2004 PLP 673 (PTD)

11. The Authorised Representative has also pleaded that the deduction of tax shown at Rs.10,83,181 was fully explained in his reply, dated 10‑5‑2003. In the aforesaid total deduction, the tax for the year was only of Rs.2,74,500 and the rest of the amount at Rs.8,08,681 was refundable and after including this refund, the capital declared at Rs.26,30,000 was also quite reasonable. It is also pleaded that the wealth reconciliation statement, had already been furnished, but learned Regional Commissioner of Income Tax misguided himself while reconciling the figures in his letter, dated 22‑5‑2003. This issue had been elaborately explained in his reply, dated 10‑5‑2003.

12. The Departmental Representative has tried to justify the selection of the return for total audit and reiterated the pleas taken in the parawise comments. The examination of assessment records produced by the D.R. and various notices issued by the respondents shows that the main reason for setting apart the return of the complainant from the purview of Self‑Assessment Scheme was the claim of commission having been passed on the customers @ 83.8% of the gross commission receipt. This was considered to be very high and excessive when compared with parallel cases. The complainant explained time and again that the claim regarding discount paid to the customers was in accordance with the history of the case. The details of commission allowed to the customers in the preceding years while completing the assessment under section 62 of the repealed Income Tax Ordinance, 1979 were provided as under:‑‑ 1988‑89 86.26% 1989‑90 93.81% 1991‑92 92.40% 1994‑95 93%

13. It was also stated by the complainant that the aforesaid claim of discount was upheld in appeal by the Commissioner (Appeals) and the Income Tax Appellate Tribunal particularly in the year 1991‑92 and 1994‑

95. It was also explained in the explanation, dated 10‑5‑2003 that the discount was mostly paid/allowed to the passengers travelling abroad who furnished full particulars i.e. Passport numbers, NIC, Name and Address etc. The payment of discount was‑fully verifiable and therefore, the respondent's apprehension regarding its correctness is absolutely unfounded. As regards the reasonableness of the claim the complainant cited the decision of the. Honourable Supreme Court of Pakistan in the case of Mr. Atta Hussain Khan Limited v. CIT East Pakistan Dhaka reported at (1970) 21 Tax page 1 wherein the apex Court held "the question is not whether the expenditure is reasonable but whether it is incurred bona fide on the ground of commercial expediency. It is not for the Income Tax Department to say that the expenditure is not reasonable".

14. The Regional Commissioner of Income Tax accepted the aforesaid explanations offered by the complainant as stated in paras. 5 and 8 of his letter bearing No.3562, dated 22‑5‑2003. It is surprising as to why he is keen to make verification of payments of discount when he has conceded that the sales are verifiable and the claim is also bona fide and on the ground of commercial expediency. The arguments of the Authorised 'Representative of the complainant that no parallel case was cited by the respondent in the show‑cause notice wherein it was observed that the claim was excessive and high when compared with parallel cases carries weight. Without confronting the complainant with parallel cases the conclusion drawn by the RCIT in this regard was not justifiable. Repetition, of quaries/objections already explained earlier regarding personal expenses and deduction of taxes etc. supports the contention of the authorized representative that the respondent had already made up his mind to select the return for total audit and the objections/queries were made by way of formality only.

15. The respondents have laid extraordinary emphasis on the decisions of superior Courts that no estoppel or res judicata is applicable in Income Tax proceedings and have cited the decision of the Honourable Supreme Court of Pakistan in the case of CIT v. Krudd Sons Limited 1994 SCMR 220 = 1994 PTD

174. The perusal of the decision however, shows that the reliance is misplaced as the appeal filed by the Department was, dismissed by the Honourable Supreme Court. The facts of the case are briefly stated as under:‑‑

16. In the assessment years 1971‑72 and 1972‑73 the Income Tax Officer rejected the book version of the assessee and estimated the sales and applied G.P. rate thereon which resulted in additions in the trading account. The assessee filed appeal against these assessments which was allowed by the Appellate Assistant Commissioner with the directions to the Income Tax Officer to accept the book results as disclosed in both the years under consideration. The Department challenged this order before the Income Tax Appellate Tribunal which by a consolidated order, dated 30th July, 1976 allowed the appeal and upheld the order of the Income Tax Officer. The assessee filed an application under section 66(1) of the Income Tax Act, 1922 to consider the following question:‑‑ "Whether on the facts and in the circumstances of the case the learned Appellant Tribunal was correct in holding that proviso to section 13 of the Income Tax Act was applicable". This application was dismissed on the ground that the Tribunal's order did not give rise to any question of law. The assessee then filed an application under section 66(2) of the Income Tax Act, 1922 in the High Court which answered the question in the negative. Leave was granted to consider the question "whether acceptance of account in earlier years does not give rise to any vested right as income tax proceedings for each assessment year is a separate unit and has to be judged in view of the special facts arid circumstance's of the year in question and the principles of estoppel and res judicata do not apply to these proceedings." The Honourable apex Court held as under:‑‑‑ "It is the duty of the Income Tax Officer to determine whether the assessee has adopted method of accounting from which income, profits and gains can properly be deduced. In this case the Assessing Officer did not proceed in the indicated manner although from the accounts laid and on its examination true income and profit could be deduced. This judgment is of no help to the appellant. There can be no cavil that a regular method of accounting in the past cannot be accepted as a matter of routine without examining it and if the Assessing Authority comes to the conclusion that it is defective and true income, profit and gain cannot be deduced from it then on the principle, stated above it can be rejected. In the present case the reasons given for rejecting the accounts are not proper, sufficient and valid. We, therefore, dismiss the appeals with no order as to cost."

17. It is evident from the decision of the above cited case that the Assessing Officer has to place on record material evidence to justify deviation from the history of the case. He cannot ignore the history of the case as a matter of routine without examining it and establishing that it is defective and trice income, profit and gain cannot be deduced from it.

18. In the case of the complainant also the respondents have ignored the history of the case by merely referring to the principles of estoppel and res judicata without placing any evidence on record to justify the rejection of history of the case. The complainant has been reiterating that much higher percentage of discount allowed to the customers was accepted in the preceding years and was confirmed in appeals as well. Similarly much lower net profit rate at 4.22% was accepted in the past whereas in the year under consideration the declared net profit was 10.59%. His contention that the respondents have ignored the history of his case without proper justification is quite convincing and well founded. It is also apparent from the show‑cause notice issued by the RCIT that the para meters laid down by the C.B.R. through Letter No.7(7)/2/S.Asstt./2002, dated 17‑12‑2002 have not been followed. There was no evidence, information or reason to believe that the true particulars of income had been suppressed. There was neither any evident decline in income nor disparity in expenses on utilities vis‑a‑vis income declared. The complainant did not acquire any new assets during the year or incurred liability of 50,000 or more through non‑institutional loan. This is a case of maladministration and the allegation of the complainant that the return was selected for audit in total disregard of the parameters laid down by the C.B.R. in various Circulars on Self Assessment Scheme referred above stands established. It is therefore, recommended as under:‑‑ (i) The C.B.R. to direct the RCIT to withdraw and cancel his Letter bearing No.SO‑I/7(8)/P.57/2002‑2003/3562, dated 22‑5‑2003 and direct the concerned Taxation Officer to accept the return of the complainant for the year 2002‑2003 under the Self-Assessment Scheme. (ii) The compliance be made within 30 days of, the receipt of this order and reported within a week thereafter. C.M.A./1037/FTO Order accordingly.