Bank Credits can not be taken as sales ATIR judgment

Bank Credits can not be taken as sales ATIR judgment

Bank Credits can not be taken as sales ATIR judgment : 2019 SLD 9 Equiv. Citation: 2019 PTD 4 | INLAND REVENUE APPELLATE TRIBUNAL

I.T.A. No. 1563/LB of 2014, decision dated: 18-12-2017, hearing date: 05-10-2017



Petitioner(s) by: Waheed Shahzad Butt
Respondent(s) by: Ms. Fouzia Adil, D.R.

Law: Income Tax Ordinance (XLIX of 2001)
Sections: 111, 111(1 )(d)(i), 122, 122-A, , 133, 214(c)


Bank Credits can not be taken as sales ATIR judgment: This single appeal filed at the instance of appellant/taxpayer, against the findings recorded by the learned CIR [Appeals-II]. Lahore “CIR(A)” passed on 11.06.2014 vide Order No. 5 pertaining to Tax Year 2012 Appellant’s earlier appeal was disposed of by the ATIR on 10.12.2014 vide I.T.A No. 1563/LB/2014 in the following manners:-

“In view of these facts as well as legal position the impugned order of the Commissioner Inland Revenue Appeals-II Lahore is vacated and the order passed by the Inland Revenue Officer is cancelled. The appeal filed by the Taxpayer is allowed”.

2. Being aggrieved, the revenue/department filed a Reference Application under Section 133 of the Income Tax Ordinance, 2001 “Ordinance” vide I.T.R. No. 134-2015 before the Honorable Lahore High Court. The Honorable High Court has disposed of the said reference application of the department in the following verdict:–

“In our opinion, decision through a non-speaking order is mis-exercise of jurisdiction, therefore, our answer to the proposed question is in affirmative i.e., in favour of the applicant department.

Impugned order is set aside. Matter is remanded to the Appellate Tribunal where appeal filed by the taxpayer shall be deemed pending. Appellate Tribunal is directed to decide the matter afresh after providing opportunity of being heard to the taxpayer.”

3. In view of the above directions of the Hon’ble Lahore High Court, Lahore the present appeal is taken up for hearing and is being disposed of through this order.

4. Brief facts of the case are that the appellant is a Private Limited Company declared income of Rs. 5,232,355/- from manufacturing of steel pipes and tubes. The case of the Appellant was selected for audit under section 214(c) of the Income Tax Ordinance, 2001 by the FBR through computer random ballot. Audit proceedings were conducted by the Inland Revenue Officer “IRO” and after examining the detail filed by the Appellant the income was amended at Rs. 105,412,924/- against the declared income of Rs.5,232,355/. The Appellant filed the appeal before the CIR(A) who confirmed the additions made under the head of Suppression of Sales v. Bank Deposits and the Profit and loss expenses, however, remanded the additions made under the head Suppression of Local Purchase and Import Purchase, hence, the Appellant has preferred further appeal before this Tribunal against the orders passed by both authorities below.

5. Right at the very outset, learned AR argued that the treatment meted out by the IRO and subsequently novel verdict by the learned CIR(A) is contrary to the facts of the case and principles of norms of justice. AR stated that in response to IRO’s observation a detailed write up by filing requisite information, supporting documents were submitted but unfortunately relevant law on the issue and factual position has not been considered judicially by the IRO as well as by the learned CIR(A).

At the same time the AR also argued that the appellant has already faced the cumbersome round of assessment at the first stance therefore, another round would have meant that the appellant would have been subjected to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow a party to improve his case or to fill in the lacuna. The Learned AR has also referred the reported verdicts of binding nature 1997 SC MR 524, 1997 SCMR 1849 arid 2002 PTD 407 (High Court).

6. On factual grounds AR stated that though in the body of the assessment order a mentioning has been made to say that appellant provided general ledger bank statements, debtors reports, salary sheets, withholding statements, detail of profit and loss expenses, copies of utilities and other bills, purchases, bills of entries, bank reconciliation statements, local purchases, chart of imports, GDs, markup etc. but unfortunately learned both authorities below acted illegally and arbitrarily to create and partly confirm the huge patently illegal tax demand. During the course of hearing before this court, the learned AR also presented cumbersome data/record/documents which directly relates to various additions made by the IRO. It includes copies of ledger accounts, bank statements, debtors reports, salary sheets, withholding tax statements, detail and evidence of profit/loss account expenses, copies of utilities and other bills, local purchases, bills of entries, copies of cheques received from directors and Messrs Jillani Enterprises, bank statements along with reconciliation statements elaborating direct sales, bank to bank transfers, contra entries, deposits by directors and advances from customers, imported purchases, chart of imports, copies of GDs. markup, LG margin and receipts from Pakistan Steel Mills etc.

7. On legal plane learned AR strongly argued that as per law, tax is chargeable on actual supplies/sales of taxable product/goods by a taxpayer even under the provisions of Sales Tax Act, 1990. The IRO without any corroborative evidence concluded that credit entries/receipts/deposits in bank accounts of the appellant were routed through taxable sales made in Pakistan and treated portion of deposits as suppressed sales. There is no iota of evidence to prove that the receipts of money into the bank accounts of the appellant were on account of taxable supplies of goods as envisaged under the fiscal laws rather factual position of the case clearly negate the flimsy stance of the IRO but unfortunately direct documentary evidence has been rejected arbitrarily and without adhering to any statutory provisions of law, flimsy demand of tax has been raised against the appellant. Same is the case with imported purchases and local purchases wherein huge amount, which is otherwise fully verifiable from corroborative documentary evidence, has illegally and arbitrarily been added into taxable income but learned CIR(A) instead of giving clear judgment intentionally remanded the matter to IRO to avoid justice. In case of ad-hoc additions in profit/loss account expenses, all additions have been made without confronting the appellant and without specifying any defects in the presented record/data during assessment stage.

8. The learned AR drew our attention to the contents of show-cause notice and various parts of the assessment order passed by the IRO. Bank deposits at Rs.347,127,716/- have been confronted by the IRO while the appellant itself disclosed total bank deposits at Rs.437,053,503/-. This state of affair reflects the seriousness of the IRO to examine the books of accounts and conduct audit. Quite amazingly certain figures such as Rs. 1,594,245/- Rs. 124,626,144/- and Rs. 111,801,828/- have been confronted in the notice while additions made into taxable income at Rs. 1,004,193/-, Rs. 1,600,000/-, Rs. 19,000,000/- and Rs.5,750,000/- were never confronted by the IRO in show-cause notice. The learned counsel by placing reliance on the judgment of Hon’ble Supreme Court of Pakistan reported as Commissioner of Income Tax v. Pakistan Industrial Engineering Agencies Limited (1992 PTD 954), argued that the department cannot dictate the taxpayer how to do business or how to utilize its funds. If the taxpayer enters in certain transactions for business purposes by adopting legal modes and one of the main purpose of entering into such transactions is not avoidance or reduction of tax liability, Hon’ble Supreme Court of Pakistan has very aptly and categorically laid down this principle in the aforesaid judgment in the following words: “An assessee is entitled to manage his own affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provisions of law cannot be challenged on the ground of prudence, advisability or business practice”.

9. Learned A.R further vociferously contended that the show-cause notice and impugned assessment order passed by the IRO contrary to the scheme of the law and without observing the principles of natural justice. If doing of a thing is made lawful in a particular manner then doing of that thing is conflict with the manner prescribed will be unlawful. Reliance is placed on 2006 SCMR 129. The things which cannot be done directly are not capable to be done indirectly 1993 PLD SC 473, Mian Muhammad Nawaz Sharif v. President of Pakistan and others. Where the original action is void then the subsequent actions and proceedings there from would also be vitiated PLD 1958 SC 104. When exercise of jurisdiction is subject to mandatory conditions, then the exercise of jurisdiction disregard to those conditions render the exercise of jurisdiction void and following and flowing actions and proceedings are null and void and non-fulfillment of mandatory conditions is incurable jurisdiction defect. 1971 SCMR 681 and PLD 1972 SC 271.

10. The learned DR, on the other hand, strongly supported the orders of the authorities below and vehemently argued in the favour of orders passed by 1RO and learned CIR(A) with the prayer that present appeal may be dismissed as remand order is causing no prejudice to the appellant, who can re-argue its case before the assessing officer afresh.

11. The learned AR vehemently concluded his arguments and submitted that independent judicious view would automatically unmask the picture that orders passed by authorities below are perverse, fanciful. Erroneous, factually incorrect and has resulted in great miscarriage of justice. The learned AR submitted that the issues involved in the present appeal require consideration of these principles, in support of his contentions various judgments of higher as well as superior fora were also referred. Present appeal is taken up and decided in terms of following observations.

12. We have heard the arguments and perused the relevant record presented. Action of IRO to make certain credit transactions in the banks as suppressed/concealed receipts/sales and by treating imported/local purchases fully verifiable and properly reconciled, on presumptive basis without any independent corroborative documentary evidence has no legs to stands the test of appeal. It is not the case in which there is any of transaction exceeding the available resources duly established by the appellant through strong documentary evidence. In case of suppressed/concealed receipts/sales, heavy burden lie upon the department to point out specific facts of transaction i.e. from whom and in what connection it was received, whether it was a sale proceed or mere credit, has been ignored by the IRO. He miserably failed to prove any nexus whatever between the amount lying in Bank through credit entries from fully known and verifiable sources and concealed/ undisclosed/suppressed receipts/sales. In this case IRO confronted various changed figures under section 122 of the Ordinance. All of these queries were well responded by the appellant with corroborative strong documentary evidence and successfully explained the factual position. IRO kept on going for inquiries. This blunt factual flaw in the impugned order cannot be brushed aside, the appellant has successfully explained all the deposits and the so-called discrepancies in its bank deposits to the satisfaction of the law, against which no mentionable arguments has been advanced by the IRO.

13. It is equally established that one cannot be permitted to first create an ambiguity in the law and facts and then to proceed to employ niceties of the interpretation to resolve it. However, where the provision of law is apparently uncertain or ambiguous and admits of more than one equally possible interpretation it is only there that in fiscal statutes an interpretation favorable to a taxpayer can be made. This principle was explained in PLD 1961 SC 375 and followed in PLD 1962 (WP) 809. The rule of beneficial interpretation of a provision is always subject to the condition that two equally reasonable meaning of the provision are possible. However, as mentioned earlier where language of statutory provision is clear, effect must be given to it as found by the Supreme Court in 1992 SC MR 663. In fiscal laws an equitable interpretation is not possible as found in PLD 1977 Lah. 292 and approved in 1993 SC MR 274. It is also observed with grave concern that additions under Section 111 have been made without issuing specific and separate notice under Section 111 which is sine qua non and no addition under section 111 can be made without specific notice under section 111 with specification of relevant clauses and subsection of section 111 of the Ordinance, therefore, the additions made under section 111 also merits deletion on legal plane too. In such an eventuality, mere fact that there is denial of allegation of mala fide or oblique motive or of its having taken into consideration improper or irrelevant matter does not preclude the court from enquiring into the truth of allegations levelled against the authority and granting appropriate relief to the aggrieved party. If the power has been exercised on a non-consideration or non-application of mind to relevant factors, the exercise of power will be regarded as manifestly erroneous. If a power whether judicial, quasi judicial or administrative is exercised on the basis of facts which do not exist and which are patently erroneous, such exercise of power will stand vitiated. The IRO is not clear in his mind, where and what is violation of law in this case except having clarity on one thing to create a huge demand of tax by treating certain credit entries in the bank accounts as concealed income. Looking at the matter in its entirety the factual position obtaining and the ambient circumstances strongly suggest that the disposal of orders by the IRO is mere a shot in the dark without consulting the record and submissions made by the Appellant and also without perusing applicable law. In our opinion, the IRO had travelled beyond his lawful jurisdiction, probably with predetermined mind to make the huge additions in income. He overlooked the legal as well as factual blunt position altogether. The IRO, in an over ambitious pursuit, not only over stepped his jurisdiction under the law, but had lost sight of the issues confronted in the show-cause notice. Needless to say that an action under the law can be taken only in a way authorised, by law. The action of IRO by overstepping the provisions of law certainly was coram- non-judice and patently illegal.

14. From the perusal of the order of the learned CIR(A), it is clear that he has recorded his findings in slipshod manner. The order of the learned CIR(A) is running into 18 pages and his whole order is consisted of mere quoting/reproduction of arguments of the counsel verbatim then he simply reproduced the order/finding of IRO and penned down his findings in slipshod manner to confirm the addition on account of bank despots suppressed sales and profit/loss additions, while other major portion of the order passed by the IRO on account of imported/local purchases has been remanded back to IRO. However, he even did not bother to record the arguments of the learned counsel in his own words. No reasons have been recorded by him. No process of application of conscious and judicious mind by CIR(A). There can be no order passed by the learned CIR(A) in the instant case, within the parameters set up by the higher appellate fora. The impugned order appears, is not a decision but simply a disposal. If the decision is given without any reasons then one of the two most essential ingredients will be missed. It is on the basis of the reasons which support order that the same can be challenged in an appeal. The said order of CIR(A) is cryptic and devoid of reasons. No reason whatsoever has been assigned by the CIR(A) as to how and why he has arrived at a finding. An order ought to contain the point or points for determination, the decision, thereon and the reasons for the decision is totally violated in the instant case. Obviously when no logical legal reasons are given, the order of learned CIR(A) is vitiated as being violative of rules of Natural Justice. As mentioned supra, the learned CIR(A) has not applied his independent judicious and conscious mind honestly and fairly, he only reproduced the arguments of the learned counsel and simply reproduction of extract from IRO’s amended order dated 13.05.2014. Reasons were held to be the heartbeat of every conclusion, apart from being an essential feature of the principles of natural justice that ensure transparency and fairness, in the decision-making process. Giving of satisfactory reasons is the basic requirement arising out of an ordinary man’s sense of justice and a healthy discipline for all those who exercise power over others. Failure to give reasons amounts to denial of justice. Reasons are live links between the mindset of the authority who takes decision taken to the controversy in question and the decision or conclusion arrived at. Recording of reasons in cases where the order is subject to further appeal is very important from yet another angle. An Appellate Court or the authority ought to have the advantage of examining the reasons that prevailed with the Court or the authority making the order of that advantage and cases an onerous responsibility upon it to examine and determine. In the instant case, evidently the learned CIR(A) without appreciating the facts of the case and without applying his own mind simply confirmed the treatment meted out by the IRO in few words, in our view had not discharged his duty cast upon him and therefore, the order of CIR(A) is totally unsatisfactory and is liable to be quashed. We have no hesitation in holding that action of the IRO is not sustainable in the eyes of law, hence, mode and method of assessment is disapproved. The IRO intervention is fatally flawed and riddled with grave, multiple defects from a legal standpoint. The assessment framed lacks the required nexus with the lawful proceedings under the law because suppressed sales could not be assessed solely on the basis of bank statement of the taxpayer without any evidence of corresponding taxable supply made in the course of taxable activity in Pakistan. It is also observed that the order passed by IRO is bereft of proper objective basis necessary to sustain the action taken and is based on presumption and hearsay cast in the garb of proceedings under the tax audit selected by the Board, hence, patently illegal. However the grave defects in the assessment have made no impression on the learned CIR(A), rather, he has gone a step further and has mobilized available evidence against the appellant and partly remanded the matter to IRO and certain addition were confirmed. We must add here that IRO went beyond the scope of the show-cause notice as much as it he did not restrict to the specific allegation stated in the show-cause notice rather took a new stand which was not incorporated in show-cause notice which is not lawful, in this context, reliance is placed on the ratio settled in 1987 SC MR 1840. However, we are of the opinion that it is not necessary to determine this question of law in the fact of the present case as this petition can be disposed of on the short ground that the order of adjudication being ultimately based on a ground which was not mentioned in the show-cause notice, the order was palpably illegal and void on the face of it. We have carefully examined the show-cause notice and find no reference whatsoever or necessary facts relating to the ground that the alleged contraband goods were imported into Pakistan from an unauthorized route. In view of this palpable legal infirmity, we do not consider it necessary to examine the other contentions raised by the learned counsel”.

15. For the reasons recorded supra, we have no hesitation in holding the CIR(A) action to be squarely in conflict with statutory stipulation and applicable case laws. It must therefore be struck down decisively, with the sole reasons that this type of dispensation of justice is unwarranted. I Upshot of the discussion made above is obvious. The impugned orders of both authorities below are found to be suffering from legal as well as factual infirmities. These merit cancellation. It is ordered accordingly.

16. Before parting with this judgment, we strongly feel that the factual issues, duly argued by the AR with the support of record/data/ documents presented, must also be discussed and decided to end the controversy between rival parties. The factual position as elaborated earlier is not disputed by the department. The settled principles regarding administration of justice are that the appellate authorities / judicial and quasi judicial authorities including officials / Administrative or taxing authorities while dispensing justice and exercising judicial or quasi powers are supposed to apply their own mind to the cases and to determine after evaluating those to give that own verdict justified by reasons. We shall also place reliance on the judgment reported as Engro Chemicals Pakistan Limited v. Additional Collector (2003 PTD 777) wherein the Hon’ble High Court has elaborate the matter that the Tribunal is always required to dilate upon all the questions of facts and law agitated before it so that the High Court is not handicapped in deciding the questions of law and if the Tribunal fails to proper pass judicial order by considering all the facts and points of law raised, it would amount to a negation of justice. The Tribunal was also directed that in future no appeal should be disposed of by the Tribunal without giving due consideration to each and every point of fact and law in terms of a speaking Order. If the learned Tribunal fails to pass proper judicial order by considering all the facts and points of law raised before it, it amounts to negation of justice. Every judicial order should be a speaking order and particularly in tax matters, where the scope of appeal/ reference before the High Court is very limited. Reliance is further placed on the landmark verdict issued by the Hon’ble Lahore High Court, Lahore in CIR v. Mehran Traders (2015 PTD 1330) wherein their lordships unequivocally held that Appellate Tribunal is the last fact finding forum in hierarchy of Taxation Laws, therefore, it is bound to discharge its functions diligently. Any, opinion, on law, by Appellate Tribunal would lose credence for consideration by High Court in advisory jurisdiction, if findings of fact arrived at by it are not trustworthy. In case true facts are not ascertainable from available record; the Appellate Tribunal is vested with vast powers under sub-section (1) of Section 132 of the Income Tax Ordinance, 2001 to call for any particulars relating to appeal or cause further enquiry to be made by the Commissioner during the appeal proceedings. The rationale behind more than one Appellate Forums under Taxation Laws is to cross check the exercise of powers by the authorities and ensure proper taxation under the statute.


17. A sum of Rs.27,354,193/- was added by the IRO in terms of Section 111(1 )(d)(i) of the Ordinance, which includes addition of Rs. 1,004,193/- (UBL entries), Rs. 1,600,000/- (Bank Alfalah entries), Rs. 19,000,000/- on account of advances in Bank Alfalah Limited account and Rs.5,750,000/- on account of deposits by directors of the appellant company. Following details with supporting documents have been presented by the appellant before us to substantiate his stance:
Name of Bank            Total Deposit                  Bank to Bank              Contra     From Directors                                    Advance (Customer)

Bankal Al- Falah 102423                  120,641,614               6,650,000     4,032,050 13,200,000      19.000.000

United Bank 670-2      85.950.486     7.713.428   3,785.66   7.500.000     0

United Bank 67000065                      104,365,434               45.162.000   3,905.78   8,700,000        0

Habib Metro 10321-0  123,203,969   32,163.50   4,364,520 8,450,000     0

Askari Bank 2516-8    2,892,000       1,000.00     0               0                   0

Total                            437.053.503   92,688.93   16,088.01 37.850.000   19.000.000


Name of Bank                      Markup             L/C Margin                 PSM Net Sales

Al-Falah 102423                   –                          –                 –                 77.799.564

UBL 670-2                            –                          55.056,51   139,560      61,133,825

UBL 67000065                     14,222,81           –                 –                 45,363,202

Habib Metro 103210                                        –                 –                 64,008,149

Askari Bank 2516-8              –                          –                 –                 1,892.00

Total                                      1.422.281           55.056.51   139.56        250.196.740

  1. The above tabulated data speaks bluntly that the appellant itself shown more bank deposits than the figures confronted by the IRO in the bank accounts stated in the show-cause notice. This is ample evidence that while making amendment in assessment, no efforts were made by the IRO to consider the information voluntarily disclosed / communicated by the appellant, which sufficiently caters all its declared business activities including bank credits entries and its justification including sales recorded in the accounts and declared in tax return. Appellant has also produced certificate from Messrs United Bank Limited, Al Saeed Chowk Branch, Lahore clearly highlighted the fact that credit amounting to Rs. 1,004,1931- pertain to the refund of LC margin. Similarly in case of addition for Rs. 1,600,000/- under section 111 of the Ordinance, appellant produced photo copies of bank deposit slips which are sufficient enough to prove the stance that these transactions/deposits were routed from one bank account of the appellant to another bank account maintained by the appellant. In case of amount credited in M/s. Bank Alfalah Limited Account No. 102423 for a sum of Rs. 19,000.000/-, copies of five crossed cheques for Rs.6,000,000/-. Rs.895.000/-, Rs.8,500,000/-. Rs.2,700,000/- and Rs.905,000/- issued by Syed Ahmad Zubair Jilani Principal Officer of Messrs Jilani Enterprises holding National Tax Number: 1346821-9 and Sales Tax Registration Number 0309730012973, have been produced. Tax record of Messrs Jilani Enterprises reveals the fact that said business enterprises was registered with the income tax department with effect from 27.03.2002 (period relevant to tax year 2002) while it was also registered with sales tax department with effect from 19.06.2002 i.e., period relevant to tax year 2002. Appellant also produced copies of cross-cheqeus issued by the directors of the company in the name of Messrs Imran Pipe Mills (Private) Limited (the Appellant) to the tune of Rs.37,850,000/- which were duly deposited and credited in the official banks accounts of the appellant in Messrs Bank Alfalah Limited Account Number 102423, Messrs United Bank Limited Account Number 670-2, United Bank Limited Account Number 67000065 and M/s. Habib Metro Bank Limited Account Number 10321-0. Considering the strong irrefutable factual position of the case, it proves beyond any shadow of doubt that IRO acted patently illegally and unjustifiably. We must strongly add that department cannot dictate a taxpayer how to do business or how to utilize its available funds in the books of accounts, when a taxpayer substantiate each and every transaction routed in his banks and also elaborate the nature and purposes of funds deposited in the bank accounts, then there is hardly any justification to treat the said deposits as suppressed sales or concealed income of a taxpayer. If a taxpayer enters in certain business, fully verifiable and legitimate transactions for business purposes, by adopting legal modes and one of the main purpose of entering into such transactions is not avoidance or reduction of tax liability but prudence of day to day business, then its non of the business of the department to dictate the taxpayer to do a thing or restrain from doing a thing. A taxpayer is fully entitled to manage his own business affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provisions of fiscal law cannot be challenged on the ground of prudence, advisability or business practice. As a consequence, the addition made by the IRO on account of bank deposits and suppression of sales, merits, deletion on factual grounds too and it is ordered accordingly.SUPPRESSION OF IMPORT PURCHASES

    19. As per facts of the case, on examination of the record, IRO noticed that the appellant had declared imported material in the annexure H-I of the return at Rs. 145,409,672/- whereas in the e-FBR Webportal, the position was different as mentioned on Page 06 of the assessment order. The IRO, therefore, computed value of import purchases in the following manner:-

Import value of 15GDs                                                        Rs. 229,630,000/-

  1. a) Custom Duty 16,100,000/-
  2. b) Freight / port charges and Sindh Road Cess Clearing charges @ 5% of import value 11,481,500/-


The IRO, therefore, inferred that the appellant has concealed the closing stock of imported purchases to the extent of Rs. 111,801,828/- which attracted the provisions of section 11 l(l)(b) of the Ordinance, however, addition to the extent of Rs.54,363,322/- only was made by the IRO in the in final order dated 13.05.2014. The appellant explained that import on account of following G.Ds were made and placed in In-Bonds of Custom House and later on these were got released in pieces through Ex-bonds:-
Goods Declaration                  Declared Value          Assessed Value            Custom Duty Sales Tax                            Income Tax Other duties

KAPR-IB-3077-21/11/2011   32.621.363 32,621.36 3,262,137    6,677,283  2,114,039       326,215

KAPR-IB-7805-26/6/2012     31,589,392 31.589,392                  3,158,939  5.559.733       2,015.40                            315,894

KAPR-IBN- 4200-11/01/2012                  28,981,846                  28.981.846           2,898,185        6.216.606                            1.904,832    289,820

Total                    93,183,603  93.183.603 9.319.261 •                  18.773.622           6.064.274        931.929

Perusal of record presented further revealed that during the period, the appellant had imported following raw material:-

  1. No. Goods Declarations Declared Import Value               Assessed Import Value        Custom Duty                  Sales Tax    Income Tax                  Other Duties

1      KAPR-HC-127453-14/5/2012             30,269,173  130,269,173               1,513,459   6,197,614        1,139,407       5,000

2      KCSI-HC 51586-19/2012                    17580021    17580021  879001     3599509     661756            –

3      KAPR-EB-10071-03-01-2012             123545799  123545799 677290     2773502     50898  –

4      KAPR-EB- 10600-11/1/2012               13406270    13406270  670314     2744934     4646    –

5      KAPR-EB 11481-26/01/2012              11617662    11617662  580883     2378716     437318            –

6      KAPR-EB-12116-8/2/2012                  1105157      , 1105157  552558     2262724     415993            –

7      KAPR-EB-123027-5/5/2012                9312519      9312519    465626     196738       350546            5000

8      KAPR-EB 9429 22/12/2011                 675401        675401      337520     1382145     254102            –

9      KAPR EB-11204 23/01/2012               6439367      6439367    321968     1318460     242394            –

\0     LAFU-HC-07483-10/8/2011               529126        529126      29984       89458         32428  5000

11    L/C No. 10373                 15778969     15778969    –                 3076899          –

12    KAPR-HC-79703 23/01/2012              905421        905421      –               144868       52514  5000

13    PACC HC- 1999960- 22/11/2011        15027591    15027591  751380     3076899     565676            –

14    KAPR-IB-7805 26/06/2012                 31528392    3158392    –               –      –           –

TOTAL          183802868 183802868   6779983      30952466  SI66678   20000

  1. The Appellant declared imports to the extent of bills of entries mentioned as Sr. Nos. 1 to 11 whereas the imports made against GDs No. KAPR-HC-79703-23-01-2012 and PACC-HC-1999960- 22/11/2011 at Sr. Nos. 12 and 13 were not taken into account due to valid lawful reasoning, moreover, imports against GD No. KAPR-HC-780 dated 26.06.2012 were made but the same were kept in In-bonds of Custom. The appellant contended that imports were got released during the month of July and August 2012 through Ex-Bonds. As the appellant had skipped to declare/disclose the above imports as L/C in transit or material kept in In-Bonds, the IRO, therefore, worked out total imports purchase concealed as under:–

Import value of 14 GDs          183,802,868

Add Custom Duty                   6,779 983

Add 5% overhead expenses    9,190,143

Total Import Value                  199,772,994

Declared in Annex-H              145,409,672

Added into income                  54,363,322

  1. We have observed that the IRO has made the addition by treating GD(s) 12 and 13 as undeclared but he has ignored the documentary evidence available with him on FBR/e-FBR web-portals. The GD No. CRN: I-FS-1999960-221111 dated 28-11-2011 against LC. 10373FLC179811 had been duly taken into the account as imported purchases but the IRO ignored the fact by first mentioned it by using the LC Number and concluded that the same was undeclared and then by using the GD number concluded that the same was also not declared. In respect of the GD mentioned at the Serial No. 12, the GD itself speaks that the appellant imported the cold rolled item being a consumable stores, which is not the part of the direct purchases immediately consumable for production. The appellant accounted for the said GD in the factory over heads (FOH) but the IRO by ignoring the basic accounting principles insisted that the same should have been shown in direct purchases and made a huge addition in the taxable income of the appellant. Similarly against in-bond GD No. KAPR-IB-7805- 26/06/2012 it is conceived by the IRO that such import should have been shown in the Balance Sheet as L/C in transit or Material kept in Bond. Contrary to the view point of the IRO, copy of the loan agreement/Loan sanction letter reveals the fact that appellant had obtained the FIM-Limit from Messrs Alfalah Bank Limited. Shahdara Branch, Lahore and the appellant had paid only the LC-Margin plus the 1 % duty on the assessed value of the imports as a result the goods imported by the appellant becomes the property of M/s. Alfalah Bank Limited, Shahdara Branch, Lahore and the goods would be released by the bank after the receipt of payment from the appellant. Since the ownership and the possession of such imported goods was not transferred to the appellant on the date of the Balance Sheet. The LC Margin paid plus the duties were recognized and recorded as advances, deposits and prepayment but not the stock in trade. The IRO had ignored the strong supporting documents and acted on presumed basis.22. We have given due consideration to the rival arguments and are of the firm view that the appellant has completely reconciled the figures as declared in Annex H-l of the annual Income Tax Return on the basis of GD(s) but the IRO has not properly appreciated the facts of the case. Quite surprisingly the IRO himself by way of accepting the quantum of income tax deducted at import stage at Rs 6,063,322/- has ultimately accepted the validity of all imports whether booked / recorded in cost of sales or stores spares etc. for the purpose of reconciling total imports, while the order of learned CIR(A) to remand the matter to IRO is also equivalent to denial of justice and has no legs to stand the test of appeal. The strong facts involved in this case are quite undisputed, hence, there is no need to remand the matter for re-assessment. Further detailed arguments have been made at bar with corroborative supporting documents on factual stances, hence, there is no need to remand the case to IRO to re-assess the factual matters. We have found that learned IRO erred in law, by referring the wrong factual position in the body of assessment order, therefore, at appeal stage, it will be an exercise in futility to remand the case back to the assessing authority, especially when this matter has also been heard at length on merits by us. It is also well settled law by the Apex Court that remand should only be resorted to when it is absolutely necessary for a fair and proper adjudication of the case. Unnecessary remand not only results in undue delay in cases but consequently also prolong the agony of the litigants. The august Supreme Court in case titled as Mst. Shahida Zareen v. Iqrar Ahmed Siddiqui reported in (2010 SCMR 1119) held as under:-

    — Remand of the case should he ordered in exceptional circumstances when it is found necessary by the Appellate Court to determine the question of fact which appears to the Appellate Court to be essential for a right decision of the suit upon the merits. However, where evidence on record is sufficient for the Appellate Court to decide the question involved, then order of remand ought not to be passed.

    23. The same view was expressed by Hon’ble Supreme Court in cases titled as Messrs Shah Nawaz Khan and Sons v. Government of N.W.F.P. and others reported in (2015 SCMR 945), Habib Ullah v. Azmat Ullah reported in (PLD 2007 Supreme Court 271) and Rehman Shah and others v. Sher Afzal and others (2009 SCMR 462). Further this appeal being continuation of original assessment proceedings, no prejudice is caused to any of the parties if we consider all aspects of the matter raised by the respective parties land adjudicate merits of the case. For the above stated reasons and considering the documentary evidence presented in support of imported purchases, we find that the impugned addition under section 111(1)(b) of the Ordinance was totally unjustified. It shall stand deleted.


    24. As per record, the IRO noticed that figures of purchases were different in the statement filed by the appellant under Section 165 of the Ordinance as well as Annexure H-l and Purchase register presented during the course of audit proceedings before the IRO. Detail of IRO version is summarized below:-

Purchases as per Section 165 Statement         88,238,249

Purchases as per Purchase Register                 84,376,411

Difference                                                        3,861,838

Purchases declared in Annexure H-1              72,615,841

Difference of Purchases                                   15,622,408

  1. As a consequence, the IRO inferred that closing stock of local purchases to the extent of Rs. 15,622,408/- was concealed which attracted the provisions of Section 111(1)(b) of the Ordinance. The appellant explained with documentary evidence that in the statement of withholding taxes filed under Section 165 of the Ordinance and there was a mistake which needs rectification, but on factual grounds there is not a difference of a single rupee in the local purchases recorded in the books of accounts and statements filed under section 165 as well as disclosed in income tax return form. The IRO after examining the appellant’s version, disregarded the same and observed that the appellant declared total purchases in the purchase register at .Rs.84,376,411/- which was later claimed to be a mistake which needs correction subject to reconciliation. In support of claim, the appellant duly provided copy of purchase register, monthly statements filed under Section 165 of the Ordinance and reconciliation statement, which is summarized in the following manner:-

Purchase as per Annex-H-1 of the tax return         72,533,189

Add: Sales Tax                                                       14,143,972

Total Local Purchases inclusive of GST                86,677,161

Less: Invoice from Pakistan Steel Mills not declared in the statement under section 165    1,093,205

Add: Invoice excess declared in the statement      121,643

Add: Invoice of Pakistan Steel Mills No. 101092 repeated twice in the statement 165        2,171,675

Add: Invoice of Pakistan Steel Mills No. 101167 repeated twice in the statement 165        2,140,385

Less: Sales Tax value not declared in February Statement under section 165          1,878,178

Add: Excess value declared of purchase from ISL in statement under section 165 for April, 2012 98,768

Total Local purchases as per statement under Section 165 of the Income Tax Ordinance.  88,238,249

  1. A careful perusal of the data/reconciliation reveals the fact that the appellant has sufficiently reconciled the figures as declared in withholding tax statement filed under section 165 of the Ordinance and Annex H-l of the income tax return form, therefore, we are of the firm view that IRO has not properly appreciated the factual position of the case while it is quite strange that manually inducted figures by a taxpayer in the tax return forms have been treated and observed as concealment on the part of taxpayer who is a corporate entity. Looking to the evidence admittedly on record the learned CIR(A) ought to have disposed of the appeal himself on the merits of the case rather than recommend that it be placed before the IRO for reappraisal. Strictly on the merits of appellant’s case and taking cognizance of the documentation available on record and as presented before us by the appellant referred to above, it is truly extraordinary that in the case of a private limited company having audited accounts by some Chartered Accountants, the IRO abruptly jumped to the conclusion in the first place that a simple matter of purchases seen to have been cited variously in the income tax return form and withholding tax statement has been interpreted as “concealment of purchases” and added to income as such with possible levy of penalty and prosecution. The all important fact here is that the appellant through reconciliation statements fully explain the so-called queries raised by the IRO. Notwithstanding the factual position obtaining as above, the IRO has dubbed the declared version as “Concealment” without any analysis with strong documentary evidence/reconciliation. We find that the contentions of the appellant’s AR are forceful, complete supporting documents were submitted to clarify the queries raised by IRO in compliance with the proceedings initiated by the IRO but the IRO acted illegally and arbitrarily. In view of entire scenario and discussions made above, we are of the considered opinion that the appellant has duly discharged its liability by filing all the requisite details and supporting documents and addressed the queries raised in this respect. IRO by misconstruing the law has proceeded to hold the appellant is involved in concealment of purchases. This grave defects in the assessment order have made no impression on the learned CIR(A) and instead of deciding the controversy on merits, he has remanded the case to IRO for fresh proceedings, solely to give another chance to fill up the lacunas. For reasons discussed supra, we agree with the findings of the learned CIR(A) but only to the extent that the order passed by the IRO is not sustainable legally and factually because he has not properly appreciated the facts of the case, we cannot, however, endorse his decision to remand the case to the IRO for de-novo consideration as doing so would tantamount to gross injustice to the appellant. We, therefore, hold that the addition made by the IRO for Rs. 15,622,408/- is not sustainable in the eye of law and accordingly deleted on the basis of factual grounds and afore-stated reconciliation.DISALLOWANCE OF EXPENDITURE UNDER SECTION 174:

    27. We feel the IRO without properly following the procedure laid down in the Ordinance, disallowed profit/loss account expenses in terms of provisions of Section 174(2) of the Ordinance under various heads. In fact spirit of changes with regard to audit proceedings brought about through new Income Tax Ordinance, 2001 was altogether overlooked by the IRO and skipped by the learned CIR(A). The IRO made the lump-sum ad hoc additions in a total void manner and in contravention of the procedure as laid down in Section 174 of the Ordinance. It is un-disputed fact that it was an account case and the IRO was required to confront the taxpayer by way of a specific notice and to express his intention to disbelieve any part of the disclosed version duly supported with documentary evidence as admitted by the IRO on page 2 of the assessment order dated 13.05.2014. Principles of natural justice requires that where a taxpayer produces books of accounts and supporting documents the Assessing Officer shall before disagreeing with such accounts/version, give a notice to the taxpayer of the defects in the accounts and provide an opportunity to explain his point of view about such defects. Also that the Assessing Officer shall record the explanation of the taxpayer and the basis of computation of total income by the taxpayer in the assessment order. We are persuaded to agree that the IRO did not act in accordance with law while discarding the declared version of the appellant under the various heads of profit/loss account expense. Though in the body of the assessment order a mentioning has been made to say that taxpayer provided general ledger, bank statements, debtors reports, salary sheets, withholding statements, detail of profit and loss expenses, copies of utilities and other bills, purchases, bills of entries, bank reconciliation statements, local purchases, chart of imports, GDs, markup etc. Yet a specific notice does not appear to have been given. It is a settled principle that when law requires a thing to be done in a particular manner then it must be done in that manner or it should not be done at all. The law requires that in accounts cases the Assessing Officer will give a notice to the taxpayer pointing out the defects in the accounts and will also rule upon the explanation made in reply to such notice. In the case before us, in the first instance no specific notice appears to have been given by the IRO. A simple reference in two words “un-vouched and unverifiable” can hardly be said to have fulfilled the legal requirements. Also as a general rule mere statement that recorded version of a account case is “un-vouched and unverifiable” will hardly clothe the IRO with an authority to make huge lump-sum additions. In order to justify such an action he was required to bring some material on record to establish that the disclosed version in fact was incorrect or that accounts were not maintained faithfully. Even otherwise the view of Superior Courts has always been that after rejecting a returned version the Assessing Officer is required to establish his own estimate. Further that in absence of proper basis the estimate made by the IRO could not stand at a better footing than the returned version. An estimate of the IRO must be based upon facts and circumstances of the case as borne out from the record and not on the basis of whims and desires. After rejection of accounts the IRO should evolve reasonable basis for making an estimate and that basis of estimate should be disclosed to the taxpayer.

    28. To us it appears that the IRO in fact wanted to say that the appellant had recorded fictitious expenditures and actually incurred lesser than those disclosed through the books of accounts and supporting documents. Since such finding required a long and tiresome exercise to establish he proceeded to believe his doubt. This way of legitimizing ones doubt cannot be approved. Particularly when it comes to judge the action of a person exercising judicial or quasi, judicial authority under the Fiscal statutes, therefore, the disallowance in the eleven heads of account at Rs.2,835,198/- by discarding the declared version on vague basis of “un-vouched and unverifiable” shall stand deleted.

    29. In view of the above, the taxpayer’s appeal is accepted on legal as well as factual grounds in the manner to the extent discussed supra.

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