I.T.A. No.2438/LB & 5597/LB of 2004, decided on 25th May, 2005. Versus I.T.A. No.2438/LB & 5597/LB of 2004, decided on 25th May, 2005.
ORDER
I.T.A. No.2438/LB of 2004.
MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER) .---This appeal by assessee, an individual, arises out of order passed by the CIT(A) and it is the appellant's contention that the first appellate authority has unjustifiably approved addition made under section 12(18) of the Income Tax Ordinance, 1979 (since repealed) when the amount in question i.e. Rs.9 lac was statedly not received by the assessee by way of loan, advance or gift. Furthermore, it is the appellant's contention that assessment having been finalized under section 122 of the Income Tax Ordinance, 2001, addition of Rs.9 lac under section 12(18) of the repealed Income Tax Ordinance, 1979 was illegal as section 12 (18) of the Income Tax Ordinance, 1979 (since repealed) was not on the statute on 10-4-2003 when assessment order for 2000-2001 was passed under section 122 of the Income Tax Ordinance, 2001. Finally, it is contended that the section 122 of the Income Tax Ordinance, 2001 could not have been invoked for assessment year 2000-2001 and decision of the President of Pakistan in Complaint No.530-L of 2002 (Zahid Sadiq v. C.B.R.) communicated by C.B.R. to all RCsIT vide C. No. 3 (12)IT-Jud/04, dated April 24, 2004 has been referred to wherein it has been held that the "provisions of section 122(5) cannot be invoked in this case as the new Ordinance came into force w.e.f. 1-7-2002 and cannot be applied to the assessment order for assessment year 2000-2001."
2. According to the DR, scrutiny of the assessment for 2000-2001 revealed that amount of Rs.9 lac had been declared by the assessee in the wealth statement as on 30-6-2000 in reconciliation statement filed by the assessee, it was clarified that this amount of Rs.9 lac was actually `invested' in the assessee's business by assessee's real brother and the source of such alleged "investment" is identified as "prize bond winnings". The DR further pointed out that various notices were issued and served on the assessee when the proceedings were started under section 122 of the Income Tax Ordinance, 2001 and the assessee duly participated in these proceedings and did not contest the jurisdiction of the Assessing Officer. After looking into all pertinent aspects, the Assessing Officer held that the amount in question i.e. Rs.9 lac had been received by the assessee other than through normal banking channels and appeared to be in the nature of gift to assessee from his brother. That being so, the said amount of Rs.9 lacs was found to be hit by the mischief of section 12(18) of the Income Tax Ordinance, 1979 (since repealed) and brought to tax accordingly.
3.The AR of appellant argues that the assessee has nowhere stated that the amount of Rs.9 lac was in the nature of loan, gift or advance and it was all along the assessee's stance that the amount in question represents "investment" made by the assessee's brother in the assessee's business. According to the AR unless the amount in question be declared as loan or advance or gift, it is not open to the Assessing Officer to categorize the receipt of any such amount as a loan, advance or gift. The AR argues that as the amount in question is not loan, advance or gift, hence the provisions of section 12(18) do not apply.
4.Following case-law has been referred to by appellant:
2002 PTD (Trib.) 141, 2002 PTD 1858 (Lah. HC), 2004 PTD (Trib.) 1572, 2005 PTD (Trib.), 4534, 2003 PTD 1530 (Lah. HC); 2004 PTD (Trib.) 70, 2005 PTD (Trib.) 490 and (2005) 91 Tax 60 (FTO Pak) Vol. 9. No. 3 Tax Forum 27.
5.We have heard both sides and have examined the available record and our findings are recorded as under:--
(1) In the case presently before us assessment for 2000-2001 has originally been finalized under section 59(1) of the Income Tax Ordinance, 1979 (since repealed) by operation of law and this assessment has been subsequently taken up for "amendment" under section 122 (1) of the Income Tax Ordinance, 2001 when on scrutiny it was found that amount of Rs.9 lac had been received by the assessee from his real brother otherwise than through crossed cheque or normal banking channels. In our considered judgment, on 10-4-2003 order has rightly been passed under section 122 (1) of the Income Tax Ordinance, 2001, as the Income Tax Ordinance, 2001, (subsection (1) of section 122) thereof was amended through Finance Ordinance, 2002 to extend, its applicability to assessment orders issued under sections 59, 59A, 62, 63 & 65 of the repealed Income Tax Ordinance, 1979. This has been duly clarified by C.B.R. in its letter C. No. 3(12)IT-Jud/04, dated 24-4-2004 sent to all RCsIT. In the said letter, it is specifically clarified in concluding paragraph-3 that the observation of the Hon'ble President of Pakistan contained in his decision issued vide No. 111/02-Rep (FTO)/Law, dated 11-11-2003 was in the context of the facts of a specific case relevant to assessment for assessment year 2000-2001 framed before the aforesaid amendment in section 122(1) was placed on the statute through Finance Ordinance, 2002. That being so, there is no defect of jurisdiction here in the present assessee's assessment as alleged by the AR of appellant.
(2) It is evident from the available record that the assessee has duly participated in the assessment proceedings and has responded to notices issued and he never questioned the jurisdiction of the Assessing Officer. The assessee has thus acquiesced to the jurisdiction of the Assessing Officer.
(3) As no assessment proceedings for 2000-2001 in the case of the assessee were pending as on 1-7-2002, the amendment to assessment finalized under section 59(1) of the repealed Income Tax Ordinance, 1979 (by operation of law) could only to have been made on 10-4-2003 under section 122 of the Income Tax Ordinance, 2001.
(4)As for invocation of the provisions of section 12(18) of the repealed Income Tax Ordinance, 1979, we find that so far as the nature of the amount 'of Rs.9 lac is concerned, the assessee has admitted in the reconciliation statement that the amount of Rs.9 lac has been given to him by his real brother. However, the assessee has described the receipt of such amount as an investment in his business by his brother. By describing the receipt of amount of Rs.9 lac as "investment" made by his real brother, the assessee is clearly attempting to escape the mischief of section 12(18) as section 12(18) applies to "any amount" received by way of "loan, advanced or gift". In our considered judgment, as' the assessee's business is a proprietary concern, assessee's brother is hardly in a position to claim that he is an "investor" in the said business because if he actually has "invested" Rs.9 lacs in the business then he becomes a stakeholder in the business and then the very complexion and status of the business would undergo a change and it would no longer remain a proprietary concern and may legitimately be seen, say, as an AOP. However, the status of the business in the Returns of Income continues to be cited as that of an "individual" and, very importantly, there is also no change in the capital composition of the business and this can only mean that assessee's brother has not contributed anything by way of "capital investment". That being so, the only possibility remaining is that the amount of Rs.9 lacs has been given to assessee by his real brother either as loan or gift and as it has been given in cash and not by way of crossed cheque through banking channels, it cannot escape the mischief of section 12(18).
(5)The cited case-law has been perused and is found to be of no avail to the assessee. As explained supra, the ambient circumstances in assessee's case leave no doubt that the amount of Rs.9 lac cannot possibly be the assessee's elder brother's "investment" in the proprietary business of the assessee and the said amount is either a gift or a loan to the assessee an the same not having been routed through banking channels is hit by the mischief of section 12(18).
(6)No doubt section 12(18) of the repealed Income Tax Ordinance, 1979 is not on the statute on 10-4-2003 when the order under section 122(1) of the Income Tax Ordinance, 2001 has been passed. However, while section 12(18) of the repealed Income Tax Ordinance, 1979 is not on the statute on 10-4-2003, it's "parallel provision" in the Income Tax Ordinance, 2001 contained in section 39(3) of the Income Tax Ordinance, 2001 is very much on the statute. The Assessing Officer should thus have referred to section 39(3) of the Income Tax Ordinance, 2001 in the order passed under section 122(1) of the Income Tax Ordinance, 2001, on 10-4-2003. The Assessing Officer having failed to refer to section 39(3) of the Income Tax Ordinance, 2001 and having wrongly referred to section 12(18) of the repealed Income Tax Ordinance, 1979, the question arises whether the addition made to total income in the amount of Rs.9 lac is rendered a nullity in the eye of law? We have carefully considered this aspect and we find that the Assessing Officer's failure to properly identify the parallel provision to section 12(18) of the Income Tax Ordinance, 1979 in the Income Tax Ordinance, 2001, is not a fatal, mistake. At the worst, it is an oversight on his part and the addition made by him under section 12(18) of the repealed Income Tax Ordinance, 1979 may therefore be taken as addition under section 30(3) of the Income Tax Ordinance, 2001 read with section 12(18) of the repealed Income Tax Ordinance, 1979.
(7)While the CIT(A) has clearly upheld Assessing Officer's recourse to the provisions of section 12(18) of the repealed Income Tax Ordinance, 1979, in the concluding paragraph he has also remanded the matter pertaining to addition of Rs.9 lac back to the Assessing Officer so that the bona fides of the person from whom the amount of Rs.9 lac has emanated may be established: This direction is clearly contradictory to the unequivocal finding recorded by the CIT(A) earlier in his order upholding the Assessing Officer's recourse to the provisions of section 12(18). This contradictory finding cannot be sustained after the CIT(A) has categorically held on page-1 of his order (last para. thereof) that the Assessing Officer's recourse to the provisions of section 12(18) of the repealed Ordinance was consistent with express statutory stipulation. We therefore hereby vacated the direction of the CIT(A) to the Assessing Officer to re-examine the addition made under section 12(18) in the context of the identity of the person from whom the amount has been received. In any case that identity as such has little relevance here and the important aspect is that amount of Rs.9 lac has been received by the assessee in cash and is in the nature of a gift or loan and not investment and that is well-established by the material already on record and no further appraisal by the Assessing Officer is necessary. Resultantly, we uphold the order of the CIT(A) to the extent and in the manner stipulated above.
I.T.A. No.5597/LB of 2004
This appeal by Revenue arises out of order passed by the CIT(A) and it is the departmental contention that the CIT(A) has unjustifiably reduced assessed turnover from Rs.70 lac to Rs.64,50,000.
2. According to the DR, the assessee failed to produce any books of accounts/supporting documentation of assessment stage and declared version was therefore rightly discarded and sales reasonably estimated at Rs.70 lac as against declared Rs.51,50,000 and there was no justification for the CIT(A) to reduce the same to Rs.64,50,000. It is the DR's contention that a speaking order has been passed by the Assessing Officer looking into all pertinent aspects having a bearing on the determination of assessee's total income for the year. A notice under 62 was also served. It is further the DR's contention that spot enquiry was duly conducted through Circle Inspector and assessee's stocks position duly appraised.
3. The AR of assessee/respondent argues that assessee's stocks position was never properly appraised and notice issued under section 62 made no reference to assessee's stocks position at all. The AR has pointed out that at the time of survey in September, 2000, sales were admitted at Rs.50 lac and so cited in the survey form. That being so, it is contended that sales estimate of Rs.709 lac in assessment year 2002-2003 was very much on the higher side and has been rightly reduced by the CIT(A) to Rs.64,50,000.
4. We have heard both sides and have examined the available record and in our considered judgment, this being a case of one estimate by the Assessing Officer substituted by another estimate by the CIT(A), the Tribunal need not interfere in the matter. We note that no proper inventory of assessee's stocks position was ever drawn up in the manner required by law. Thus even if it be correct that the Circle Inspector did visit the assessee's business premises, it does not automatically follow that he also made a proper inventory of assessee's stocks in the manner required by law. Any recommendation made by the Inspector regarding assessee's stocks to the Assessing Officer will thus be in the nature of a general estimate only. In our view, the relief as accorded by the CIT(A) is fair and reasonable and calls for no interference by the Tribunal.
The departmental appeal is rejected.
H.B.T./455/Tax (Trib.) ???????????????????????????????????????????????? Order accordingly.