I.T.As. Nos.2228/LB and 454/LB of 1998, decided on 10th October, 1998. Versus I.T.As. Nos.2228/LB and 454/LB of 1998, decided on 10th October, 1998.
ORDER
NAZEER AHMAD SALEEMI (ACCOUNTANT MEMBER).‑‑ The assessee‑appellant is an individual dealing in Zari goods in Bazaz Hatta, Lahore. As against declared income of Rs.118,100 under Self Assessment Scheme, the claim under SAS was rejected under para. 4(i) of Board's Circular No.16 of 1992, dated 1‑7‑1992 with the permission of the IAC Range‑3, Zone‑A, Lahore and the following income was assessed.
Sales declared. Rs. 860,000
Sales estimated. Rs. 24,00,000
GP @ 15 % Rs. 460,000
Less GP declared. Rs. 129,000
Balance for additions. Rs. 331,000
Add income declared. Rs. 118,000
Addition under section 13(1)(d). Rs. 505,800
Addition under section 14(1)(aa). Rs. 10,31,440
Income assessed: Rs. 18,70,240
2. A complaint was received in this case alleging that the assessee/appellant had concealed bank balance in PLS Bank Account No.5645‑9 with Habib Bank Ltd., Azam Cloth Market, Lahore. The case was thus taken up under normal law. The necessary notices were issued and the bank statement was called for. The assessee also purchased a plot of land at 726 Ravi Block, Allama Iqbla Town, Lahore constructed the house thereon disclosing investment at Rs.11,40,000. Certain loans were also claimed in addition to sale of jewellery, receipt of gift and encashment of FEBCs. Specific notice under section 62 was issued confronting the assessee/appellant with the proposed estimate of sales and assessment of deemed income under section 13(1) of the Income Tax Ordinance. There was no compliance and another opportunity was granted in response to which different documents were furnished. The explanation was rejected and the above‑referred addition was made.
3. The assessee went in appeal and the learned CIT(A) dismissed the appeal with the following findings:‑‑
(i) Regarding the claim of acceptance of return under section 59(1) the assessee/appellant did not furnish any arguments. There being no force in the arguments of the AR regarding acceptance of claim under self‑assessment scheme, it is observed that the case .has rightly been assessed under the normal law.
(ii) The sales were estimated in view of the bank deposits in bank account which only indicates the volume of appellant's turn‑over. Obviously all the sales are not, routed through Bank.
(iii) Since the registered deeds are not recorded on, a lower figure and the plot of the appellant being ideally located and on the corner, I do not find anything wrong with the value adopted by the Assessing Officer keeping in view the potential of the property.
(vi) The construction cost had been adopted after personal visit by the Assessing Officer.
(v) As .for additions under section 13(1)(aa) are concerned, the matter has been rightly thrashed out by the Assessing Officer after giving due consideration to the appellant's contentions.
(vi) On the issue of peak credit in Habib Bank Ltd., ACM, Lahore, the contention of the appellant at the assessment state as well as appellate state does not hold any water.
This resulted in second appeal before us against the CIT(A)'s above order, dated 8‑11‑1997 passed in I.T.A. No. 1030 alleging that estimate of sales, value of the plot and cost of construction was unjustified and against the facts of the case. Addition under section 13(1)(aa) and rejection of SAS claim was specifically challenged.
4. At the time of hearing the learned AR mainly emphasized on the rejection of his SAS Claim. He filed the following documents in support of his contentions:‑‑
(i) Supreme Court of India decision in the case of Lakhmichand Baijnath v. Commissioner of Income Tax, reported as 1959‑35 ITR.
(ii) Copy of page‑No.208 of Black's Law Dictionary defining capital as under:‑‑
"Accumulated goods, possessions and assets used for the production of profits and wealth. Owner's equity in a business. Often used equally correctly to mean the total assets of a business. Sometimes used to mean capital assets. In accounting, the amount invested in a business. In economic theory there are several meanings. "Capital" may be used to mean capital goods, that is, the tools of production; the money available for investment, or invested, the discounted value of the future income to be received from an investment the real or money of total assets, money or property used for the production of wealth. Sum total of corporate task.".
(iii) Copy of Hand Book of Legal Terms and Phrases of page No. 111 defining the capital as under:‑‑
"In terms of section 2(4‑A) Income Tax Act the word "Capital assets" means property of any kind held by an assessee. Whether or not connected with his business, profession or vocation, but does not include:
(i) Any stock‑in‑trade, consumable stores or raw material held for the purposes of his business, profession or, vocation;.
(ii) personal effects, that is to say movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him;
(iii) any land from which the income derived by the assessee is agricultural income.
Both the parties were heard and the assessment record available with the learned DR was perused. The learned AR insisted on the prescribed pro forma of Income, Tax 10‑B meant for wealth statement under section 58 of the Income Tax Ordinance with the following categories of assets and liabilities:‑‑
(1) Business capital.
(2) Non‑Agricultural property.
(3) Agricultural property.
(4) Investments.
(5) Motor vehicles.
(6) Jewellery.
(7) Furniture and Fittings.
(8) Cash outside business.
(9) Any other assets.
(10) Business liabilities.
(11) Liabilities outside the account books:
He insisted that the deposits in the banks required to be disclosed in the wealth statement were the cash/bank account outside the business i.e. other than investment/cash/deposits in the business. He had two main arguments to press which are discussed as below:‑‑
The setting apart of the assessee's case was unjustified:
(i) On account of alleged concealed bank account .‑‑‑The balance in the bank A/c was part of the capital disclosed and was not required to be reflected in the wealth statement separately under the head cash outside business.
The assessment record has been perused according to which wealth statement for the period ending 30‑6‑1992 was filed on 27‑10‑1992 declaring the following assets:‑‑
(a) Capital including bank and Rs. 42,000 fixtures etc.
(b) House Nos. 24 Karim Rs.11,88,000
Block, Lahore and 726
Ravi Block AIT, Lahore.
(c) Liabilities payable. Rs.12,30,000 against actual liability of Rs.450,000 net wealth declared at Rs.10,05,000 accretion of Rs. 843,100 was claimed including sale of jewellery worth Rs.179,440 gifts from son Rs.90,000 and encashment of FEBCs worth Rs.500,000.
On the other hand, the closing bank balance as on 30‑6‑1992 was Rs.4.32 in Bank Account No.5645‑9 with HBL, Azam Cloth Market, Lahore. The explanation looks reasonable and there was no reason to treat this case as a concealment case for proceedings under normal law. Even otherwise there was no provision of concealment case to be taken out of the self‑assessment scheme as was available in earlier scheme action was thus totally unjustified and uncalled for.
(ii) The setting apart for normal assessment under para. 4(i) of Self Assessment Scheme vide Board's Circular No 16 of 1992 dated 1‑7‑1992 .‑‑‑The said sub‑para. (i) of para. 4 of the Board's Circular is irrelevant in this case which for the purposes of analysis is reproduced as below:‑‑
"(4) From amongst those qualifying for the Self‑Assessment Scheme returns may be selected for audit:‑‑
(i) Through computer ballot up to five percent of the returns received. However, from amongst the returns in which income declared for the assessment year 1992‑93 is higher by 25 % or more as compared with the last assessed income or the income assessed for the assessment year 1987‑88, whichever is the higher the selection shall be restricted up to a maximum of three per cent. These percentages may vary within a trade or income group from Circle to Circle; and
(ii) with the approval of Regional Commissioner of Income Tax where gross under statement of income is suspected on the basis of definite information based on material evidence."
5. The above provision show that sub‑para.(i), referred to by the learned SOIT was not relevant in this case. There was a provision for selection with the prior approval of the senior officers as per sub‑para. (ii) of the above para.4 of Board's Circular. However, in this case the approval of the Regional Commissioner of Income Tax was required in cases where, gross under statement of income is suspected on the basis of definite information based on material evidence. Not only that the requisite conditions were not available in this case but legally required approval of RCIT is also missing. Under the circumstances, a good case has been lost by the Department on account of the incompeteney of the officer concerned.
6. Legally there was no justification to proceed under section 62 of the Ordinance in this case for two reasons discussed above. The orders passed under section 62 of the Income Tax Ordinance, dated 31‑5‑1995 are hereby cancelled thereby directing for the acceptance of the declared income under the self‑assessment scheme.
Order under section 111 of Income Tax Ordinance.
7. The SO(IT) imposed the penalty of Rs. 3,34,532 under section 111 of the Income Tax Ordinance on account of addition of deemed income under sections 13(1)(aa) and 13(1)(d) of the Income Tax Ordinance. The necessary notice under section 116 of the Ordinance was issued confronting the assessee/appellant with the proposed penalty. There was no response and a reminder was issued. Again there was no compliance penalty was accordingly imposed with, the prior approval of the IAC.
8. In view of our orders as referred to above order under section 62 being no more in the field, the consequential addition of deemed income and the resultant penalty does not stand. Penalty imposed thus stands cancelled. Both the appeals succeed as above.
C.M.A./146/Tax (Trib.) Appeals accepted