity of hearing to the assessee. (ix) Addition in repairs & maintenance expenses of Rs.60.585.500 out of the capitalized amount
33. This issue is also common. Record reveals that Panel has made additions for the reasons that expenditure has been incurred to bring into existence new assets and. that expenditure has been incurred to bring an advantage of enduring nature. The learned CIT(A) in line with the history of the assessee made 10% disallowance out of subject expenses of Rs.60,585,500 on account of unverifiability. Two heads appears to have been jointly taken and have been capitalized. The learned CIT(A) disapproved the capitalized amount, observing that the panel has failed to discharge its onus of establishing that expenditure to the extent of Rs.60,585,500 are capital in nature, however, he disallowed 10% on account of unverifiability. Record reveals that in the case of associate company of the assessee being assessed at NTN 12‑1‑0710622 the capitalization of repairs and maintenance expenses was deleted by the ITAT in ITA No.2294/KB vide order, dated 20‑3‑1997. Apart from this no case is made out that expenditure are capital in nature. Since 10% disallowance has been made on account of unverifiability, we find reason to maintain the order in this context. (x) Addition under section 24(c) of accrued expenses of Rs.24.64‑8,990.
34. This issue is also common. This addition comprised of four heads either if vacation for pay, ex gratia provision, bonus and salary wages. Disallowances have been made observing that these are accrued expenses but deduction under section 50(1) is not deposited within the income year and secondly these are merely provisions The learned CIT(A), however, maintained the order in respect of provisions for vacation pay and ex gratia provision for the reason that they are merely provision and not actual expenditure within the income year and shall be allowable in the year of their actual payment. However, the addition in respect of bonus and salary wages, has been deleted being statutory provision created under section 10(c) of West Pakistan Standing. Order Ordinance for welfare of staff and tax has been deducted while making payment in view of the High Court judgment reported as 1985 PTD
698. We find that sufficient reasons appear in the order of the learned CIT(A), we, therefore, find no reason in the order in this context. (xi) Shod licence fee
35. The assessee claimed shop licence fee as business income whereas the Panel treated the same as income from house property assessable under section 19 and liable to deduction under section 20 only. The learned counsel for the assessee has not been able to rebut the finding concluded by the learned CIT(A), hence the order does not warrant interference in this context. (xii) Claim of depreciation on building
36. The assessee claimed depreciation on building as under:‑‑ Particulars WDV as on 1-7-1997 Addition Disposal Total Rate Amount 1 2 3 4 5 6 7 Building 615,724 19,715 635,439 Normal 5 % 63554/ - Initial 10% Triple Shift 10% 63554
37. The assessee claimed depreciation contending that the hotel building and furniture is a plant and relied upon a case law cited as (1995) 21 ITR
145. The Assessing Officer disallowed the claim after detailed discussion. However the learned CIT(A) maintained the order observing that depreciation claim on noted building is also found to be slightly rejected as the Third Schedule to the Income Tax Ordinance, 1979 does not envisage the same. It is argued that it is a plant as in this peculiar line of business building and furniture tantamount to plant, hence disallowance of tax depreciation is unjustified. The building has been separately classified as class of assets as per Table annexed to rule 2, hence the Assessing Officer has rightly allowed 5 % depreciation on building as normal depreciation admissible under rule 1 of the Third Schedule. The order of the Assessing Officer in this context is hereby maintained. (xiii) Expenses amounting to Rs 25 08 306 allocated to exempt income
38. The remaining issue in the departmental appeal relates to' deleting the expenses amounting to Rs.25,08,306 allocated to exempt income Rs.41,13,000 from WAPDA Bonds, DSCs and foreign exchange administrative and selling and general expenses The learned CIT(A) in view of a judgment reported as 66 Tax 1 (Trib.) deleted the allocation. In fact this is a decided issue in favour of the assessee at the level of the Tribunal, hence order deleting the addition does not warrant ` interference. (xiv) Disallowance of Rs. 59 652 296 out of financial charges
39. The next issue requiring consideration is deleting disallowance of Rs.59,652,296 out of financial charges. Record reveals that financial charges have been set aside by the Tribunal in the previous years, hence sufficient reason appears to set aside the issue with direction to look into the matter afresh and to see whether assessee had put forward different case in changed circumstances, as alleged by the learned counsel for the assessee during the course of arguments.
40. The appeals are disposed to the extent and in the manner indicated above. C. M. A./1006/Tax (Trib.) Appeals disposed of.