Addition

Non issuance of separate notice under S.111 of the Income Tax Ordinance, 2001 and failure to confront the taxpayer with the proposed addition in order to require him to explain his position before making addition in his income is unlawful.

While making the impugned addition, the Assessing Officer observed that for the purpose of computing depletion allowance under R.3 of Part I of Fifth Schedule to the Income Tax Ordinance, 2001, the expenditures incurred on account of royalty, was to be deducted from "Gross receipts"

Such treatment was confirmed, in first appeal

Validity

Held, that depletion allowance had to be worked out after deduction of royalty from the well head value of the product

Departmental action was confirmed and taxpayer's appeals were rejected.

Taxpayer contended that Assessing Officer was informed that the provision had already been added as per computation chart of taxable income and had claimed deduction @ 1% of total advances; that no notice under S.122(5A) of the Income Tax Ordinance, 2001 was issued for the addition; that addition should have been deleted instead of remand; that the addition was not maintainable as the same did not come under the ambit of Seventh Schedule of the Income Tax Ordinance, 2001 and that business income had to be computed under the Seventh Schedule as specifically provided in its R.6

Revenue contended that provision under said head had not been claimed in accordance with R.1(c) of the Seventh Schedule of the Income Tax Ordinance, 2001, the deduction under the head was allowed maximum 1% of the advances and the First Appellate Authority had wrongly remanded the issue to the Assessing Officer

Validity

Provision on account of "Non-Performing Loan and Advances" had already been added in taxable income in accordance with R.1(c) of the Seventh Schedule to the Income Tax Ordinance, 2001 and 1% of the total advances had been claimed as deduction by the taxpayer

Addition made was not in accordance with the settled law

Addition was ordered to be deleted by the Appellate Tribunal for all the three years.

Assessing Officer observed that "payments were made by the fund itself therefore there seemed no justification in claim of such expense by the company in its account"

Taxpayer contended that it was confronted in another notice that addition was to be made for the reason that expense was of capital nature but while making addition the same had been made on the allegation that tax was not deducted; that it was clear that Assessing Officer alleged three contradictory reasons for disallowance of expense i.e. (i) payment had been made by the fund itself (ii) expense was of capital nature (iii) tax had not been deducted; and such three observations established that Assessing Officer wanted to make an inquiry in order to disallow the expense; that question as to whether tax had been deducted or not was the matter of inquiry which could not be conducted as per law available on the statute book for tax year 2010 and the addition was not maintainable for that reason ; that payment made to the employees working in branches of the Bank (Taxpayer) situated in remote areas and below taxable limit payments were not liable to deduction of tax; that Assessing Officer had not pointed out a single instance wherein tax had not been deducted ; that addition being without any information/material was liable to be deleted; that tax was duly deducted at the time of making the payment; that provision of S.21(c) of the Ordinance were not attracted; that apart from this the addition was not maintainable as the same did not come under the ambit of Seventh Schedule of the Income Tax Ordinance, 2001; and that business income had to be computed under the Said Schedule as specifically provided in its R.6

Revenue contended that the same had been disallowed for the reason that the payment were made by the fund and tax was not deducted and it was also the expenses of capital nature; and that there was no justification for remanding the matter to the Assessing Officer

Validity

Submissions of the taxpayer were correct that Assessing Officer had been changing his contention time and again (payment had been made by the fund itself, expense was of capital nature, tax had not been deducted)

Assessing Officer had been trying to justify addition for one reason or the other

Addition based on the circumstances was not maintainable under S.122(5A) of the Income Tax Ordinance, 2001 which required that Assessing Officer should establish the order to be erroneous and prejudicial to the interest of revenue

Appellate Tribunal directed to delete the addition.

Taxpayer contended that addition on account of recoveries was liable to be deleted as that amount related to the period upto tax year 2007; that income was not liable to tax upto tax year 2007; that the issue had wrongly been remanded to the Assessing Officer; that such addition should have been deleted: and apart from this the addition was not maintainable as the same did not come under the ambit of Seventh Schedule of the Income Tax Ordinance, 2001; and that business income had to be computed under the Seventh Schedule to the Income Tax Ordinance, 2001 as specifically provided in R.6 to the said Schedule

Revenue contended that recoveries of charge off amounts had rightly been added in the income of taxpayer as the provisions on account of non-performing loan and advance had been allowed to the taxpayer; and there was no justification for remand of the case

Validity

Assessing Officer had made additions under the head "recoveries" without any evidence/material establishing that recoveries did not relate to the period up to tax year 2007 (up till that time income of the taxpayer was exempt)

Even otherwise, the addition did not come under the ambit of Seventh Schedule to the Income Tax Ordinance, 2001

Appellate Tribunal directed to delete the addition for tax years 2010 & 2011.

Taxpayer (Bank) contended that addition was not maintainable as the same did not come under the ambit of Seventh Schedule; that business income had to be computed under the Seventh Schedule of the Income Tax Ordinance, 2001 as provided in R.6 to the Seventh Schedule of the Ordinance; and that there was no provision in the Seventh Schedule wherein disallowance of such expenses could be made

Revenue contended that provision for post-retirement medical benefit had been disallowed as the taxpayer failed to file the license of the value company, history of the value company and estimate had been made on the basis of case-law and that First Appellate Authority had deleted the addition without any justification

Validity

Addition under the head "post-retirement medical benefit" made by the assessing officer were not in accordance with settled law

Tribunal directed to delete the addition for the tax year 2010 and order of First Appellate Authority on this issue for the tax years 2011 & 2012 were upheld

Additions in that respect was also not maintainable for the reason that it did not come under the ambit of Seventh Schedule of the Income Tax Ordinance, 2001.

Revenue contended that instead of providing employee-wise detail of expenses on actual basis, the bank (taxpayer) provided total figure worked out by actuaries

Taxpayer contended that Appellate Tribunal in a reported case 2001 PTD 744 had held that any ascertainable accrued liability was deductible under the mercantile system of accountancy; that liability was not unascertainable liability if the same was stated as provision; and that it was the substance that matters and not the mere nomenclature given to any transaction

Validity

Substance that mattered and not the nomenclature given to any transaction

Liability could not become unascertainable if it was named as provision

Appellate Tribunal directed the department to allow the deduction.

Addition was upheld as it was inadmissible under S.21(g) of the Income Tax Ordinance, 2001.

Taxpayer contended that computation of income had to be made in accordance with the Seventh Schedule to the Income Tax Ordinance, 1979 from tax year 2009 and onward; that R.2 of the Seventh Schedule of the Income Tax Ordinance, 2001 relating to unpaid liabilities did not allow addition of unpaid mark up; and only unpaid liabilities mentioned in R.1 could be added in the income in the first year following the end of three years; and that as said liabilities were never allowed in R.1, the addition was not maintainable under the law

Revenue contended that liability related to borrowing from State Bank of Pakistan, the markup had not been paid, which attracted provision of S.34(5) of the Income Tax Ordinance, 2001 and addition made in that respect should have been confirmed

Validity

Addition made was beyond the scope of Seventh Schedule and was not in accordance with the settled principles

Appellate Tribunal directed to delete the addition for all the three years.

Taxpayer contended that it was a grant from Asian Development Bank and grant was not taxable income under the Income Tax Ordinance, 2001; that apart from this the addition was not maintainable as the same did not come under the ambit of Seventh Schedule of the Income Tax Ordinance, 2001; and that business income had to be computed under the Seventh Schedule as specifically provided in R.6 to the Seventh Schedule

Contention of Revenue was that it represented reversal of amortization claimed as deduction in previous years and constituted recouped expenditure; and that the same had rightly been disallowed and there was no justification to remand the matter

Validity

Addition was not maintainable in view of settled law

Even otherwise the addition was beyond the scope of Seventh Schedule to the Income Tax Ordinance, 2001

Addition made was deleted by the Appellate Tribunal for all the years.

No addition was legally sustainable if mandatory requirement for the same had not been complied with.

Taxpayer had declared net agricultural income as Rs.35,00,000 being exempt income under S.41 of the Income Tax Ordinance, 2001 along with information regarding his bank accounts

Said declared information was filed well before the initiation of proceedings under S.122 of the Income Tax Ordinance, 2001

Net agricultural income could only be arrived at after deducting expenditure, allowances and deductions from the gross receipts of the sale of agricultural produce on the same way as the net business income was arrived at after deducting expenses from the gross receipts

No column existed in the income tax return for the tax year 2001 which required the taxpayer to declare gross agricultural receipts but only a column under the heading "Exempt income/loss" was available in the return for declaring agricultural income and the taxpayer had accordingly declared net agricultural income therein

By no stretch of imagination it could be held that the net agricultural income could be arrived at without bearing any expenditure or allowances

Section 4-A of the Punjab Agricultural Income Tax Act, 1997 allowed a taxpayer to made deductions while computing net agricultural income

Assessing authority while examining the bank statement had ignored such aspect of the case and presumed that the entire credit entries in the bank statement were suppressed and were undisclosed business receipts

Assessing Authority asked the taxpayer to produce books of accounts and other supporting documents by issuing several notices

Assessing Officer had not shown any doubt with regard to the receipts from the sale of agricultural produce, but had rejected the same only on the ground that the taxpayer had failed to produce the books of accounts in that regard and bifurcation of the bank deposits relatable to agricultural receipts

Such type of treatment itself proved that the Assessing Officer had no "definite information" or any other corroborated evidence showing that the receipts were concealed business receipts instead of "exempt agricultural receipts"

First Appellate Authority had affixed the stamp on the doubt assumption and presumption of the Assessing Officer

Any information which created doubt or provided reason to suspect that the income or receipts had been concealed or suppressed did not form part of the term "definite information"

Deemed assessment was amended by presuming that the difference between the declared receipts and of total of credit entries were suppressed business receipts ignoring the fact of declared agricultural income which did not constitute 'definite information' but was a departmental opinion evolved on the basis suspicion, presumption and assumption

Taxpayer having declared agricultural income in his return of income was not legally required to declare gross agricultural receipts in his return

Notices for initiation of proceedings under S.122(5) of the Income Tax Ordinance, 2001 were void ab initio and of no legal effect

Proceedings initiated on the basis of illegal notices and superstructure constructed thereon in the shape of amended order under S.122(1)/(5) of the Income Tax Ordinance, 2001 were nullity in law

Order of First Appellate Authority was vacated and amended order passed by the Assessing Officer was annulled by the Appellate Tribunal by declaring to have been passed against the spirit of Income Tax Ordinance, 2001.

Audited accounts clearly mentioned that Assessing Officer misled himself in making addition on the basis of incorrect correlation

Fact that same represented the development charges instalments received over the years and was only recognized on percentage of completion and charging the same in one year was illegal was ignored

Assessing Officer had issued 'sine qua non' order on such count, which was illegal.

Assessing Officer had added to income an amount of advance fee in one year, whereas that related to the services to be provided over a period of 25 year and the same had been disclosed properly in audited financial statements

To recognize the income on cash basis in a company and recognize cost as and when incur, which certainly would give distorting results was illegal

Remanding the matter for de novo consideration by commissioner was not necessary as it required the First Appellate Authority to firstly see whether the addition made any sense under the provisions of law and only if yes, he had the right to call further information and cause inquires to arrive at any decision rather than remanding it back.

Obtaining such facility from JV Project, taxpayer was able to repay its heavy bank loans which had a burden on the income and was beneficial to the revenue

Assessing Officer added said amount without correctly understanding the transaction, detail of which had been provided in audited accounts filed along with the return

If said amount was recognized as income of the year, no benefit of tax credit could be obtained under S.88A of the Income Tax Ordinance, 2001 and would lead to absurd results

Share from income of an Association of Persons (JV) could only be recognized by the taxpayer after it was declared/offered/appropriated by the Association of Persons

Addition was illegal on this count.

First Appellate Authority asserted that compensation allowed by the department was receipt of capital nature and not chargeable to tax and deleted the addition made on account of compensation received on the delayed disbursement of refund

Revenue contended that in terms of S.39 of the Income Tax Ordinance, 2001, the taxpayer was liable to declare the compensation in return of income

Validity

No exception could be taken to the treatment as accorded by the First Appellate Authority which was found to be reasonable in the ambient circumstances of the case which was also consistent with the statutory stipulation obtaining in law at the relevant time

When compensation admittedly pertained to refund due to the assessee and not disbursed in time by the department, such compensation was capital in nature and hence not taxable

Provisions of S.39(c) of the Income Tax Ordinance, 2001, wherein it was provided that additional payment on delayed refund under any tax law come under the purview of "income from other sources", was not applicable to the period under reference i.e. tax year 2008, as the said provision of law was brought on the statute book through Finance Act, 2012

Order of First Appellate Authority was maintained by the Appellate Tribunal.

Taxpayer contended that provision of S.111(1)(d) of the Income Tax Ordinance, 2001 pertained to concealment of income or furnishing of inaccurate particulars of income which was not the subject-matter of proceedings under S.122(5A) of the Income Tax Ordinance, 2001; that addition under S.111(1)(d) of the Income Tax Ordinance, 2001 to total income was without lawful jurisdiction as the same had been made on account of alleged suppressed or understated purchases; that suppressed or understated purchases were not covered by the provisions of S.111(1)(d)(i) and (ii) of the Income Tax Ordinance, 2001; that S.111(1)(d) of the Income Tax Ordinance, 2001 dealt with suppression of production, any item of receipts or sales or any amount chargeable to tax; and that it did not deal with suppressed purchases; and addition being covered by the provision of S.111(1)(d)(i) and (ii) of the Income Tax Ordinance, 2001 was void ab initio and illegal

Validity

Section 111(1)(d) of the Income Tax Ordinance, 2001 pertained to concealment or furnishing of inaccurate particulars of income and had a nexus with the provision of S.122(1) of the Income Tax Ordinance, 2001 read with subsections (5) and (8) of S.122 of the Income Tax Ordinance, 2001

Federal Board of Revenue itself had clarified that by virtue of insertion of S.111(1)(d) of the Income Tax Ordinance, 2001 by Finance Act, 2011, any production, sale or any amount chargeable to tax and suppression of any item of receipt liable to tax in whole or in part had to be treated as "concealed income" whereas S.122(5A) of the Income Tax Ordinance, 2001 dealt with the orders which were found erroneous and prejudicial to the interest of revenue but the orders involving concealment had to be dealt with under S.122(1) read with S.122(5)(8) of the Income Tax Ordinance, 2001

Action of Assessing Officer to invoke provision of S.111(1)(d) of the Income Tax Ordinance, 2001 in his order under S.122(5A) of the Income Tax Ordinance, 2001 was not sustainable in the eyes of law

Addition was not maintainable even otherwise, the taxpayer was not required to explain the nature of source of investment in purchases

Besides, Assessing Officer had chosen to ignore the written explanation offered by the taxpayer that the amount was pertained to FTR portion of sales and corresponding sales were declared

In the presence of explanation furnished by the taxpayer in response to the query under S.111(1)(d) of the Income Tax Ordinance, 2001 and Assessing Officer's inability to rebut the same, there was no justification for addition under S.111(1)(d) of the Income Tax Ordinance, 2001

Addition was deleted by the Appellate Tribunal accordingly.

Addition was made on the ground that acquisition of assets in settlement of non-performing loans was a recovery out of non-performing loans which were earlier charged to Profit and Loss account

First Appellate Authority observed that amount representing assets acquired in settlement of non-performing advances was never charged as provision against non-performing advance; that taxpayer provided copies of ledger of parties whose properties were acquired in settlement of non-performing loans and advances; that provisions shown was "NIL" which demonstrated that the provision originally created stood reversed to the extent of originally created against the amount of advances less the amount of liquid assets and forced sale value of assets; and that addition was based without appraisal of factual position

Taxpayer contended that after such observations, First Appellate Authority should have deleted the addition instead of remanding the case back to Assessing Officer

Validity

After observing that addition was not warranted by facts of the case, the First Appellate Authority should have deleted the addition instead of subjecting the taxpayer to another round of litigation

Even otherwise, present issue had already been decided in favour of the taxpayer

Addition was deleted by the Appellate Tribunal.

No addition was legally sustainable if mandatory requirements had not been complied with.

Taxpayer contended that addition had been made in wrong tax year i.e. tax year 2007 while the addition could only be made in the tax year 2008 as the notice under S.122(9) of the Income Tax Ordinance, 2001 was issued as on 16-3-2009; and before making addition, the tax payer was also not confronted by way of issuance of notice under S.111(1)(b) of the Income Tax Ordinance, 2001

Validity

Addition was made under 5.111 of the Income Tax Ordinance, 2001 in the tax year 2007 on the basis of information, against which notice under S.122(9) of the Income Tax Ordinance, 2001 was issued to the taxpayer on 16-3-2009, which fell in the financial year 2009

Addition under S.111(1) of the Income Tax Ordinance, 2001, if any, was required to be made in tax year 2008 being immediately preceding the financial year in which it was discovered

Addition under S.111 of the Income Tax Ordinance, 2001 having been made in the tax year 2007, not being the immediately preceding tax year of the year of discovery, was not in accordance with law and merited deletion

Orders passed by both the authorities below were vacated by the Appellate Tribunal and appeal was accepted by way of deletion of addition made under S.111(1)(b) of the Income Tax Ordinance, 2001.

Action of Officer of Inland Revenue to make total of credit transactions as suppressed receipt on presumptive basis without any corroborative evidence

Such addition was rightly deleted by the First Appellate Authority.

In case of suppressed receipt, heavy burden lie upon the tax officer to point out specific facts of transaction i.e. from whom and in what connection it was received, whether it was a sale proceed.

Revenue contended that under S.13(7) of the Income Tax Ordinance, 2001 the deference of benchmark rate as profit on any interest free loans provided to the employees was perquisite and taxpayer had paid interest free loans to the employees which were recoverable in installments and, as such, the profit on loan as computed at the benchmark rate of 8% being a perquisite of the employees was taxable under S.13(7) of the Income Tax Ordinance, 2001; that taxpayer had failed to furnish evidence in respect of inclusion of such amount of perquisite in the salaries of employees and that the Taxation Officer had rightly made the addition in this respect, the amount of loans being inadmissible expense in terms of the provisions of S.21(c) of the Income Tax Ordinance, 2001

Taxpayer contended that since interest free loan had been provided to the employees which were in the shape of perquisites, which otherwise, after inclusion benchmark interest @ 8%, the salaries remained below the threshold of taxable limit; that there was no obligation to deduct tax thereon; and that there was no justification for the disallowances made by the Taxation Officer invoking Cl.(c) of S.21 of the Income Tax Ordinance, 2001 which had rightly been deleted by the First Appellate Authority

Validity

Interest free loan had admittedly been provided by the taxpayer which constituted perquisite in terms of subsection (7) of S.13 of the Income Tax Ordinance, 2001 which, was admittedly taxable but the Taxation Officer without establishing the fact that after inclusion of interest, the salaries of the employees were above threshold of the taxable limit, had made addition in that respect

Salaries of the employees remained below the threshold of taxable limit and therefore the taxpayer company was not under obligation to deduct tax thereon

First Appellate Authority rightly deleted the addition.

Taxpayer contended that figures were below threshold of taxable limits, and tax was not liable to be deducted and in response to show cause notice such position was explained but Assessing Authority did not demand the proof of the same

Validity

When a show cause notice was issued and a particular fact was confronted to the taxpayer, it was bounden duty of the taxpayer not only to reply the fact in issue just by assertion, but also to produce relevant proof of the same

Argument of the taxpayer that after reply embodying the assertion that tax was not withheld because of being below the threshold limit, officer should have again issued a notice demanding the proof of the assertion was without any logic

Reply should be comprehensive and coupled with proof

To meet the ends of justice an opportunity was granted to the taxpayer for the production of the proof in detail embodying the name of tenant, rent agreement before the Assessing Officer to prove that such payments were below the threshold limit

Order was set aside by the Appellate Tribunal and remanded the case to Assessing Officer to afford opportunity of being heard to taxpayer and then pass the order as per law and facts of the case.

Taxpayer contended that under scheme of thing's contained in Income Tax Ordinance, 2001 the income tax laws were executed through Commissioner, who held pivotal position and all the powers were vested with him; that Commissioner could exercise all or any of the powers as Commissioner or delegate all or any of his powers to the Taxation Officer under S.210 of the Income Tax Ordinance, 2001; that Taxation Officer including an Inspecting Additional Commissioner could not exercise independent jurisdiction; that definition of "Commissioner" had been provided in S.2(13) and that of "Taxation Officer" in S.2(65) of the Income Tax Ordinance, 2001; that procedure of making addition had been laid down in S.13 of the Income Tax Ordinance, 1979 which provided that approval of Inspecting Additional Commissioner was mandatory: that Commissioner had to delegate his powers under S.210 of the Income Tax Ordinance, 2001 to the Inspecting Additional Commissioner who was required to grant approval under the Income Tax Ordinance, 1979 but delegation of such powers was open to question and contrary to law and that addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 was illegal because it was made with the approval of Inspecting Additional Commissioner and such approval was not legally correct

Validity

Issue of approval for addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 had already been decided by the Appellate Tribunal in a judgment reported as 2010 PTD (Trib.) 494 and department failed to put forth any explanation to justify any deviation from the said judgment

Addition was deleted by the Appellate Tribunal being legally incorrect.

First Appellate Authority observed that issue needed to be re-examined with reference to relevant provisions of law to determine as to what items were to be treated as part of salary and wages in order to work out the amount of allowances and perks paid to the employees in excess of 50% of the salary

Taxpayer contended that special allowance and cost of living allowance being statutory allowances were to be treated as part of the salary for the purpose of working out the amount of excess perquisites; and if only these two allowances were considered as part of salary, there would remain nothing to be added to the income of the company

Validity

Amount paid/payable in compliance with Provincial legislation was to be treated as part of salary and not perquisite

Issue of excess perquisites needed thorough examination in the light of cases decided by the hierarchy of judicial fora

Case was remanded to the Taxation Officer for working out the amount of excess perquisites to be added to the income of the company under S.21-K of the Income Tax Ordinance, 2001 after excluding labour statutory allowances.

Amount of actual waiver was written off after the approval of the Board of Directors of the company, having authority under the Companies Ordinance, 1984 and claimed waived amount as bad debt written off under the head Profit and Loss expenses

Department contended that amount written off' as bad debt was a loan given to an employee of the company, different what was stated by the taxpayer,; and recovery measures were not intimidated to Department; and medium of special purpose vehicles was not used to recover the amount

Taxpayer contended that normal business debt was treated as loan given to employees by the First Appellate Authority and cases quoted in his order were either inapplicable or irrelevant; and since all the conditions laid down in S.29(1) of the Income Tax Ordinance, 2001 have been fulfilled the addition made should have been deleted in toto

Validity

Held, it was difficult to accept the treatment given by the authorities below

Cases relied by the First Appellate Authority were distinct from the present case

Addition made by the Inspecting Additional Commissioner on such count was deleted by the Appellate Tribunal.

Addition was made for the reason that liability in the name of Bolan Bank Limited was cleared, but no sources were available for liquidation of outstanding liability

Assessee contended that procedure of making addition under the Income Tax Ordinance, 1979 had been laid in S.13 which provides that approval of Inspecting Additional Commissioner was mandatory; and Commissioner had to delegate his power under S.210 of the Income Tax Ordinance, 2001 to the Inspecting Additional Commissioner who was required to grant approval under the Income Tax Ordinance, 1979 but delegation of such powers was open to question and contrary to law; and addition was illegal because it was made with the approval of Inspecting Additional Commissioner and such approval was not legally correct

Validity

Issue of approval for addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 had already been decided by the Appellate Tribunal

Department failed to put forth any explanation to justify any deviation from such judgment

Addition under S.13(1)(aa) of the Income Tax Ordinance, 1979 was legally incorrect and was deleted by the Appellate Tribunal.

Taxpayer contended that composite audit proceedings was conducted and the Taxation Officer mainly focused on the sources of investment; and after making verification of sources of investment he did not draw any adverse inference with regard to investment and closed the audit proceedings with prior approval of the Additional Commissioner; and since, audit proceedings were closed with prior approval of the Additional Commissioner, the Taxation Officer being a subordinate officer to Additional Commissioner could not review the same issues from his own spectacles which had already been adjudicated upon by his supervising officer

Validity

Taxation Officer had made addition under S.111(1)(b) of the Income Tax Ordinance, 2001 for alleged non-recording of certain payments in its books of accounts without taking the cognizance of the fact that his predecessor had already closed the audit proceedings after seeking details, documents and explanation in respect of certain issues including verification of inflow and outflow of cash vis-a-vis nature of transactions raised by the then Commissioner

Such fact could be verified from the copy of composite audit report issued by the predecessor of the Taxation Officer

Sources of investment had been duly discussed in the audit report after seeking complete details and documentary evidence including bank statements, details of trade creditors and debtors, agreement of bank financing, details of capital gain etc. had closed the audit proceedings

No justification was available to initiate amended proceedings at later stage on the basis of same material which the taxpayer had himself provided

During audit the Deputy Commissioner Inland Revenue had mainly focused on the sources of investment made by the taxpayer and after making verification of sources of investment he had not drawn any adverse inference with regard to investment made by the taxpayer and had closed the audit proceedings with prior approval of the Additional Commissioner

As audit proceedings were closed with prior approval of the Additional Commissioner, the Deputy Commissioner Inland Revenue being sub-ordinate officer to Additional Commissioner could not review/amend the assessment on the same issue from his own spectacle which had already been adjudicated upon by his supervising officer.

Assessee contended that payments in nature of trading expenses were not required to have been paid through banking channel in terms of Circular No.11 dated 25-7-1998; and the same had been withdrawn through Circular No.1 dated 17-2-2006 and that provision of Cl.(I) of S.21 of the Income Tax Ordinance, 2001 were effective from tax year 2006 and not from the tax year 2005

Validity

Contention was based on fact as F.B.R. Circular No.1 of 2006 dated 17-2-2006 provided that payments exceeding Rs.10,000 under a single head of any trading or profit and loss expense shall not be an admissible expense if not made through cross cheque w.e.f. 1-7-2006

Since relevant payments had been made during tax year 2005 i.e. during financial year 2004-2005, provision of Cl.(I) of S.21 of the Income Tax Ordinance, 2001 was not applicable

Additions made in such respect had been rightly deleted by the First Appellate Authority.

Assessee contended that payments were neither claimed as "expenses" nor charged to "development work in progress" rather these were booked as "advances" and were capitalized subsequently

No substantiating evidences were produced by the assessee indicating that the relevant payments were subsequently capitalized

Order indicated that requisite payments were claimed by the taxpayer in development cost and since these payments were capital in nature the Taxation Officer rightly added these in taxable income.

Assessee argued on defects in notice under S.62 of the Income Tax Ordinance, 1979, Claiming that the assessee was not confronted on specific issues before rejecting the books of accounts and making additions in the claimed profit and loss expenses

Validity

Mere submission of 120 files of books of account, in evidence without specifically pointing out the supportive documents for each claim was not sufficient discharge of burden of proof by assessee

On production of huge record, the assessing authority was expected to relate each evidence with the relevant claim and then find out defects

Conversely, the assessing authority avoided such a cumbersome exercise and preferred to raise vague objections/defects while disagreeing with the books of accounts

Weakness on the part of department, was exploited in appeals urging the flaws in exercise of jurisdiction by assessing authority

Merely placing books of accounts, consisting of 120 files, without identifying the evidence for each claim, the assessee could not sufficiently discharge the burden of proof for the expenses claimed, therefore, the onus did not shift on the department/Assessing Officer

Assessing Officer's bald disagreement with the books of accounts was also disapproved

Since the lapses were made by both, the department as well as assessee, the assessment order and order of First Appellate Authority, to the extent of add backs of expenses under the head `profit and loss account' were set aside and to such extent case was remanded to the Assessing Officer with the direction to assessee to produce books of accounts with specific co-relation of each evidence with the claimed expenses and Assessing Officer was directed to undertake the proceeding strictly in accordance with law and pass a speaking order with reasons.

Revenue assailed the order for deleting addition made under the head 'deferred advance fee' and for curtailing the addition made under another head 'miscellaneous expenses' on the ground that there was no provision for deferment of income to subsequent accounting year; and assessee had employed Mercantile System of Accounting, the receipt could be taxed only in the year it was received

Assessee submitted that receipts in fact were an advance fee received for the next period because their semesters start from the next year's month

Validity

Appellate Tribunal repelled departmental point of view that income received in a particular year could not be deferred to be taxed in the following year

First Appellate Authority had given a very pragmatic answer while observing that it was a simple question of revenue recognition of a particular payment, receipt of which at a particular point of time was not disputed by the parties

Explanation of the assessee was more convincing that the expenses relatable to those receipts fell in the following accounting period; and the receipts were to be taxed proportionately in the following accounting period

Section 32 of the Income Tax Ordinance, 1979 provided that to employ a particular method of accounting strictly was not a rule of thumb rather it envisaged in subsection of S.32

Central Board of Revenue could prescribe, for a particular class of business, profession or person, the manner in which payments of commercial nature should be made or commercial transactions be recorded

Intention of legislature appeared to work out a correct and just income, profit and gains

Legislature had given adequate powers to Deputy Commissioner, in S.32(3) of the Income Tax Ordinance, 1979

Deputy Commissioner was authorized when, in his opinion, the assessee was not regularly employing a particular method of accounting and the income, profits and gains could not be properly deducted thereform, he may compute the same `on such basis and in such manner' as he thought fit

Assessing Officer should have invoked the provision of law to recognize the receipt of advance fee in a requested accounting period

Order of First Appellate Authority was maintained by Appellate Tribunal in circumstances.

Assessee filed wealth statement along with affidavit of her husband, who was an existing assessee stating that he had sufficient funds to purchase the said plot in her name

Evidence of payment to seller through a pay order was also provided along with agreement to sell stating the facts

After lapse of six and a half months, taxation officer issued notice under S.176 of the Income Tax Ordinance, 2001 to seller for cross verification

Seller stated the higher price of the plot than the taxpayer(purchaser)

However, neither evidence for the said payment received from the taxpayer or an agreement between the seller and the taxpayer was placed on record nor affidavit in support thereof was filed

Validity

No corroborative evidence had been produced to substantiate that the consideration paid by the taxpayer was more than as stated by the seller

There was no nexus between the statement of the seller and the evidence produced by the taxpayer

Addition was held to be illegal and without justification and penalty levied was also deleted being levied in a haste and also without substantiating mens rea which was an integral ingredient for initiation of penalty proceedings.

Taxation officer changed his stance about the declared cost of construction which he was fully authorized to do provided the change was the outcome of convincing and plausible reason

Change in stance by the taxation officer before finalization of assessment though permissible, was not based upon valid reasons

Addition made to the income of the taxpayer on account of reduction in cost of construction had been ordered to be deleted by the Appellate Tribunal.

Notice under S.176 of the Income Tax Ordinance, 2001 was to be issued to call for information, evidence record etc. relevant to the tax leviable under the Income Tax Ordinance, 2001

In the present case, no information or record was required to be called

Taxpayer owed an explanation with reference to the accretion in wealth because the said accretion did not find support from his record in the sense that accretion was not commensurate with the income declared from year to year

Taxpayer was asked to explain the sources of accretion in wealth but he did not come up with any explanation

Taxation Officer made the addition under S.111(1)(b) of the Income Tax Ordinance, 2001, which appeared to be more than justified, in circumstances.

Addition on account of unexplained income under S.111(1)(b) of the Income Tax Ordinance, 2001 was correctly made in the tax year, 2006 which was the immediate preceding financial year in which unexplained income was discovered

Addition was made in pursuance of notice issued under S.111(1)(b) of the Income Tax Ordinance, 2001 as recorded in the amended assessment order passed under S.122(1) of the Income Tax Ordinance, 2001

Taxation Officer fully complied with the requirements of natural justice by affording the taxpayer adequate opportunity to submit explanation with regard to the sources of accretion in wealth

Where the taxpayer failed to respond, Taxation Officer was fully justified to make addition and there was no legal infirmity vis-a-vis the addition under S.111(1)(b) of the Income Tax Ordinance, 2001.

Contention of the assessee was that accretion in wealth stood reconciled with the revised wealth statement; and amount of accretion pertained to the previous year, which could not be added to the income of the assessee for the year under consideration

Validity

Plea of the assessee was not accepted by the Assessing Officer for the reason that the assessment for the assessment year 1998-99 already stood completed as such the revised wealth statement filed for the relevant year i.e. as on 30-6-1998 was not acceptable

No legal infirmity in the order of First Appellate Authority to set aside the assessment was found because issue involved relating to period of investment and sources of investment required the verification of facts

Adequate relief already stood provided to the assessee by the order of First Appellate Authority whereby the assessment on the issue had been set aside for verification and ascertainment of fact.

Assessee contended that addition should have been deleted by the First Appellate Authority instead of having been set aside as the same was made without confronting under S.62 of the Income Tax Ordinance, 1979

Validity

Statutory notices under S.61 of the Income Tax Ordinance, 1979 were issued on different occasions and each time the hearing was adjourned on the request of the assessee

Assessments reopened under S.65 of the Income Tax Ordinance, 1979 were barred by limitation of time on 30-6-2001

Assessee filed returns and reply to notices issued under Ss.62 and 13(1) of the Income Tax Ordinance, 1979 on 25-6-2001 and further reply was also filed on 26-6-2001 when there was hardly any time left with the Assessing Officer to issue any further notice

BY filing of returns along with details of income and wealth statements as well as reconciliation of wealth at such time, it was made impossible for the Assessing Officer by the assessee to issue any further notice on the basis of return/details filed on 25-6-2001 and 26-6-2001

Assessing Officer could not be expected to do an act which could not possibly be done

Irrespective of the justification for seeking adjournments by the assessee he could not be allowed to avail the benefit of the situation arising for the reasons the causes of which were attributable to assessee

If the Assessing Officer could not confront the assessee on the issue of assessment under the head "income from sale of land/plots" after filing of return along with details of such income on last dates because of time limitation he was himself responsible for such delay

One could not be allowed to avail benefit of his own mistake

Contention that assessments should be annulled instead of setting aside the issue for the reason that he was not provided with the opportunity of being heard through issuance of notice under S.62 of the Income Tax Ordinance, 1979 confronting him on the issue after filing of returns on 25-6-2001 was not acceptable

Ass'essee being a contributory party to the alleged default, by filing the returns and details on the last date not leaving any opportunity for the Assessing Officer to issue any further notice was not entitled to claim any benefit on the basis of the same.

Assessee contended that addition should have been deleted instead of setting aside because the assessee had explained the source of investment made in purchase of asset as per reconciliation of wealth

Assessee, at the time of heaving, raised another objection that the addition was liable to be deleted on the ground that amount added was different from the one confronted to explain to the assessee through notice under S.13(1)(aa) of the Income Tax Ordinance, 1979

Validity

As per explanation filed on 26-6-2001, it was informed by the assessee that the actual of 1/2 share was Rs.66,31,200 and not Rs.43,26,098

Contention that assessee was not confronted with the amount of Rs.66,31,200 after filing the reply/explanation rendered the addition illegal was not acceptable

Under the provision of S.13 of the Income Tax Ordinance, 1979 the assessee was to be provided with the opportunity to explain the sources of investment which was provided and also availed by him

Assessee had himself offered the explanation with regard to investment of Rs.66,31,200 and could not take the plea that the opportunity was not provided to him for explaining the source of investment when he had himself offered the explanation for Rs.66,31,200

Even otherwise, assessee filed his reply/explanation to the notice issued under S.13(1) of the Income Tax Ordinance, 1979 at the time when there was hardly any time left with the Assessing Officer to issue any further notice

Assessee could not be allowed to avail the benefit of situation created by himself

Order of First Appellate Authority was held to be justified in the circumstances.

Assessee contended that additions should have been deleted instead of having been set aside by the First Appellate Authority as the additions were made without issuance of notice under S.13(1) of the Income Tax Ordinance, 1979

Validity

Contention of the assessee was not found to be correct because as mentioned in assessment order, a notice under S.13(1) of the Income Tax Ordinance, 1979 was issued on 7-5-2001 wherein he was required to explain the sources of investment made in purchase of land which was sold

Assessee had also filed replies/explanation on 25-6-2001 and 26-6-2001 as reproduced in the assessment order

Assessee's contention that Assessing Officer had not issued notice under S.13(1) of the Income Tax Ordinance, 1979 after filing of return under S.65 of the Income Tax Ordinance, 1979 and wealth statement on 25-6-2001, was devoid of force

Assessee had already been confronted under S.13(1) of the Income Tax Ordinance, 1979 on the basis of information that he made the said investment in the purchase of property which was sold

Requirements of S.13(1) of the Income Tax Ordinance, 1979 whereby he was required to be provided with the opportunity to file explanation regarding sources of investment having been fulfilled

No legal infirmity in the assessment order on the issued was found

Order of First Appellate Authority whereby the assessment had been set aside on the issue of addition under S.13(1) of the Income Tax Ordinance, 1979 was not interfered with by the Appellate Tribunal.

Same figure of receipts declared by the assessee as receipts from sale of inherited land were adopted by the Assessing Officer as his income from business of sale of property without working out the income in a proper manner

Total sale receipts could not be adopted as business income without deducting the cost of sales since he had not added the amounts under the provisions of S.13(1) of the Income Tax Ordinance, 1979.

Assessee contended that assessment should have been annulled since the approval of the Inspecting Additional Commissioner and no permission was required, for addition to be made under S.13(1)(aa) of the Income Tax Ordinance, 1979

Validity

Expression "permission" of Inspecting Additional Commissioner had been used in the same sense and had the same meaning as that of "Approval" of Inspecting Additional Commissioner which was required to be obtained by the Assessing Officer for making addition under the provision of S.13(1) of the Income Tax Ordinance, 1979

Findings of First Appellate Authority were upheld by the Appellate Tribunal being justified in the circumstances of the case.

Contention of the assessee that no addition could be made in respect of investment made in property declared under the Amnesty Scheme, 1997 under provision of relevant law was not tenable

In the Amnesty Scheme, 1997 as laid down in para.5 of Circular No.7 of 1997 dated 21-7-1997 it had been provided that valuation of undisclosed asset shall be made in accordance with the rule contained in the Part-IIA of the Income Tax Rules, 1982

Value of property was admittedly not in accordance with the prescribed rates as provided in Part-IIA of the Income Tax Rules, 1982

Appeal was dismissed.

Assessee contended that addition under the provision of S.111(1) of the Income Tax Ordinance, 2001 could not be made when the assessment proceedings were initiated under the provisions of S.56 of the Income Tax Ordinance, 1979 and assessment was completed under S.63 of the Income Tax Ordinance, 1979

Validity

Determination of income and tax paid thereon in respect of an income year ending on or before the 30th June, 2002 was to be made under the provisions of Income Tax Ordinance, 1979 which meant that income chargeable to tax in such a case was to be determined under the relevant provisions of Income Tax Ordinance, 1979 and could not be charged to tax under the provisions of Income Tax Ordinance, 2001

In case of assessment of income in respect of an income year pertaining to period prior to promulgation of Income Tax Ordinance, 2001 the deemed income could only be charged to tax under the relevant provision i.e. S.13 of the Income Tax Ordinance, 1979

Difference in corresponding provisions of the two statutes under consideration i.e. S.13(1) of the Income Tax Ordinance, 1979 and 111(1) of the Income Tax Ordinance, 2001 was of substantive nature and error in making addition under S.111(1) of the Income Tax Ordinance, 2001 instead of S.13(1) of the Income Tax Ordinance, 1979 was fatal to the addition made under S.13(1) of the Income Tax Ordinance, 1979 which was not covered under S.155 of the Income Tax Ordinance, 1979

No addition could be made under the provision of S.111(1) of the Income Tax Ordinance, 2001 in a case where assessment proceedings had been initiated and completed under the provisions of Income Tax Ordinance, 1979

Order of First Appellate Authority to annul the assessment was maintained by the Appellate Tribunal.

Assessee contended that re-assessment should be finalized within one year from the end of financial year in which such order was received by the Taxation Officer

Assessment was cancelled by the First Appellate Authority for the sole reason that the same was hit by limitation

Admittedly, order of Appellate Tribunal was received on 13-5-2003 and according to which re-assessment proceedings should have been completed by 30-6-2004

Department failed to rebut the assertions made by the assessee

Order of First Appellate Authority was maintained by the Appellate Tribunal and appeal of the Revenue being without any force was rejected.

Taxpayer contended that expenses were incurred wholly for the purpose of business and not .claimed in the previous year; the transport companies had issued invoices on later dates and expenses were booked in the accounts on receipt of invoices and this method was consistently and regularly employed

Addition was deleted by the First Appellate Authority with the observation that payments made on account of freight expenses was in accordance with the prevalent mercantile accounting system followed by the taxpayer

Validity

Taxation Officer had failed to appreciate the facts of transactions and consistent practice of taxpayer company

First Appellate Authority had rightly deleted the addition as grievance of the department was found misconceived.

Issuance of notice under S.129(9) of the Income Tax Ordinance, 2001 after the audit was not enough to further proceed in the matter under law

Before invoking the provisions of S.111(1) of the Income Tax Ordinance, 2001 the department was required to acquire jurisdiction under the provisions of S.122(5) of the Income Tax Ordinance, 2001 and there was no other provisions in law which permitted the Assessing Officer to modify or reassess the already assessed return of income before establishing that his income was either under-assessed or assessed at too low a rate etc. as provided in S.122(5) of the Income Tax Ordinance, 2001

Addition under S.111 of the Income Tax Ordinance, 2001 was a subsequent stage on which the Assessing Officer should not directly reach before crossing the barrier and fulfilling the requirements for cancelling the deemed assessment under S.120 of the Income Tax Ordinance, 2001 in terms of S.122(5) of the Income Tax Ordinance, 2001

Assessing Officer was required to first determine through audit that the deemed assessment was under-assessed etc. in terms of S.122(5) of the Income Tax Ordinance, 2001 or otherwise erroneous and prejudicial to the interest of revenue as provided under Ss.122(5) & 122(5A) of the Income Tax Ordinance, 2001 on the basis and circumstances mentioned in these provisions separately

Assessee had explained all deposits and so called discrepancies in its accounts to the satisfaction of First Appellate Authority against which no mentionable argument had been advanced; in addition to this, assessment was not in strict compliance of the provisions and the procedure provided in law

Deletion was unexceptionable and the departmental appeal was dismissed by the Appellate Tribunal being devoid of any merit.

Taxpayer contended that actual expenses for vehicle running incurred by the Executives were reimbursed on actual expenses basis, which had been incurred by them on behalf of the employer-company in performance of their duties; and such payments stood excluded from the definition of `salary' and perquisites under S.12 (2)(d) of the Income Tax Ordinance, 2001 as the addition had been made on the presumptions that the company maintained vehicles had been provided to its executives for free use

Validity

For immediate preceding year under the similar facts the Assessing Officer had curtailed the claim of expense on account of reimbursement of expenses for vehicle running by 50%

Appellate Tribunal ordered that the addition shall be reduced in all the years by an amount equal to 50% of the payments under the head "reimbursable expenses for vehicle running".

First Appellate Authority deleted the additions made by the Taxation Officer under S.111(1)(b) of the Income Tax Ordinance, 2001, as documentary evidence was furnished showing that the taxpayer had the source of investment

Penalty made under S.184 of the Income Tax Ordinance, 2001 being consequential to such addition had also been annulled

Iqrar nama deed of agreement and other documents had been furnished

Appellate Tribunal held that First Appellate Authority had rightly deleted the addition and annulled the consequent penalty mad by the Taxation Officer

No interference was warranted in the order of First Appellate Authority and appeals filed by the Department were dismissed.