2011 PTD 719
ORDER
SYED NADEEM SAQLAIN (JUDICIAL MEMBER).- Through the titled appeals pertaining to the tax years 2006, 2007 and 2008, the 'taxpayer/appellant has challenged the combined impugned order dated 10-6-2010, passed by the Commissioner Inland Revenue (Appeals-1), Lahore. The sole and common ground agitated for all the tax years under appeal is that the addition made under section 184(2)(a) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) is liable to be deleted, being, against the law and facts 'of the case.
2. Succinctly, facts relevant for the disposal of present appeals are that the appellant is a private limited company deriving income from local and export sales of its manufactured textile products, filed income tax returns for the years under appeal. The returns were taken as assessment orders under section 120(1) of the Ordinance. However, during the audit proceedings of Sales Tax, it was found that sales of the company were diverted to the undisclosed joint accounts of the Directors of the company namely Mr. Hamid Zaman and Mrs. Seema Aziz. The assessing officer was of the view that the company sales had been diverted to the joint accounts of directors thus the deemed orders passed under section 120(1) were amended and assessment orders under section 122(1) read with section 122(5) of the Ordinance were passed which resulted in additions in the decaled income.
3. Feeling dissatisfied with the aforesaid order passed under section 122(5), the taxpayer preferred appeal before the learned Commissioner Inland Revenue which was partially accepted vide a combined impugned order dated 10-6-2010, hence the instant appeals by the taxpayer.
4. Both the parties have been heard and relevant orders perused. The learned A.R. appearing on behalf of the taxpayer has strenuously argued the case and contended that the amended assessments in question were unsustainable in the eye of law since there was no definite information with the Department to reopen the case. It was further argued that the Revenue failed-to establish any link between the company and the money deposited in the accounts of the directors. The learned A.R. submitted that the taxpayer is an independent legal entity while the onus was on the Revenue to establish that the bank accounts in question belong to the taxpayer company. The learned A.R. stated that during the initial proceedings Department was specifically asked to provide, the relevant evidence which is available with the department and confront the same to the taxpayer but no such measures were adopted by the department. The learned A.R. informed the bench that even in response to notice under section 122(9) of the Ordinance; the Department was requested that deposit vouchers relied upon by the Department were not available with the taxpayer, hence the same may also be provided to the taxpayer to submit the reply, in the light of evidence furnished by the department. Further stated that reminder dated 8-2-2010 in pursuance thereof was also sent with regard to the information/evidence sought through earlier letters. The learned A.R. averred at the bar that since the Taxation Officer was bent upon amending the deemed assessments, none of the letter sent by the taxpayer was replied and the amended assessment orders were passed. While continuing with his argument, the learned A.R. showed his surprise that the department did not enquire from the directors whose bank accounts were considered to be definite information. He said that not only that no legal proceedings were initiated against the directors as to ascertain the source of these deposits, but also not a single letter was written to the directors in this regard. While summing up the learned A.R. stressed that there was no nexus whatsoever between the amount lying in the bank accounts of directors and the sale receipts of the taxpayer and also The fact that requisite f ingredients especially availability of definite information was altogether missing. In support of his contention the learned A.R. relied upon various judgments of the apex court of Pakistan as well as High Courts which are as under:
1997 PTD 1485 (S.C. Pak), 2003 PTD 1885, 1986 PTD 37, (1989) 59 Tax 112 (H.C. Lah.), 1997 PTD (Trib.) 2037 and (1941) 9 ITR (sic).
In the end he pleaded for the deletion of additions made through passing of amended order.
5. The learned D.R. was also heard in support of the stance of the Revenue. It was argued by the learned D.R. that the information obtained by the Department was a definite information as described under the law. The learned D.R. stated that bank accounts were not appearing in the statement of the company and were also not shown in the wealth statement of the directors. The learned D.R. reiterated the points highlighted in the show-cause notice as well as the amended assessments and stated that taxpayer company has various outlets in the major cities of the country and sales receipts of these branches are transferred online from these cities and the copies of the deposit slips were sent to the head office along with daily sale report. With regard to the information asked for from the department, the learned D.R submitted that information available with the Department was based upon the slips obtained during the audit was part of the appellant own record, hence there was no need to provide the same to the appellant. The learned D.R. also pointed out that entries in the deposit slips clearly show that these were deposited from Bareeze, the name of the outlet of the taxpayer company. While concluding his arguments, the learned D.R. contended that joint accounts of the directors were in fact benami accounts of the company in which company's suppressed/undisclosed sales have been deposited, therefore, section 122(5) was rightly invoked and resultant amended order passed thereunder was quite in consonance with law.
6. We have heard the learned counsel for both the parties and have also gone through the relevant orders along with the case law cited at the bar. Before embarking upon the issue in hand, it would be pertinent to scan through the case law which have been cited by the learned A.R. in support of his arguments. In this respect first judgment which was placed before the bench was judgment of Supreme Court of Pakistan reported as 1997 PTD 1482 wherein the term "definite information" used interpreted in the following manner:--
"The term definite information conveys a meaning which is not the same as change of opinion. A different interpretation of any provision of law of deriving a different conclusion from a given sets of facts will not amount to a definite information. It will be change of opinion. Therefore, the basis for reopening the assessment was a change of opinion of the respondent. The respondent therefore could not take any action under section 65 of the Income Tax Ordinance as it was not based on any definite information, but on change of opinion."
7. Second judgment which was relied upon is cited as 2003 PTD 1885 wherein while discussing the issue of benami transaction and reopening of assessment under section 65 of the Income Tax Ordinance, 1979 following question of law was disposed of:--
"Whether on the facts and circumstances of the case the transaction in the form of telegraphic transfer (TT) reflected in the Bank statement operated by the partner of the firm can be defined as definite information and substantial evidence to proceed the case under section 65 of the Income Tax Ordinance, 1979."
Honourable High Court while giving its opinion in the negative observed:--
"In the absence of establishment of direct link between the assessee firm and the accounts allegedly operated upon by one of the partners in the name of his son, the transactions effected therein could not be considered to be a part of the business of the assessee-firm."
8. The next judgment in line which was cited at the bar is (1989) 59 Tax 112 (H.C. Lah.). The facts, of the supra cited judgment have somewhat similarity with the case which is. subject matter of appeal under consideration. During the course of a raid on the assessee's premises, the Department took in their possession a loose document captioned as "Wajabul Wasool" (i.e. receivable), showing amount to the extent of Rs.48,01,566 receivable by the assessee. As this amount did not find mention in the assessee's account books, the ITO proceeded under section 13 of the Ordinance, 1979 and made an addition of Rs.48,01,566 in his total income, On appeal before the High Court, the order of the Tribunal whereby the addition was deleted was held to be justified for the reason that there was no evidence to link the assessee with the document.
9. Another judgment of the High Court reported as 1986 PTD 37 was also relied upon by the A.R. to strengthen the stance of the taxpayer's case through which it was argued that burden of proof always lies on the department that tine person in whose name property stands is not the real owner. It would not be out of place to reproduce the facts of the instant case since that also lends support to the question which has arisen in the taxpayer's appeal. In the aforementioned reported case, the Taxation Authorities while making assessment of the assessee not only included the assessee's income from his dealing in tea business but also included house property income in his total income, which have been purchased in the name of his two sons and wife of the assessee from 3rd party. It was the contention of the department that at the time of purchase both the sons of the assessee were minor and since there was no ostensible source of income it was a benami purchase and thus income earned from house property was liable to be included in the assessee's total income. While dealing with the issue, the honourable High Court held as under:--
"(7) We have already stated that it is a well-settled principle of law that a heavy burden lies on the taxing authorities to prove that the persons in whose name the property stands are not the real owners but are only benamidars for another and that the assessee has absolutely no burden to prove that the properties purchased from third parties standing in the names of his sons and wife are not his properties. It is to he presumed that owners of these house-properties are the sons and wife of the assessee. If the income from each of these properties is taxable, the Department is to notify the owners of these properties and ask them to pay tax in respect of such income and may also ask them to explain who paid the consideration money."
10. In a reported judgment cited as (1941) 9 ITR (sic) re Muhammad Ayub Muhammad Jamil of Cawnpore, it was held that Income Tax Officer was not justified to treat certain receipts as income of firm from undisclosed source without giving partners an opportunity to explain.
11. Now reverting to the facts of the case, only issue which necessitated resolution was whether directors in whose accounts the money was deposited were benamidar fig the sale receipts of the company and whether the evidence of deposit slips could be termed as definite information which is a pre-requisite for invoking section 122(5) the Ordinance. In this regard apart from the other judgment's cited at the bar, the judgment reported as (1989) 59 Tax 112 would guide us to reach at the just conclusion. At the cost of repetition, we must refer to the facts in the said case wherein the written material was found out by the taxation authorities showing that there were certain receivables; however, the honourable High Court did not agree with the Revenue and deleted the addition with the observation that there was no link between the income received and the assessee's business account. We would also like to refer to the judgment reported as 1986 PTD 37. In the aforesaid judgment, the property was found to be in the name of the sons and wife of the assessee and the fact that at the time of purchase of property sons were minor and the wife has also no ostensible source of income, the honourable High Court deleted the addition made by the Revenue. The ratio which was laid down by the honourable High Court is that burden in such like cases lies on the department to prove that it was a benami transaction.
12. Another interesting feature which stood highlighted during the discussion, was that not only the department did not involve the directors in the amended proceedings but strangely enough they were not asked with regard to the source of the deposits lying in their accounts. We must observe that with regard to the amounts appearing in the present accounts of directors per se, the correct course was that a notice under section 111 of the Ordinance should have been issued to directors in order to seek an explanation with regard to the credit entries in the bank accounts of the directors to ascertain the nature and source of such entries. Failing which by initiating proceedings under section 111 of the Ordinance, addition as per law could have been made.
13. In the nutshell, following the ratio settled in the supra cited cases, we are constrained to observe that the Revenue failed to establish any nexus whatsoever between the sales receipts made by the taxpayer and the money deposited in the directors batik accounts, hence the same cannot be treated as definite information, hence the impugned assessment made under section 122(5) was liable to be cancelled and the resultant additions are directed to be deleted.
14. Appeals of the assesses succeed.
C.M.A./13/Tax(Trib.) Appeals accepted.