2010 PLP (Trib (PTD)

Above captioned cross appeals have been filed by the Taxpayer and the department against the impugned order, dated 15-2-2010 passed by the Commissioner Inland Revenue (Appeals-II), Karachi on the following grounds:-- "Taxpayer's Appeal "(2) The learned Commissioner had no jurisdiction to audit Case in view of F.B.R's, decision to drop Audit proceeding in all cases selected for Tax year, 2008, properly advertised in press and circulated by F.B.R. through its circular learned CIT appeal failed to decide the issue. (3) That the learned Commissioner of Income Tax, Appeal-II was not justified to uphold following Direct Expenses against the history of the case:-- * 25% Out of Miscellaneous Expenses. * 20% Out of Cartage Expenses. * 20% Out of Spare Parts Expenses. * 20% Out of Lubricants Expenses. * 20% Out of Binding Wire Expenses. * 20% Out of Repair and Maintenance Expenses. (4) That the learned Commissioner of Income Tax, Appeals-II was not justified to uphold following Administrative and General Expenses against the history of the case. * 25% Out of Office Expenses. * 25% Out of Miscellaneous Expenses. * 25% Out of Entertainment Expenses. * 25% Out of Printing and Stationery Expenses. * 25% Out of Telephone/Mobile Expenses. * 20% Out of Conveyance Expenses. * 20% Out of Repair and Maintenance Expenses. * 20% Out of Car Expenses. * 20% Out of Motor Vehicle Expenses. "Departmental Appeal (2) That the learned CIR(Appeals-II) was not justified to hold that the Taxation Officer concluded the amendment proceedings in haste. Whereas it is evident from the order of Taxation Officer that more than sufficient opportunities were provided to the Taxpayer. (3) That the learned CIR(Appeal-II) was not justified to entertain the material evidence/reconciliation of credit entries which the taxpayer did not produce before the Taxation Officer at the time of amendment proceedings. (4) That the learned CIR(Appeals-II) was not justified to delete the addition of 14.132,413,541 when the taxpayer did not submit/ prove before the Taxation Officer. (5) That the learned CIR(Appeal-II) was not justified to entertain the bank certificate submitted by the taxpayer before him which the taxpayer did not furnish with the Taxation Officer and hence the CIR(A) was not justified to delete the addition of Rs.25,000,000. (6) That the learned CIT(Appeal-II) was not justified to entertain to delete the 30% addition of direct expenses without any justification.

2. We dispose of these two cross appeals by this single order.

3. We first take up the appeal of the taxpayer. His first ground of appeal is under:- Ground No.2 of taxpayer's appeal The learned Commissioner had no jurisdiction to audit case in view of F.B.R's decision to drop Audit proceeding in all cases selected for Tax year, 2008, properly advertised in press and circulated by F.B.R. through its circular learned CIT appeal failed to decide the issue. Mr. Shahid Jamal, Advocate, learned representative for the taxpayer has argued that the Assessing Officer had no jurisdiction to audit the case in view of F.B.R's decision to drop audit proceeding in all cases selected for Tax year, 2008, properly advertised in press and circulated by F.B.R. through its Circular No. 4(78)ITP/2009, dated 16-1-2009. The issue was discussed on length with the AR and it was found that the stand taken by the taxpayer in so far as the application of the said circular is concerned is not very convincing. The record shows that the impugned case was decided much earlier than the issuance of the letter by the F.B.R., hence, this lies outside the purview of the said circular. Under the circumstance, this ground of taxpayer's appeal fails. We hold that the assessment proceedings were legally correct and do not suffer from any procedural infirmity. (4) Ground No. 3 of the Taxpayer's Appeal and Ground No.6 of the Departmental Appeal "(3) That the learned Commissioner of Income Tax Appeals-II was not justified to uphold following Direct Expenses against the history of the case: 25% Out of Miscellaneous Expenses. 20% Out of Cartage Expenses. 20% Out of Spare Parts Expenses 20% Out of Lubricants Expenses. 20% Out of Binding Wire Expenses. 20% Out of Repair and Maintenance Expenses. (6) That the learned CIR(Appeal-II) was not justified to entertain to delete the 30% addition of direct expenses without any justification.

5. Taking up the next ground of appeal by appellant/taxpayer. These issues relate to add backs of direct expense which have been agitated by both the parties viz., taxpayer as well the department. Perusal of the order of CIR(A) shows that he made following observation:-- "As regard the add backs @ 30% each out of Direct expenses, Administrative and General expenses, it is not the case of appellant that non-business involving personal element or unverifiability of the claim can be ruled out totally. Hence the action of the Officer Inland Revenue is upheld in principle. However, the disallowances out of Direct expenses shall not be restricted under the heads Miscellaneous expenses at 25% Cartage expenses, spare parts expenses, lubricants expenses, binding wire and repairs and maintenance expenses @ 20% each against as claimed. No add backs shall be made under the other heads out of direction expenses being verifiable." We feel that the treatment meted out is a bit harsh. In our opinion the add backs be restricted as follows:-- 20% Out of Miscellaneous Expenses. 15% Out of Cartage Expenses. 15% Out of Spare Parts Expenses. 15% Out of Lubricants Expenses. 15% Out of Binding Wire Expenses. 15% Out of Repair and Maintenance Expenses.

6. Both the appeals are restricted as indicated above.

7. Next ground of appeal is regarding the administrative and general expenses. AR of the taxpayer has agitated that CIR(A) was not justified in upholding the following administrative and expenses against the history of the case and directing to restrict the same in the following manner: -- "Similarly disallowances out of various P&L account expenses are restricted under the heads Office expenses, miscellaneous expenses, entertainment, printing and stationery and Telephone/ mobile expenses at 25% of the claim each. The add back under the conveyance, repairs and maintenance, car expenses, motor vehicle expenses shall now be restricted to 20% of the claim under each head. The disallowance under the head donation shall be made into. No other add backs will be made under any other heads being verifiable.

8. It is observed that the directions of the CIR(A) are not in consonance with the factual position of the case. In order to be rational, we accordingly restrict the same in the following manner:-- 20% Out of Office Expenses. 15% Out of Miscellaneous Expenses. 15% Out of Entertainment Expenses 15% Out of Printing and Stationery Expenses. 15% Out of Telephone/Mobile Expenses 15% Out of Conveyance Expenses 15% Out of Repair and Maintenance Expenses. 15% Out of Car Expenses. 15% Out of Motor Vehicle Expenses."

9. Other grounds of appeal relate to the department. Grounds Nos.2 and 3 of departmental appeal (2) That the learned CIR(Appeals-II) was not justified to hold that the Taxation Officer concluded the amendment proceedings in haste. Whereas it is evident from the order of Taxation Officer that more than sufficient opportunities were provided to the Taxpayer. (3) That the learned CIR(Appeal-II) was not justified to entertain the material evidence reconciliation of credit entries which the taxpayer did not produce before the Taxation Officer at the time of amendment proceedings. Department has objected CIR(Appeal-II) was not justified to hold that the Taxation Officer concluded the amendment proceedings in haste. We have perused the record wherein it is evident from the order of Taxation Officer that sufficient opportunities were provided to the Taxpayer. The CIR(Appeal-II) was also not justified to entertain the material evidence/reconciliation of credit entries which the taxpayer did not produce before the Taxation Officer at the time of assessment proceedings. On this, the CIR(A) while dealing with case has observed as under:-- " My findings are that the taxation officer concluded the amendment proceedings by finalizing the amended order under section 122(1) of the Income Tax Ordinance, 2001, in haste by recording the observation that appellant had not complied with the requirements of notice under section 176, dated 21-10-2009, whereas the same was responded by the appellant through letter, dated 8-12-2009 along with requisite details i.e. Summary of raw material purchased with purchase register, Summary of sale with tax register, Certificate of stock-in-trade with summary, duly acknowledged by the department. Similarly, adjournment sought by the appellant was rejected on the ground of being without any lawful excuse is also found patently wrong in the light of evidence furnished in the shape of copies of passport that proprietor was out of country hence request was placed on genuine grounds. The finding of the Officer Inland Revenue to this extent is untenable and is hereby vacated."

10. A perusal of the record shows that the CIR(A)'s findings are against the facts of the case, the action of the Assessing Officer was justified as obtaining from the record. Sufficient opportunities were already provided to the taxpayer. He should have availed the earlier opportunities which dated back to 29-12-2008. The Assessing Officer's reliance on the case-law reported as 2008 PTR 128 (H.C. Kar.), was unwittingly ignored by the CIR(A). Section 128(5) of the Income Tax Ordinance, 2001 reads as follows: "The Commissioner (Appeals) shall not admit any documentary material or evidence which was not produced before the Commissioner unless the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from producing such material or evidence before the Commissioner."

11. We have perused the record and have found that the assessment proceedings stretched over a period of more than a year during which the assessee could have produced evidence favouring him but he failed to do so. It is astonishing to note the above mentioned remarks of CIR(A) in admitting the evidence at appellate stage on flimsy grounds. The departmental stand on this issue is hereby accepted. The remarks of the CIR(A) are hereby deleted, however, the issue of reconciliation/credit entries is remanded back to the concerned authorities for proper assessment.

12. Ground No.4 of department appeal AR of the taxpayer adverted the attention of this Court toward ground No.4 of departmental appeal which states as follows: "That the learned CIR(Appeal-II) was not justified to delete the addition of Rs.132,413,541 when the taxpayer did not submit/prove before the Taxation Officer."

13. We find that the CIR(A) did not apply his mind properly to the nature of transactions and the reasonability as expounded by the Assessing Officer in his order, however, it is felt that in order to be judicious another opportunity may be provided to the taxpayer and that market rate at the time of evaluation should be worked out properly duly based on proper evidence. The remarks of CIR(A) are hereby deleted on this score and the case ordered to be remanded back to authorities for a fair assessment.

14. Ground No. 5 of departmental appeal "That the learned CIR(Appeal-II) was not justified to entertain the bank certificate submitted by the taxpayer before him which the taxpayer did not furnish with the Taxation Officer and hence the CIR(A) was not justified to delete the addition of Rs.25,000,000." The department claims that the learned CIR(A) should not have entertained the bank certificate at the appellate stage as the taxpayer did not furnish the same at the assessment stage, hence the CIR(A) was not justified to delete the addition of Rs.25,000,

000. The CIR(A), while dealing with this issue, observed as follows:-- "In respect addition made to the tune of Rs.25,000,000 as "cash loan" under section 39(3), during the year, the contention of the learned AR of appellant is found valid that the said loan is totally verifiable, and has been brought forward from Tax Year, 2006. This was adjudged by the department in the tax year, 2006, vide audit report 30-3-2008, wherein audit proceedings were concluded without drawing any adverse inference. This addition in the tax year under appeal is not only arbitrary but also ab initio illegal. It is accordingly deleted. In respect of disallowance of financial charges paid by the appellant against running finance and cash finance facilities, the learned AR submitted bank certificate issued by Messrs Bank Al-Habib Limited and Messrs Soneri Bank Limited, reflecting the amounts of Rs.1,079 454 and Rs.1,341,095 respectively. Therefore, in the light of above certificates duly furnished before the Officer Inland Revenue, which were not considered while making the disallowance, is not sustainable in the eyes of law and is hereby deleted."

15. The issue' in continuation to the above discussion relating to ground No.2 of the Departmental appeal. We feel that CIR(A) was not entitled to accept the evidence for the reason discussed above. Therefore, his directions to this effect are hereby vacated. We are of the opinion that the veracity of these certificates should also be taken up afresh by the department and necessary treatment as provided in the law should be meted out. This addition of Rs.25,000,000 is also remanded back to the concerned authorities for a judicious outcome.

16. The appeals succeed in the manner as decided above. H.B.T./148/Tax (Trib). Order accordingly.