2004 PLP (Trib (PTD)

Less: Cost/'expenditure under section 28 of the Income Tax Ordinance, 79 40,00,000 40,00,000 Total Income Assessed 40,23,975

5. The assessee being aggrieved with the order of the Assessing Officer went in appeal before the CIT(A) who observed as under: "Since the appellant had not incurred/claimed any cost of acquisition of Card, nor the Assessing Officer had shown his intention to allow the said imaginary cost in any of his notices issued to the appellant. The deduction of Rs.,40,00,000 under section 28 from the capital gain is absolutely incorrect: The Assessing Officer is therefore, directed to assess capital gain on account of sale of KSE Card at Rs.11.5 (M) without any deduction of cost of acquisition. "

6. The learned CIT(A) directed to assess the capital gain on account of sale of KSE Card at Rs.11.5 Million without any deduction of cost of acquisition and on the issue of concealment he observed as under:-- "The issue of concealment was also confronted to the assessee and 'the contention of the assessee that he did not conceal anything and the exemption or taxability of an item of receipt is a simple matter of difference of opinion is examined in the light of sub-clause (a) of subsection (2) of section 111 of the Income Tax Ordinance, 1979. which says "For the purposes of subsection (1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include (a) the suppression of any item of receipt liable to tax in whole or in part (or failure to disclose income chargeable to tax)" the perusal of the aforementioned provision is sufficient to believe that the assessee did conceal his income chargeable to tax. Consequential action is to be followed accordingly."

7. Mr. Abdul Majeed, Advocate for the appellant has argued that the appellant claimed the entire sales proceeds as exempt from levy of tax as being asset of his deceased father, distributed amongst the legal heirs in accordance with a family settlement, duly registered with the Registrar but the Assessing Officer did not accept the claim which is against the law. Further no concealment of income was made by the assessed therefore, the provision of section 111 is not attracted. The learned D. R. supported the order of the learned CIT(A).

8. We have considered the arguments of both the parties and perused the order of the officers below.

9. It is an admitted fact that K.S.E. Card was initially registered in the name of Asghar A. Suterwala, the father of assessed/appellant who during his life time applied to the concerned authorities for transfer of K.S.E. Card in favour of his nominee, the assessed/appellant. The process of transfer. was finalized after death of father of assessee/ appellant. A letter, dated 9-4-1996 issued by General Manager, Karachi Stock Exchange proves that assessed/appellant Abbas A. Suterwala became 100% owner of K.S.E. Membership Card from April 4, 1996. Thereafter appellant/assessed as a sole owner sold out that said Card to one Ovais Ahmed Dagra. As the assessee has failed to prove that he is only 50% owner of Card and sold out the same at Rs.1,15,00,000, Assessing Officer assessed the value of Card at Rs.2,00,000,00 allowed 60% allowance under Second Schedule, further allowed Rs.4 million as the cost/expenditure under section 28 of the Income. Tax Ordinance, 1979. The learned CIT(A) while deciding the appeal of the assessee, on the issue of capital gain on account of sale of K.S.E. Card had observed as under: "Since the appellant had not incurred/claimed any cost of acquisition of Card, nor the Assessing Officer had shown his intention to allow the said imaginary cost in any of his notices issued to the appellant, the deduction of Rs.40,00,000 under section 28 from the capital gain is absolutely incorrect. The Assessing Officer is therefore, directed to assess capital gain on account of sale of KSE Card at Rs.11.5 (M) without any deduction of cost of acquisition."

10. These directions of the learned CIT(A) are .patently illegal because cost of KSE Card was disallowed by him without issuing am notice to the assessed/appellant, notwithstanding that his directions were tantamount to enhancement in assessment. Further for the purpose of computation of capital gain provisions of sections 28 and 29 of the Income Tax Ordinance, 1979 have to be followed, the relevant portions of the sections are reproduced as under: "Section

28. Computation of Capital Gains. (1) In computing the income under the head "Capital Gains", the cost of acquisition of the capital asset and any expenditure incurred wholly, and exclusively in connection with the transfer thereof shall be deducted. , (2) The provisions of section 24 shall, so far as may be, apply to the allowances and deductions under this section as they apply to the allowances and deductions in respect of income chargeable under the head "Income from business or profession". "Section 29: Cost of acquisition, and consideration for transfer, how determined.--(1) Where the capital assets become the property of the assessed-- (a) ......................................... (b) by succession, inheritance or devolution; or (c) ......................................... (d) ......................................... (e) ......................................... The fair market value of the assets, as on the date on which it became the property of the assessee, shall, for the purposes of subsection (1) of section 28, be deemed to be the cost of acquisition. "

11. It is evident from the above referred provisions of law that while computing income under the head `capital gain', the Assessing Officer has to take into consideration two things for the purpose of deduction from the sale price, (1) the cost of acquisition of capital asset and (ii) expenditure incurred wholly and exclusively in connection with the transfer.

12. It is worth to mention here that the case of assessee/appellant also attracts the provision of section 29(b) of the Ordinance, because the' Card in question was transferred in the name of assessee by way of devolution, therefore, the fair market value of asset, for the purpose of subsection (1) of section 28 of Ordinance is deemed to be the cost of acquisition.

13. The upshot of the above discussion is that learned CIT(A) has ignored the above referred provisions of law while directing the Assessing Officer to assess the capital gain on account of sale of K.S.E. Card at Rs.11.5 million without any deduction of cost of acquisition. Therefore, we have reasons to cancel the order of the learned CIT(A) on this ground and restore the order of the Assessing Officer, thereby confirming the allowance of cost of acquisition of Card at Rs.4.0 million as done by the Assessing Officer and acceptance of this value by the appellant/assessee as this was not challenged in appeal before the learned CIT(A).

14. The second point agitated by the assessee is concealment of income. In this respect from perusal of the order of the officers below it appears that the order was passed for issuance of notice under section 116 of the Income Tax Ordinance, 1979 and the learned CIT(A) on this point observed as under:-- "The issue of concealment was alto confronted to the assessee and the contention of the assessee that he did not conceal anything and the exemption or taxability of an item of receipt is a simple matter of difference of opinion is examined in the light of sub-clause (a) of subsection (2) of section 111 of the Income Tax Ordinance, 1979 which says "For the purposes of subsection (1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include (a) the suppression of any item of receipt liable to tax in whole or in part (or failure to disclose income chargeable to tax)" The perusal of the aforementioned provision is sufficient to believe that the assessee did conceal his income chargeable to tax. Consequential action is to be followed accordingly."

15. The main objection of the learned A.R. was that the officers below have not proved any concealment, therefore, their order at this stage was without any merit. This argument of the learned A.R. is without any force because at this stage the Assessing Officer has only ordered for issuance of notice under section 116 and was not bound to prove the concealment. The appeal of the assessee on this issue is without any merit and stands dismissed.

16. The appeal of the assessee partially succeeds and is disposed of in the manner as indicated above. C.M.A./1041/Tax (Trib.) Order accordingly.