RJ MMQ

Reported Judgments by M Munir Qureshi Page 1 of 122
Muhammad Munir Qureshi
Judgments written as Member,

Income Tax Appellate Tribunal,
Lahore Bench,
Reported in the journals “TAXATION” and
“PAKISTAN TAX DIGEST”
Phone:
Fax:
Cell:
e-mail:
TABLE OF CONTENTS
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Title Citation Remarks
01 Industrial Adhesives Vs IAC (2000) 82 Tax 105 (Trib) Books of Accounts- their appraisal by assessing officer explained.
Review of predecessors appellate order by successor in the garb of rectification
02 ACIT Vs Honda Breeze, Multan (2000) 82 Tax 117 (Trib)
not permissible.
Review of predecessors appellate order by successor in the garb of rectification
03 ACIT Vs Honda Breeze, Multan (2000) 82 Tax 96 (Trib)
not permissible.
Exemption u/s 118-D when rightly due, cannot be curtailed by concomitant
04 Samman Ghee Mill PVT Ltd Lhr Vs DCIT (2001) 83 Tax 35 (Trib)
charge u/s 80-D.
05 LandMark Lhr Vs IAC (2001) 83 Tax 71 (Trib) Exercise of revisionary jurisdiction u/s 17-B of W.T. Act 1963 explained.
06 New Qaiser Flour Mills, Lhr Vs IAC (2001) 84 Tax 77 (Trib) Exercise of jurisdiction u/s 66A of I.T.Ord’79 explained.
07 DCIT Vs Fatima Enterprizes, Multan (2001) 84 Tax 77 (Trib) Charge of C.A.T explained.
08
Haji M Hanif c/o Zohaib Jewellers Vs
(2001) 84 Tax 153 (Trib) Unexplained Investment u/s 13(1)(aa) & Exemption vide Clause 130-A of 2nd
ACIT Schedule to the I.T. Ord’79 explained.
Statutory provisions governing Wealth Tax Assessment under W.T. Act 1963
09 S.O.I.T. Vs Haji Maqsood Ahmad Butt Lhr (2001) 84 Tax 189 (Trib)
explained.
10 Paisa Akhbar Markaz Lhr Vs IAC (2002) 85 Tax 387 (Trib) When collective enterprise constitutes an AOP.
11 Mughal Steel Lhr Vs IAC (2002) 86 Tax 403 (Trib) Exercise of revisionary jurisdiction u/s 66A of I.T. Ord’79 explained.
12 Grey’s of Cambridge, Pak Ltd Sialkot. (2003) 87 Tax 8 (Trib) Exercise of revisionary jurisdiction u/s 66A of I.T. Ord’79 explained.
13 DCIT Vs Zaman Paper & Board Mills Ltd (2003) 87 Tax 303 (Trib) Deemed Income u/s 12(18) of I.T.Ord’79- how arises.
14 DCIT Vs Nisar Art Press PVT Ltd Lhr (2003) 87 Tax 241 (Trib) Exercise of option to opt out of presumptive tax regime explained.
15 Gojra Samundri Sugar Mills Ltd Lhr (2003) 88 Tax 21 (Trib) Unexplained investment u/s 13(1)(a) of I.T.Ord’79 explained.
16 Gojra Samundri Sugar Mills Ltd Lhr (2003) PTD TRIB 2547 Unexplained investment u/s 13(1)(a) of I.T.Ord’79 explained.
17 Dawood Hercules Chemicals Ltd Lhr (2003) 87 Tax 524 (Trib) Mischief of Section 12(9A) of I.T. Ord’79 explained.
18 Dawood Hercules Chemicals Ltd Lhr (2003) PTD TRIB 2499 Mischief of Section 12(9A) of I.T. Ord’79 explained
19 Ihsan Yousaf Textiles Pvt Ltd FSD (2003) 88 Tax 35 (Trib) Assessee in default u/s 52 of I.T. Ord’79 explained.
20 Ihsan Yousaf Textiles Pvt Ltd FSD (2003) PTD TRIB 2586 Assessee in default u/s 52 of I.T. Ord’79 explained
When properly substantiated assessee’s declared version required to be
21 Sadaqat Tanning Co Sahiwal Vs ITO (2003) PTD TRIB 1972
accepted.
(2003) 88 Tax 201 (Trib)
22 Nasreen Aftab Lhr Vs DCIT When reliance can be placed on ‘parallel case’ to discard regd sale deed.
(2004) 89 Tax 107 (Trib)
23 DCIT Vs M Farooq c/o Nirala Pvt Ltd Lhr (2003) 88 Tax 136 (Trib) Co-owners of immoveable property do not necessarily also constitute an AOP.
S.O.I.T. Vs M Burhan Khalid c/o M F
24 (2003) 88 Tax 316 (Trib) Ownership u/s 2(16) of W.T. Act 1963 explained.
Ellahi & Co Pvt Ltd Sialkot
S.O.I.T Vs Irfan Farooq c/o Prestige
25 (2004) 89 Tax 301 (Trib) Ownership of Immoveable Property under Wealth Tax Law explained.
Surgical Pvt Ltd Sialkot
(2004) 89 Tax 504 (Trib) Payment of penalty for infraction of law not admissible business expenditure u/s
26 En-Em Industries Ltd Lhr Vs CIT
(2004) 90 tax 282 (Trib) 23(1) of I.T.Ord’79- 66A action in order.
Excess Income over presumptive income- Extent of Credit- Rectification of main
27 Tetra Pak Pakistan Ltd Lhr Vs ITO (2004) 89 Tax 509 (Trib)
order not possible as no error found therein.
CIT (MTU) Lhr Vs M Naeem Goods When assessment order incurably defective annulment is in order & no law point
28 (2004) 90 Tax 36 (Trib)
Transport Lhr arises for reference to High Court.
CIT MTU Lhr Vs Faiq Qayyum Kashmir
29 (2004) 90 Tax 88 (Trib) Accounting treatment of Excise Duty explained.
Chemical Ind., Lhr
CIT MTU Lhr Vs Faiq Qayyum Kashmir
30 (2005) PTD TRIB 323 Accounting treatment of Excise Duty explained.
Chemical Ind., Lhr
Carry forward of accounting depreciation on fixed assets when intervening period
31 Bilal Fibres Ltd Lhr Vs CIT (2004) PTD TRIB 2777
falls in the presumptive tax regime- law explained.
CIT Multan Vs M Shahid c/o Madina Cold
32 (2004) 90 Tax 125 (Trib) Capital gain – How arises.
Storage Lhr
CIT BHP Zone Vs Aslam Sweet Merchant Exparte asstt finalized belatedly not illegal provided default on due date
33 (2004) 90 Tax 325 (Trib)
Multan Rd Lodhran established.
CIT BHP Zone Vs Aslam Sweet Merchant Exparte asstt finalized belatedly not illegal provided default on due date
34 (2005) PTD TRIB 211
Multan Rd Lodhran established.
35 CIT Sialkot Vs Shahid Javed Sialkot (2004) 90 Tax 344 (Trib) Assessee placed in presumptive tax regime cannot be burdened with addl
mhtml:file://C:\Documents and Settings\maq\Desktop\RJ_MMQ.mht 2/13/2009

taxation.
Assessee placed in presumptive tax regime cannot be burdened with addl
36 CIT Sialkot Vs Shahid Javed Sialkot (2005) PTD TRIB 203
taxation
Irfan Farooq c/o Prestige Surgical Pvt Ltd
37 (2004) 90 Tax 346 (Trib) No error in main order [ (2004) 89 Tax 301 (Trib)] & same not rectifiable.
Sialkot Vs DCIT Sialkot
CIT MTU Lhr Vs M Naeem Good Multiple statutory Notices issued simultaneously under different provisions of
38 (2005) PTD TRIB 234
Transport Lhr statute cause serious prejudice to taxpayer.
i). Payment of Service Charges to Federal Bank by assessee on account of use
DCIT Circle-11 Zone-1 Lhr Vs Punjab of Credit Line is admissible expenditure u/s 23(1). ii) Looking to ambient
39 (2005) PTD TRIB 224
Prov Coop bank Lhr circumstances gain on sale of defaulters immoveable properties is a revenue gain
& not capital gain.
40 DCIT Vs Safa Rice Mills Pvt Ltd Lhr (2005) PTD TRIB 309 Levy of penalty for failure to file C.A.T Return justified.
i. Return qualifying USAS is reqd to be processed u/s 59(1) & not 59A-
41 Sh Ahsan Ali ACM Lhr Vs IAC (2005) PTD TRIB 311 ii. When Return wrongly accepted u/s 59A & prejudice to revenue patent IAC’s
intervention u/s 66A justified.
i. Matter outside scope of rectification u/s 156. ii. Limitation u/s 156(4) not
42 Paisa Akhbar Markaz Lhr Vs ITO Lhr. (2005) PTD TRIB 1578
attracted. Iii. Applicable Law is the current law notified thru Finance Bill.
i. IAC’s intervention u/s 17-B of WTA not possible in the year when provision not
borne on Statute. Ii. When person holds clear title to immoveable property he
43 Munir Ahmad Khan Lhr Vs IAC Lhr (2005) PTD TRIB 1593 cannot claim to be ‘benamidar’ 7 not real owner on the basis of some indirect
evidence adduced by him. Iii. When asset concealed by person holding clear title
no claim for exemption under 2nd Schedule admissible.
i. Deducting Authority u/s 50(4) bound to deposit deducted tax in Treasury within
CIT Vs Flying Board & Paper Products
44 (2005) PTD TRIB 1602 stipulated timeframe. Ii. Orders u/s 52 of I.T.Ord’79 may be passed separately for
Lhr.
different time frames falling in the same asstt period.
i. Limitation u/s 17(A)(1)(a) of WTA explained- ii. Revision of W.T. return must be
45 Mst Safia Abida Multan Vs WTO Multan (2005) PTD TRIB 1708
corroborated by material on record.
Return properly qualified USAS reqd to be accepted and no arbitrary
46 Sahib Jee Lhr Vs IAC (2005) PTD TRIB 1676
disqualifications invented by IAC on Inspection of record of any avail u/s 66A.
i. No limitation of time laid down in law for action u/s 52 of I.T.Ord’79. ii
47 Monnoo Industries Ltd Lhr Vs DCIT (2005) PTD TRIB 1562 Examination of books of accounts not condition precedent for invoking provisions
of Section 52.
DB competent to declare judgment of another DB as ‘per incuriam’ provided the
48 Faisal Weaving Pvt Ltd Vs CIT (2005) 92 Tax 33 (Trib)
facts / law so justify.
When factual position / legal position not properly appreciated by 1st appellate
49 IAC Vs Rana Textile Mills Pvt Ltd Lhr (2005) 92 Tax 41 (Trib)
authority remand back in order.
50 IAC Vs Rana Textile Mills Pvt Ltd Lhr (2005) PTD TRIB 2151 IAC Vs Rana Textile Mills Pvt Ltd Lhr
51 Ashfaq Bros ACM Lhr Vs DCIT (2005) 92 Tax 103 (Trib) Mischief of Section 12(18) of I.T.Ord’79 explained.
M Ashraf Sukhera prop Q-Tech Issue of multiple statutory notices simultaneously under different provisions of the
52 (2006) 93 Tax 99 (Trib)
Computers Lhr Vs DCIT statute not approved.
i. Income attributable to a particular source reqd to be substantiated.
Saifullah Iron Merchant Jalalpur Bhattian
53 (2006) 93 Tax 101 (Trib) ii. Valid contract between two genuine parties reqd to be bonafide, arms length &
Vs DCIT
transparent.

((2000) 82 TAX 105 (Trib.)J

[ THE INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH, LAI-IORE]
Back to TOC
Present: M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed,
Judicial Member.
I.T.A. Nos. 2447/LB and 2448/LB of 1992-93, 9958/LB of 1993-94 and
5609/LB of 1995 (Assessment years 1990-91 to 1993-94),
decided on 23-5-2000.
Department
Income Tax Ordinance, 1979 cXXl of 1979) - Section 13 - Rejection of accounts - Upholding by C.l.T. (A) - Validity - Maintenance of record
and checking by Excise/Sales Tax Authorities - Rudiments of difference in requirement of type of records to be determined for purposes of
sa/es tax and for purposes of determination of total income - Range and scope of examination of tax payers account by assessing officer
and examination of Excise/Sales Tax Authorities - Manipulation of trading account - Effect of - Opportunity of being heard - Question of fact
- Application of G.P. rate of 35%
- Justification of - Whether Assessing officer’s examination of a tax payer’s account had much wider range and scope than the examination
of Excise/Sales Tax Authorities in the context of le of excise duty/sales tax - Held yes - Whether reasonable opportunity had invariably
been given to the assessee to submit its books of accounts and necessas’y supporting documentation - Held yes - Whether Assessing
officer had not drawn adverse inference behind the back of assessee - Held yes - Whether accounts maintained by assessee-company
were specially tailored to the requirements of Excise/Sales Tax Authorities and were deficient for purposes of determination of total income
by Income Tax Officer - Held yes - Whether looking to the type and range of products manufactured by assessee and its privileged position
in market, application of G.P. rate of 35% was fair and reasonable - Held yes
Assessing officer’s examination of at taxpayer’s accounts has a much
wider range and scope then the examination of Excise/sales Tax Authorities
in the context of levy of Excise Duty/Sales Tax. [ 111 JA.
The appellant-company had itself disclosed “other income” in the assessment years 1988-89 & 1989-90 but such ‘other income’ has not
been disclosed in the assessment years 1990-91 to 1992-93. Such ‘other income’ is relateable to income realized as a result of sale of
waste. The only logical conclusion from the company’s non-declaration of other income’ in 1990-91 to 1993-94, therefore, would be that
the company has managed to reduce waste to ‘nil’ which of-course is incredible and totally implausible as no manufacturing facility, no
matter how efficiently managed, can chieve 100% efficiency and reduce wastage to zero. [ 113 ]B.
Assessee
Versus
106 TAXATION [ 82
Close scrutiny of the assessment record, including order sheets from 1990-91 to 1993-94, show that reasonable opportunity has invariably
been given to the appellant to submit its books-of-accounts and necessary supporting documentation before the assessing officer. [ 113 ]
C.
However, it is the CIT(Appeal’s observation, duly recorded in the appellate orders, that the appellant failed to avail of this opportunity and
did not produce the company’s books-of-accounts and related documentation before him at appellate stage to rebut the assessiAg officer’s
observations recorded In the assessment orders that were the subject-matter of appeal.
[ 113-114 ID.
We find that Nnecessary opportunity’, as envisaged in law has inf act been
given to the appellant and the assessing officer has not drawn adverse
inference ‘behind the back’ of the appellant. [ 114 JE.
As already explained above, the accounts maintained by appellant- company are specifically tailored to the requirements of Excise/Sales
Tax Authorities and are deficient for purposes of determination of total income by the Income Tax Officer. The appellant-company Is a
manufacturing concern and is expected to maintain daily production record showing utilization of raw- material inputs viz-a-viz achieved
production. It is not understandable as to why the appellant-company has not produced such record before the assessing officer. [ 115 ]F.
The GP rate usually applied in the case of a manufacturer’s products comparable to the products manufactured by the appellant, ranges
between 30 to 40%. The department has been applying GP rate of 35% uniformly and such application has been confirmed by the CIT, (A)
and ITAT. Looking to the type and range of products manufactured by the appellant (self-adhesive PVC, BOPP, Kraft Paper Tapes,
Neoprene Resins and industrial Glues) and the fact that it uses state of the art; imported technology and high-quality raw-material inputs
with a high import component, and taking into account the ready demand for its finished products and its privileged position in the market,
application of GP rate at 35% is fair and reasonable. Hence maintained.
[ 116 ]G.
Cases referred to:
(1967) PTD 205 and (1981) PTD’213.
Muhammad Akbar, F.C.A., for the Appellant.
Mrs. Ta/at A/ta!, D.R., for the Respondent.
Date of hearing: 13-4-2000.
ORDER
[ Order was passed by M. Munir Qureshi, Accountant Member.] -
The appellant, a Public Limited company, engaged in the manufacture and
2000] APPL TRIBUNAL [ No. 2447/LB of 1992-93] 107
sale of Adhesive Tapes tiled writ petition before the Honourable Lahore High Court against appeals decided by the Income Tax Appellate
Tribunal for the assessment years 1990-91 to 1993-94 vide ITA No. 2447/LB of 1992-93 (Assessment year 1990-91), ITA No. 2448/LB of
1992-93 (Assessment year 1991 -92), hA No. 9958/LB of 1993-94 (Assessment year 1992-93) and ITA No.
5069)/LB of 1995 (Assessment year 1993-94). In the cited consolidated orders of the hAT, dated 25-10-1997, the Tribunal has upheld
rejection of the Company’s accounts by the CIT(A) but accorded relief in the estimates of Turnover as under:
Asstt: year. Sales Sales Sales
declared. Estimated. reduced by
hAT,
1990-9 Rs. 86,67,224 95,00,000 92,00,000
1991-92 Rs. 1,53,51,037 1,65,00,000 1,60,00,000
1992-93 Rs. 72,64,599 1,25,00.000 80,00,000
1993-94 Rs. 79,87,583 1,35,00,000 90,00,000
As for cost of sales, the assessing officer had applied G.P. rate uniformally at 35% in the assessment years 1990-91 to 1993-94 except for
assessment year 1991 -92 in which the declared G. P. rate of 42.2% has been adopted. The declared and applied G. P. rates in 1990-91
to 1993-94 are summarized below:
Asstt: year. G. P. G. P. By ITAT.
declared applied
1990-91 14.24% 35% 35%
1991-92 42.2% 42.2% 35%

1992-93 Gross Loss 35% 35%

1993-94 24.19% 35% 35%
As regards add backs made against P&L account expenses claimed by the Company, the hAT had accorded relief to appellant by deleting
add backs made against Printing & Stationary and Entertainment, and had confirmed add backs made against Vehicle Running and
Charity & Donations in all the years. As for Postage, Telephone & Telegraph, the ITAT had fixed add back quantum at 15% of billed
amount. In the case of Repair & Maintenance for 1990-91 and 1991-92, the ITAT had restricted add back amount to As. 20,000/- and As.
50,000/- respectively and had confirmed add backs made for 1992-93 and
1993-94 as approved by CIT(A). In the case of Miscellaneous Expenses, add backs made in 1990-91 and 1991-92 had been deleted. In
the case of carriage expenses, the ITAT had confirmed add backs made for 1990-91 and 1991-92 and reduced the add back to As. 7,500/-
in 1992-93 and As. 10,000/- in 1993-
108 TAXATION [
94. In the case of Packing Material, add backs made for 1990-91 to 1993-94 had been confirmed.
The first appellate authority had upheld rejection of appellant’s accounts for the assessment years 1990-91 to 1993-94. The CIT(A) in his
orders for the assessment years 1990-91 and 1991-92 has upheld rejection with the following observation: NThe record protuced before
the officer was not produced before
me. Details of purchases and sales lying on records indicate unverlable addresses of parties whom it was not possible to contact.
Apparently, the assessee/appellant is represented by a Chartered accountant who ought to know his duties $ If complete addresses are
not furnished before the officer it Is not possible for him to put them to any verification whereas it cannot be said that in calling for details
no opportunity to prodl4ce that were complete in
• every respect was not provided.
In these circumstances, the first and foremost duty of
- representathies in appeal should be to appear with relevant records in rebuttal of the observations contained in the assessment orders.
Obviously, these appeal proceedings provide further opportunity in support of the income returned. Hence this opportunity, which lapses
by lathes that are attributable directly to the assessee and its representatives.
History in the case also indicates rejection of books and estimates of sales and applied rates in the past two years. G. P. applied at 35% is
based on history and estimated sales not excessive and In this view of the matter I decline to interfere particularly when the trading a/c
additions are under-cast as the declared profits were under-valued on a/c of miscellaneous sales of empty cartons treated as a direct
deduction from costs which is not an approved principle of accounting.
For assessment years 1992-93 and 1993-94, the CIT(A) has again upheld
rejection citing the position of accounts statedly maintained on the same lines
as in assessment years 1990-91 and 1991-92 when these had been rejected.
The appellant in writ petition filed before the Lahore High Court has argued that its accounts had been wrongly rejected by the Department
in the assessment years 1990-91 to 1993-94 and the said rejection of its accounts have been confirmed without any justification by the first
appellate authority and the Income Tax Appellate Tribunal.
The Honourable High court in disposing of appellant’s writ petition has
observed that the ITAT while determining the tax liability of the assessee has
not examined the principles on which that liability was determined.
2000] APPL. TRIBUNAL P.T.A. No. 2447/LB of 1992-93] 109
Accordingly, the decision of the Tribunal for the assessment years 1990-91 to 1993-94 has been set-aside and matter remitted back to the
ITAT for denovo decision with the specific direction that the reasons be given if the Tribunal does not accept the accounts furnished by the
Appellant.
The appeHant in arguing its case for acceptance of the Company’s accounts emphasized that the Company maintains a comprehensive
set of accounts with full supporting documentation and the Department had rio valid reasons to reject the same. It especially pointed out
that the goods manufactured by the appellant-company are subject to levy of sales tax and the prescribed records as per relevant Excise
Rules have been duly maintained and scrutinized by the Excise/Sales Tax Authorities. The said record comprising RG-I, RG-ll, AR-I, ACL
RI-I, RI-Ill are regularly maintained and scrutinized/checked by the Excise/Sales Tax Authorities. Such record according to the appellant
fully substantiates appellant’s declared version and there was, therefore, no cause for the assessing officer to discard appellant’s declared
version in each of the years under appeal.
The main thrust of appellant’s arguments in support of its contention that declared version be accepted is that the record maintained as per
prescribed Excise Rules Is sufficient to substantiate the final accounts of the Company submitted before the assessing officer alongwith
the Return of Income. We have given this matter our earnest consideration as it is of considerable significance in deciding the issue before
us. In our considered opinion, there is a fundamental difference in the requiremePt of types of record/accounts in the context of liability to
be determined for purposes of sales tax and for purposes of determination of total Income. In the case of determination of ability for
purposes of levy of sales tax, the Excise/Sales Tax Authorities are mainly concerned with monitoring production and evaluating average
sale rate. The Excise Authorities expect a minimum level of production to be achieved periodically and provided that level is achieved, the
Excise Authorities are generally satisfied with the results disclosed. The Excise Duty is paid with reference to achieved production and
sales tax is levied on the Turnover (i.e. manufactured goods that are disposed off in the market. If the Excise/Sales Tax Authorities are
satisfied that production of goods is correctly recorded and the average sale price disclosed is reasonable, then in their view of the matter
the available records as per the prescribed Excise Rules are sufficient and no further queries are considered necessary.
In the case of determination of total income, however, the range and scope of accounts/supporting documentation required is, in our
opinion, much wider. The assessing Officer is not simply concerned with the achieved level of production and the quantum of sales made
in the market. The assessing officer must go beyond actual physical production and examine purchases and incidental expenses thereon.
He must examine average purchase price in-depth and be satisfied that it is correctly disclosed and that
110 TAXATION [ 82
there is no under/over invoicing. Similarly, the sales are subjected to close scrutiny to see that there are no significant variations in sale
rate of the same commodity/goods and that the average sale rate is consistent with the bona fide price prevailing in the market. The cost of
sales is a matter of consequence for the assessing officer as the gross profit rate evolving expressed as a percentage is often referred to
while evaluating the declared trading results. The G.P. percentage is routinely cited by the assessing officer while framing an order of
assessment. This G. P. percentage is generally not accepted to change significantly from year to year, “other things remaining the same”
and further more, disclosed G. P. percentage is expected to be comparable with the G. P. percentage declared in other. similar cases.’
Variations in the 6. P. percentage are required to be closedly investigated and commented upon by the assessing officer and the assessee
is interrogated on the same and where no satIsfactory reasons are forth-coming for a G.P. percentage that is not upto the level expected
from the business then the prevailing market’ G. P. percentage is usually applied. The purchases and sales are also scrutInIzed to see
how far these are properly vouched and verifiable. Where purchases and/or sales are found to be not fully and properly vouched/verifiable,
then the possibility of rejection of declared version is considered. THE ASSESSING OFFICER MUST ALSO SEE THAT THE MANNER IN
WHICH THE ACCOUNTS ARE DRAWN UP CONFIRM TO STANDARD ACCOUNTING PRACTICES AND PROPERLY REFLECT
PROFITABILITY POSITION. This is a matter of considerable significance for the assessing officer because he has to rule out any
manipulation of trading results so as to arbitrarily achieve acceptable gross profit say by under Invoicing purchases or debiting the P&L
account with expenses that properly pertain to the trading account. Similarly, he must analyse sales made and see whether the sales
returned back to the seller for any reason have been reduced from the gross sales or not. He must also see whether any discounts allowed
by way of reduction of sales price have been given proper effect in the trading account and whether any tax-duty on sales made are
included in the sales disclosed. All these aspects have a direct bearing on the gross profit position. The gross profit percentage is one of

the essential parameters employed to appraise the operating results. Thus is a tax-payer is able to hood-wink the assessing officer by
manipulating the trading account he may arbitrarily achieve the required level of gross profit in its particular line of business. The assessing
officer is thus required to make lndepth examination of the debit and credit sides of the trading account to rule out any manipulation. The
tax-payer must facilitate the assessing officer in his endeavour to determine the tax-payer’s total income by maintaining accounts in a
manner that enable the assessing officer to correctly determine the tax payer gross and net profit in a given time frame. The tax-payer
must also be prepared to answer various queries regarding the running of the business, the production process employed, the waste
disclosed, the capacity utilization, the unit consumption of energy, the disposal of waste and resultant income
2000] APPL. TRIBUNAL [ No. 2447/LB of 1992-931 111
therefrom (etc). Even with regard to business expenses not directly debitable to the trading account but required to be charged to the P & L
account. documentation Is required to be produced to substantiate the expenses and the assessing officer Is required to examine the
documentation and the reasonableness of the expenditure claim In the context of the business transacted by the tax-payer. Thus were the
assessing officer is, say, of the opinion that a particular expenditure claim preferred (like for example expenses claimed for us of
telephone) contain a personal element then appropriate disallowance of the claim may be required to be made. The assessing officer may
also disallow an expenditure claim in its entirety If it is found that the expenditure has no proper nexus with the business transacted. The
assessing officer will also disallow expenditure that is found to be of a “capital nature” as only Revenue’ expenditure can be debited to the
P&L account. The credit side of the P & L account must also be looked into. Generally speaking income realized by a business that is not
directly relatable to the trading activities as such, is credited to the P & L account. Thus income realized by, say disposal of waste
material/packing material Is credited to the P&L account directly,. Similarly, other receipts/incomings not directly relatable to trading activity
are credited to the P & L account.
The examination of the balance-sheet is again a very significant requirement In the assessing officer’s appraisal of accounts. The assets
and liabilities sides of the balance-sheet require close scrutiny to ensure that whatever accretion/decretion is cited is properly explained.
Any unexplained accretion has to be looked into and evaluated in terms of express statutory stipulation. Such unexplained accretion can
be found to constitute “deemed income” and separately included in a tax-payer’s total income. Even where an accretion is explained, it can
sometimes have tax consequences, Thus where a loan is received otherwise then by crossed cheque beyond a stipulated threshhold, the
same Is to constitute tax-payer’s deemed Income u/s 12 (18). The valuation of stocks is also required to be made in a consistent manner
according to well-defined parameters.
As is obvious from what is stated above, the assessing officer’s
examination of at taxpayer’s accounts has a much wider range and scope A then the examination of Excise/sales Tax Authorities in the
context of levy of
Excise Duty/Sales Tax.
In the case of the appellant, examination of the assessment record
clearly establishes that (a) the appellant has consistently credited the
company’s purchase account in the ledger by the amount of sales proceeds
of containers/cartons in which raw-material is purchased. This has the
obvious effect of reducing purchases. Further more, the appellant-company has consistently credited sales with amounts realized as a
result of sale of
damaged/unuseable roles of PVC. The treatment so accorded by appellant company is squarely against established accounting norms as
it has the effect
e
112 TAXATION [ 82
of arbitrarily pitching up the company’s gross profit. Further more, such treatment by the appellant reduces its overall tax liability as the
amount realized from disposal of containers/cartons/damaged roles of PVC/other waste material, should property be credited directly to the
P & L account. By not doing so and by changing the trading account in the manner described above, the appellant-company has
deliberately’ year after year, arbitrarily manipulated gross profit and has avoided crediting the P&L account with realizations made from
sale of assorted materials described above. This has been done consciously and deliberately obviously to secure tax benefits that would
not have been available to the company had the company drawn up its final accounts according to established norms of accountancy.
Both purchases and sales of the company are not 100% open to verification. No doubt, the bulk of purchases made are imports and these
are of course satisfactorily documented. Nevertheless, a part of the purchases made by the company are of local origin. Thus in
assessment year 1990-91 against total purchases of Rs. 83,84, 313/- purchases of Rs. 11,38,325/- are local. Out of these local purchases
of As. 11,38,325/, purchases of As. 6,33,702/- (of toluene) have been made from PSO limited and are of-course open to verification.
However, other local purchases are not open to 100% verification and include purchases of paper core, cloth, local chemicals (etc). Similar
position obtains in the assessment year. 1991-92 to 1993-94 also. Again looking to sales, these two are not 100% open to verification and
instances of such sales not open to verification have been recorded in the assessment orders passed. The appellant has not been able to
satisfactorily rebut the assessing officer’s findings In this regard and the first appellate authority has specifically noted in the adjudication
made for the assessment years 1990-91 & 1991-92 that the appellant failed to produce books-of-accounts and supporting documentation
to counter the assessing officer’s observations regarding unverifiability of part of the purchases and sales.
The acid test for acceptance/rejection of .accounts in the context of determination of total income must be the suitability of such accounts
for purposes of determining the gross and net profits. As explained above, the appellant-company has arbitrarily manipulated its trading
account, year after year by under-casting purchases and over-casting sales and thereby artificially over reporting gross profits. That being
so, the company’s operating results have been rightly rejected by the assessing officer and confirmation of such rejection by the first
appellate authority is thus fully justified.
The company has not produced stock registers before the assessing officer and the order-sheets bear this out. The only stock record
produced is that maintained for Excise/Sales Tax Authorities. The qualitative and quantitative details required in the context of income tax
proceedings for purposes of determination of the company’s total income are lacking in this record. No doubt non-maintenance of stock
register aione cannot be made
2000] APPL. TRIBUNAL [ No. 2447/LB of 1992-93] 113
basis for rejection of account. Similarly, low citation of GP rate alone also may not necessarily lead to rejection of accounts. As pointed out
above, however, these are not the only deficiencies noted in appellant’s case and looked at in their totality, including the fact that the
appellant-company has, year after year under-cast purchases and over-cast sales, a case for rejection of accounts is clearly well-
established. It also needs to be especially noted that the appellant- company had itself disclosed Nother incomev in the assessment years
1988-89 & 1989-90 but such ‘other income’ has not been disclosed in the assessment years 1990-91 to 1992-93. Such ‘other income’ is
relateable to income realized as a result of sale of waste. The only logical conclusion from the company’s non-declaration of other income’
in 1990-91 to 1993-94, therefore, would be that the company has managed to reduce waste to ‘nil’ which of-course Is incredible and totally
implausible as no manufacturing facility, no matter how efficiently managed, can achieve 100% efficiency and reduce wastage to zero.
This too casts serious doubt on the veracity of the company’s accounts.
Coming now to the opportunity accorded to appellant to explain its
position before the assessing officer at assessment stage.
Close scrutiny of the assessment record, including order sheets from
1990-91 to 1993-94, show that reasonable opportunity has invariably been c given to the appellant to submit its books-of-accounts and
necessary
supporting documentation before the assessing officer. The books-of-account actually presented before the ITO consisted of cash book,
ledger, and vouchers. Daily production record and stock register (other than for excise/Sales tax purposes) was not produced. Besides,

import documents, salary sheets were made available. The order sheets make it clear that various aspects of the case were discussed
with the AR and details, where considered necessary, were called for. Thus is assessment year 1992-93 details regarding consumption of
units of electricity and sui gas consumed during the assessment year as well as in the preceding year were called for and taken on record.
Similarly in 1993-94 assessment year, details of share deposit money, sources of investment, and copies of the company’s minutes book
and resolutions were called for Adjournments requested by appellant were also allowed. Besides opportunity given by the assessing officer
to substantiate declared version with necessary accounts/related records, it is noted that the first appellate authority also while conducting
appeal proceedings for 1991-92 and 1992-93 assessment years, gave the appellant the opportunity to rebut the assessing officer’s
observations recorded in the assessment orders impugned before him by making specific reference to the company’s books of-accounts
and supporting documentation. However, it is the CIT(Appeal’s observation, duly recorded in the appellate orders, that the appellant failed
to
avail of this opportunity and did not produce the company’s books-of- D
114
TAXATION [
accounts and related documentation before him at appellate stage to rebut the assessing officer’s observations recorded in the
assessment orders that were the subject-matter of appeal.
Given the above narration of the factual position obtaining in this case regarding opportunities given to the appellant to substantiate
declared- version, we find that “necessary opportunity”, as envisaged in law has intact
been given to the appellant and the assessing officer has not drawn adverse E inference ‘behind the back’ of the appellant. The factual
position regarding
maintenance of accounts by the appellant wherein appellant has deducted the amount realized from sale of packing
material/cartons/drums from the over all purchases of the company and/the crediting of sales with amount realized on account of sale of
damaged of PVC roles is the admitted position and there is no dispute here
As explained above, this methodology adopted by the company does not constitute sound accounting practice and makes it problematic
for the assessing officer to arrive at the correct net profits position of the company. This defect by itself, therefore, is sufficient to warrant
rejection of the company accounts.
The Superior Judiciary in Pakistan has recognized that the assessing officer is invested with considerable authority in the matter of
rejection of books-of-accounts presented before him at assessment stage. In 1981 PTD 213, the Hon’ble Lahore High Court has held that
the Income Tax Officer is competent to reject books-of-accounts where the circumstantial evidence casts doubts on the accuracy and
reliability of the entries recorded therein and it is not necessary that the income Tax Officer cite specific defects or flaws in the account
books before he can reject him. The Hon’ble Supreme court of Pakistan in Miss Assia v. Income TaxAppellate Tribunal, has held: “The
Assessing Officer was not bound to rely on all the evidence
produced by the assessee in case he was not satisfied about it. He was entitled to reject the accounts believed by him to be false and
unreliable, although there may be no direct and definite evidence with him to prove their incorrectness. There is no rule of law compelling a
Judge to accept evidence, even though it IS uncontradicted, which he beleives to be a pack of lies, (in re: Baghat Halvai). In this
connection in Ganga Ram Balmokand v. Commissioner of Income Tax, Punjab it was held that the law does not impose any burden on the
income-tax authority to prove by positive evidence that the accounts are unreliable or that the figure at which they assess is the correct
figure. On the other hand, the question of the unrellabdity of accounts is a question of fact and primarily falls for the determination of the
Income Tax authorities alone. If, therefore, it is once decided by them that the accounts are fictitious or unreliable their finding cannot be
disturbed unless it is
2000] APPL. TRIBUNAL [ No. 2447/LB of 1992-93] 115
altogether capricious and injudicial. In matters like these a very wide discretion vests In the income tax authorities in view of the exigencies
of the case, and the control exerciseable on them Is very meagre. What alone has to be seen in such cases is whether the discretion has
been judicially exercised and if it is once found to be so exercised, no Court can interfere with the order N
(S.I.C)
As already explained above, the accounts maintained by appellant- company are specifically tailored to the requirements of Excise/Sales
Tax Authorities and are deficient for purposes of determination of total income by
the income Tax Officer. The appellant-company is a manufacturing concern F and Is expected to maintain daily production record showing
utilization of raw- material inputs viz-a-viz achieved prdduction. It is not understandable as to why the appellant-company has not produced
such record betore the assessing officer. This has been recognized by ITAT in ITA Nos. 2057, 2058 and 2059 of 1963-64 and STA Nos.
248, 249 and 250 of 1963-64 (Assessment Years 1956-57, 1957-58, 1958-59 and 1959-60) decided on 8-7-1966 wherein it has been held
that: “true that in a case of a dealer who purchases and sells goods as such without subjecting them to a manufacturing process the
absence of a stock register would not entail the rejection of the account version unless the profit rate disclosed is ridiculously low but the
same considerations do not apply in the case of a manufacturer who has got to maintain a manufacturing record without which the
correctness of production and consequently the declared sales cannot be vouchsafed. The plea of the assessee for the acceptance of
accounts is, therefore, unmerited and must fall;”
(S.l.C)
The importance of maintenance of a manufacturing account giving quantitative reconciliation in the case of a manufacturer has also been
recognized in case reported as (1967) PTD 205 wherein it has been held that even though accounts may have been maintained regularly
in the case of a manufacturer, absence of a manufacturing account giving quantitative reconciliation would entitle the Income Tax Officer to
reject the accounts and frame assessment according to his judgments.
Thus, in view of the peculiar manner in which the books-of-accounts have
been maintained and the final accounts of company drawn up, as discussed
above, we find that rejection of declared-version is justified.
In the matter of estimate of Turnover, we have examined the position of
sales declared by the appellant and the estimates made by the assessing
officer and relief given by the CIT(A) and Income Tax Appellate Tribunal.
t
116 TAXATION [
Looking to all pertinent aspects, we find that sales as reduced by ITAT to Rs.
92,00,000/- in 1990-91, Rs. 1,60,00,000/- in 1991-92, Rs. 80,00,000/- In 1992-
93 and Rs. 90,00,000/- in 1993-94 are fair and reasonable and call for no
interference. Hence maintained.
In the matter of application of GP rate, the ITAT has previously uniformally/approval GP rate at 35% when the appellant had been
declaring GP rate ranging between 5.74% to 42.2%. Scrutiny of the assessment orders shows that the GP rate of 35% is being applied in
this case since assessment year 1988-89. The appellant Is a manufacturer of high-quality Industrial adhesive tapes with a high raw-
materials Import component and appears to have a privileged position in this line of business in Pakistan. Keeping in mind the ready
demand for Its products, It Is In a position to charge good prices.
The GP rate usually applied in the case of a manufacturer’s products comparable to the products manufactured by the appellant, ranges
between 30 to 40%. The department has been applying GP rate of 35% uniformly and
such application has been confirmed by the CIT, (A) and ITAT. Looking to the G type and range of products manufactured by the appellant
(self-adhesive PVC, BOPP, Kraft Paper Tapes, Neoprene Resins and Industrial Glues) and the fact that it uses ‘state of the art; imported
technology and high-quality raw-material inputs with a high Import component, and taking into account the ready demand for Its finished

products and Its privileged position In the market, application of GP rate at 35% Is fair and reasonable. Hence maintained.
Add backs against expenses have been looked into and we find that
treatment as approved by the first appellate authority is reasonable and calls
for no interference.
Resultantly, the appeals for 1991-92 to 1993-94 are disposed off as
above.
Appeals disposed
of accordingly. Back to TOC

2000]
[ 82 TAX 117 (Trib.)]
[ THE INCOME TAX APPELLATE TRIBUNAL LAHORE BENCH, L.AHORE]
Back to TOC
Present: M. Munir Qureshi, Accountant Member and Kha wa/a Farooq Saeed,
Judicial Member.
LT.A. No. 4537/LB of 1999 (Assessment year 1995-96),
Department Versus Assessee
Income Tax Ordinance, 1979 (XXXI of 1979) - Sections 59, 62, read with Circular No. 5 of 1995 - Rectification of mistake - Order of C.l. T.
(A) rectified by successor C.!. T. (A) - Jurisdiction and scope - Assessee earning income from purchase and sale of used cars - Income de
entirely from commission received from sale of brand new vehicles - Change in nature of business, concealment of income and
suppression of receipts from commission - Observations of department - C.I. T. (A) rectified order of his predecessor and held that case
had already been finalized and D.C.I.T. had no jurisdiction to proceed u/s 62 - Challenge to - Selection of return for normal law assessment
- Validity - Jurisdiction of successor CJ.T. (A) to recti4’ the order of his predecessor - Qualification of return under the scheme
- Question of law - Whether successor C.!. T. (A) could disturb clear cut finding recorded by his predecessor with regard to disqualification
of assessee’s return under BBSAS - Held no - Whether it was open to department to select certain percentage of returns for normal law
assessment
- Held yes - Whether assessee fell in categoiy of “new tax payer” and its return could be taken up for normal law assessment - Held yes
The predecessor CIT(A) had already interpreted Circular No. 5 of 1995
and had explained that the assessee M/s. H.... B fall in the category of
“new taxpayers”. [ 125 ]A.
It was not open to the successor CIT(A) to disturb the clear-cut finding recorded by his predecessor with regard to dis-qualification of
assessee’s return under BBSAS especially when the successor ClT(A) could not show that his predecessor had wrongly cited pertinent
facts or had wrongly interpreted the relevant law/applicable circulars. [ 125 ]B.
The provisions of Section 65 would be applicable in the case of an “existing assessee” in terms of Circular No. 5 of 1995. In the case of a
“new taxpayer,” it is open to the Department to select a certain percentage of returns filed for normal law assessment. In the present case,
it has been shown that the assessee M/s. H.... B.... falls in the category of “new tax-payer and, therefore, its return could be taken up for
normal law assessment.
[ 126 Ic.
118 TAXATION [ 82
Statutory notices u/s 61 of the Income Tax Ordinance were issued to the assessee on 10-12-1995, 21-12-1995, and 10-12-1996 and the
assessee’s then AR, Mr. Hadi, FCA, did appear in compliance before the assessing officer and was duly confronted with the department’s
finding regarding ineligibility of assessee’s case under BBSAS for 1995-96. [ 127 ]D.
CIT(A)’s finding that assessment stood finalized u/s 59 (4) as no order had been passed by 30-6-1996 is wholly misconceived as the
assessee had already been advised weli before 30-6-1996 that his return for the year did not qualify under BBSAS and notices u/s 61 had
been issued and served and case discussed with the then AR. (page 128 JE.
The successor CIT(A) has virtually re-Interpretated statutory provisions, including BBSAS provisions for 1995-96, after a firm finding on the
issues had been duly recorded by his predecessor in office. The successor CIT(A) had no authority under the law to record a different
finding on the same cited facts and in fact the successor CIT(A) has not even marshalled facts properly but rather has distorted the factual
position by omitting all references to action u/s 61 before 30-6-1996 and subsequent interaction between the department and the assessee
on various pertinent aspects as well as the fact the departmen had continued to requisition information having a bearing on the
computation of assessee’s total Income, before as well as after 30-6-1996. (page 128 ] F.
Sha hid Zaheer, D.R., for the Appellant.
TalatJaved, F.C.A., for the Respondent.
ORDER
[ Order was passed by M. Munir Qureshi, Accountant Member.1 - This is an appeal by Revenue against order of the CIT(A), dated 14-4-1
999 in which the first appellate authority has rectified the order of his predecessor and has held that the order passed by the predecessor
CIT(A) was defective insofar as no adjudication had been made with regard to Ground No. 1.
Briefly stated, the facts in this case are that the assessee, an AOP, filed Return under BBSAS for 1995-96 declaring Total Income of Rs.
1,04,775/- on 30-8-1995. On scrutiny of the Return, the DCII found that (a) the assessee had changed its nature of business from
purchase and sale of “used” cars of assorted brands to exclusive sale of new, Honda brand automobiles supplied by H.... A.... C (Pakistan)
L In the computation appended with the Return filed, the income declared related entirely to commission earned from HACPL on sale of its
brand new vehicles and no income whatsoever had been declared from purchase and sale of used automobiles. This was seen by the
DCIT as a qualitative charge in the nature of business as in the past the assessee had declared income from sale of “used” motor vehicles
only. Furthermore, the status of the assessee though still that of an AOP, also
I
2000] APPL TRIBUNAL [ Nos. 4537/LB of 1999) 119
recorded a change insofar as the previous AOP having three Members known M...... by the name of MA... S...... S.... R NIN 04-03-
0808359 (Mr. M.... A , Mr. A H and Mst. N H ) stood enlarged with the induction of new members so that the total strength of the new AOP
known by the name of H B was of six members.
Besides the above, the DCIT also found that the gross commission receipts from HACPL’ declared by M/s. H B for assessment year 1994-
95 amountIng to Rs. 37,12,457/- was not consistent with the Information furnished by HACPL showing gross commission disbursed to
assessee amounting to Rs. 65,69,013/-. Prima fade, the assessee appeared to have concealed/suppressed commission receipts from
HACPL.
In view of the fact that the assessee having changed its nature of its business and furthermore, the assessee having
concealed/suppressed gross commissioner receipts from HACPL. the DCIT found the assessee to be ineligible under the BBSAS for 1995-
96. Statutory notices u/s 61 of the Ord., were then issued on 10-12-1995 and duly served on the assessee on 14-12-
.1995. In compliance, Mr. M. A. Hadi, chartered accountant/AR appeared before the assessing officer and discussed various aspects of
the case. Statutory notices u/s 61 were subsequently also issued on 21-12-1995 and
10-02-1996.
The assessee’s AR challenged the selection of Return filed for 1995-96 under BBSAS for normal law assessment on the Ground that the
said Return’ duly qualified for acceptance under BBSAS. The AR was confronted with the findings made by DCIT regarding status of the
assessee and concealment/suppression of gross commission receipts. The AR contested DCIT’s findings and denied any change in the
nature of business/status of the assessee. As regrades, the alleged concealment of gross commission receipts, the AR explained that the
assessee did not maintained any regular accounts and the alleged discrepancy in gross commission receipts referred to by the DCIT was
In fact due to cash basis recording receipts adopted by the assessee as against the accrual basis adopted by the Principal (HACPL).
The DCII further found that besides commission earned by the assessee from HACPL on H vehicles, the assessee had also made
independent purchases of brand new Honda motor vehicles of some 205 cars during the period relevant to assessment year 1995-96. The
assessee’s earnings on such independent purchase of motor cars was also found to have been conceaIed. When confronted on the
matter, the assessee’s AR explained that the assessee was required by HACPL to purchase motor vehicles independently from those

supplied by HACPL for show-room disp(a purposes and it was for this reason that the assessee had made purchases on own account of
Honda Motor vehicles besides the Honda vehicles supplies on commission basis by
HACPL
120 TAXATION [ 82
After discussion of the case with the assessee’s A.R. and after examining the assessee’s response on various findings confronted, the
DCII found that (a) M/s. H... B... fell in the category of a “new assessee” and furthermore, that M/s. H... B... had actually
concealed/suppressed gross commission receipts from HACPL and the explanations given were wholly unsatisfactory. The DCIT held that
for the reasons aforementioned, the assessee’s case fell in the definition of Nnew assessee”. 1 on account of furnishing inaccurate
particulars of its income, its return for 1995-96 fell outside the purview of BBSAS in terms of para 6 of Circular No. 5 of 1995.
After recording finding, as above, the DCIT proceeded to frame
assessment under normal law and determined total income at Rs. 49,55,162/-
computed as under:
Net Income as per P & LA/c Rs. 1,04,775/-
Add Difference In
Commission Receipts
disclosed by Assessee
and intimated by HACPL. As. 28,56,356/-
Additions out of P&L A/C.
Total B. F. As. 29,61,131/-
Financial Charges.
As. 14,42,247/-
(Claimed disallowed In
entirety as found not relevant
to assessee’s business) Rs. 14,42,247/-
Sales and Marketing
Claimed Rs. 6,64,954/-, added back
Rs. 3,32,477. Rs. 3,32,477
Administrative Expenses.
Claimed Rs. 15,00,482/-
added back As. 2,19,307/- Rs. 2.19,30Th
As. 49,55,162/-
The order of assessment is dated 4-6-1998 and the DCIT has issued
notice u/s 116 for furnishing of inaccurate particulars of income.
In appeal before the first appellate authority, the assessee reiterated its claim for acceptance under BBSAS. The CIT(A) examined the
case in-depth and found that the assessee’s claim under BBSAS was wholly misconceived as the DCIT had rightly come to the conclusion
that the assessee’s case fell in the category of “new tax-payer” as the “nature of business” of the newly
Back to TOC

[ 82 TAX 96 (Trib.)1
[ THE INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH, LAHORE]
Back to TOC
Present M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed, Judicial Member.
I.T.A. No. 4538/LB of 1999 (Assessment year 1996-97),
decided on 20-6-2000.,
Department Versus .. Assessee
Income Tax Ordinance 1979 (XXXI of 1979) - Section 156 Rectification of mistake -‘Application for - Acceptance,by’ (Successor) C.!. T (A)-
Validity - Assessee an. AOP deriving income as dealer of cars - Filed return for assessment year 1996-97 under BBSAS - Non acceptance
by Assessing Officer on ground of concealment and suppression of commission receipts - Addition u/s 13 - Order set aside by predecessor
C.I.T (A) for want of proper show cause notice, also for not allowing extent/on oft/me as requested by assessee - Application ‘for
rectification of ‘order was accepted by the successor C.I.T. (A) who concluded that his predecessor had failed to make proper adjudication
regarding autcmatlc finalization of assessment u/s 59(4) and allowed return under BBSAS - Appeal against - Jurisdiction of (successor)
C.I.T. (A) to rectify order of his predecessor - Question of law - Interpretation - Scope and application of - Whether scope of section 156
could be enlarged perforce to permit wholesale review of predecessor C I. T. (A) ‘a order - Held nO - Whether action of successor C.!. T.
(A) in invoking provision of section 156 to rectify order of his predecessor in office was illegal and without jurisdiction - Held Yes
The scope of Section 156. While It is arguable that u/s 156 it might have been possible for the successor C(T(A) to find that assessee’s
Return for
2000] APPL. TRIBUNAL [ No. 4538/LB OF 1999j 97
1996-97 stood accepted/assessed u/s 59(4) on 30-6-1997. However, the scope’of Section 1.56 cannot be enlarged perforce to permit
wholesale review of predecessor CIT(A) order. Thus by making such Wholesale review of his predecessor CIT(A). order the
successor .CIT(A) undoubtedly exceeded his
jurisdiction. [ 103’]A. .. . -
The action of the successor CIT(A) in invoking the provisions of section 156 to rectify the order of.his predecessor in office Is found to be
Illegal for the reason. that the predecessor In office has recorded firm findings after discussing exhaustively all pertinent aspects and these
findings are not open to Review by successor CIT(A). That being so, the, appellant was required to file formal appeal against the appellate
order of (predecessor) CIT(A) rather than, move a rectification application before successor. CIT(A). As successor .CIT(A) had no
jurisdiction in.Iaw to take action u/s 156 in the manner done by him In the present ase, we, therefore, annul the order of successor CIT(A)
and.restore the order of predecessor CIT(A). [ 104 38.
Cases referred to:
(1996 PTD Trib. 1117); (AIR 1987 SC 1160) and (AIR 1972 Mad. 309).
Shahid Zaher, DR.; for the Appellant.
Ta/at Javed, F.C.A., for the Respondent.
Date of hearing: 3-6-2000. , .. . .
ORDER
(The Order was passed by M. Munir Qureshi, Accountant Member.J - This Is an appeal by revenue directed against order of CIT(A), dated
14-4-1999 In which.. the first appellate authority has urectifiedn u/s 156 of the Ord., the adjudication made by his predecessor in office vide
order dated 12-11-1998.
2. The departmental contention is that the(successor) C had no jurisdiction In law to rectify order passed by. this predecessor In office.
Further more,: it is also the departmental case that . the (successor) CIT(A) had no justification in law to hold that no formal order of
assessment having been passed till 30-6-1997, Return filed for assessment year .1996-97 under BBSAS was deemed have been finalized
u/s 59 on that date.
3 Briefly stated, the facts in the case are that the appellant an AOP denying
income ‘as dealer of H. A.... C.... P... L...(HACPL) filed Return for 1996-97
under BBSAS declaring tOtal income at Rs. 460,495/- comprising gross comrnl receipts from HACPL/amounting to Rs. 8157170/- against
which expenses had been charged aggregating Rs.76,96,675/-. The Return filed was accompanied by trading, profit & loss account,
computation chart and personal accounts of members of AOP. The Return so filed was not accepted by the assessing officer under
BBSAS on account of (a), concealment property purchased by AOP vide No. 63-A.... A.... M.... comprising commercial
98 “
TAXATION
[ 82
immovable property (land) measuring 5 kanal at 63-A.... R.... M.... having a registered value of Rs. 25,00,000/- and (b). suppression of
commission receipts from HACPL The said property has not been cited either in the statement of affairs of AOP or in the indMdual wealth
tax Return of any of the Members of AOP. Such concealment was found to automatically oust the appellant’s claim for assessment under
BBSAS in view of the provisions of Self Assessment Scheme announced for 1996-97 Para-2 (h) of Circular No. 4 of 1996 dated 1-7-1996).
4. Besides, the concealment of property purchased by AOP, discussed above, the appellant also statedly suppressed commission receipts
amounting to Rs. 67,05,114/- (The actual commission receipts by appellant AOP from HACPL aggregates Rs. 148,62,284/-). The
information regarding comrq receipts was formally requisitioned from HACPL and duly submitted to the assessing officer and a finding of
suppression of commission receipts has been recorded by the assessing officer after examining the details furnished by HACPL regarding
commission disbursed to the appellant.
5. The factum of concealment detected in appellant’s case was duly confronted to appellant through statutory notices issued u/s 61 & 62 of
the ord. Detailed discussions were made with the appellant’s AR. s M/s M.A. Hadi, FCA and Mr. Talat Javed, FCA.
6. When formally confronted on the matter, the appellant had no plausible explanation to offer regarding non-disclosure of commercial
property purchased by the appellant/AOP at A.... R.... M.... and, the under statement of gross commission receipts. The appellant sought
extention in time for filing of reply In the matter pertaining to disclosure of land purchased by the appellant bearing No. 63, A.... A.... M.....
The assessing officer interpreted this “as delaying tactics” deliberately adopted in the face of irrefutable evidence to the effect that the
appellant/AOP had infact purchased valuable property at 63- A.... R.... M...., the market value of which property was much higher than that
disclosed in the registered deed executed on 9-10-1995 for Rs. 25,00,000/-. Local enquiries, were got conducted by assessing officer and
these confirmed that the bona fide market value of the cited property ranged between Rs. 22,00,000/- to Rs: 25,00,000/- per Kanal. The
assessing officer also found that the appellant had made payment through 2 cheques bearing No’s. 257202 and 257203 both dated 9-10-
1995, amounting to Rs. 86,00,000/- and As. 25,00,000/- respectively drawn on Plantinum Commercial Bank Limited, H B M The assessing
officer further found that the face of the two cheques bears the following remarks:-
“for purchase of land at
63-A.... R.... M....
7. As stated above, the appellant AOP has neither cited this land at 63-A.... A , in the statement of affairs of AOP annexed with the Return
of income
-a
2000] APPL TRIBUNAL [ No. 4538/LB OF 1999] 99
filed nor in the individual wealth, tax Returns of any of the Members of the AOP. In the balance sheet of AOP as on 30-6-1 996 also, there
is no mention of the land in question.
8. In view of the definite, unequivocal and irrefutable evidence regarding purchase of 5 Kanal commercial land at 63-A.... R.... M.... by the
appellant/AOP, the assessing officer recorded a firm finding to the effect that (a) the appellant AOP had concealed purchase of cited land

and (b) under stated bona fide market value of the said land. The market value of cited land has been appraised at Rs. 1,11,00,000/- and it
has been established, as discussed above, that the appellant/AOP had made payment In that amount also. Consequently, the difference
between declared value of As. 25,00,000/- and market value of Rs. 1,11,00,000/- amounting to Rs. 86,00,000/- has been brought to tax u/s
13 (1) (d) while the admitted purchase price as per registered deed amounting to Rs. 25,00,000/- has been brought to tax u/s 13 (1) (c).
9. In the matter of suppression of commission income when formally confronted on the matter, the appellant avoided making a direct
response and instead submitted various explanations. Basically, the appellant argued that the apparent discrepancy in commission
receipts as disclosed by the assessee and as Intimated by HACPL was due to the fact that accounts were drawn up and maintained in a
different manner by the two parties involved. The appellant under took to reconcile the discrepancy and file a reconciled statement before
the assessing officer. However, that was not done. On the other hand the assessing officer found that the appellant’s account maintained
In the HACPL ledger showed that HACPL had credited appellant’s account on a month-wise basis from July, 1995 to June, 1996 so that
the total credits as on 3t 996 aggregated Rs. 318480600/-. The scrutiny of appellant’s ledger account as maintained by HACPI Indicated
that the appellant, besides earing commission income from HACPL had also purchased and sold H A.... C.... on ‘OWfl account’: When
confronted on the matter, the appellant explained that it was H A.... policy that its dealers purchase Honda cars on own account as well as
for ‘display purpose’ in the show room. However, the appellant’s explanation was not found plausible by the assessing officer as the
appellant was found to have purchased 426 cars during the year and the assessing officer concluded that such a large number of cars
could not have been purchased merely for display purposes.
10. The assessing officer found that the appellant/AOP is not declaring any Income/from purchase and sale of motor vehIcles on own
account and only
disclosing commission income earned from HACPL on supplies of vehicles booked by customers, consequently, the assessing officer
when evaluating the appellant’s claim on account of financial charges during the year aggregating Rs. 3789906/- on account of running
finance facility with plantinurn Commercial Bank Ltd. (40 Million) decided to curtail admissibility of
100 TAXATION [
cited financial charges by 50% as the loan facility from bank was not being utilized fully for transacting the admitted business of the AOP.
Rather Part of the loan facility was being diverted towards purchase of motor vehicles on account against which no Income has been
disclosed by the appellant in Return filed.
11. Other items of expenditure have also been looked into by the assessing officer and add backs made against salary, entertainment,
vehicle running, telephone, donation, car repairs, medical aid, carriage, charity, sales and Marketing & gifts commission paid to other
parties claimed at Rs. 8,86.000/- had been disallowed In its entirety as this was found to be totally unverifiable. The appellant then filed
appeal before CIT (A) who adjudicated the appeal filed for 1996-97 vide order dated 12-11-1998.
12. Before the CIT (A), the appellant submitted, as per grounds of appeal filed, that the assessment as made u/s 62 vide order dated 4-6-
1998 was of no àonsequence as the appellant cases was deemed to have been finalized u/s 59 (4) under BBSAS on 30-6-1997, no order
having been passed by that date and appellant’s return not having been found ineligible for processing under BBSAS. The appellant
further contended that additions made u/s 13 had been made behind the back of the appellant/AOP and notices issued u/s 13 (2) were
allegedly never brought to the notice of and of the Members of the AOP. The appellant denied concealment of 5 Kanals land at 63-A.... R
and submitted that the payment for cited land had been made through AOP’s bank account which was proof that there had been no
concealment. The appellant also submitted that acquisition of cited land had not been made declared formally in the statements annexed
with the Return filed for 1996-97, as there was statedly no such requirement under BBSAS for 1996-97. Similaily, with regard to alleged
suppression of commission income, the appellant contended that there had been no suppression and the apparent discrepancy was the
result of different accounting methods of HACPL and appellant/AOP. The appellant contested the assessing officer finding to the effect that
the appellant had purchased and sold H.... A... cars on own account besides commission income earned on supplies of such vehicles by
HACPL Add backs against P & L expenses claimed were also contested including curtailment of financial charges by 50%.
13. The first appellate authority (predecessor) after making appraisal of AOP’s affairs, recorded a firm finding to the effect that the
appellant/AOP having concealed purchase of property No. 63-A.... A.... M.... and having suppressed commission income earned
amounting to As. 6705114/- from HACPL In the period relevant to assessment year 1996-97, the Return filed under BBSAS stood
disqualified and in the presence of the disquaiifications arising from concealment of cited land and suppression of commission receipts,
there could be no question of acceptance of Return under BBSAS/59 (1), finalization of assessment or under deeming provisions of
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BEFORE THE INCOME TAX APPELLATE TRIBUNAL,LHR BENCH,LHR

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RA No. 293/LB/2001
(Assessment Year 1995-96)
NTN: 21-05-0019623
Late Haji Muhammad Hanif C/o Zohaib Jewellers, Lahore Applicant
Versus
CIT/WT, Zone-C, Lahore. Respondent
Applicant by : Mian Aashiq Hussain,ADV.
Respondent by : Mr. Anwar-ul-Haq,DR.
Date of hearing : 25-07-2001
Date of order : 27-07-2001
ORDER
This Reference Application by an individual member of an AOP, formulates the following questions of law statedly arising out of the
Tribunal’s order bearing ITA No.4279/LB/2000 (Assessment year 1995-96) dated 24.1.2001:-
1. Whether the learned Tribunal was justified to uphold the addition u/s 13(1)(aa) at Rs.1,32,66,600 without
considering the material fact that the ample accumulated resources to finance the purchase of gold?
2. Whether the learned Tribunal was justified to ignore documentary evidence without any verification? After finding that
applicant imported 3000 Tolas of gold, whether the Tribunal was justified to uphold application of Section 13(1)(aa)
instead of specific provisions of Section 80(C)?
3. Whether the Tribunal was justified to presume that revised returns indicate that original returns must have been filed
before issuance of notice u/s 61 of the Ordinance?
4. Whether the Tribunal was justified to rely upon irrelevant assertions of AAC, neither taken up in grounds of appeal nor
argued at the time of hearing of the appeal?
5. Whether explanation u/s 13supported by documentary evidence could be rejected without disclosing any basis thereof in a
notice u/s 62 of the Ordinance?”
2. The facts in this case, interalia, are that the assessee is a returning expatriate Pakistani who in the period relevant to assessment
year 1995-96 brought with him 3000 tolas gold bars from theUAE valuing Rs.1,32,66,600 admittedly by way of “PERSONAL BAGGAGE”
and on which he paid Rs.2,65,322 as duty to the Custom Authorities at the Airport. On examination of applicant/appellant’s Income Tax
Return for 1995-96, the assessing officer found that the necessary resources to finance the cited acquisition of gold by the assessee were
not evident; he accordingly issued a show cause notice u/s 13 of the Income Tax Ordinance, 1979. In response, the assessee did not
specifically identify the resources employed to purchase the 3000 tolas gold bars and instead took the plea that the said gold had been
brought into Pakistan as “Personal Baggage” and was thus exempt being personal baggage item. The assessee specifically advised the
assessing officer that the gold had not been “imported” by him into Pakistan. The assessing officer duly considered assessee’s reply and
found the same to be wholly unsatisfactory insofar “as the sources of investment” had not been identified by the assessee. Before the
assessing officer, the assessee had also taken the plea that vide Clause 130A of the Second Schedule to the Income Tax Ordinance, the
income of a returning expatriate enjoyed statutory exemption. That contention was also considered and the assessing officer found that
the assessee could not be absolved from explaining the sources of investment involved in the purchase of 3000 tolas bars by him. He
accordingly made addition u/s 13 (1) (aa) amounting to Rs.1,32,66,600. Before the first appellate authority, the assessee reiterated that
the assessee could not be interrogated with regard to the purchase of gold bars cited Supra in view of alleged statutory exemption
available for returning expatriate both by way of personal baggage exemption and also vide clause 130-A of the Second Schedule to the
Income Tax Ordinance. The assessee’s contentions were rejected by the first appellate authority. Before the Tribunal, the assessee again
argued his case on the same lines as before and the arguments did not find favour and the AAC’s order was maintained.
3. The assessee then filed a Miscellaneous Application for rectification of the Tribunal’s order bearing ITA No.4279/LB/2000 dated
24.1.2001 and now adopted a different stance and argued that the gold in question had actually been “imported“ by him into Pakistan and
such import was covered u/s 80-C of the Ordinance as it fell in the presumptive tax regime. It was argued that payment of duty on the gold
brought as Personal Baggage was akin to payment of tax u/s 50(5). The assessee’s contention was looked into and found to be
misconceived as the gold in question was admittedly brought as personal baggage item and duty duly paid to the custom authorities.
4. The D.R. has pointed out that under the law there is no way that the applicant can circumvent the fundamental requirement of
offering explanation in specific terms regarding the sources of investment involved as the assessee first purchased the gold and then
brought it into Pakistan. The D.R. pointed out that even if it be accepted that this is a case of “regular import” of gold into Pakistan, that
would not absolve the assessee from the separate requirement of explaining the sources of investment when called upon to do so by the
assessing officer and when the sources are not identified then formal cognizance is bound to be taken u/s 13(1)(aa) as the law clearly
provides. The D.R. emphasized that the provisions of Section 80-C are not an alternate to the provisions of Section 13(1)(aa) as the
assessee is trying to make out in the Reference Application. The A.R of applicant kept on harping on the theme that the case was covered
u/s 80-C & the duty paid at airport when the gold was brought into Pakistan and declared as personal baggage item is akin to tax paid u/s
50(5) & constituted full and final discharge of applicant’s liability and no further tax can be demanded u/s 13(1)(aa). The A.R. said that
even the Tribunal in its cited order No.4279/LB/2000 dated 24.1.2001 had referred to ‘import’ of gold by the applicant. It was pointed out to
the AR that the Tribunal had only clarified that, in its “broad connotation”, the act of bringing anything into Pakistan may be seen as an
‘import’. However, that did not mean that this ‘broad connotation’ of the term ‘import’ is the same as its “strict connotation” where an item
is formally imported into Pakistan after opening letter of Credit (L/C) and Bill of entry duly made out at Port stage and tax charged u/s 50

(5). However, the AR kept on taking refuge behind a purely semantic analysis and insisted that the gold in question had been imported into
Pakistan and was therefore placed in the presumptive tax regime u/s 80-C and hence enjoyed blanket immunity from all interrogation.
5. We have heard both sides and have examined the available record and our findings are recorded hereunder:-
1. Question No.1 as formulated above has been looked into. After due consideration, we find that the availability of resources to
finance purchase of cited gold bars is a question of fact. The Tribunal had held vide order referred to Supra that since actual
availability of sources to meet purchase of 3000 ‘tolas’ gold bars by the applicant /appellant had not been established , therefore,
recourse to the provisions of section 13(1) (aa) was justified. The applicant has not submitted any evidence whatsoever of (i)
actual resource availability and (ii) actual purchase of the gold in question. The conclusion is therefore inescapable that the
acquisition of 3000 tolas gold bars by the applicant/appellant is unexplained as to source. That being so, question No.1 as
formulated above is not a valid question of law and hence found not fit for reference.
2. Question No.2 has been examined. The applicant/appellant has filed no documentary evidence whatsoever to substantiate actual
resource availability and actual purchase of 3000 tolas gold bars. This is clearly not a case of regular import of gold and no Bill of
Entry has been made out. Rather, the gold has admittedly been brought into Pakistan as personal baggage item and receipt to this
effect issued by the Airport Custom Authorities has been duly filed by the applicant. The mode of entry of the gold bars into Pakistan
is thus clearly a question of fact. Whether the gold has been brought into Pakistan as personal baggage item or has been imported
into Pakistan, the applicant cannot be absolved from tendering explanation regarding sources of investment. As the
applicant /appellant has not rendered any explanation regarding resources involved , therefore, the provisions of section 13 (1) (aa)
are found to have been rightly invoked as the applicant is unable to offer any explanation regarding the sources of investment and
as the acquisition of gold is an activity prior to the act of bringing the cited gold into Pakistan , Question No.2 is thus found not fit for
reference as it is not a valid question of law.
3. Question No.3 has been looked into. By definition, a “REVISED RETURN OF INCOME” seeks to revise / amend an “Original
Return of Income.” The filing of a Return of Income is a question of fact and no question of law arises in this context. Hence
question No.3 is found not fit for reference.
4. Question No.4 has been looked into. After due consideration, we find that the Tribunal has not relied on any, so called, “irrelevant
assertion of the AAC” in reaching its conclusions as given in ITA No.4279/LB/2000 dated 24.1.2001. Applicant’s contention in
question No.4 is an incorrect, unsubstantiated allegation and not a question of law at all. Hence found not fit for reference.
5. Question No.5 has been examined. As no documentary evidence has been filed by the applicant/appellant to establish (i) actual
availability of resources and (ii) actual purchase of 3000 tolas gold bars, mere filing of copy of trade licence by the
applicant/appellant is not sufficient to discharge onus u/s 13. Similarly, proof to show that the applicant had been abroad for a
given period is also not sufficient to discharge onus u/s 13. As the applicant / appellant did not file the evidence required by the
assessing officer viz proof of resources and proof of actual purchase of gold, therefore, the question of subsequent interrogation u/s
62 on these points by the assessing officer did not arise. The question as posed is therefore, found to be totally misconceived and
moreover does not arise from the Tribunal’s cited Order. Hence question No.5 is found not fit for Reference.
The Reference application is disposed off as above.
(SYED NADEEM SAQLAIN ) (MUHAMMAD MUNIR QURESHI

JUDICIAL MEMBER (ACCOUNTANT MEMBER
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INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH
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ITA No. 552/LB/02

NTN: 04-13-0037451
Commissioner of Income Tax, Multan. Appellant
Versus
Muhammad Shahid, Ex-Prop: Madina Cold Storage

G.T. Road, Mian Channu. Respondent
Appellant by : Mr. Anwar Ali Shah, DR
Respondent by : Mirza Saleem Baig, Adv.
ORDER
This appeal by Revenue arises out of order of the CIT(A), Multan dated 10-08-2002.
2. It is the departmental contention that the first appellate authority has unjustifiably vacated the order of the assessing officer.
3. According to the DR, in this case, the assessee had realized a clear business gain arising out of sale of share in AOP and the
same has rightly been brought to tax as business income of the assessee. It is explained that on leaving the AOP in which he was a
member, the assessee received an amount of Rs.316,173/- which is the assessee’s share in the capital AOP and so reflected in the
relevant balance sheet of the AOP. After his departure as member of the AOP, the assessee sold his 10% share in AOP to M/s Jabir
Ahmad, Zakir Ahmad, Muhammad Usman, Abdul Manan, Ch.
(2) ITA No. 552/LB/02
Muhammad Hanif & Ch. Muhammad Riaz and in return received an amount of Rs.550,000/- from them thereby realizing a gain of
Rs.233,827/-. The assessing officer held this gain to be taxable and framed assessment accordingly.
4. Before the CIT(A), the assessee argued that depreciation as statutory had been allowed on the assets held by the AOP and the
profit earned on sale of such (depreciable) assets of the AOP should have been assessed in the AOP’s hands and the members of the AOP
were not liable to any tax on such profit. Thus, according to the assessee the share disbursed to him on his departure from the AOP is also

akin to sale of assets by the AOP. So far as the members are concerned, it was pointed out to the CIT(A) that as depreciation under the
Third Schedule is not allowable on the capital investment of the members of the AOP, Rule 7 of the Third Schedule is not applicable so far
as the gain in the hands of the member is concerned. The assessee’s contention found favour with the CIT(A) who held that the order
passed by the assessing officer determining business income u/s 22 of the (repealed) Ordinance, 1979 in the hands of the assessee was
not tenable as “neither the appellant claimed depreciation on capital investment nor had the department allowed the same to the assessee”
5. Before the Tribunal, the assessee’s AR has referred to ITAT judgment in a related case cited as ITA No.5572/LB/2002
(Assessment Year 1999-2000) dated 01-10-2003, in which the Tribunal has dismissed the departmental appeal against the order of the
CIT(A) and has maintained the viewpoint of the CIT(A) [Single Bench judgment].
(3) ITA No. 552/LB/02
6. According to the AR, as the facts and circumstances of the assessee’s case are same as is in cited judgment of the Tribunal, the
order of the CIT (A) is required to be maintained.
7. I have heard both sides and have examined the available record and in my considered judgment, prima facie, this is a clear case of
“capital gain” realized by assessee and the provisions of section 27 of the Income Tax Ordinance, 1979 [since repealed] therefore apply.
Rule 7 of the Third Schedule to the Income Tax Ordinance, 1979 [since repealed] clearly does not apply in this case as the AOP has not
realized any gain on disposal of its (depreciable assets). Rather, assessee’s “capital investment” in the AOP standing to his credit in the
balance sheet has been handed over to him on his departure from the AOP. The assessee has then sold his 10% share in the AOP to the
persons cited Supra and has realized a gain, as explained above. This is clearly a capital gain in his hands and was required to be brought
to tax accordingly. Assessee’s capital investment is not subject to any depreciation allowance and does not constitute immovable property
and is therefore not within the purview of sub-clauses (i) & (ii) of clause (a) of sub-section (2) of section 27 of the Income Tax Ordinance,
1979 [since repealed]. Any depreciation allowed to the AOP on its depreciable assets is a separate matter and is not at all of any direct
relevance in the context of capital gains realized by the assessee on sale of his 10% share in the AOP to the persons cited Supra.
(4) ITA No. 552/LB/02

8. In my judgment, the DR did not properly assist the Tribunal when appeal bearing ITA No. 5572/LB/2002 (Assessment Year 1999-
2000) dated 01-10-2003 was heard. The assessee / respondent was not present before the Tribunal on that date. The DR did not explain
to the Tribunal that rule 7 of the Third Schedule to the Ordinance was not relevant in the present case at all as that rule dealt with disposal
of depreciable assets and the treatment of resultant gains or losses. It was not explained that the AOP has not disposed off any
depreciable assets. Rather, only capital investment share has been disbursed to the outgoing member and as the member has been able
to get a higher amount from an incoming member stepping into his shoes and making capital investment in the AOP as Member of the
AOP, the differential amount is a capital gain. As the applicable law has not been properly appreciated by the Tribunal in its cited order for
lack of assistance, that order is an order passed ‘per incurium’ and is not binding on this Bench.
9. For the reasons given Supra, the order of the CIT (A) is found to be wholly misconceived in law and is hereby vacated. The order
of the assessing officer also cannot be maintained as the ITO has wrongly treated the gain realized on sale of his share in the
capital of the AOP as business income when it was actually a capital gain, as explained Supra. The order of the assessing officer
is therefore annulled. The assessing officer may however explore the possibility of suitable remedial action, as feasible in law,
subject to limitation of time laid down in law.
10. Resultantly, the appeal is disposed off as above.
(MUHAMMAD MUNIR QURESHI)

ACCOUNTANT MEMBER
[Empowered u/s 130 (8) (a) of the Income Tax Ordinance, 2001, to exercise powers and functions of the Appellate Tribunal sitting singly]
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RA No. 100/LB/04
NTN: 06-09-1445811
Commissioner of Income Tax, MTU, DHA, Lahore. Applicant
Versus
Faiq Qayyum, Kashmir Chemical Ind., Lahore. Respondent
Applicant by : Mr. Bashir Ahmad Shad, DR
Respondent by : Nemo.
ORDER
This reference application by Revenue, formulates the following question, statedly, question of law, for reference to the High Court:
-
“Whether the ITAT was right to hold that excise duty is to be debited to profit and loss account and not to
manufacturing and trading account”
2. According to the DR, excise duty being an indirect levy, properly pertains to the manufacturing / trading account and not to the P &
L account.
3. The assessee / respondent is not present and no adjournment has been sought. The application will be decided exparte on merits.
4. The question has been examined.
(2) ITA No. 100/LB/04

5. As clarified in “Carter’s Advanced Accounts, [page 31]: -
“DUTY: This includes both Customs and Excise duties. Customs duties are levied on goods imported and
exported; excise duties are imposed on goods produced and consumed in the country itself. A distinction
must be made between duties on Purchases and duties of Sales, the former being debited to Trading Account
and the latter to Profit and Loss”
5. The Tribunal in [1960] 2 – Tax (V – 4), has referred to the well-established accounting principle enunciated above and in ITA No.
7428/LB/96 (Assessment Year 1993-94) dated 30-10-2003, that principle has been followed by this Bench.
6. Excise duty is chargeable on the manufacture or sale of items of domestic consumption. Where in the case of a manufacturer /
product the levy is charged with reference to production or purchase of inputs, it is an integral component of cost of production and for
accounting purposes is required to be debited to the manufacturing / trading account. Where it is charged with reference to sales, it is to be
debited to the P & L account. Contrary to the popular view that every levy of excise duty is bound to be passed on to the customer in its
entirety, actual incidence of the duty will be determined by the manufacturer’s / producer’s relative competitive position vis-à-vis other
manufacturers / producers and the elasticity of demand of the finished product. Where the manufacturer’s relative position in the market is
good (i.e. he is able to keep cost down at least to the level of his competitors) and the finished product has relatively inelastic demand (i.e.
product is not price sensitive) the duty will be passed on to the purchaser in a greater degree than if the manufacturer’s / producer’s
position were
(3) ITA No. 100/LB/04
otherwise. It is certainly not axiomatic that the duty will always be passed on to the purchaser in its entirety. Obviously if the duty cannot be
passed on to the customer in its entirety it will erode the profit of the purchaser. Thus whereas income tax is invariably borne in full by the
person earning income, it is not axiomatic that excise duty will always ultimately be borne in its entirety by the purchaser. Admittedly, the
GP rate expressed as a percentage will rise where the duty is debited to the P & L account. However, the GP rate is nothing “sacrosanct”
and the assessing officers – and those who supervise them – need not be obsessed with it. While the significance of the GP rate as a
ready reckoner of (gross) profitability is certainly there – hence its significance as a parameter in a Scheme of Self Assessment – charging
excise duty to the manufacturing / trading account or the P & L account will not by itself alter the net profit of the business. However, since
all expenses and receipts are required to be correctly marshalled and charged, excise duty is to be charged to the manufacturing / trading
account or the P & L account depending on various aspects referred to Supra. There is no golden rule that it has to be charged to the
manufacturing / trading account under all circumstances simply because it is categorized as an indirect tax. Ultimately, all costs are
reflected in sale price and while it is a truism that the producer has to recover all costs if he is to stay in business, this too, is not always
true. Thus in “dumping”, goods are actually sold below cost in order to capture a market.
(4) ITA No. 100/LB/04
7. If the excise duty is indeed passed on in full to the purchaser and is not relatable to inputs at all as appears to be the case here
then obviously it has no bearing on product cost and it cannot therefore be charged to the manufacturing / trading account but is required
to be charged to the P & L account. If on the other hand excise duty were relatable to inputs/ production then to the extent that it enters
into product cost, it is required to be charged to the manufacturing account.
8. Whatever GP rate emerges as a result of the accounting treatment for excise duty will be the appropriate GP rate for that business
and this rate may or may not be consistent with the industry norm but it would not be proper to apply a higher GP rate simply because of

the general industry norm.
9. The question as formulated is not fit for reference to the High Court.
10. Reference is refused.

ACCOUNTANT MEMBER
(MUHAMMAD TAUQIR AFZAL MALIK)
JUDICIAL MEMBER

INCOME TAX APPELLATE TRIBUNAL,LAHORE BENCH

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MA No. 81/LB/03
NTN: 22-11-1718242
M/s TetraPak Pakistan Limited, Lahore. Applicant
Versus
Taxation Officer, Circle – 11, Coys. II, Lahore. Respondent
Applicant by : Mr. Shahzad Hussain, FCA.,

Mr. Asim Zulifqar ACA &
Mr. Hussain Tariq, Adv.
Respondent by : Mr. Anwar Ali Shah, DR and

Mr. Shahid Jamil Khan, LA
ORDER
This miscellaneous application by a limited company arises out of order of the tribunal bearing ITA No. 2179/LB/99 (Assessment Year
1994-95) dated 05-11-2002.
It is the applicant's contention that the tribunal has wrongly held that the applicant company produced no evidence before the assessing
officer to establish that it's excess income over imputable income as per computation of income for the year arises from the normal
business activities of the company in the period relevant to the assessment year under reference. It is the applicant's contention that a
written reply was duly filed before the assessing officer clarifying all pertinent aspects as evident from the assessment order itself. Thus
statedly prima facie, there was an error floating on the face of tribunal's impugned order that was required to be recalled / rectified.
Briefly stated, the relevant facts in this case are that the assessee company falls in the presumptive tax regime and has made total sales
aggregating Rs 518,687,063 in assessment year 1994-95, comprising exports Rs 12,037,045 and supplies (within Pakistan) Rs
506,650,018 and total tax deducted at source u/ss 80-C / 80-CC amounts to Rs 12,756,528. An additional amount of tax amounting to
Rs 376,924 has been deducted u/s 50(5) on imports of Rs 18,846,204 made by the company in the context of it's normal commercial
operations . On workback basis therefore, the total income imputable to the tax so deducted comes to Rs26,802,963 . As against this the
net profit declared by the company before taxation as per final accounts is cited at Rs 137,058,816 and after adjustments has been
determined by the
(2) MA No. 81/LB/03
assessing officer at Rs 153,578,877. Thus prima facie there is a difference of Rs 126,775,914 and this excess income over imputable /
presumptive income has been held by the assessing officer to have been not offered by the assessee company for levy of income. The
assessee company was formally required by the assessing officer to explain 'the fate of the book profit over and above the presumptive
income' . It is the assessing officer's finding that the assessee 'could not explain as to what is going to be the fate of the book profit over
and above the presumptive income.' The ACIT has held that such book profit attracts tax under normal rate and since such excess income
had been duly incorporated in the Balance Sheet the assessing officer charged the same to tax at normal rate.
The treatment as accorded by the assessing officer was found by the CIT(A) to be misconceived in law for the reason that the ACIT had
allegedly invoked the provisions of section 80C(5) read with section 13(1)(a) of the Ord'79 (since repealed) when the conditions precedent
for such invokation [of the provisions of section 13(1)(a) ] were statedly absent. Additionally, the CIT(A) has also found the charge of WWF
by the ACIT to be wrong as no order of assessment was required to be passed in the case of the assessee company (as it fell in the
presumptive tax regime) and was not so passed and as charge of WWF was consequential to such an order of assessment therefore it
followed that the ACIT's action in this regard was wrong. Resultantly, the entire demand raised against the assessee company stood
wiped out.
The deptt contested the CIT(A) adjudication of assessee company's appeal before the tribunal and the tribunal held that the CIT(A) was
misconceived in his view that the provisions of section 13(1)(a) / 30 could not have been invoked given the facts and circumstances of
assessee company's case and as unexplained excess income over imputable income was found to be indeed available to the company
( that had not been offered for tax although it was included in the overall book profit as per the final accounts of the company) the tribunal
held that recourse to the provisions of section 80C(5) was justified. The CIT(A) findings in this regard thus stood reversed. However with
regard to charge of WWF, the tribunal maintained the findings as recorded by the CIT(A).
It is now the assessee company's contention before the tribunal that the tribunal's finding with regard to invokation of section 80C(5) is
allegedly based on the mistaken presumption that the assessee had not filed any reply to the confrontation notice issued u/s 62 by the
assessing officer with regard to excess income over imputable income. It is vehemently argued that such a presumption was wrong as the
company had filed a reply on 25/6/97 to the ACIT's show cause notice dated 12/6/97. Additionally it is argued that, as pointed out to the
ACIT in it's reply to the show cause notice, the company maintains audited books of accounts and has no other source of income than that
disclosed in the final accounts and hence whatever profit arose
(3) MA No. 81/LB/03
can only be seen as emanating from the company's normal commercial operations. Furthermore it is argued that the assessing officer had
not rejected the assessee's books of accounts and in the absence of such prior rejection of it's audited books of accounts no addition could
statedly be made u/s 13(1)(a). Also, it is the applicant’s contention that its case falls in the presumptive tax regime and only statement u/s
143-B is required to be filed which has been done and as necessary tax due under the regime has been correctly deducted at source, the
declared version is statedly bound to be accepted – especially as it is supported by audited books of accounts / final accounts. AR of
applicant has also emphasized before the Tribunal that in the period subsequent to 1994-95, the department had not made any addition on
account of excess income by invocation of section 80C(5) and this was statedly indicative of the department’s acceptance of the declared

version in each year, as per accounts. Finally, the AR of applicant deposed before the Tribunal that the then Zonal CIT, Coys. Zone – II,
Lahore, had directed the then assessing officer not to invoke the provisions of section 80C (5) in the subsequent assessment years. Given
that the position regarding excess income / presumptive income statedly the same in these years as in 1994-95, this alleged direction of
the Zonal CIT to the assessing officer showed that the department was itself skeptical of the justification for invocation of section 80C(5) in
1994-95.
According to the AR of applicant the tribunals alleged “wrong finding” with regard to reply filed by the assessee company before the ACIT
fell within the scope of rectification.
The following case law has been cited by assessee and Revenue in support of their respective arguments before the Tribunal :
(1997) 76 Tax 5 (SC. Pak) ; (2003) 87 Tax 8 (Trib) ;

(1992) SCMR 687 ; 1971 PTD 204
(2003) 88 Tax 21 (Trib) ; 1992 PTD 570 SC ;
2000 PTD 14 Kar. H.C. ; 2000 PTD 306 Kar. H.C.;
(1980) 42 Tax 1 (Trib) ; 2000 PTD 2407
The DR and LA to the deptt have contested the submissions made by applicant's AR and the LA has argued strongly that the assessee's
prayer for rectification of tribunal's impugned order was utterly misconceived as there was no 'error' in that order. The LA submitted that the
applicant was only indulging in 'wordplay' when it said that the tribunal had wrongly held that 'no reply' had been filed by the company
before the ACIT when notice was issued to it regarding the ACIT's quantification of excess income over imputable income and his finding
that the same was liable to tax at normal rate as it had not been offered for tax by the assessee company. It is pointed out by the LA that
the tribunal had observed that no explanation” was offered by the assessee company which in the given context could only be taken to
mean that a plausible reply to the ACIT's show cause notice had not been offered which the LA asserts is also consistent with the
(4) MA No. 81/LB/03
factual position obtaining here.It is emphasised by the LA to the Deptt, that the Hon'ble Supreme Court of Pakistan in it's landmark Ellahi
Cotton Mills Ltd judgement [1997) 76 Tax 5 (SC. Pak)] had laid down the rule that where excess profits arise to an assessee and the
assessee cannot show, to the satisfaction of the assessing officer, that such excess profits arose out of the normal commercial activities of
the assessee as disclosed to revenue, then the deptt could take cognizance of such (unexplained) excess profits and bring the same to
tax. It is further emphasised by the LA that the Supreme Court had held in the cited judgement that the burden of proof was on the
assessee and if the assessee failed to discharge the burden of proof, in that event section 80C(5) could be legitimately invoked by
revenue. According to the LA the tribunal's finding was in consonance with the Supreme Court judgement as the assessee company had
indeed failed to establish before the ACIT that the huge excess profits over imputable income available to the assessee actually arose out
of it's normal commercial operations. As regards the assessee's AR's contention that addition (of excess profit amount) u/s 13(1)(a) was
not possible without first rejecting the books of accounts, the LA submitted that such a view was misconceived as section 13 was an
independent charging section and as held held by the tribunal in [(2003) 88 Tax 21 (Trib)] the relevant provisions could be invoked
independently by the assessing officer where the facts and circumstances so warrant and the statute did not envisage any prior
reequirement of rejection of books of accounts in this regard.
During the course of proceedings the tribunal had directed the applicant to make a response in the light of tribunal's judgement in appeal
cited as [(2003) 87 Tax 8 (Trib)] as in that appeal too the tribunal had dealt with the issue of excess profits arising to an assessee over the
imputable income.
According to the AR of applicant tribunal's cited judgement was statedly not applicable in the applicant's case as in the cited judgement the
assessee had failed to offer any explanation to the assessing officer's confrontation whereas the assessee applicant had allegedly duly
filed a proper reply to the ACIT's confrontation that was statedly plausible and thus merited acceptance by the tribunal.
The tribunal had also interrogated the applicant with the gross profit and net profit declaration of the assessee company over time and
especially the GP and NP disclosed by the company vis a vis other manufacturers in this line of business (manufacture of packaging
material).
The applicant had advised that the applicant statedly manufactured a unique product line using specialized materials and thus it's case
could not be fairly compared with other manufacturers .
The tribunal then pointed out to the applicant that many taxpayers “exploited” the presumptive tax regime by declaring inflated book profits
in the periods that they fell in this regime vis a vis the
(5) MA No. 81/LB/03
periods when they were assessed to income tax under normal law provisions. Such taxpayers routinely took the stance that whatever
book profit's they declared under the presumptive regime were the profit's that arose to them from their normal commercial transactions
and thus they were able to effectively get the benefit of huge excess profits without paying any income tax thereon.
The applicant while generally acknowledging that the GP and NP disclosed by the company had indeed increased under the presumptive
regime, especially in the subsequent assessment years, this was attributed by the AR to 'improved economies' due to better management
and increase in the output resulting in a spread of the fixed costs over increased output and thus reduction in unit costs and resultant
increase in GP / NP.
We have heard both sides and have perused the 'case law cited' and have examined the available record and our findings are recorded as
under:
1. In the reply filed by the assessee company to the ACIT's show cause notice not one word has been said by the company regarding
the alleged specialized nature of it's product line-up and the 'spread' of fixed costs over increased output and the role played by
both in enabling the company to realize huge excess profit's over imputable income. These "reasons" for the emergence of excess
profit's are now being cited before the tribunal for the first time. It folows therefore that the excess profit's whose "explanation" was
called for by the ACIT were never "explained" before the ACIT and only a general "reply"to the ACIT's show cause notice had been
sent stating simply that the company maintained audited books of accounts and had computed it's income for the year as per the
final accounts. Prima facie, therefore, the company failed to discharge the burden of proof referred to in the Supreme Court
judgement cited Supra and consequentially the tribunal has rightly held that no proper explanation has been offered by the company
in response to the ACIT's show cause notice. It must logically follow therefore that there is thus no "error" in the tribunal's order such
as that made out by the applicant.
2. We entirely agree with the LA to the deptt that the provisions of section 13(1)(a) are independently invokable and are not

dependent on any prior rejection of the books of accounts. Such excess profit's as have emerged in assessee company's case can only be
brought to tax through the machinery of section 13(1)(a) and not by direct invokation of the provisions of section 80C(5). Admittedly,
the ACIT has not circumvented this procedure.
3. The quantification of imputable income on "work back basis" as made by the ACIT is entirely reasonable and the tax deducted at
source on supplies, imports and exports is a sound parameter for working out the imputable income.
(6) MA No. 81/LB/03
4. There can be no doubt whatsoever that excess income over imputable income is indeed available to the assessee and the gap
between the two is so pronounced that it is not at all plausible to infer that the huge supernormal profit's / excess income available
to the assessee company arise from it's normal commercial transactions. The "ambient circumstances" here are of paramount
significance and these lead to the inescapable conclusion that given their quantum and the timeframe involved the excess profits
cannot be reasonably seen as arising to the company from it's routine commercial operations. Under these circumstances the
assessing officer has no option but to proceed u/s 80C(5) through the machinery provided by section 13(1)(a) / 30.
5. No doubt the assessee falls in the presumptive tax regime and has also been subjected to tax deduction at source, nevertheless,
the protection available to the assessee u/s 80C(4) is not a blanket protection and when excess income over presumptive income is
detected, the protection u/s 80C(4) will only be available if the assessee can satisfactorily establish before the assessing officer
that the excess income genuinely arises to the assessee from its normal commercial activity.
In the case of the present assessee, the record shows that in the years when the presumptive regime was not on the
statute i.e. prior to assessment year 1991-92, the gross profit percentage did not approach even 25% but w.e.f. assessment year
1991-92 ( when section 80-C come on the statute ) the GP percentage abruptly and significantly escalated to 33% odd in 1991-92,
38% odd in 1993-94, 40% odd in 1994-95 and 44.4% in 1996-97 and so on in the subsequent years as well. Considering that in the
entire corporate manufacturing sector in Pakistan a gross profit percentage of 25% is the exception, the sudden jump in the gross
profit percentage in assessee’s case after the presumptive tax regime came on the statute, is proof positive that the company
had “exploited” the presumptive tax regime by “laundering / whitening “ its hitherto undisclosed excess income now declared before
the department in the garb of higher gross profit. The explanation tendered by the assessee before the Tribunal (referred to Supra)
is clearly a rather naïve attempt to evade the core issue i.e. the sudden escalation in gross profit available to the company when
there has been no significant and demonstrable change in the objective parameters that determine gross profit in a given period.
6. AR’s contention regarding the then Zonal CIT’s alleged direction to the then assessing officer not to invoke the provisions of section
80C(5) in the subsequent assessment year, this is not borne out from the relevant record and no evidence in support of the
statement made was adduced by the AR before the Tribunal.
(7) MA No. 81/LB/03
7. As for the department not invoking section 80C(5) after assessment year 1994-95, we find that the department has very strongly
defended the invocation of section 80C(5) in 1994-95 and has firmly contested the relief accorded by the CIT (A) which clearly goes
to show that there is no wavering of the departmental resolve in 1994-95 to bring the excess income to tax. At the present time, we
are only concerned with 1994-95 and it would not be proper at this stage to take up the treatment accorded in the subsequent
years.
For the reasons given Supra, we hold that the impugned order of the tribunal is not open to any rectification as no "error" therein has been
conclusively established by the applicant. The application is accordingly rejected.

ACCOUNTANT MEMBER
(EHSAN UR REHMAN)
JUDICIAL MEMBER
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ITA No. 1186/LB/02
NTN: 30-03-0815592
M/s En-Em Industries Limited, Lahore. Appellant
Versus
CIT, Special Zone -, Lahore. Respondent
Appellant by : Mr. Muhammad Akbar, FCA
Respondent by : Mr. Anwar Ali Shah, DR
ORDER
This appeal by an unlisted public limited company arises out of order of the CIT, Special Zone, Lahore, exercising powers of the
IAC, u/s 66A of the (repealed) Income Tax Ordinance, 1979.
2. Briefly stated, the facts in this case are that in exercise of his revisionary jurisdiction u/s 66A of the (repealed) Ordinance, the CIT,
Special Zone, Lahore, exercising powers of the IAC has, on 25-02-2002, cancelled the assessment finalized by the ACIT u/s 62 of the
(repealed) Ordinance vide order dated 28-02-1998 for the reason that the assessing officer had allowed assessee’s claim amounting to
Rs. 4,95,06,000/- as an admissible deduction u/s 23 (1) (xviii) of the (repealed) Income Tax Ordinance, 1979, when the said payment
represented penal interest / additional mark up charged by NDFC for non-payment of loan amount outstanding against the assessee. It is
the CIT’s contention that
(2) ITA No. 1186/LB/02
payment made by an assessee on account of infarction of law is not an admissible deduction u/s 23 (1) as it is not a payment laid out
wholly or exclusively for the purposes of business. The CIT has referred to Supreme Court of Pakistan judgement reported as (1999)-79-
Tax-589, in this context.
3. The AR of appellant has contested the CIT’s action on several counts.
4. According to the AR, section 66A of the (repealed) Ordinance is specific to the IAC i.e. Inspecting Additional Commissioner of
Income Tax. In the present case, the powers u/s 66A having been exercised by the (Zonal) Commissioner of Income Tax and not by the
Inspecting Additional Commissioner of Income Tax, it is contended that the revision as made by the CIT is, prima facie, illegal and ab initio
void. It is argued by the AR that the IAC alone is empowered u/s 66A to revise order passed by the DCIT and the CIT finds no mention in
section 66A. It is especially pointed out that in the present case the order of assessment has been passed by the ACIT and not by the IAC
performing function of assessing officer and it is therefore essential that the IAC (not the CIT) invoked the powers specified u/s 66A.
5. According to the AR, the defect in jurisdiction in this case is incurable and necessarily fatal to the attempted revision of the ACIT
order.
(3) ITA No. 1186/LB/02
6. Referring to the Supreme Court of Pakistan order cited Supra, the appellant has argued that reliance placed by the CIT on the cited
judgement is misconceived for the reason that said judgement has been passed on 21-05-1998 which is after the date of finalization of
assessment u/s 62 by the ACIT (i.e. 28-02-1998) and being a subsequent judgement, it is statedly not applicable retrospectively /
retroactively as held by the ITAT in (2002) 86 Tax 44.
7. It is further the appellant’s contention that revision u/s 66A is ruled out as there is, statedly, nothing in the ACIT’s order of
assessment that may legitimately be seen to be erroneous in so far as it is prejudicial to the interests of revenue.
8. According to the appellant, as per terms of agreement reached between the assessee company (the debtor) and NDFC (the
creditor), an amount of Rs. 80 lacs is to be paid back to the assessee company by NDFC yearly, provided the assessee company is able
to make payment, as per agreed schedule. It is the appellant’s contention that the assessee company having fulfilled its obligation under
the agreement reached with NDFC, amount of Rs. 4 crores had been paid up by the NDFC uptill assessment year 2002-03 @ Rs.80 lacs
per annum and the same having been duly disclosed by the assessee company in its yearly return of income and the same having been
offered for tax, no prejudice had actually been caused to revenue and hence there was no justification for exercise of revisionary
jurisdiction u/s 66A. In this context, it is pointed out by the appellant that the total mark
(4) ITA No. 1186/LB/02
up, as per books aggregates Rs. 3,93,80,103/- and out of this, an amount of Rs.1,85,72,204/- constitutes additional mark up / penal
interest and against this amount Rs. 4 crores had been disclosed by the assessee company uptill assessment year 2002-03 @ Rs.80 lacs
per annum received from NDFC. Thus against additional mark up amount of Rs.1,85,72,204/- paid by the assessee company an amount of
Rs.4 crores had been declared by the assessee to the department by recognizing benefits it has received from NDFC and after invocation
of the provisions of section 66A, it was the assessee company’s predicament as to how to account for the disclosure of said amount of
Rs.4 crores to the department by the assessee company.
9. According to the DR, the appellant’s challenge to the jurisdiction of the CIT, Special Zone, Lahore, in matter pertaining to the
invocation of the provisions of section 66A, is wholly misconceived as the Special Zone has specialized jurisdiction over cases involving
textiles, including dying / finishing / processing of cloth and in this Special Zone, the IAC exercised functions of assessing officer (i.e. DCIT)
and the Zonal Commissioner of Income Tax supervised the assessment work, besides administering the Zone, and thus was the de-facto
IAC just as the IAC was the de-facto DCIT. It is pointed out by the DR that the original assessment had been finalized by the ACIT in a
different Zone i.e. Company Zone – III, Lahore and the case thereafter had been especially assigned to Special Zone, Lahore alongwith
other cases of textiles. On transfer to Special Zone, the case was placed in the charge of IAC performing the function of

(5) ITA No. 1186/LB/02
DCIT and such IAC / DCIT was supervised by the CIT who was performing the functions of IAC. It is emphasized that there is no other IAC
in the Special Zone besides the IAC performing the functions of DCIT and only the Zonal CIT had been invested with the authority to
supervise the IAC performing the functions of DCIT in the Special Zone. Under the given facts and circumstances, therefore, it is
contended that only the Zonal CIT could invoke the provisions of section 66A and that is what has been done in this case and there is
therefore no defect of jurisdiction whatsoever in the order as passed by the CIT.
10. As for the reliance placed by the CIT on the cited Supreme Court of Pakistan judgement, it is the DR;s contention that the said
judgement lays down a principle of law that is well recognized viz: no payment made by way of penalty for violation of law can be claimed
as admissible deduction u/s 23 (1) of the (repealed) Ordinance and the date of cited order of the Supreme Court of Pakistan is not the Ist
time that the said principle had been recognized by the department.
11. As regard the appellant’s contention that no prejudice has been caused to revenue, the DR pointed out that in the assessment year
1997-98, additional mark up / penal interest had admittedly been paid by the assessee company to NDFC on account of its failure to pay
back loan amount in time to NDFC and by debiting such additional mark up / penal interest to P & L account of the company for that year,
the net income stood
(6) ITA No. 1186/LB/02

reduced resulting in reduced tax demand and the consequent loss to revenue is therefore obvious. That being so, it is contended that
invocation of the provisions of section 66A was fully justified.
12. Finally, as regards the so called benefit to revenue resulting from payment of Rs. 80 lacs per annum by NDFC to the assessee
company subsequent to finalization of assessment for 1997-98, it is contended that the same is not relevant to assessment of assessee’s
total income for 1997-98 and hence of no consequence in the present case.
13. We have heard both sides and have examined the available record and our findings are recorded as under: -
1. Appellant’s challenge to the jurisdiction of the CIT, Special Zone, Lahore, to invoke the provisions of section 66A, has been duly
considered and in our judgement the same is patently misconceived. As rightly pointed out by the DR, the CIT Special Zone, Lahore, in
the case of the assessee company, is actually performing the functions of IAC, just as the functions of assessing officer were being
performed by the IACs posted in the said Zone. Just as a DCIT is required to be supervised by an IAC, so an IAC working as DCIT is
required to be supervised by the CIT working as IAC (i.e. the next higher ranking officer in the departmental hierarchy). Obviously, an
IAC working as DCIT cannot be supervised by another IAC. It is therefore perfectly logical as well as legally correct that an IAC working
as DCIT be supervised by CIT working as IAC.
(7) ITA No. 1186/LB/02
The fact that the original assessment in this case has been finalized by an ACIT is not at all relevant as the said ACIT was
placed in a different Zone altogether in which there was no specialized assignment of jurisdiction in textile cases, as in
Special Zone, Lahore, and the appellant’s case having been transferred from that Zone to the Special Zone, Lahore, the
administrative hierarchy of Special Zone became relevant. In that hierarchy, the IAC was the DCIT and the CIT was the IAC
which arrangement in no way divests the CIT working as IAC from exercise of jurisdiction u/s 66A. We therefore hold that the
exercise of jurisdiction u/s 66A by the CIT, Special Zone, Lahore is inorder.
2. The reliance placed by the CIT, Special Zone, Lahore on the cited Supreme Court of Pakistan judgement has been looked
into and we find that this is not for the first time that it has been held by the superior judiciary that liability arising from
infarction of law did not constitute admissible business expenditure. Reference is made in this context to reported Lahore
High Court judgement cited as (1979) 40 Tax 55 and Karachi High Court judgement cited as (1985) 52 Tax 146. The
conditions precedent for claim of expenses as admissible deduction have been explained in Lahore High judgement cited as
(1979) 40 Tax 62
(8) ITA No. 1186/LB/02
and it is clarified in the said judgement that only such expenditure can qualify as an admissible business expenditure that has been
incurred for the sole objective of promoting the business, whether directly or indirectly. Needless to say, payment of penalty for infarction
of law cannot be reasonably seen as expenditure incurred for promotion of business and such expenditure must therefore be disallowed
in its entirety. Failure of the assessing officer to recognize the patent inadmissibility of such expenditure an admissible deduction is fully
actionable u/s 66A as prejudice to revenue is inevitable when the assessing officer fails to tae cognizance of an deduction claimed by
the assessee.
We will therefore hold that reliance placed by the CIT on the reported Supreme Court of Pakistan judgement is quite in order.
3. Coming now to the appellant’s contention that benefit received by the assessee company from NDFC subsequent to finalization of
assessment for 1997-98 @ Rs. 80 lacs per annum and aggregating Rs.4 crores uptill assessment year 2002-03 having been duly
disclosed by the assessee company in the returns of income filed annually, there was no real loss of revenue in the final analysis and
hence there was no cause for action u/s 66A.
(9) ITA No. 1186/LB/02
In our considered judgement, the appellant’s contention on the matter is totally misconceived as the events subsequent to
1997-98 assessment year in which the provisions of section 66A have been invoked can have no bearing on the exercise of
revisionary jurisdiction by the CIT in that year (i.e. 1997-98). Admittedly, in the one year that deduction on account of
additional mark up / penal interest has been allowed to the assessee company, less tax is payable by the assessee company
than what would be payable if the deduction had been recognized to be inadmissible in law and had not been allowed by the
assessing officer. Under the given facts and circumstances, prejudice to revenue in assessment year 1997-98 is manifest
and what has happened in the subsequent years is altogether a different sequence of events that in no way can be claimed
to neutralize / nullify the loss to revenue in assessment year 1997-98 resulting from the assessing officer’s patent failure to
recognize an inadmissible deduction u/s 23 (1). We therefore see no merit in appellant’s reference to the amount of Rs. 4
cores received by the assessee company from NDFC uptill 2002-03 so far as the CIT’s action u/s 66A is concerned in
assessment year 1997-98.
(10) ITA No. 1186/LB/02
4. We note that the CIT has cancelled the assessment framed in this case and has directed the assessing officer to reappraise the
claim of additional mark up / penalty interest preferred by the assessee company. The assessee will have full opportunity to explain its
point of view further before the assessing officer.

5. For the reasons recorded Supra, we maintain the order as passed by the CIT, Special Zone, Lahore.
Resultantly, the appeal is rejected.

ACCOUNTANT MEMBER
(EHSAN UR REHMAN)
JUDICIAL MEMBER
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MA No. 662/LB/03
NTN: 19-02-0391558
Mr. Irfan Farooq C/o Prestige Surgical

(Pvt) Limited, Sialkot. Applicant
Versus
DCIT/WT, Circle –02, Sialkot. Respondent
Applicant by : Mr. Shafqat Mehmood Chohan, Adv.
Respondent by : Dr. Abdul Sattar Abbasi, DR
ORDER
This misc. application by an individual is for recall of Tribunal’s order bearing WTA No. 1276/LB/02 (Assessment Year 2000-01)
dated 15-08-2003.
2. As per applicant, the judgment as passed by the Tribunal is in conflict with the judgment allegedly announced in Court on 13-08-
2003 when, as per affidavit filed by the assessee, the Tribunal had, statedly, rejected the departmental appeal. Further, according to the
applicant, the aforecited order of the Tribunal is erroneous insofar as the facts of applicant’s case have not been properly appreciated and
reliance has wrongly been placed on Supreme Court of Pakistan judgment cited as [1964 PLD 456] and the applicant has been wrongly
cited as “co-owner” in plot measuring 34 Kanals (680-marlas) at Zafar Ali Road, Sialkot Cantt, in which assessee’s share had been
determined at 85 marlas & has been appraised for purposes of levy of wealth tax by
(2) MA No. 662/LB/03

the assessing officer at Rs. 1,27,0000/- per marla thus aggregating total value in assessee’s hands at Rs. 10,795,000/-.
3. Briefly stated, the relevant facts in this case are that the assessee filed return of net wealth for the assessment year 2000-01 in
which assessee’s share in the plot of land referred to Supra has been duly declared at Rs. 2,50,000/-. On scrutiny of the return, the
assessing officer found the declared value to be understated and proceeded to appraise the plot as per rate schedule notified by the
District Collector, Sialkot (Sr.No.73 of the rate list) at Rs. 1,27,000/- per marla and resultantly, the total value in assessee’s case for 85
marlas came to Rs.10,795,000/-. The treatment as accorded by the assessing officer was contested by the assessee before the CWT(A)
who held that there being no mutation of the cited property in assessee’s name, therefore the said plot of land was not to be included in the
“net wealth” of the assessee as defined in section 2 (1) (16) of the Wealth Tax Act, 1963 (since repealed). Resultantly, the order of the
assessing officer was held to be not sustainable on this issue and vacated.
4. The department filed appeal before the Tribunal against the order of the CWT(A) contesting the findings as recorded by the first
appellate authority with regard to the cited property. The Tribunal vide WTA No. 1276/LB/02 (Assessment Year 2000-01) dated 15-08-
2003 disposed off the departmental appeal and after examination of various pertinent aspects pertaining to valuation of the cited property
held that the assessee was indeed the “owner”
(3) MA No. 662/LB/03

of said property and the order of the CWT (A) accordingly vacated and assessing officer’s order reinstated. In reaching the conclusion that
the assessee is “owner” of the said plot, the Tribunal has taken cognizance of the all important fact that the assessee has himself cited the
said plot in his personal wealth tax return as his immovable property and has included the same in his net wealth. Further more, the
Tribunal has noted that the assessee having made full payment to the seller and an agreement to sell having been executed and duly
registered with the sub-Registrar, Sialkot, the assessee’s rights in the said property were fully protected and reference has been made in
this context to Hon’ble Supreme Court of Pakistan judgment as recorded in the case of Mst. Ghulam Sakeena Vs. Umer Baksh and
another Civil Appeal No.66 of 1963 decided on 2nd April, 1964 and reported as PLD-1964-SC-456. Also, the Tribunal has referred to
judgment cited as 1-ITC-140 (Burma). The conclusion drawn by the Tribunal is that:
“Ownership” for purposes of levy of wealth tax under the Wealth Tax Act, 1963 (since repealed) does not have the narrow and technical
meaning that has been assigned to it by the CWT (A). It is significant that the term “owner” has not been defined in the Wealth Tax Act,
1963, and this, in our view, this is deliberate and if the law had indeed intended to define “owner” in a narrow technical sense of the word
then it would have done so. The fact that the law had not done so shows that the law never intended to give it this narrow and technical
meaning that has been wrongly held to be applicable by the CWT (A)”. (SIC)
5. The assessee has now filed misc. application in which it is contended that the Tribunal’s order was erroneous and reliance
(4) MA No. 662/LB/03
placed on cited Supreme Court of Pakistan judgment is misplaced as the said judgment allegedly did not have relevance in the context of
levy of wealth tax under the Wealth Tax Act, 1963 (since repealed). It has been further contended that the Tribunal has unjustifiably held
earlier judgments of the Tribunal cited by the assessee when arguing the main appeal to be order passed “per incurium” and according to
the applicant, the said judgments had binding force and were bound to have been followed by the Tribunal. Also, it has been pointed out
by the learned AR of the applicant that the Hon’ble Lahore High Court had restrained the assessee from any subletting of main plot and
also its alienation.
6. As pointed out Supra, the applicant has filed an affidavit with the misc. application in which it has been stated that the Tribunal on
13-08-2003, when the main appeal had come up for hearing, had rejected the departmental appeal and had so announced in open Court.
This contention of the applicant has been looked into. Applicant has been told that as per noting made in the court registers of both the
Judicial Member and Accountant Member of the Bench, there is no mention of any judgment having been announced in open Court on 13-
08-2003. Also, the Members of the Bench do not recall that had they made any such announcement nor is there any independent
corroboration thereof. After discussion of the matter, the AR of applicant submitted that in actual fact he had gathered the impression that
the departmental appeal had been rejected and he acknowledged that the Bench did not make any specific announcement regarding
(5) MA No. 662/LB/03
rejection of the departmental appeal. That being so, this part of the affidavit is rendered infructuous as it is admittedly based on a mis-

appreciation of the factual position.
7. The departmental representative has contested the submissions made by the learned AR and it is argued that the Tribunal having
taken a conscious decision as to the meaning of the term “owner”, as envisaged in wealth tax law, that firm finding could not now be
looked into afresh as it would amount to a “review” which is not permissible in law.
1. The condition precedent for any action u/s 35 of the Wealth Tax Act, 1963, is the existence of a mistake on the face of the record.
According to the learned AR of applicant such a mistake is present insofar as the Supreme Court of Pakistan judgment cited by the
Tribunal as [1964 PLD SC 456] is statedly not applicable as the facts in that particular case are different from those obtaining in the
present assessee’s ease insofar as the case of the assessee involves wealth tax assessment / appraisal of immovable property for
purposes of levy of wealth tax whereas in the cited Supreme Court judgment, question of ‘dower debt’ etc was involved. In view of the
different context of the two cases, it is contended
(6) MA No. 662/LB/03
that there is both a factual as well as a legal mistake in the main order of the Tribunal dated 15-08-2003 and hence recourse to the
provisions of section 35 of the Wealth Tax Act, 1963 (since repealed) is justified.
We have looked into the applicant’s contention and in our considered judgment, the “ratio” of the cited Supreme Court of Pakistan
judgment is fully applicable in the case of the present assessee. We have made it abundantly clear on Page-6 of Tribunal’s main order
dated 15-08-2003 that “ownership” for purposes of levy of wealth tax under the Wealth Tax Act, 1963 has a much broader scope than that
attached to it by the CWT (A). It has been pointed out that the term “owner” has not been specifically defined in the Wealth Tax Act, 1963
and this has been held to be deliberate because if the law had indeed intended to define “owner” in a narrow technical sense of the word
then it would have done so [1-ITC-140(Burma)]. We have then explained that as held by the Supreme Court of Pakistan in [PLD-1964-SC-
456], the rights of the present assessee making payment for purchase of immovable properly & who is in possession of the cited property
are fully protected notwithstanding the fact that a registered sale deed had not been executed. Thus once payment has been made and
possession handed
(7) MA No. 662/LB/03
over in the presence of a formal document viz; agreement to sell, there was no way the seller could curtail in any manner the rights of the
purchaser in the said property and there was no way any one claiming title to the said property under the seller could alter the rights of the
purchaser to the purchaser’s disadvantage. This finding of the Supreme Court of Pakistan has been found to be fully applicable in
assessee’s case, as the purchase of immovable property in assessee’s is similar insofar as plot of land had been purchased without
execution of sale deed and there is an agreement to sell, duly registered, payment has been made and possession handed over to the
assessee. As per ratio of the Supreme Court of Pakistan judgment therefore, the assessee is now, “owner” of the said plot of land under
the Wealth Tax Law.
In view of the observations recorded, we hold that reliance placed by the Tribunal on the Supreme Court of Pakistan judgment cited as
[1964 PLD SC 456] is not misplaced.
2. When the assessee has himself asserted “ownership” of the said plot of land in the Return of net wealth filed by him and when the
law protects the rights of the assessee who holds the cited property without fear of challenge from the seller or any one
(8) MA No. 662/LB/03
acting under him, there cannot, in our considered judgment, be any doubt as to the assessee being “owner” of the said property “under
wealth tax law”. In the case of the present assessee, the said plot of land is specifically cited by him in his Wealth Tax Return as his asset.
A specific value has been attached to the said asset by the assessee in the return and the asset has been included in the assessee’s net
wealth. As assessee is admittedly in possession of the plot and has made full payment to the seller and formal agreement to sell has been
executed and registered, the assessee is indeed the “owner” of the said plot “under wealth tax law”.
3. The Tribunal in WTA No. 1123/LB/00 (Assessment Year 1998-99) dated 31-07-2003 has held that the assessee is “owner” of shop
at Sadiq Plaza, for which payment at Rs. 6,83,000/- has been made and possession is admittedly with the assessee. Notwithstanding the
fact that sale deed has not been executed, it has been held that the “ambient circumstances” were compelling and clearly indicated
“constructive ownership” of the assessee in respect of the premises and although the assessee in that case said that the payment made
was only an “advance”, the Tribunal rejected that contention and held the assessee held to be “owner” of the shop. In the present
assessee’s case as well, it is asserted by
(9) MA No. 662/LB/03
the learned AR that payment made by the assessee for the plot may be treated as “advance” etc. Tribunal’s judgment WTA No.
1123/LB/00 (Assessment Year 1998-99) dated 31-07-2003 has been passed by the same Bench / Member that has passed judgment in
WTA No. 1276/LB/02 (Assessment Year 2000-01) dated 15-08-2003. Precedent law of the Bench itself is of considerable significance and
cannot be ignored by the Bench.
4. The judgments cited by the assessee before the Tribunal have been held to be orders passed “per incurium” as the law pertaining
to meaning of “ownership” under wealth tax law has not been properly appreciated in the said judgments, as explained Supra.
5. Notwithstanding the fact that the assessee has been stopped from subletting / alienation of plot, he still, in our judgment, remains
“owner”, under wealth tax law,as explained Supra. We reiterate here that under wealth tax law the term “owner” has a broader connotation
than that ordinarily attached.
The present application is found to be devoid of any merit and is hereby rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 332/LB/03
ITA No. 333/LB/03
ITA No. 334/LB/03
ITA No. 335/LB/03
ITA No. 336/LB/03
ITA No. 337/LB/03
NTN: 30-02-0658669
M/s Bilal Fibres Limited, Lahore. Appellant
Versus
Commissioner of Income Tax, Zone – III, Lahore. Respondent
Appellant by : Mr. Muhammad Habib Ullah, Adv.
Respondent by : Mr. Mahmood Jaffery, DR
ORDER
These appeals by a public limited company arise out of order of the CIT(A), Zone – III, Lahore dated 10-12-2002: -
2. It is the appellant’s contention that the first appellate authority has illegally rejected appellant company’s claim with regard to
brought-forward depreciation pertaining to assessment years 1991-92 to 1993-94.
(2) ITA No. 332-337/LB/03

3. The facts in this case are that the assessee company has been assessed u/s 62 for assessment years 1991-92 to 1993-94 and u/s
80-C (presumptive regime) for 1994-95. Thereafter, assessments have again been framed u/s 62. According to the AR, the company’s
depreciation claim for 1991-92 to 1993-94 was required to be carried forward as it could not be adjusted against income in these years.
However, the department is of the view that as assessment for 1994-95 has been framed u/s 80-C, it represents final discharge of all
liabilities till 1994-95 and hence the depreciation claim pertaining to 1991-92 1993-94 could not be carried forward to 1995-96 and beyond.
The AR argues that the departmental contention is wholly misconceived and against express statutory stipulation. It is emphasized that the
law does not impose any embargo on carry forward of depreciation claim / losses notwithstanding an assessment made u/s 80-C in an
intervening period – in this case assessment year 1994-95. The AR has specifically drawn our attention to case law cited as ITR-1962-46-
707 in which it has been held that unabsorbed depreciation claim can be carried forwarded “add – infinitum”. Separate case law reported
as (1995) 71 Tax 221 (Trib) has also been cited by the AR in support of his contention regarding carry forward of loss / unadjusted
depreciation.
4. The DR opposes the AR’s contention and argues that as assessment for 1994-95 has been framed u/s 80-C, all prior claims with
regard to unabsorbed depreciation are deemed to have been finally settled / discharged in that year.
(3) ITA No. 332-337/LB/03
5. We have heard both sides and have examined the available record and have also perused the case law cited before us. After due
consideration of all pertinent aspects, we are of the considered view that the department is misconceived in its view regarding alleged final
adjustment of assessee’s depreciation claim for 1991-92 to 1993-94 in the assessment year 1994-95 in which year assessment has been
framed u/s 80-C following filing of statement u/s 143-B by the assessee company. Finalization of assessment u/s 80-C does not
‘extinguish’ assessee’s claim of unadjusted depreciation pertaining to 1991-92 to 1993-94. The statute does not impose any estopple in
this regard. Sections 34 to 38 of the repealed Income Tax Ordinance, 1979, are very clear in this context and do provide for carry forward
of unabsorbed depreciation. The ‘condition precedent’ for ‘set off’ however, is that the brought forward losses be first determined through
an order made under sections 59, 69A, 62 63 or 65. In the case of the present assessee, it is not denied by Revenue that assessments for
1991-92 to 1993-94 have made u/s 62. The CIT(A) has however observed in his appellate order that necessary evidence regarding
assessee’s depreciation claim was not available on the assessment record. It is not clear to us as to what the CIT(A) exactly means by
this. He has not denied that assessments for 1991-92 to 1993-94 have been finalized u/s 62. If that be correct then this being the case of a
public limited company, it is not conceivable that the depreciation claim put forward by the assessee would not have been looked into at
the time of assessment. In any case, if there be a deficiency in this regard, the same can be remedied if the
(4) ITA No. 332-337/LB/03
department is at fault, since depreciation allowance is a statutory allowance and cannot be denied to the assessee so long as it is
consistent with statutory stipulation. It is the substantive as well as a vested right of the assessee and it cannot be refused on flimsy
technicalities. So far as assessment year 1994-95 is concerned, the provisions of section 80-C apply to whatever transactions take place
within the time frame relevant to assessment year 1994-95. These provisions have no applicability to prior transactions. Assessee’s
depreciation claim arising in 1991-92 to 1993-94 cannot be deemed to have been settled / finally discharged in assessment year 1994-95.
There is no change in the constitution of the assessee company in the assessment year 1995-96 onwards vis-à-vis 1991-92 to 1993-94.
6. Under the given facts and circumstances therefore, we hold that depreciation claim pertaining to assessment years 1991-92 to
1993-94 is eligible to be carried forward to 1995-96 and onwards till such time as it is finally adjusted. The order of the CIT(A) is hereby
vacated and the assessing officer is directed to properly quantify the amount of depreciation involved in the assessment years 1991-92
to 1993-94, keeping in mind the observations recorded Supra and to make adjustment thereof in accordance with law in the assessment
year 1995-96 onwards.


ACCOUNTANT MEMBER
(KHAWAJA FAROOQ SAEED)
JUDICIAL MEMBER
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WTA No. 1271/LB/02
WTA No. 1272/LB/02

NTN: 19-02-162885
SOIT/WT, Circle – 02, Sialkot. Appellant
Versus
Mian Burhan Khalid C/o M.F. Ellahi & Co (Pvt)

Limited, Silakot. Respondent
Appellant by : Mr. Abdul Rasheed, DR
Respondent by : Mr. Shahfqat Mehmood Chohan, ADV.
ORDER
These appeals by Revenue arise out of order of the CWT(A), Sialkot Zone, Sialkot dated 04-04-2002.
2. It is the departmental contention that the first appellate authority has unjustifiably vacated order passed by the assessing officer u/s
16 (3) / 17B of Wealth Tax Act, 1963 (since repealed).
3. Briefly stated, the relevant facts in this case are that the assessee, an individual, is co-owner in a plot situated at Zafar Ali Road,
Sialkot Cantt and assessee’s share in the property has been determined at 170-Marlas and appraised for purposes of levy of wealth by the
assessing officer @ Rs. 1,27,000/- per marla which comes to Rs. 2,15,90,000/-. As against this, in the return of net wealth filed by the
assessee, the said plot has been declared by the assessee to show a value of Rs. 8 lacs which represents
(2) WTA Nos. 1271-1272/LB/02
assessee’s share in the total payment made at Rs. 32 lacs for the entire property that has been purchased through an “agreement for sale”
duly registered with the Sub-Registrar, Sialkot dated 20-03-1999, pursuant to execution of a registered general power of attorney in the
name of Mian Khalid Pervaiz.
4. According to the assessing officer, the property in question having been duly declared in the wealth tax return by the assessee, the
same was liable to be appraised for purposes of levy of wealth tax, as per express stipulation obtaining in rule 8(3), Ist proviso, at the DC
notified rate that had been fixed at Rs.1,27,000/- per marla vide entry at Sr. No. 73 of the rate list notified by the District Collector and the
assessee having declared the same at Rs. 8 lacs only which was much less than the value arising as per DC notified rate list, the
assessing officer redetermined the value of assessee’s share in the said plot at Rs.2,15,90,000/- @ Rs. 1,27,000/- per marla for 170
marlas.
5. Before the assessing officer, the assessee had contested the treatment intended to be accorded by the assessing officer that had
been earlier confronted to him. It was the assessee’s contention that the plot in question was “disputed” by another claimant, Maj (R)
Pevaiz Iqbal and civil suit had been lodged by the said claimant. It was pointed out that no sale deed for the plot had been executed and
title had therefore not passed to assessee and assessee was accordingly not liable to be treated as “owner” of the plot.
(3) WTA Nos. 1271-1272/LB/02
6. Assessee’s submissions were considered and rejected by the assessing officer who held that the assessee having purchased the
plot through an “agreement of sale” duly registered with the Sub-Registrar and very importantly, the assessee being effective possession
of the said plot, was liable to be treated as its ‘owner’ for purposes of levy of wealth tax under the Wealth Tax Act, 1963.
7. Before the first appellate authority, the assessee reiterated his submissions made earlier before the assessing officer and argued
that since legally he was statedly not the owner of the said plot, the same could not be assessed in his hands in the manner done by the
assessing officer and at best the amount paid at Rs.8 lacs may be included in the assessee’s net wealth as “Advance” paid by the
assessee for the said plot.
8. The assessee’s submissions found favour with the CWT(A) who held that the assessee was not the “owner” of the said plot, there
being no registered sale deed and hence title had not passed to the assessee.
9. The department is aggrieved with the finding as recorded by the CWT (A).
10. According to the DR, the assessee alonwith the other share holders in the said plot having made full payment to the seller for the
property and the property being in the complete possession of the purchasers and in the presence of a formal arrangement / viz
agreement to sell, duly registered with the Sub-Registrar, Sialkot,
(4) WTA Nos. 1271-1272/LB/02
there could be no doubt that the property in question was indeed an asset “belonging to the assessee” and hence liable to be treated as
integral component of assessee’s net wealth u/s 2 (16) of the Wealth Tax Act, 1963.
11. AR of the assessee / respondent has strongly contested the arguments as made by the DR. According to the AR, the title to the
property in question had not passed to the assessee uptill the valuation date, as no registered sale deed had been executed and the
agreement to sell, though registered with the Sub-Registrar, Sialkot, was not sufficient to lead to a transfer of title from seller to the
purchaser. It is pointed out that this has been so held by the ITAT in WTA Nos. 124 – 126/LB/02 (Assessment Years 1997-98 to 1999-00)

dated 26-02-2002. It is the AR’s contention that as per the cited order of the Tribunal the word “belonging” used in section 2 (m) of the
Wealth Tax Act, 1963 (since repealed), in the context of “net wealth” refers to full and complete ownership and purchase of property
through an “agreement to sell” did not vest the purchaser with full and complete ownership rights, as envisaged in law and hence the said
property did not constitute an asset of the assessee and could not therefore be included in the assessee’s net wealth. The AR has also
emphasized that title to the said property was the subject of litigation as another claimant, one Maj (R) Pervaiz Iqbal, also claimed to hold
title to the said property and in view of the dispute between the parties, the assessee could not be treated as rightful owner of the said
property .
(5) WTA Nos. 1271-1272/LB/02

1. Admittedly, in the case of the present assessee, the assessee’s share in the plot is in his full and complete possession and he has
made full payment to the seller in order to be allowed to so hold the plot. Admittedly also, there is a formal arrangement in existence viz:
an agreement of sale that has been duly registered with the Sub-Registrar, Sialkot. Furthermore, it is also admitted that the seller has
received full payment for the complete plot from all the shareholders. It is also acknowledged that the assessee has himself cited the
said plot in his personal wealth tax return as part of his net wealth. The question now arises whether the assessee is liable to be treated
as “owner” of the said plot, given the facts and circumstances cited Supra, including the case law referred to by the assessee’s AR
before the Tribunal.
The assessee has referred to a judgement of the Tribunal (WTA Nos. 124-126/LB/02 (Assessment Years 1997-98 & 1999-
00) dated 26-02-2002) in which the assessee’s point of view has been upheld and in which case the facts and circumstances
pertaining to nature of purchase, agreement to sell, and disputed title are on similar lines as in the case of the present assessee.
(6) WTA Nos. 1271-1272/LB/02
However, in our considered judgement, in view of the Hon’ble Supreme Court of Pakistan decision as recorded in
the case of Mst. Ghulam Sakeena Vs. Umer Baksh and another (Civil Appeal No.66 of 1963 decided on 2nd April, 1964
and reported as PLD-1964- SC-456), the seller of the said plot of land having received full payment and having handed over
possession to the purchaser in the presence of a formal document viz: agreement to sell, duly registered, there was no way
that the seller could curtail in any manner, the rights of the purchaser in the said property and there was no way any one
claiming title to the said plot under the seller could alter the rights of the purchaser to the purchaser’s disadvantage. In view
of ratio of the Hon’ble Supreme Court of Pakistan decision, therefore, there can be no doubt in our mind that the assessee is
indeed the “owner” of the said plot of land for all practical purposes and certainly for purposes of levy of wealth under the
Wealth Tax Act,.1963.
2. “Ownership” for purposes of levy of wealth tax under the Wealth Tax Act, 1963 (since repealed) does not have the narrow
and technical meaning that has been assigned to it by the CWT (A). It is significant that the term “owner” has not been
defined in the Wealth Tax Act, 1963, and this, in our view, this is deliberate and
(7) WTA Nos. 1271-1272/LB/02
if the law had indeed intended to define “owner” in a narrow technical sense of the word then it would have done so. The fact that the
law had not done so shows that the law never intended to give it this narrow and technical meaning that has been wrongly held to be
applicable by the CWT (A).
In Burma Railway Co. V. Secretary of State [1 ITC 140 (Burma)], it has been held that: -
“It must be presumed that the legislature was aware that the expressions ‘owner’, ‘ownership’ and the
verb ‘to own’ in its various tenses have been frequently used in Acts of a similar nature and further that
they can be and are used in various meanings in different Acts, in some of which they have been
specially defined for the purposes of particular sections. Nevertheless, the expression has not been
defined for the purposes of this Act. It may have the narrow and technical meaning of the full ultimate
and legal owner, but if this was intended, it could easily have been expressed and the failure to do so
points to its not having been so intended”
In view of the observations, recorded Supra, we hold that “ownership” as envisaged under the Wealth Tax Act, 1963 (since
repealed) is required to be construed in its broader context which would be in line with the ratio laid down by the Hon’ble Supreme
Court of Pakistan, in its landmark judgement cited Supra.
(8) WTA Nos. 1271-1272/LB/02
3. The assessee having himself declared that the said plot of land was his asset cannot now renege and say that he had only
made “advance payment” for the said land. The hard fact of the matter is that the assessee has admittedly made full
payment and there is no advance payment involved here at all. Had this been a case of ‘advance payment’ then the
payment made by the assessee would have been so cited and included in MOVABLE property of the assessee. This has not
been done and the plot in question has been consciously declared by the assessee as part of his IMMOVABLE property. It is
trite law that the assessee cannot approbate and reprobate in the same breath.
It has been held by the Tribunal in WTA No’s.662-666/LB/01 (Assessment Years 1997-98, 1998-99 & 1999-00) dated
27-06-2003, for purposes of levy of wealth tax, it is the “ground reality” as on the valuation date that has paramount
significance. In the case of the present assessee, the ground reality is that the assessee has made full payment to the seller
pursuant to an agreement of sale duly registered before the Sub-Registrar, Sialkot and the assessee is in full possession of the said
plot on the valuation date. This ground reality cannot be ignored and the
(9) WTA Nos. 1271-1272/LB/02
assessee is hence required to be treated as “owner” of the said plot which in fact he is and he has so declared in the wealth tax
return filed by him wherein the said plot is clearly cited as his asset.
4. The Fact that a civil suit has been lodged by one Maj (R) Pervaiz Iqbal, makes no difference to the ground reality explained
above. Any number of civil suits can be filed but these suits cannot divest the purchaser of his rights in the plot that he has acquired
after making full payment to the seller. As it is, the Hon’ble Lahore High Court has finally rejected the claim lodged by Maj (R) Pervaiz
Iqbal, (as intimated to the Tribunal by the counsel of the assessee).
5. In WTA No. 1123/LB/00 (Assessment Year 1998-99) dated 31-07-2003, the Tribunal has held that where the ambient

circumstances are compelling and clearly suggest that a person is in possession of the property for which he has made necessary
payment to the seller and there is no contest to the transaction by the seller, then that person is to be treated as ‘constructive owner’ of
the premises for purposes of levy of wealth tax under the Wealth Tax Act, 1963.
6. In the case of land leased out by the Military Estate Officer in the cantonment areas, it has been held by the Tribunal in WTA
No’s. 136 to 140/LB/03 (Assessment Years 1995-96 to 1999-00) dated
(10) WTA Nos. 1271-1272/LB/02
19-05-2003 that “Land Leased out by the Military Estate Officer in the cantonment areas is invariably treated as the property
of the lessee during the currency of the lease and on expiry, the lease is extendable by the lessor. Also, lessee is free to
make construction on the leased property and to dispose it off in the open market at market rates. At the time of sale of
such property by the original lessee, the lease hold rights are routinely transferred to the new owner and the change is so
recorded in the office of the Military Estate Officer. That being so, lease hold properties in the cantonment areas of Pakistan
are quite distinguishable from other leased out properties and the lessee is rightly treated as “owner” by the assessing officer
for purposes of levy of wealth tax under the Wealth Tax Act, 1963”.
7. Section 53-A of the Transfer of Property Act, effectively debars a transferee from enforcing any right against a transferee
in possession but does not prevent a transferee from seeking relief. Thus the Transfer of Property Act protects a transferee
whether he comes to Court as defendant or plaintiff (PLD 1961 (W.P) Lhr. 372 (Inayat Ullah & other and Shah
Muhammad & other)] Thus, in the instant case the assessee stands fully protected so far as his purchase of the property is
concerned and
(11) WTA Nos. 1271-1272/LB/02
he must therefore be treated as “owner” for purposes of section 2 (16) of the Wealth Tax Act, 1963.
8. In view of the reasons recorded Supra, we hold that the CWT (A) is misconceived in his view that the assessee is not the
rightful “owner” of the plot in question. As for the assessee’s reliance on Tribunal’s order bearing WTA No’s. 124 to
126/LB/02 (Assessment Years 1997-98 to 1999-00) dated 26-02-2002, we find that that reliance is misplaced as the
findings recorded in the said order regarding definition of “owner” conflicts with the ratio of the Hon’ble Supreme Court of
Pakistan’s judgement in PLD 1964 SC 456 referred to Supra. Tribunal’s cited order is therefore an order “per incurium” and
has no force in law. We therefore vacate the order of the CWT (A) and reinstate the order passed by the assessing officer.
Resultantly, the appeals are accepted.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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WTA No. 1123/LB/2000
NTN:07-12-0224178
Mr. Farooq Ahmad C/o Nirala (Pvt) Ltd, Lahore Appellant
Versus
IAC, Circle – 12, Range-II Coys. Zone – I, Lahore. Respondents
Appellant by : Mr. Muhammad Ali Asghar Qazi, ITP
Respondent by : Mr. Anwar Ali Shah, DR

Mr. Amjad Zubair Tawana, DCIT
ORDER
This appeal by an individual arises out of the IAC’s order u/s 17-B of the Wealth Tax Act, 1963 (since repealed) dated 14-03-
2000, whereby the assessing officer’s order u/s 16 (3) dated 10-02-1999 has been cancelled and the DCWT directed to frame fresh
assessment.
2. It is the appellant’s contention that the IAC’s intervention u/s 17-B in exercise of his revisionary jurisdiction is misconceived in law
and based on the false premise that some of the immoveable properties in which the assessee is co-owner ought to be taxed in his hands
and not in the hands of the AOP in which he is statedly a member. The assessee also takes issue with the IAC’s finding that a shop at
Sadiq Plaza, Lahore, statedly owned by the assessee has not been assessed as per law and only so called ‘advance amount’ claimed to
have been paid at Rs. 6,83,000/- has been included in the appellant’s net wealth. It is the appellant’s
(2) WTA No. 1123/LB/2000
contention that no ‘sale deed’ has been executed for the said shop, todate, and only advance amount shown has been paid by the
assessee and assessment as made by the DCWT was quite in order.
3. The facts in this case are that the assessee is co-owner in property comprising lease hold plots of land at Sarwar Road and Aziz
Bahtti Road, Lahore Cantt and also property at 10-Jail Road, Lahore. In assessment finalized u/s 16 (3) vide order dated 10-02-1999, the
DCWT has not included the plots in the assessee’s net wealth and has accepted assessee’s contention that these properties belonged to
an AOP that was committed to construct and sell commercial property “to be constructed” on the said plots. This contention of the
assessee has been accepted without any comment by the assessing officer. As for the Jail Road property, the DCWT has only included
that part of the property in assessee’s net wealth that has been let out to M/s Nirala (Pvt) Ltd,(ie. area comprising 5 marla 52.25 sft out of
total area of 10,440) and the balance area has been treated as let out ‘property of AOP’.
4. It is the IAC’s finding that the treatment as accorded by the assessing officer is both erroneous and prejudicial to the interest of
revenue and the entire Jail Road property, including let out to M/s Nirala (Pvt) Ltd, was liable to be taxed in assessee’s hands as the
property other than that let out to Nirala Ltd was in the self occupation of the assessee and had not been let out.
(3) WTA No. 1123/LB/2000
5. According to the AR of assessee, the Lahore Cantt. plots had been acquired on long lease from the Military Estate Officer, Lahore
Cantt by the co-owners all family members, statedly for the express purpose of constructing a Commercial Building thereon in which shops
and offices were to be sold / rented out to corporate and other buyers. In view of the stated intention of the co-owners, they collectively
constituted an AOP and were not liable to be assessed individually in respect of these properties as per the provisions of section 2 (16) (iii)
of the Wealth Tax Act, 1963 (since repealed). In the case of that part of the Jail Road property that had not been let out to M/s Nirala
Limited, it is argued that this part of the property had also actually been let out by the co-owners and was therefore not liable to be
assessed in their individual hands. As for the shop in Sadiq Plaza, it is contended that the assessee is not the ‘owner’ of the said shop as
only part payment had statedly been made till the valuation date and no sale deed had been executed and hence it could not be included
in assessee’s net wealth.
6. The department is aggrieved of the treatment accorded by the CWT(A). It is the departmental contention that there was no
justification in law to assess each assessee’s individual share holding in the said properties in the hands of a so called AOP whose very
existence has no where been established on the valuation date.
(4) WTA No. 1123/LB/2000
7. According to the DR, an elaborate scenario visualizing an imaginary AOP comprising the aforementioned family members has
been deliberately created to evade due wealth tax liability. It is explained in this context that the family business of sweetmeat manufacture
and sale under the well known brand “NIRALA” is no longer the mainstay family business that it once was in the past. Rather, in the period
relevant to the assessment year in appeal, the various family members / co-owners in the property cited above have statedly branched out
into different business enterprises unrelated to the manufacture and sale of sweetmeat. The brand name “NIRALA” is still there but exists
as a franchise only (held by INMOL Ltd) based on the goodwill earned by the family over the years.
8. According to the DR, the three commercial plots purchased by the family members in the Lahore Cantt. area in 1993 remain todate
as bare plots of land. No construction whatsoever has been made thereon. No project / plaza “intended” to be constructed thereon has
been advertised. No boundary wall has been constructed. In short, inspite of passage of protracted length of time, there is no overt action
on the part of the co-owners in the said three plots to even suggest that a commercial building / plaza is “to be constructed” thereon and
then the shops / offices / showrooms to be constructed therein are to be let out / sold to corporate and other buyers.

(5) WTA No. 1123/LB/2000
9. It is emphasized by Revenue that the lease documents between co-owners and the Military Estate Officer, Lahore Cantt. simply
specify that plots shall be utilized for construction of commercial building and there is no express stipulation that the shops / offices /
showrooms constructed in the commercial building will exclusively be required to be sold out to outsiders and will not be utilized by the co-
owners for their own individual business. That being so, it is the departmental contention that there is no arrangement, formal or otherwise,
on the basis of which it can be confidently said that the family members by virtue of lease of cited three properties in Lahore Cantt. are
collectively engaged in the business of construction and sale / letting out of property, as envisaged in section 2 (1) (5) (ii) of the Wealth Tax
Act (since repealed) and Explanation thereto.
10. In the case of the Jail Road property the DR emphasis that assessee’s share in the entire property was liable to be included in
assessee’s net wealth and not merely that part that had been let to Nirala Ltd. It is emphasized that the property not let out to Nirala Ltd
was in the self occupation of the assessee and had not been genuinely let out to anyone.
11. AR of assessee / respondent, contests the submissions as made by the DR. In the case of three commercial plots in Lahore Cantt.
area, the AR argues that a no objection certificate (NOC)
(6) WTA No. 1123/LB/2000
has been issued by the military authorities that makes clear mention of construction of commercial building / plaza on the site of the three
plots and it was the stated requirement of the contonement military authorities that the shops / offices / showrooms constructed therein be
sold / let out to corporate and other buyers. It is explained by the AR that an NOC has been issued on the request of the co-owners and it
was statedly quite evident that the co-owners are collectively involved in a business enterprise involving construction and sale / letting out
of the shops / offices / showrooms to be constructed in the commercial building / plaza at the given site. It is emphasized by the AR that
the co-owners are bound as per their written agreement with the military contonement authorities to construct a commercial building / plaza
at the given site and then either sell or rent out the shops / showrooms / offices in the said building to corporate and other buyers. That
being so, it is contended that the provisions of section 2 (1) (5) (ii) and Explanation thereto are squarely attracted and resultantly the
collective enterprise of the co-owners is required to be treated by law as an association of persons for purposes of levy of wealth tax under
the Wealth Tax Act, 1963 (since repealed).
12. As for the Jail Road property, the AR pointed out that the department had accepted the rental of premises to M/s Nirala (Pvt)
Limited when that property too was co-owned by the family members. It is the contention of the AR that having accepted the rental
arrangement in the case of that part of the Jail Road
(7) WTA No. 1123/LB/2000
property that had been rented out to Nirala Ltd, there was no justification to reject the rental arrangement for the rest of the property.
13. In the case of the Jail Road property, the DR submitted that the department had only accepted the letting out of a part of the
premises to M/s Nirala (Pvt) Limited which is a genuine corporate entity (in which Mahmood Ahmad & Maqsood Ahmad have no interest)
and that was entirely reasonable. However, for the rest of the property, the departmental contention was that it was in the self occupation
of the co-owners and there was no contradiction here as alleged by the AR.
14. The following case law has been cited by Revenue and assessee: -
PLD 1975 SC 331 ; PLD 1974 SC 106 ;
PLD 1965 SC 269 ; PLD 1973 SC 236 ;
1996 PTD (Trib) 114; (1996) 74 Tax 81 SC Pak ;
(2000) 81 Tax 137 (Sc. Ind) ;
15. We have heard both sides and have examined the available record and have also perused the case law cited before us by both
parties and our findings are recorded as under: -
1. An AOP, though not expressly defined in the Wealth Tax Act, 1963, is “ a creature of contract – explicit or implicit “ [1978
PTD (trib) 54]. In the case of the co-owners presently in appeal, there is no discernible arrangement, formal or otherwise,
that can be reasonably seen as proof of constitution of an AOP. Not only is there no AOP in existence, there is also presently
(i.e. on the valuation date) no immovable property “held for the purpose of the business of
(8) WTA No. 1123/LB/2000
construction and sale, or letting out, of property”. All that we have (on the valuation date) are three bare plots of land on
Sarwar Road Lahore Cantt. co-owned by the above cited family members. That is the ground reality as on the
valuation date. Whether or not the co-owners will ever agree to share their individual resources and actually collectively
engage in the enterprise of construction of a commercial building / plaza, on the said plots and then having constructed the
commercial building / plaza sell and / or rent out the shops / showrooms / offices “to be constructed” in the said plaza, is a
moot point on which no express finding can be recorded with any degree of certainty as on the valuation date for the simple
reason that todate the individual co-owners in the said property having done nothing whatsoever to show that they will indeed
share their resources and construct a commercial building on the given site and then sell and / or rent out the individual
shops / offices / showrooms to corporate and other buyers.
2. The individual co-owners correspondence with the cantonment authorities places no embargo on the individual co-owners to
use the shops / offices / showrooms in the proposed commercial building for their own individual business enterprises. The
AR of assessee / respondent acknowledged as much
(9) WTA No. 1123/LB/2000
during the course of appeal proceedings when questioned on the matter. Admittedly, the family members are no longer
predominantly in the sweetmeat business. Rather, they have branched out into other business enterprises, including sale of carpets,
jewellery, property etc. It is only reasonable to expect that the present co-owners and their children / legal heirs will in the future set
up their own individual business enterprises. It is thus just possible that if and when the commercial building / plaza is ever
constructed, then there will hardly be any space left to be sold out or rented out to outside parties. Since the individual family
members may very well be engaged in their own independent enterprises and there will, in all likelihood, be no collective family
sweetmeat business, there is little likelihood of any “family AOP” as such.
3. “Commonality of purpose” is the hallmark of an AOP. Documentation as well as the ambient circumstances in the present
case do not conclusively establish that the co-owners in the case of the Lahore Cantt. plots have indeed made a cast iron
commitment to get together to build a plaza and to necessarily sell and / or let out the shops / offices / showrooms

constructed therein to outside parties only. It is quite possible for each of the co-owners constructed premises to
(10) WTA No. 1123/LB/2000
conduct therein separate business enterprises on the three commercial plots in Lahore Cantt. Since, there is little, if any, likelihood
of a common business enterprise among the co-owners, there will also be in all likelihood no AOP, as such. While it may be the
stated “intention” of the co-owners (as per the AR) to construct a commercial building, their actual conduct todate does not inspire
much confidence in this regard. The plots and land today are as bare as they were in the year of purchase i.e. 1993. How can the
assessing officer close his eyes to this hard ground reality and even if co-owners do eventually construct a commercial building they
would in all likelihood be carrying on their own individual businesses therein. Even if, any vacant space is sold or let out by the
individual co-owners, that too is likely to be in their individual capacity. There is thus no commonalty of purpose evident in this case.
4. In the case of the Shop at Sadiq Plaza, in our judgement, it does not appear at all plausible that the shop could have allowed
to be in assessee’s custody after making so called ‘advance payment’ of Rs.6,83,000/- only as far back as 1992. The “ambient
circumstances” in this case are compelling and clearly suggest ‘constructive ownership’ of the assessee in respect of these premises and
the IAC’s findings on the matter are correct.
(11) WTA No. 1123/LB/2000
5. After looking at the matter in its entirety, we are satisfied that the assessment as made for 1998-99 is both erroneous and
prejudicial to the interest of revenue and that the IAC’s intervention u/s 17-B is in order. Under the law assessee’s share in the ‘entire’
commercial property at Jail Road, Lahore, is liable to be assessed in his hands at its bonafide GALV, suitably capitalized as per express
stipulation obtaining in Rule 8 (3), Ist proviso / Explanation thereto. Similarly, in the case of the shop in Sadiq Plaza. As for the Lahore
Cantt plots, these too are to be assessed as commercial assets and assessee’s share included in his net wealth for the year.
6. The case law cited by assessee has been perused and we find the same to be of no avail to the assessee.
Resultantly, the IAC’s Order is maintained. The appeal fails.

ACCOUNTANT MEMBER
(EHSAN UR REHMAN)
JUDICIAL MEMBER
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MA No. 126/LB/03
NTN: 07-03-1707138
Mrs. Nasreen Aftab, Lahore. Applicant
Versus
DCIT, Circle – 03, Coy. Zone – I, Lahore. Respondent
Applicant by : Mr. Muhammad Iqbal Kh, ADV.
Respondent by : Mirza Nadeem Munawar, DR
ORDER
This miscellaneous application by an individual arises out of Tribunal’s decision bearing ITA No. 7909/LB/96 (assessment year
1993-94) dated 22-11-2002.
2. It is the applicant’s contention that the Tribunal in its aforecited order has mistakenly cited location of assessee’s immovable
property at 112-B, Main Road Gulberg, as being situated on Main Road Gulberg, opposite Sher Pao Bridge. It is contended that the
applicant’s two plots measuring 13-Marlas and 190 sq.ft. each are actually situated behind main Sunshine Plaza and statedly have no
proper access to the Main Gulberg Road, opposite Sher Pao Bridge. Furthermore, it is also the applicant’s contention that the Tribunal has
overlooked the case of M/s Aftab (Pvt) Limited allegedly cited by the assessee before the Tribunal at the time of hearing of main appeal
against the order of the
(2) MA No. 126/LB/03
CIT(A), Zone-I, Faisalabad dated 09-09-1996. It is emphasized by the applicant that in the said case of M/s Aftab (Pvt) Limited, plots No’s
5 & 6 were purchased from the same seller as by the applicant at Rs.31,741/- per marla in the period relevant to assessment year 1994-95
and the Tribunal vide ITA No.2310/LB/1998 dated 31-10-1998 had directed that the declared price as per registered sale deed be
accepted as against higher price adopted by the assessing officer with reference to some parallel cases. It is argued that the said case of
M/s Aftab (Pvt) Limited, is more relevant as a parallel case and the Tribunal should therefore accept the declared price in assessee’s case
as well as had been done in the case of M/s Aftab (Pvt) Limited.
3. Finally, it is argued by the AR of applicant that on a legal plane, the addition made by the assessing officer u/s 13 (1) (d) amounting
to Rs. 12,35,000/- has been upheld by the Tribunal in its aforecited order without recording any finding as to whether there was any
evidence on record to show that the assessee had paid higher price for purchase of the two plots than that cited in the sale deed. It is
contended that reliance on a parallel case alone is not sufficient to discard the price cited in the registered sale deed and the onus was on
the assessing officer to show that the assessee had actually paid higher price than the registered sale deed price. The AR submits that the
assessing officer having failed to so establish, there was no option but to accept the registered sale deed price.
(3) MA No. 126/LB/03
4. The applicant has referred to case law cited as (2001) PTD 987 (HC. Kar) and ITA No. 2310/LB/98 (assessment year 1994-95)
dated 31-10-1998, in support of arguments made.
5. The DR contests the arguments as made by the AR of applicant and points out that the case relied upon by the Tribunal in its
aforecited judgement is that of the assessee herself and this is a case of Ist purchase and hence has priority. It is contended by the DR
that the transaction in assessee’s own case referred to by the Tribunal is very much relevant and given the facts and circumstances cited
cannot be ignored and has been rightly relied upon by the Tribunal to hold that assessee’s declared purchase price, as per sale deed, was
understated. As for the general location of the assessee’s two plots, the DR submits that the general location is correctly cited and there
was no cause for any rectification as the property is indeed situated in the general area of Main Gulberg / opposite Sher Pao Bridge .
6. We have heard both sides and have examined the available record and in our considered judgement:
1. Sunshine Plaza on Main Gulberg Road, opposite Sher Pao Bridge, is one of the properties of Crescent Group of which the
assessee is a part and the two plots purchased by the assessee at 112-B, Main Road Gulberg, are part of the same block of land on
which the said Plaza is also situated. This is therefore an integral unit and the assessee is in no position to
(4) MA No. 126/LB/03
assert that all access to the Main Road is denied because of the fact that the front portion is occupied by the Plaza. The fact of the
matter is that the assessee does have access to the main road and the plots are not totally blocked and the Plaza being a component
unit of the Crescent Group is not a real hindrance so far as access is concerned. As the assessee’s two plots are on the same block of
land on which the Plaza is situated, it is therefore not incorrect to say that the said property is situated opposite Sher Pao Bridge. Given
the ambient circumstances, therefore, the description given by the Tribunal in its aforecited order regarding the situation of the two plots
is broadly correct and calls for no interference.
2. Reliance placed by the Tribunal on the purchase made by the assessee herself in the preceding assessment year 1991-92 from the
same seller is fully justified as that is indeed a case of “Ist purchase” and has admittedly more immediate relevance as a reference point
in assessee’s case than the case of M/s Aftab (Pvt) Limited, to which the assessee has referred in his application.
3. The facts and circumstances obtaining in the case of M/s Aftab (Pvt) Limited, as detailed in ITA No.2310/LB/1998 (assessment year
1994-95) dated 31-10-1998, are quite different from those obtaining
(5) MA No. 126/LB/03
in assessee’s own case insofar as the assessee has herself purchased similar property in preceding years at a higher price which is

not so in the case of M/s Aftab (Pvt) Limited.
4. No doubt the price cited in registered sale deed cannot be discarded by referring to parallel case alone. However, when the parallel
case is that of the assessee itself then there is no doubt in our mind that assessee’s own experience is a valid guide to determine the
bona fide purchase price. As pointed out Supra, the assessee has declared higher purchase price of Rs.110,000/- per marla for two
plots purchased in the period relevant to assessment year 1991-92 and in the subsequent period relevant to assessment year 1993-94,
the assessee has declared lower purchase price of Rs.65,000/- per marla for purchase of two plots on the same block of land from the
same seller. This is not acceptable as nothing has happened in the intervening period between assessment year 1991-92 and 1993-94
that can reasonably be seen as diminishing the price of land in that area. As for the Plaza on the front of the block of land on which the
assessee’s two plots are situated, as pointed out above, the said Plaza is no hindrance in assessee’s case as it is a property of
Crescent Group to which the assessee belongs. If anything, the construction of the Plaza should enhance the value of
assessee’s two plots as the Plaza is admittedly very valuable commercial property whose close proximity to assessee’s two
plots is a plus point so far as their market value is concerned. We therefore reject the assessee’s arguments to the contrary in this
regard.
For the reasons recorded Supra, the misc. application is rejected.

ACCOUNTANT MEMBER
(EHSAN UR REHMAN)
JUDICIAL MEMBER
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INCOME TAX APPELLATE TRIBUNAL,LAHORE BENCH,LAHORE

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ITA No. 5856/LB/95
NTN:04-11-0887015
M/s Sadaqat Tanning Company, Sahiwal. Appellant
Versus
ITO, Circle – 03, Sahiwal. Respondent
Appellant by : Kh. Riaz Hussain, ADV.
Respondent by : Mr. Abdul Rasheed, DR
ORDER
This appeal by an AOP is directed against order of the AAC, Sahiwal dated03-09-1995.
2. It is the appellant’s contention that the AAC has unjustifiably confirmed DCIT’s rejection of AOP’s accounts.
3. According to the AR of appellant, the assessee has a history of acceptance of trading results. Regular books of accounts are
claimed to have been maintained and duly produced before the assessing officer supported by necessary invoices. All purchases/sales are
statedly properly vouched/verifiable and the assessing officer’s observation regarding un-verifiability of part of the sales is statedly without
any basis whatsoever. It is emphasized that the assessing officer never issued notice u/s 144 of the Ord to the parties identified as not
properly verifiable. The appellant also denies that proper notice u/s 62 was ever issued by the assessing officer to interrogate the appellant
on the bona fides of the said parties. Finally, it is contended that in any case the assessing officer has
(2) ITA No. 5856/LB/95
only tinkered with the trading results and has not made any meaningful addition either to the trading result or to the P & L account and
such tinkering was not permissible, especially when the appellant had a history of acceptance of declared trading results that had been
upheld by the ITAT (ITA No.1361 of 1976-77, assessment year 1974-75).
4. According to the DR, the AAC has rightly upheld the rejection of declared version as the same could not be satisfactorily
substantiated before the assessing officer.
5. We have heard both sides and have examined available record and in our considered judgement, given the facts and
circumstances narrated Supra, rejection of declared version is not justified. We accordingly direct that the declared version for 1993-94 be
accepted.

ACCOUNTANT MEMBER
(MUNSIF KHAN MINHAS)
JUDICIAL MEMBER
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ITA No. 878/LB/2000
ITA No. 879/LB/2000
NTN: 31-67-0688389
M/s Ihsan Yousaf Textiles (Pvt) Limited, Faisalabad. Appellant
Versus
DCIT, Circle – 10, Coy. Zone, Faisalabad. Respondent
Appellant by : Mr. Hamid Masood, FCA
Respondent by : Mr. Anwar Ali Shah, DR.
ORDER
These appeals by a private limited company arise out of order passed by the CIT(A), Zone-I, Faisalabad, dated 16-11-99.
2. Briefly stated, the relevant facts here are that the assessee company has exported cloth that it got manufactured from third parties
and it has not made any tax deduction u/s 50(4) at the time of making payment to such third parties on the ground that it being an exporter
is exempt from the provisions of sub section (4) of section 50 of the (since repealed) I T Ord '79. The department has held that the
assessee is in default of the provisions of section 50(4) and has accordingly treated the appellant as "assessee in default" as per
provisions of section 52 of the Ordinance.
3. It is the appellant's contention that the 1st appellate authority has unjustifiably maintained the two orders passed u/s 52/86 by the
DCIT of the Payer/purchaser (ie the appellant company) in the assessment
(2) ITA No. 878-879/LB/2000
years 1998-99 & 1999-2000 when the applicable law statedly empowered the DCIT of the recipient/seller with exclusive jurisdiction in this
regard and in this context the appellant has referred to tribunals judgements cited as [(2001) 82 TAX 51 (Trib)] and unreported judgement
cited as ITA No 882/LB/2000 (AY 97-98) dated 22-12-2001. It is also the appellant's contention that being an exporter, the appellant
company is exempt from the provisions of sub section (4) of section 50. Further, it is argued that the DCIT has wrongly held that payments
made by the assessee company to the third party manufacturers of cloth are for "services rendered." Finally it is the appellant's contention
that the assessing officer was required to scrutinize each and every payment to third parties for cloth manufacture at appellant's behest
and then to determine which of these payments involved tax withholding u/s 50(4) rather than hold the appellant liable to tax withholding in
respect of the total payment to third parties on account of cloth supplied to the assessee company by them.
4. It is the departmental contention that pursuant to amendment made in section 52 through Finance Act 1999, the DCIT of the
Payer/purchaser is competent to treat the Payer as "assessee in default" where such person is found to be in default of the provisions of
sub section (4) of section 50. Furthermore, the exemption available to exporters is statedly only in the case of supplies made to the
exporters in respect of goods mean't for export - such as raw material inputs. In the case of the assessee company nothing has been
supplied to the assessee company by way of raw material input as regards the cloth exported. Rather, manufactured cloth has been got
made by the appellant company from third parties, as per specifications given to them
(3) ITA No. 878-879/LB/2000
by the assessee, and the same has then been exported by the appellant and in this context it is argued that the provisions of section 50(4)
are fully applicable as the manufacture of cloth by third parties for the assessee, utilizing the yarn supplied to them by the assessee, is in
the nature of “services rendered”.
5. We have heard both sides and have examined the available record and our findings are recorded as under:
1) As regards the appellant's plea that the orders passed u/s 52 are without jurisdiction and hence void ab initio, in our considered
judgement the import of the amendments in section 52 brought about through the Finance Act 1999 stand well clarified through
various judgements of the ITAT. The first judgement in this regard is ITAT order in ITA No's 5931-6/LB/1996 (AY 1992-93 & 1993-
94), dated 17-8-99 in which, making specific reference to the Explanation to section 52, the tribunal has held that only the DCIT of
the payer/purchaser was competent to pass order u/s 52 and not the DCIT entrusted with monitoring compliance with withholding
tax provisions. In this case, assessee's assessments for 1992-93 & 1993-94 stood completed well before 1-7-99 but were cancelled
by the ITAT [on appeals filed by the assessee against the orders of the DCIT u/s 52 confirmed by the CIT (A)] , consequent to
change in law pursuant to insertion of Expl to section 52 thru the FA 1999, as the orders had been passed by an authority other
than the DCIT of the payer/purchaser. The judgement of the tribunal leaves no doubt that the Expl was fully applicable,
retrospectively as well as retroactively, to all assessments pertaining to prior years, whether pending or finalized on 1-7-99.
(4) ITA No. 878-879/LB/2000
2) In another judgement of the ITAT cited as[(2000)81 Tax 21 (Trib)],
it has been held unequivocally that the amendments in section 52 are applicable retrospectively and that the amendments are
declaratory and procedural in nature.
3) In yet another judgement, ITA No's 4659-60/LB/99 (AY 96-97 & 97-98) dated 6-6-02 the ITAT has ruled that the change in section
52 brought about through FA 1999 was both retrospective as well as retroactive and it had rendered the well known Tapal Energy
judgement of the Sindh High Court to be of no effect.
4) In the light of the three judgements cited Supra, (that are binding on this bench - [(1997) 75 Tax 108 (Trib)] the judgement cited by
appellant as [(2001) 83 TAX 51 (Trib)] is clearly 'per incurium' and hence of no legal effect as the law has been patently
misinterpreted and a special interpretation of the import of procedural amendments to section 52 through the Finance Act 1999 has
been made that conflicts squarely with well accepted norms pertaining to the interpretation of fiscal statutes. As held in [(2000) 81
Tax 21 (Trib)], the Explanation to Section 52 enacted on 1-7-99 is both procedural and declaratory and hence fully applicable to all
years prior to 1-7-99. As for the other judgement cited by the appellant, [(ITA No 882/LB/2000 (AY 97-98) dated 22-112-2001)] ,
the said judgement envisages a situation in which the recipient has already discharged his liability u/s 50(4) and resultantly it has
been held that no further tax can be recovered from the Payer u/s 52. In the case presently before us, it is not the appellant's
contention that the recipients ( ie the third parties who have manufactured the
(5) ITA No. 878-879/LB/2000
cloth for the appellant) have discharged their liability u/s 50(4) and hence this judgement is of no avail to the appellant.

5) In the case of “self manufactured exports”, all supplies of materials utilized in the manufacture of the finished product for export are
indeed exempt from tax deduction u/s 50(4). Admittedly, the appellant company is not a self manufacturer of the cloth that it has
exported. Rather, the cloth has been manufactured by third parties for the appellant. Prima facie, therefore, the appellant's case is
not covered by SRO 368((I)/94 dated March 7, 1994 ( sub para (iii) thereof), issued in exercise of the powers conferred by clause
(ii) of the proviso to sub section (4) of Section 50 of the I T Ord '79, in supercession of SRO 828(I)/91 dated 24th Aug 1991. That
being so, exemption from tax deduction u/s 50(4) in the case of payments made by the assessee company to the third party
manufacturers of cloth, is not available to appellant in the assessment years under appeal.
6) As regards the individual transactions/payments made by the assessee company/the payer to the third party manufacturers of cloth,
in our judgement the appellant must lead necessary evidence in this regard and in the absence of specific evidence made available
by the assessee/payer, the assessing officer/DCIT of payer is justified in treating the aggregate payments made as subject to tax
withholding u/s 50(4) as these payments have been made by the assessee company on account of goods supplied viz cloth
manufactured by third parties for the assessee, and this would also appear to be in line with Hon'ble Supreme Court of Pakistan
judgement cited as [(2002 PTD 1) - paragraph (7) thereof].
(6) ITA No. 878-879/LB/2000
7) No Exemption Certificate has been issued by the competent authority to the assessee permitting non deduction of withholding tax
u/s 50(4).
8) The manufacture of cloth by third party weaving units utilizing yarn supplied by the assessee company is in the nature of "services
rendered." These weaving units weave cloth strictly as per specifications given to them by the assessee company and do not
manufacture/sell finished cloth on their own account. Such work done is in the nature of "services rendered" and is distinguishable
from dying and calendering work that entail value addition to ‘cloth’ and the finished product (cloth), though increased in value at the
end of the dying/calendering process, remains identifiable as ‘cloth’. However where "cotton yarn" or synthetic yarn is "converted"
into cloth by a weaving unit, it changes into a new product and this is not therefore a case of "value addition" to cloth and this
transformation is only possible because of the services rendered by the weaving unit, "converting" the yarn into cloth. In view of
such specialized "services rendered" by the third party weaving units, the payments made to them by the assessee company are
subject to tax withholding u/s 50(4). Such payments made are not akin to "value addition" payments made on account of
dying/calendering/finishing of cloth and do not fall in any of the categories listed in paragraph (6) of CBR Circular No 7 of 1992
(Income Tax) dated 18th March 1992.
9) For the reasons recorded Supra, we hold that the provisions of section 52 have been rightly invoked in the instant case in the
assessment years 1998-99 & 1999-2000. As for addl tax charged
(7) ITA No. 878-879/LB/2000
u/s 86, the same is essentially consequential to delayed deposit of tax that was required to have been deducted u/s 50(4) and the
charge of addl tax being mandatory in cases where default is established - as in the case of the present assessee- there is no escape
from the levy. Hence maintained.
Resultantly, the appeals are rejected.

ACCOUNTANT MEMBER
(EHSAN-UR-REHMAN)
JUDICIAL MEMBER
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ITA No. 2467/LB/2002
NTN: 22-03-0801434
Dawood Hercules Chemicals Limited, Lahore. Appellant
Versus
DCIT/WT, Circle –03, Coys. Zone – II, Lahore. Respondent
Appellant by : Mr. Naeem Akhtar Sh, FCA
Respondent by : Mr. Abdul Rasheed, DR alongwith

Mr. Shahid Jamil, L.A.
ORDER
1. This appeal by a public limited (listed) company is directed against the order of the IAC Range II, Companies Zone II, Lahore,
dated 17-05-2002.
2. It is the appellant's contention that exercise of revisionary jurisdiction u/s 66A by the IAC is not tenable in law as the original
assessment framed by the DCIT is neither erroneous nor prejudicial to the interest of revenue and the provisions of sub section (9A) of
section 12 of the Ord do not apply in assessee's case as the company qualifies fully for the concessions available in clause 59 , Part-IV
of the Second Schedule to the Ord.
3. The facts in this case are that assessment for 1999-2000 has been originally made by the DCIT on 11-05-2002 u/s 156 of the Ord
determining total income at Rs 1186,164,488 . As per accounts statements annexed with the income tax return of the company, total
after tax profit has been declared at Rs 776,813,994. Three dividend declarations are claimed to have been made by the company in
the period relevant to asstt year 1999-2000 and these aggregate Rs 463,704,000 which is 59.69% of the after tax profits.
4. Subsequent to finalization of assessment the IAC inspected the assessment record and found that of the three dividend distributions
made by the
(2) ITA No. 2467/LB/2002
company (no 25, Rs 83,400,000 on 21-08-98, no 26, Rs 220,176,000 on 19-05-99, and no 27, Rs 160,128,000 on 23-08-99) only
dividend no 26 qualified indisputably to be placed in income year 1998-99 ie asstt year 1999-2000 as it has been declared on 19-05-99
which is within the timeframe relevant to income year 1998-99 ie assessment year 1999-2000. As for dividend no's 25 and 27 these
were found to be not relevant to asstt year 1999-2000 as the dividend declarations had been allegedly made outside the time frame
relevant to income year 1998-99, as statedly evident from the dates of dividend declarations made by the company. Nevertheless the
IAC ultimately did treat Dividend No 25 as relevant to Income Year 1998-99 ie asstt year 1999-2000 apparently as a concession to the
so called, 'logic of the assessee' that dividend No 25 was "declared and issued for the year ending 31-12-98 relevant to the income
year july 1998 to june 1999 and credit of the same may be given to the income year relevant to asstt year 1999-2000." (pages 81-82,
para-7 of order u/s 66A dated 17-05-2002).
5. Resultantly, the IAC found that as only dividend no's 25 & 26 statedly constituted a valid distribution of dividend by the company in the
period relevant to assessment year 1999-2000, the aggregate of the two dividend distributions was found to be much less than 40% of
the after tax profit's declared by the company rendering the company subject to the mischief of sub section (9A) of Section 12 of the
Ordinance. Consequently the deemed income u/s 12(9A) was determined by the IAC at Rs 2,233,960,373 and so included in the total
income of the company.
6. The appellant company contested the findings of the IAC and filed writ petition No 9665/2001 under Article 199 of the Constitution
before the Hon'ble Lahore High Court and the High Court through it's judgement dated 06-12-01 set aside the IAC's order u/s 66A and
directed that the assessee company be given an opportunity to explain it's points of view on all pertinent aspects. The High Court also
recorded observations in it's judgement affirming that section 12(9A) was designed to encourage distribution of dividend by public
limited listed companies to it's shareholders and it was not the intention of the legislature that the
(3) ITA No. 2467/LB/2002
provision be put to use by the deptt as a revenue generating instrument. However in reassessment made, the deptt has repeated it's
earlier treatment.
7. The appellant disputes the validity of the findings as recorded by the IAC and hence the present appeal.
8. Arguments have been made at length by the learned AR of appellant and by the learned DR ably assisted by the learned Legal
Advisor to the Deptt.
9. According to the AR of assessee company:
10. accumulation of reserves by the company over the years has not been to the detriment of shareholders as is borne out by the
company's excellent and unequalled record of dividend distribution, markedly superior to that of any other similar company; reserves
have been built up purposefully for meaningful expansion, balancing and modernization and by way of abundant caution / financial
prudence;

11. when the company declared dividends 25 & 26 in 1998 it had no idea that section 12(9A) was to be brought on the statute through the
1999 budget. It is therefore patently unfair to allege - as done by the learned AR before the tribunal - that the dividend distributions
have been deliberately used as a device to escape the mischief of section 12(9A);
12. the provisions of section 12(9A) of the Ordinance and Clause 59(i) of Part-IV of the Second Schedule are inextricably linked and are
not to be read in isolation and a plain reading of the text in each case makes it abundantly clear that where 40% of the after tax profits
or 50% of the paid up capital - whichever is less - has been distributed - as claimed in assessee's case - , section 12(9A) does not even
come into play ;
13. the parameters of a valid dividend distribution period have been clearly laid down in section 12(9A) - ie within 7 months of the end of
the income year - and in proviso (ii) to section 12(9A) it has been further clarified that where the income year ends on the 30th day of
june 1999, - as in assessee's case - , the dividend distribution is to be made within a period of
(4) ITA No. 2467/LB/2002
8 months, reckoned from the 1st day of july 1999. Assessee company's three dividend distributions having been made in income year
1998-99 and fall well within the timeframe expressely stipulated by statute and no confusion whatsoever arises from the fact that the
audited accounts have been drawn up on calendar year basis and the accounts appended to the income tax return on financial year
basis;
14. when the profit's appropriation has been admittedly accepted by the deptt and the dividend distribution takes place against such
appropriated profit's well within the parameters laid down in law, - both with regard to timeframe of dividend distribution and quantum of
dividend distribution - , there can be no question of rejection of the dividend distribution and any such rejection is bound to be seen as
entirely arbitrary and whimsical;
15. no evidence has been brought on record by the deptt to establish that the dividend distribution has been made in a manner other than
that stipulated as per statute ie through cash and / or issue of bonus shares. The companies ordinance does not mandate "cash only"
distribution of dividend. In any case clause 59(i) speaks only of "a company........which distributes profit equal to ......". There is no
requirement of "cash only" distribution of dividend.
16. the budget speech explains all legislation undertaken by govt pursuant to it's policy framework; it is therefore an important indicator of
the purpose and intent of all statutory enactments and is a legitimate source material in this context; as explained in the budget speech
of the finance minister it was govt policy to protect the interest of shareholders and section 12(9A) had been brought on the statute in
this context as a "facilitating provision" and it was never the intention of the legislature to enact section 12(9A) as a revenue generating
tool into which it has been illegally transformed by the deptt. It is emphasised that the Hon'ble Lahore High Court has unequivocally
supported the view that section 12(9A) was never mean't to be used as a revenue generating provision and the deptt has shown clear
disregard for the High Court's findings recorded in it's judgement dated 06-12-2001, disposing off writ petition filed by the company
against the (1st) order of the IAC u/s 66A.
(5) ITA No. 2467/LB/2002
17. while there is no denying that two different accounts statements have been drawn up relatable to the companies ordinance and the
income tax ordinance respectively, the accounting principles remain the same in each case for drawing up the final accounts / balance
sheet of the company; the format of the accounts is different only with regard to the timeframe involved;
18. as for placement of the dividend distribution in a particular assessment year, so long as the distribution adheres with the timeframe
stipulated in section 12(9A) and proviso (i)& (ii) thereof, it's placement is required to be made in the assessment year pertinent to the
income year in which the distribution falls and as in the case of the assessee company, dividend No 27 has been distributed well within
the eight month period stipulated in proviso (ii) to section 12(9A), it falls in assessment year 1999-2000; as for dividend No 25, it
statedly falls well within income year 1998-99 and adverse comment regarding it's placement in asstt year 1999-2000 has been made
wholly unjustifiably by the IAC;
19. emphasis on mere terminology is quite unnecessary and of little consequence and a "dividend distribution" announced by the B.O.D of
the company is exactly what the words suggest in their ordinary parlance;
20. The SECP and the CLA - and also the stock exchanges - are fully seized with the operations of the company in their totality and know
well what 'dividend distribution' entails and they are not going to be fooled by the fact that the accounts statements incorporated in the
audited accounts drawn up on calendar year basis have a different timeframe from the accounts statements attached with the return of
income;
21. the dividend distribution is not restricted to the current years profit appropriation only and the brought forward accumulated profits /
retained earnings of the company may be tapped for purposes of dividend distribution; infact dividend may be distributed even if losses
have been declared currently , provided ofcourse there are accumulated, brought forward profits from previous years;
(6) ITA No. 2467/LB/2002
22. it is the exclusive prerogative of the Board of Directors of the company to announce a dividend distribution and this may be done
annually, bi annually or even quarterly depending on the accounts put up before the BOD;
23. the deptt is wholly misconceived in it's view - as articulated by the learned LA before the tribunal - that the accounts attached with the
income tax return of the company are bereft of SECP / CLA oversight; the fact of the matter is that the accounts statements attached
with the income tax return of the company are based on the six monthly accounts statements prepared by the company and these six
monthly accounts are duly sent to the SEC. Thus the accounts attached with the income tax return are as reliable as the audited
accounts sent to the SECP.
24. In the asstt year 2001-2002 the deptt has made a complete about face to the treatment accorded in asstt year 1999-2000 so far as
placement of dividend declaration is concerned and has accepted that dividend declared after close of income year does relate to the
asstt year 2001-2002 and accordingly exemption as envisaged in clause 59 has been allowed to the assessee company despite the
fact that the dividend declaration has been made after the close of the income year.

25. According to the DR/ LA for the deptt:
26. the assessee company has accumulated huge reserves over the years and was suddenly faced with section 12(9A) and to escape it's
mischief contrived to distribute dividend. The dividend distribution thus became a device to avoid liability u/s 12(9A);
27. Clause 59(i) of Part-IV to the Second Schedule has assumed the garb of a 'refuge' for the company from the liability otherwise arising
u/s 12(9A);
28. Clause 59(i) being an exemption clause is required to be construed strictly and where two different interpretations are available, the
one favoring revenue is required to be adopted;
(7) ITA No. 2467/LB/2002
29. as assessment of income is required to be made with reference to the provisions of the income tax ordinance 1979, the income year
ending 30-06-99 is relevant for purposes of reckoning the assessment year pertinent to a dividend distribution; dividend no 27
having been announced after 30th june 1999, it does not fall in assessment year 1999-2000;
30. no doubt the accounts of the assessee have been audited but their acceptance by the deptt is only to the extent of profits appropriation
and the deptt is under no compulsion to accept the dividend distribution also;
31. section 12(9A) envisages cash distribution of dividend by a company only and it is not established that the company gas distributed it's
dividends in cash;
32. the budget speech of the finance minister does not constitute interpretation of law and the comments/remarks/observations made by
the finance minister in his budget speech for 1999 relating to enactment of the provisions of section 12(9A) of the Ordinance cannot be
referred to for purposes of statutory interpretation; while parliament legislates, only the courts interpret the law;
33. the adoption of 'financial year' as 'income year' by the company is of fundamental significance so far as the correct 'placement' of a
dividend distribution is concerned and any dividend distributed after close of the income year does not properly 'relate' to the
assessment year relevant to the income year;
34. the provisions of the income tax ordinance 1979 are not to be confused with the provisions of the companies ordinance and while the
audited accounts of the company have been drawn up on calendar year basis keeping in mind the provisions of the companies
ordinance, the accounts statements accompanying the income tax return filed by the company relate to the provisions of the income tax
ordinance and are drawn up on financial year basis; thus two different accounts statements have been made out by the company and
each statement is tailored to a particular enactment; dividend distribution pertinent to annual accounts is thus not
(8) ITA No. 2467/LB/2002
the same as dividend distribution pertinent to accounts drawn up on financial year basis;
35. announcement of interim dividend after proposed dividend announcement is irregular as the proposed dividend is the final dividend;
36. SEC / CLA oversight is with reference to the audited accounts of the company drawn up on calendar year basis ' the accounts attached
with the income tax return are on financial year basis are not sent to these authorities and thus do not the benefit of their oversight and
may therefore be open to manipulation in a manner to suit the assessee;
37. We have heard both sides and have examined the available record and our findings are recorded as under:
38. The only dispute in this case is with regard to the 'placement' of the three dividend declarations (No's 25, 26 & 27 ) in the period
relevant to asstt year 1999-2000 (ie Income Year 1998-99 wef 01-07-98 to 30-06-99). According to the appellant company all three
dividend declarations have been made in the period relevant to asstt year 1999-2000 whereas the deptt has taken the opposite view
and accepts only one dividend declaration ie No 26 to be indisputably in asstt year 1999-2000.Reluctantly, however, the IAC has
eventually accepted Dividend No 25 to also fall in income year 1998-99 ie asstt year 1999-2000.
39. It is the departmental view that Dividend No 25 (Rs 83,400,000) announced through Board Meeting of 21-08-98, though falling in asstt
year Income Year 1998-99, does not relate to asstt year 1999-2000 for the reason that the said dividend has been disbursed out of
the profits generated by the company in the first six months of 1998. Dividend declaration No 26 (Rs 220,176,000) announced through
Board Meeting of 19-05-99, is accepted by the deptt as relevant to asstt year 1999-2000 as the Board Meeting falls within Income Year
1998-99. Dividend Declaration No 27 ( 160,128,000) announced through Board Meeting on 23-08-99 is rejected by the deptt for the
reason that the Board Meeting took place on 23-08-99 which is after the close of income year 1998-99.
(9) ITA No. 2467/LB/2002
40. Prima facie, it is all too evident that the departmental logic is not consistent. If dividend no 25 is being rejected by the deptt for the
reason that it has been disbursed out of the company's profit's generated in the first six months of 1998 then how can dividend no 27 be
rejected when it has been announced on 23-08-99 because it too must then be seen as having been generated out of the company's
profits of the preceding six months which ofcourse is admittedly the period relevant to income year 1998-99. Thus if this be the
departmental logic then dividend no 25 only should have been rejected and dividend no 's 26 & 27 should have been accepted. In the
case of the assessee company the deptt is employing a one parameter for placement of dividend no 25 and another for dividend no 27.
The deptt is clearly blowing 'hot & cold' in the same breath. While this may well serve the departmental purpose, it puts the assessee
company in considerable financial discomfiture, to say the least!
41. With regard to dividend no. 27 the departmental contention is that it has been announced on 23-08-99 and distributed on 29-09-99
which is after 30-06-99 (close of income year) and falls in the second half on calendar year 1999 and hence :
. "The perusal of the above dividend carry same characteristics

and difficulties and logic as discussed in the dividend no 25.Like
dividend no 25, this dividend no 27 has also been declared on
42. and issued on 29-09-99 in the second half of calendar
year 31-12-99."

. (page 11, para-1 of order u/s 66A)
43. The assessing officers attempt to find similarities between dividends no's 25 & 27 is understandable given the fact that he has to justify
his decision to not place dividend declarations no's 25 & 27 in asstt year 1999-2000 , but he has clearly deliberately omitted all mention
of the fact that he has held that in the case of dividend no 25, notwithstanding the admitted fact that it has been announced on 21-08-
98 ie within income year 1998-99, yet it cannot be placed in asstt year 1999-2000 as it is relatable to the profits of the first six months
of 1998. It is obvious that the assessing officer's omission here is deliberate because once he makes the argument as done in the case
of dividend no 25, then he would be compelled to acknowledge that in the case of dividend no 27 the divident relates to the
(10) ITA No. 2467/LB/2002
profit's generated in the first six months of 1999 ie income year 1998-99 . For this reason he has instead emphasised that the date of
declaration of dividend falls in the second half of calendar year 1999 .It is thus fairly obvious that the IAC is choosing his arguments
selectively in order to justify his decision to not place dividend declarations 25 & 27 in asstt year 1999-2000. (Eventually ofcourse the
IAC has placed dividend no 25 in income year 1998-99 but that has clearly been done reluctantly and through a process of convoluted
logic).
44. The departmental contention that for assessment year 1999-2000 any dividend distribution made after 30-06-99 ie close of the
stipulated income year, would not be relevant to assessment year 1999-2000 as assessment year 1999-2000 closes on 30-06-99 and
all company operations that have a bearing on the determination of it's income also come to an end on this date. is clearly not tenable
in the presence of proviso (ii) to sub section (9A) of section 12. This provision expressely, unambiguously and unequivocally stipulates
that:
. "..................in respect of asstt year commencing on the first day of

july 1999, the cash dividend distribution made within the following
period shall be treated as distribution for the purposes of this sub-
section:-
.................................................................where the income year ended on the 30th day of june, and the distribution
is made within a period of eight months reckoned from the first day of july, 1999."
(emphasis ours)
45. Admittedly, in the case of the present assessee, dividend no 27 has been distributed well within the timeframe stipulated in the above
provision and as explained Supra, dividend no's 25 & 26 are both placed within the timeframe relevant to income year 1998-99 ie
assessment year 1999-2000. The departmental contention that dividend no's 25 and 27 do not relate to income year 1998-99 ie
assessment year 1999-2000, is thus clearly misconceived.
46. We have absolutely no doubt in our minds that distribution of dividend cannot be uniquely related to the current years profit only.
Rather, dividend is always distributed out of the the accumulated, brought forward profits ie the retained earnings of the company.
There is no provision of law that can
(11) ITA No. 2467/LB/2002
compel a company to distribute dividend out of the current years profits only. Indeed, we fully agree with the learned AR of the
company in his contention that a company may announce a dividend even when loss has been declared currently, as per the final
accounts.In th e case of the present company however, there is no doubt that the company had adequate retained earnings to
distribute dividend aggregating Rs 463,704,000 in asstt year 1999-2000 and this is so reflected in the company's Balance Sheet.
47. It is correct that the assessee company has prepared two sets of accounts statements, one on Calendar Year basis which form part of
the audited accounts of the company and a second set on financial year basis and these are annexed with the income tax return for
asstt year 1999-2000 filed before the deptt. It is also correct that the company has published six monthly and annual accounts as per
requirement of companies ordinance 1984, sections 233, 234 and 245.The six monthly accounts for the period 01-01-98 to 30-06-98
issued on 21-08-98 show no appropriation of dividend from the retained earnings of the company. This may be seen to mean that
dividend declaration no 25 does not relate exclusively to the six month period 01-01-98 to 30-06-98.
48. An important matter to be decided in this case is whether section 12(9A) of the Ord can be read in isolation and not in conjunction with
clause 59 of Part-IV of the Second Schedule to the Ord. The LA to the deptt appears to be of the view that section 12(9A) is fully
applicable in isolation and need not be read alongwith clause 59 while the learned AR of appellant asserts that the two provisions have
to be read together.
49. We have agonized over this issue and in our considered judgement clause 59 was deliberately placed on the statute (through
Notification No SRO 969(I)/99 dated 27th aug 1999 ) after enactment of sub section 9A of section 12 of the Ordinance through Finance
Act 1999. In our judgement this has been done purposely so as to expressely reduce the scope of section 12(9A). This is evident from
the fact that in section 12(9A) the stipulated profit distribution requirement ensures that the available reserves , after distribution, do
not exceed 50% of the paid up capital. Thus where a company has reserves well in excess of the paid up capital, then
(12) ITA No. 2467/LB/2002
conceivably, such a company, in order to be able to escape the mischief of section 12(9A), may be required to distribute much more
than 40% of the years after tax profits so as to ensure that it's reserves do not exceed 50% of the paid up capital. Clause 59(i) on the
other hand clearly restricts the scope of section 12(9A) by expressely linking exemption from the mischief of 12(9A) to a dividend
declaration equal to only 40% of the aftertax profits OR 50% of the paid up capital, WHICHEVER IS LESS. This is clearly much, much
less than what section 12(9A), read in isolation, envisages and is proof positive of the deliberate intention of the legislature to scale
down the mischief that section 12(9A) can wreack. That being so, there can be no justification to read section 12(9A) in isolation as,
because of the subsequent enactment of clause 59, the original section 12(9A) stands effectively reduced in scope and it has been
made much easier for companies to be able to qualify for exemption from it's provisions.
50. The amendment made in clause 59(i) through Finance Ord 2001 also indicates the clear intention of government to further facilitate
public listed companies in qualifying for exemption . In the original clause 59(i) profit distribution was stipulated to the extent of 40% of
it's after tax profits only. In the amended sub clause (i) the paid up capital of the company also finds specific mention and the required
profit distribution for purposes of exemption is the LESSER of either 40% of the after tax profits or 50% of the paid up capital. This is
certainly a facilitating amendment as it makes it even easier for companies to qualify for exemption where the after tax profits are high
but the paid up capital is relatively low.
51. In another way also clause 59 makes it easier for companies to qualify for exemption.Thus clause 59 makes no express mention of
"cash distribution" of dividend as done in section 12(9A) and instead simply makes mention of profit distribution only. This too appears

to be deliberate and further facilitates companies in qualifying for exemption and resultantly, a company distributing dividend through a mix
of cash distribution and issue of bonus shares will now be able to qualify for exemption.
(13) ITA No. 2467/LB/2002
52. We have no quarrel with the Legal Advisors statement that clause 59 being an exemption clause is required to be interpreted strictly as
the interpretation of a statute allowing exemption is indeed required to be made in this manner. However the LA has gone on to say
that where two different interpretations are possible in the reading of an exemption clause, the one favoring revenue should be
adopted. According to the LA the assessee company not having distributed dividend on a "cash only" basis does not meet the
stipulation laid in this regard in section 12(9A) and when the AR of assessee pointed out that clause 59(i) makes no stipulation in this
regard and simply speaks of dividend distribution the LA opined that there was a dispute here with regard to the requirement of
dividend distribution and as the cash only distribution of dividend favors revenue the same should be adopted.
53. We have looked into this aspect of the matter and we find that after enactment of clause 59 only one interpretation is possible as
regards the qualification for exemption from the provisions of section 12(9A) and that is that the company "distribute dividend" equal to
40% of it's after tax profits or 50% of the paid up capital, whichever is less. There is definitely no requirement in clause 59 that the
company distribute dividend in cash only. As explained Supra, clause 59 has effectively reduced the scope of clause 12(9A) and this
stipulation of simple dividend distribution and not cash only dividend distribution is one of the ways in which clause 59 has reduced the
scope of section 12(9A). Thus there is no dispute in clause 59 regarding the mode of dividend distribution and the departmental view in
this regard is clearly misconceived.
1•
54. We would further like to point out here that authoritative opinion on the matter pertaining to manner of dividend distribution envisaged
under the statute supports the view that once dividend is declared and it’s distribution approved it shall not be lawful for the directors or
the company to defer or withhold it’s payment and the Companies Ordinance prescribes severe penalties to be levied on the Company
C.E.O. where a dividend is approved by shareholders but not paid up within the specified period of 45
(14) ITA No. 2467/LB/2002
days. The fact that some dividend warrants may not be deposited for encashment by shareholders cannot be taken to mean that
dividend has not been distributed. Requisition of counterfoils of dividend warrants by some assessing officers ,purportedly to verify
dividend distribution, is not justified as these counterfoils are for shareholders records only and the standard audit report does not
contain any certification specific to the despatch of dividend. To this end there is therefore hardly any utility in any exercise carried out
by some assessing officers to verify whether the dividend cited in the final accounts has been actually paid by the company and in case
there is any delay in the disbursement of dividend declared / approved, it is for regulatory authorities like the SECP and the Stock
2
Exchanges to take cognizance of the same. Furthermore, dividend payment cannot be tied to finalization of tax assessment as that
would deprive the shareholders of timely dividends and prevent compliance with the stipulation obtaining in the Companies Ordinance
(section 248 & others) which mandate dividend distribution by a company within 45 days of it’s approval in the annual general meeting
by the shareholders. As the finalization of assessment of income of a company is an uncertain event that may take months or even
years after filing of the return of income, if dividend distribution is tied to finalized tax assessment, it may not be possible to hold the
AGM within 6 months of the close of accounts as required under the companies ordinance.
In view of the comment made Supra, we hold that there is no ambiguity or dispute in clause 59 regarding the mode of dividend
distribution and the departmental view in this regard as articulated by the Legal Advisor before the tribunal is clearly misconceived.
55. In view of what is stated above, we hold that section 12(9A) of the Ord and clause 59, Part-IV of the 2nd sched to the Ord., are
required to be read together in the case of all such public limited listed companies that declare profits. However in the case of public
limited listed companies declaring losses, (other than a leasing company, a trust or a company in which not less than 50% shares are
held by govt ) , clause 59 does not come into play at all and such companies can escape the mischief of section 12(9A)
(15) ITA No. 2467/LB/2002
only by declaring 'cash dividend' on a scale as to ensure that the reserves do not exceed 50% of the paid up capital, within the
timeframe laid down in proviso's (i) and (ii) of sub-section (9A ) of section 12 of the Ordinance. Thus it appears that there is a built in
bias here in favor of companies declaring profits and against companies declaring losses.
56. In our judgement what appears to be really bothering the deptt is the underlying belief that the assessee company deliberately
managed the three dividend distributions simply to escape the mischief of section 12(9A) and had it not been for section 12(9A) the
dividends would not have been so distributed. However it need not take us long to see that the departmental apprehension is
misplaced as section 12(9A) came on the statute in july 1999 while dividend no's 25 & 26 had already been announced in aug 1998
and may 1999 and when making these dividend declarations the assessee company clearly had no knowledge that section 12(9A) will
be brought on the statute in july 1999.
57. In any case it is no offence for a company to so arrange it’s affairs as to minimise it’s tax liability under the law. Section 12(9A) provides
a specific opportunity to a company to declare dividend equal to 40% of it’s after tax profits – or 50% of the paid up capital , whichever
is less, and so escape levy of tax on deemed income u/s 12(9A) that would be a necessary consequence in case dividend is not so
declared and it would be foolhardy for a company to avoid dividend declaration within the stipulated parameters. If, therefore, the
assessee company has declared dividend to the extent that it has, that cannot be given a negative slant as has been done by the deptt.
Indeed, even if it be accepted, for the sake of argument that the assessee company has only declared dividend to the extent that it has
in order to escape the mischief of section 12(9A), that is only proof of the success of government policy to encourage companies to
declare reasonable dividend and the assessee company should be applauded for it’s compliance with government policy. The fact that
the assessee company has in effect been ‘punished’ rather than applauded for declaring good dividend is bound to send the wrong
signals to the corporate sector in particular and investors in general and will have serious ramifications to the detriment of investment
activity which would be negation of government efforts to encourage corporate investment.
(16) ITA No. 2467/LB/2002
58. We are constrained to note that the deptt has shown scant regard for the observations recorded by the Hon'ble Lahore High Court in
their judgement dated 6th Dec 2001, when disposing off writ petition filed by the assessee company. Relevant extracts from the
judgement are reqproduced below:
After hearing the learned counsel for the parties I will agree that the issue of the three dividends doled out by the petitioner
company during the relevant period satisfied the statutory requirements needs to be reconsidered by the revenue. Therefore the
impugned order dated is set aside ................................... ........................................................
Before ending, I would like to record that provisions of section 12(9A) like rest of them, should be invoked only where
such invocation is absolutely free of any doubt. Such like deeming provisions in any taxation statute should be invoked as

rarely as possible. The reason simply being that these are penal in nature and an extra burden on a subject after payment
of normal tax. It will be unjustified on the part of the State to extract more money from a subject by enlarging it's arm and
unnecessarily retching the deeming clauses of a taxing statute. The purpose of section 12(9A) is only to ersuade"
corporate assessees to distribute dividends to the shareholders.The provision is certainly not mean't to generate more
revenue for the State. An overzealous tax collector is as undesirable as a meek conniver."
(emphasis ours)
59. This is strong language indeed but it appears to have had no effect on the deptt in interpreting section 12(9A) in a manner as to make it
a revenue generating tool which is quite the opposite of the view expressed by the Hon'ble High Court. Needless to say the view
expressed by the High Court is an authoritative pronouncement by the superior judiciary and is thus binding on the deptt and all
subordinate appellate fora.
60. After due consideration of all pertinent aspects relating to placement of the three dividend distributions made by the company, and
taking into into account the fact that in assessment year 2001-2002 the deptt has itself accepted dividend distribution
declared by the company after close of accounts at end of income year to properly relate to the relevant asstt year 2001-02,
we are satisfied that the three dividend distributions made by the company in income year 1998-99 relate properly to asstt year 1999-
2000 and as the aggregate of these dividend distributions amount to well over 40% of the after tax profits of the company, the company
is resultantly fully protected from the mischief of sub section (9A) of section 12 of the Ordinance. We therefore hereby vacate the order
of the IAC passed u/s 66A and reinstate the order of the DCIT.
61.The appeal SUCCEEDS.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 855/LB/02
NTN: 07-07-1718145
Gojra Samundri Sugar Mills Limited, Lahore. Appellant
Versus
DCIT, Circle – 07, Coy. Zone – I, Lahore. Respondent
Appellant by : Mr. Muhammad Iqbal Kh, and

Mr. Faisal Iqbal Kh, Advocates
Respondent by : Mr. Abdul Rasheed, DR,

Dr. Hamid Ateeq, DCIT and
Mr. Shahid Jamil, LA.
ORDER
This appeal by a public limited company (unlisted) arises out of order of the CIT (A), Zone – I, Lahore dated 04-02-2002.
2. It is the appellant’s contention that the first appellate authority has wrongly maintained addition u/s 13 (1) (a) of the Ord. amounting
to Rs. 32,312,800/-. Add backs against P & L expenses have also been contested.
3. Briefly stated, the facts in this case are that on scrutiny of assessee company’s accounts and supporting documentation during the
course of assessment proceedings, the assessing officer found that an amount of Rs.32,312,800/- was shown as advances received from
customers. As the amount of advances from customers had shown a sharp increase vis-à-vis last year
(2) ITA No. 855/LB//02
when such advances were cited at Rs.83,84,348/- only, the assessing officer issued formal notice and interrogated the assessee company
on the matter and reply was received as under: -
“The detail of advance payments receipts was already submitted and is on record. These payments ere received
through crossed Demand Draft & Cross pay order only and relates to the sugar parties. The parties making the
payments are genuine and can be verified if your goodself like so. Thus the declared position being fully
protected under law may kindly be accepted”
4. The names of the persons making advances and the amount deposited by each person was intimated by the assessee as under: -
1. Mr. Abdul Jabbar 2,949,000
2. Mr. Azam Khan Karak 5,895,000
3. Mr. Ali Jan Khan 4,092,000
4. Mr. Farhan Shah 1,564,800
5. Mr. Khan Zada Khan 4,074,000
6. Mr. Mir Zaman 3,900,000
7. Mr. Niamat Khan 3,760,000
8. Mr. Noor Zaman 6,078,000
5. In order to appraise the bona fides of the cited eight parties from whom the advances were claimed to have been received, the
assessing officer issued notices u/s 148 of the Ord. to them through registered post / acknowledgement due, but the notices were received
back with the remarks from the postal authorities “such persons do not exist at the given addresses”. The assessing officer advised the
assessee company accordingly and called for
(3) ITA No. 855/LB//02
necessary documentation, including sale agreement of assessee company with them, their national identity cards and national tax
numbers and the assessee was also requested to produce the said eight persons before the assessing officer.
6. In response to the assessing officer’s demand, the assessee company expressed its inability to comply and the assessing officer
was also advised that there is no sale agreement with these eight persons and the company was not in a position to produce them before
the assessing officer as these eight persons were not contactable.
7. The assessing officer then requisitioned specific information regarding various bank accounts cited against the advances received.
On scrutiny of the information furnished by the concerned banks, the assessing officer found that the advance amounts claimed by the
company to have been received from the cited eight persons had not been routed through their respective individual bank accounts.
Rather, the amounts had been routed through the bank account of other persons in the said bank branch and not from the bank account of
the cited eight persons.
8. The assessing officer then concluded that the amounts attributed by the assessing officer to the cited eight parties in matter
pertaining to “advances from customers” could not be substantiated form the documentation available to him and he accordingly advised
the assessee company that the cited eight parties appeared to be “Benami Parties” and thus the creditors shown in the balance sheet of
the company were not genuine creditors.
(4) ITA No. 855/LB//02
9. In response, the assessee company advised the assessing officer that by asking the company to physically produce the cited eight
parties before him for their interrogation / verification, the company was being directed to do something “which is beyond our control”. The
company further advised the assessing officer that it had never considered it necessary to enter into formal agreement with customers
making advance deposit and in its opinion such a agreement “is neither physical nor practicable” Furthermore, the assessing officer was

told that sales of sugar had actually been made to the cited eight parties, subsequently. Also, according to the company, as the amounts in
question have been, statedly, routed through crossed demand drafts and telegraphic transfers, the remittances could not be treated as
suspect. In the opinion of the company, the cited persons having subsequently lifted sugar from the company premises / gate, the bona
fides of such persons were beyond any doubt as only the persons making advance payments to the company could be allowed by the
company to lift the amount of sugar from the company premises. As to why the bank entries were found to relate to other parties and not to
the cited eight persons, the company speculated that the cited eight persons might have had their own dealings with these other persons
from whose bank accounts payments were found to have been made.
10. The company specially emphasized before the assessing officer that as transactions as reported by the company in matter
pertaining to sales made were fully consistent with the sales tax
(5) ITA No. 855/LB//02
record that was subject to regular scrutiny by the sales tax authorities and such sales tax record was allegedly binding as far as income tax
proceedings were concerned. The sales tax authorities having accepted the identity of Mr. Niamat Khan, Malakand and others, the
company was of the opinion that the same was sufficient evidence to satisfactorily establish their bonafides and there was no justification
for the assessing officer to treat these eight persons as “Benami”.
11. According to the AR of assessee, the department has adopted a very unreasonable attitude in matter pertaining to bona fides of
the cited eight persons who are claimed by the company to have deposited advance amount with the company for sales of sugar to them
and which sales have been made in the subsequent periods. The AR of appellant submitted that the books of accounts maintained by the
company had been duly produced before the assessing officer during the course of assessment proceedings and these books alongwith
the supporting documentation had been examined and the trading result of the company had been accepted. That being so, the AR opined
that the assessing officer had no justification to arbitrarily treat the advances from customers as “suspect”. According to the AR, it was the
customary market practice to receive advance amounts from customers in this manner without any written agreement etc. The AR
repeated the earlier contention made before the assessing officer at assessment stage that sales of sugar had in fact been made to these
eight parties subsequent to the advance
(6) ITA No. 855/LB//02
amount receipt by the company and such sales duly disclosed in the sales tax record and it could not therefore be said that these were
“Benami Parties”. The AR also repeated that the advance amounts received were against “crossed demand drafts” and “telegraphic
transfers” and there was thus no question as to their genuineness. The AR also argued that statutory notices had not been served on the
company during the course of assessment proceedings strictly in the manner required by law. As for the assessing officer’s interrogation
of the assessee through a general notice issued u/s 62 and not through a specific notice u/s 13 (1) (a), as statedly required by law, this,
according to the AR, was allegedly fatal to the entire superstructure built up by the assessing officer and rendered the same, null and void.
The AR also affirmed that it was actually not possible for the assessee company to ensure the physical attendance of these eight persons
before the assessing officer after a lapse of considerable time from the date of receipt of the amounts in question. This is mainly because
most of these persons were statedly resident in tribal area of the NWFP. The AR was of the view that the assessing officer could himself
have made attempt to enforce their attendance rather than direct the assessee company to do so and in case the assessing officer found
that it was not possible for him to enforce their attendance then it was not realistic for him to expect the assessee company to produce
them before him.
12. The AR has cited the following case law in support of the arguments made before the Tribunal: -
(7) ITA No. 855/LB//02
(1988) 57 Tax 224 (HC. Kar); (1984) 51 Tax 11 (HC. Kar);

(1993) 68 Tax 82 (HC Lah); (1989) PTD 638;
2000 PTD 1320; (1963) 7 Tax, Page 184, (HC. Kar);
13. The arguments as made by the AR have been strongly contested by the Legal Adviser to the department. According to the LA, the
onus was directly on the assessee company to substantiate the final accounts filed before the assessing officer alongwith the return of
income. According to the LA, the assessing officer had provided “reasonable opportunity”, as envisaged in law, to the assessee company
to establish the bona fides of the eight persons cited by the company as the company’s customers who had made advance payments to
the company aggregating Rs.32,312,800/-. The LA emphasized that the company had itself advised that “the parties making the
payments are genuine and can be verified if your goodself like so” (SIC). Having made such a categorical written declaration in its
reply dated 26-05-2000, the company had subsequently reneged and expressed its inability to produce the cited eight parties before the
assessing officer for necessary verification and this failure, according to the LA, must necessarily go against the assessee company.
14. According to the LA, having failed miserably to establish the bona fides of the cited eight parties before the assessing officer, the
assessee company was now attempting to take cover behind hypertechnical legal niceties which was evident from the fact that the
(8) ITA No. 855/LB//02
AR had stated before the Tribunal that the correct notice [u/s 13 (1) (a)] had not been issued by the assessing officer. The LA stated that
necessary notices had actually been issued by the assessing officer and the queries had been carefully drafted and properly confronted to
the assessee on all pertinent aspects having a bearing on the advances disclosed by the company in the balance sheet.
15. According to the LA, it was not correct that the assessing officer was bound, under all circumstances, to accept the record
maintained, as per sales tax rules / regulations, especially when compelling contrary evidence was available to the assessing officer as in
the case of the present assessee.
16. The LA deposed before the Tribunal that the deeming provisions incorporated in section 13 of the Ord had statedly no nexus with
any particular Head of Income and the provisions of section 13 can be invoked without there being any express need to first reject the
accounts produced. Section 13 (1) is statedly a “charging section” in its own right and could thus be independently invoked.
17. According to the LA, the “ambient circumstances” were highly suspect insofar as huge amounts have been shown as deposited by
the cited eight parties for which no documentation whatsoever (sale agreement etc) was admitted to have been maintained. This according
to the LA was just not plausible and where subsequently the said person wanted a refund of the
(9) ITA No. 855/LB//02
advance amount in case the company was unable, for any reason, to make the sale, then there was no way that its claim could be legally

enforced (in the absence of any documentation). The abnormal increase in advance deposit from customers vis-à-vis the preceding
year was also, according to the LA, highly suspicious and no satisfactory explanation on the matter had statedly been made by the
company todate.
18. The LA was firmly of the opinion that the assessee’s reference to “crossed DDs / TTs” was wholly unjustified and without any basis
whatsoever as the amounts in question had admittedly not been deposited from the bank accounts of the cited eight parties.
19. The LA took issue with the contention of the AR of assessee that as per the provisions of section 13 (1) (a) fo the Ord, only
“unexplained cash credits” could be brought to tax u/s 13 (1) (a) and as in the case of the assessee company the amounts in question with
regard to the cited eight parties had allegedly been routed through banking channels since demand drafts and telegraphic transfers had
been made out, hence there was no question of treating the said remittances as “unexplained cash credits”. The LA opined that words
“any sum” had been deliberately used in clause (a) of sub-section (1) of section 13 of the Income Tax Ordinance, 1979 in contradistinction
to the use of the word “cash” in the parallel provisions of the Income Tax Act, 1922, and there was nothing in the law therefore that
prevented
(10) ITA No. 855/LB//02
the assessing officer from treating the said amounts as unexplained sums actionable u/s 13 (1) (a).
20. The LA also took issue with the statement of the AR that the assessing officer had accepted the disclosed book results in their
entirety and the LA pointed out that an addition of Rs. 1 crore odd had in fact been made by the assessing officer in the trading, profit &
loss account.
21. The LA conceded that the assessing officer had not attempted to verify each and every rupee of the advances received from the
customers. However, he argued that the verification actually made was fairly illustrative and sufficient for the purposes of invoking the
provisions of section 13 (1) (a).
22. The LA has cited the following case law in support of the arguments made before the Tribunal: -
(1973) 27 Tax 229 HC. Lah; (1984) 50 Tax 168 (HC. Kar)
1978 ITR Vol.114. Page.691; (1968)17 Tax 78(Dacca HC)
23. We have perused the case law cited before us and have very carefully considered the arguments made by both sides and have
also examined the available record. After due consideration of all pertinent aspects, our findings are recorded as under: -
1. In our considered judgement, the assessee company is wholly misconceived in its view that the advance amounts have been
remitted against “crossed bank drafts”. It is a fact that the amounts in question have
(11) ITA No. 855/LB//02
not been routed through the bank accounts of the cited eight parties.
2. Under the law, the assessing officer when making a determination of the total income of an assessee for purposes of levy of income
tax, is not bound to refer to the sales tax record maintained, as per sales tax law / rules. The ITAT in reported decision cited as [(2000)
82 Tax 105 (trib)] has held that: -
“ The main thrust of appellant’s arguments in support of its contention that declared-version be
accepted is that the record maintained as per prescribed Excise Rules is sufficient to substantiate the
final accounts of the company submitted before the assessing officer alongwith the Return of income.
We have given this mater our earnest consideration as it is of considerable significance in deciding the
issue before us. In our considered opinion, there is a fundamental difference in the requirement of
maintenance of record / accounts in the context of liability to be determined for purposes of sales tax
and for purposes of determination of total income. In the case of determination of liability for purposes
of levy of sales tax, the Excise/Sales Tax Authorities are mainly concerned with monitoring production
and evaluating average sale rate. The Excise Authorities expect a minimum level of production to be
achieved periodically and provided that level is achieved, the Excise Authorities are generally satisfied
with the results disclosed. The Excise Duty is paid with reference to achieved production and sales tax
is levied on the Turnover (i.e. manufactured goods) that are disposed off in the market. If the Excise /
Sales Tax Authorities are satisfied that production of goods is correctly recorded and the average sale
price disclosed is reasonable, then in their view of the matter the available record as per the prescribed
Excise Rules are sufficient and no further queries are considered necessary.
In the case of determination of total income however, the range and scope of accounts /
supporting documentation required is, in our opinion, much wider. The
(12) ITA No. 855/LB//02
assessing officer is not simply concerned with the achieved level of production and the quantum of
sales made in the market. The assessing officer must go beyond actual physical production and
examine purchases and incidental expenses thereon. He must examine average purchase price in-
depth and be satisfied that it is correctly disclosed and that there is no under / over invoicing. Similarly,
the sales are subjected to close scrutiny to see that there are no significant variations in sale rate of the
same commodity/ goods and that the average sale rate is consistent with the bona fide price prevailing
in the market. The cost of sales is a matter of consequence for the assessing officer as the gross profit
rate evolving, expressed as a percentage, is often referred to while evaluating the declared trading
results ………………………………………..
…………………… The purchases and sales are also scrutinized to see how far these are properly
vouched and verifiable ……………
…………….. The examination of the balance-sheet is again a very significant requirement in the
assessing officer’s appraisal of accounts. The assets and liabilities sides of the balance – sheet require
close scrutiny to ensure that whatever accretion / decretion is cited is properly explained. Any
unexplained accretion has to be looked into and evaluated in terms of express statutory stipulation.

Such unexplained accretion can be found to constitute “deemed income” and separately included in a
tax-payer’s total income. Even where an accretion is explained, it can sometimes have tax
consequences. Thus where a loan is received otherwise than by crossed cheque beyond a stipulated
threshold, the same is to constitute tax-payer’s deemed income u/s 12(18). The valuation of stocks is
also required to be made in a consistent manner according to well –defined parameters.
As is obvious from what is stated above, the assessing officer’s examination of a taxpayer’s
accounts has a much wider range and scope than the examination of Excise / Sales Tax Authorities in
the context of levy of Excise Duty / Sales Tax."
In view of the Tribunal’s findings reproduced Supra, we find that the AR’s submissions on the matter are not correct and
under the given facts and
(13) ITA No. 855/LB//02
circumstances of the present case, the assessing officer, purely on the basis of the sales tax record of the assessee
company, was not bound to hold that the cited eight parts were genuine parties.
3. The “ambient circumstances” in this case are of particular significance and cannot be ignored. The fact that huge amounts
have been shown as having been deposited by the specific parties for which no documentation is admitted can only cast an
adverse inference against the assessee. The assessing officer cannot be forced to accept the undocumented transactions. In
the case presently before us, there is admittedly no sale agreement between the assessee company and the alleged persons
making advance payments nor with the alleged persons making payment to the assessee company out of their own bank
accounts. Rather, the payment to the company has been made against the bank account of the third party with which the
assessee company has no relationship whatsoever. It is also incredible that the assessee company professes to have no
knowledge whatsoever about the whereabouts of any of the eight persons, when they are cited as regular customers of the
company who have made advance payments for sale of sugar to them. It is also highly significant that the assessee company
having very confidently and
(14) ITA No. 855/LB//02
unequivocally asserted that the cited eight parties were genuine parties open to verification, suddenly makes an about-face
and declares that it was just not possible for the assessee company to comply with the assessing officer’s demand for their
production before him after he had failed to elicit any response to the statutory notices issued u/s 148.
4. The Lahore High Court in decision cited as [(1982) 45 Tax 47] has held that accounts produced may be rejected without
assigning any reason where the “ambient circumstances” are found to be suspect. In the present case, the “ambient circumstances” are
indeed not found to lend support to the assessee company’s contention regarding advances received from customers.
5. We do not agree with the contention of the AR that the addition as made u/s 13(1) (a) is legally untenable for the reason that
specific notice styled as notice u/s 13 (1) (a) had not been issued. It is a fact that a notice u/s 62 of the Ord has in fact been issued,
comprehensively detailing the facts and circumstances on which assessee’s response was required and reference to section 13 (1) (a)
has been made therein. Necessary opportunity, as envisaged in law, has therefore been accorded to the assessee company and no
prejudice whatsoever has been
(15) ITA No. 855/LB//02
caused to the assessee by the alleged non issuance of notice styled as notice u/s 13 (1) (a). The assessee’s objections on the
matter amount to legal quibbling only and carry no weight.
6. We agree with the departmental contention that section 13 is an independent charging section and it is the intent of the legislature
to allow its independent invocation. In our judgement, there is no substantive defect in law and procedure that could render the addition
u/s 13 (1) (a), as made by the assessing officer in the case presently before us, to be untenable in law.
7. The burden of proof is squarely on the assessee when confronted with the credits found to be unexplained as to source. In the
present case, assessee company has not discharged this onus.
8. When an assessee chooses to have business dealings with persons placed in the informal sector of the economy and as a
consequence the assessee fails to maintain proper documentation for its dealings with such persons, then the assessee must accept
the necessary consequences, when the assessing officer refuses to acknowledge such undocumented transactions. In the case of the
assessee company’s alleged dealings with the cited eight parties, no proper documentation has been produced to
(16) ITA No. 855/LB//02
establish conclusively the bona fides of the eight parties before the assessing officer in the context of advance amounts claimed to
have been deposited by them. Assessee’s main stance here appears to be that these same persons have subsequently lifted sugar
from the mill gate against the advance amount allegedly deposited by them earlier and as the assessing officer has statedly accepted
the assessee’s declared sales therefore their bona fides automatically stood established, especially when these persons are also cited
in the sale tax record maintained by the company for purposes of levy of sales tax. In our judgement, the fact that the assessing officer
did not “estimate” sales cannot be taken to mean that the bona fides of the persons claimed to have made advance amounts to the
company have indeed been established. Surely, it is not the assessee’s contention that the persons whom the assessing officer sought
to verify under the income tax law are rendered verifiable under sales tax law simply because no actual effort has been made for their
formal interrogation under sales tax law. Thus if Mr. Niamat Khan, who is one of the eight cited persons did not appear before the
assessing officer under income tax law, how he can be expected to be rendered a genuine person under
(17) ITA No. 855/LB//02
sales tax law when no actual effort has ever been made under sales tax law to look into his bona fides ? The fact of the matter is
that no actual effort has ever been made by the sales tax authorities to investigate the bona fides of Mr. Niamat Khan and others and
the declared sales have been routinely accepted by them. Admittedly, the assessing officer when making the computation of assessee’s
income could possibly have estimated sales in view of the unverifiability of the cited eight persons who have made advance payments
and are also shown to have purchased sugar from the assessee company. However, the fact that the assessing officer did not estimate
sales cannot necessarily be taken to mean that he has suddenly accepted the said eight persons as genuine and verifiable persons
when he computed the assessee company’s trading results.
9. In our considered judgement, if the assessing officer had accepted the genuineness of the eight parties notwithstanding the fact that
no reliable documentation could be produced by the assessee company to substantiate its contention that they were indeed the

persons who have made the advance payments, then the assessing officer would have accepted the declared version purely on
presumption. However, after making actual enquiry and after giving
(18) ITA No. 855/LB//02
necessary opportunity to the assessee, when the assessing officer found that these eight persons are not genuine persons insofar
as there is no documentation that can conclusively establish their alleged dealings with the assessee company in the context of
advance payments made, the assessing officer had no choice but to invoke the provisions of section 13(1) (a). Under the law, the
assessing officer cannot be compelled to accept the DDs and TTs referred to by the assessee as satisfactory evidence to substantiate
remittances allegedly made to the company by the cited eight parties. As explained above, the evidence produced by the assessee
company is not reliable evidence. The Hon’ble Supreme Court of Pakistan in its judgement cited as [(1978)-SCC-226] has held that
there was nothing in the law that can compel an assessing officer to accept a piece of evidence placed before him. Thus the mere fact
that the assessee company has in its possession certain DDs and TTs purportedly made out by the persons who claim to have made
advance payments to the company is not by itself conclusive evidence of the veracity of assessee’s contention, especially when on
enquiry made from banks, the assessing officer found that the contention as made by the assessee was not established and the
payments had not been made out of the bank accounts of the cited eight persons.
(19) ITA No. 855/LB//02
10. Looking at all pertinent aspects, we, for the reasons recorded Supra, hold that the CIT (A) has rightly upheld the addition made u/s
13 (1) (a) by the DCIT amounting to Rs.32,312,800/-.
11. The Ground pertaining to P & L add backs, has not been pressed before us. We have looked into the add backs made under the
different Heads and in our considered judgement, these have been made reasonably to take cognizance of personal element involved /
party unverifiability of the claimed expenditure and the add backs are broadly consistent with the past history of the case and these are
accordingly maintained.
The appeal for 1999-00, filed by the assessee, is hereby rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 6274/LB/98
ITA No. 6275/LB/98

NTN:07-10-1721106
DCIT, Circle – 12, Coy. Zone – I, Lahore. Appellant

Versus
Nisar Art Press (Pvt) Limited, Lahore. Respondent
Appellant by : Agha Hadayat Ullah, DR
Respondent by : Mr.Shamim A. Syed, CA.
ORDER
These appeals by Revenue are directed against order of the CIT(A), Zone-I, Lahore, dated 19-09-1995.
2. It is the departmental contention that the first appellate authority has unjustifiably directed that assessments for 1991-92 & 1992-93
be framed u/s 62.
3. The facts in this case are that the assessee, a private limited company, filed returns of income u/s 55 (1) of the Ord for 1991-92 &
1992-93 on 27-06-1992 & 18-08-1992 respectively. The assessing officer however did not finalize the assessments for the two years u/s 62
but the assessments were finalized u/s 80-C/ 59(A).
4. According to the assessing officer, the assessee’s case did not qualify to be assessed u/s 62 and moreover he held that final and
irrevocable option to opt out of the presumptive tax regime, in terms of Clause (9) of Part-IV of the Second Schedule to the Ord, did not
accompany the returns filed belatedly u/s 55 (1). The assessing officer had duly interrogated the assessee during the course of
assessment proceedings and had questioned as to why option to opt out of the
(2) ITA Nos. 6274-6275/LB/98
presumptive tax regime had not been filed in time alongwith the returns of income and the assessee had advised that the official
notification No.SRO.829(1)/91 on the matter pertaining to option had been issued on 28-08-1991 which was after the last date of filing of
return of income for the assessment year 1991-92. As for assessment year 1992-93, the assessee was of the opinion that option filed in
assessment year 1991-92 would be good for all subsequent years also. This contention was rejected by the assessing officer who held
that as per law the option was required to be filed each year alongwith the return of income.
5. Before the first appellate authority, the assessee reiterated its contention that as the official notification regarding filing of final and
irrevocable option had been issued to the public after the last date for filing of return of income for 1991-92 (i.e. 31-07-1991), the
assessee could not be expected to be aware of the statutory stipulation regarding filing of option and as such the belated return filed and
the belated option should have been accepted by the assessing officer. The assessee cited case law as 1983-155-ITR 568 in which it had
been held that notification provided in the official gazette but not made available to the general public would not amount to a notification at
all as the public could not be expected to be aware of something that had not been placed before the public in time.
6. The assessee’s contention found favour with the CIT (A) who ruled that the assessee’s case qualified for assessment u/s 62. The
CIT (A) specifically pointed out that the CBR had finally clarified the matter through its circular C.No.1 (155)/DPT-11/94 dated 28-05-1996
in which it had been announced that returns of income filed by manufacturers for assessment year 1991-92 by the due date i.e. 31-07-
1991 would also be treated as filing of final and irrevocable option to opt out of presumptive tax regime in terms of Clause (9) Part-IV of the
Second
(3) ITA Nos. 6274-6275/LB/98
Schedule to the Ord as the notification regarding filing of option had been issued on 24-08-1991 after the closing date for filing of return for
1991-92 in the case of those assessee’s having calendar year as their income year. According to the CIT (A), the said clarification
issued by CBR condoning delayed filing of option by the assessee for 1991-92 is fully applicable in assessee’s case.
7. The DR has strongly opposes assessee’s contention on the matter. According to the DR, the condonation envisaged in the CBR
Circular C. No.1(155)/ DPT-11/94 dated 28-05-1995 applied to those assessees/manufacturers who had filed returns of income for 1991-
92 (in time) by 31-07-1991. It was pointed out that the assessee has filed return of income for 1991-92 well after closing date on 27-06-
1992 i.e 10 months & 26 days late and furthermore the option to opt out of the presumptive tax regime was filed after the return had been
received by the department. The option did not accompany the belatedly filed return of income for 1991-92. As for assessment year 1992-
93, the DR pointed out that in this year too, the return of income was not filed in time but on 18-08-1992. Thus option to opt out of the
presumptive tax regime in assessment year 1992-93 was not received by the department by the “due date” i.e. 31-07-1992.
8. According to the DR, the condonation announced by CBR vide its circular C.No.1(155)/DPT-11/94 dated 28-05-1995 was relevant
only for assessment year 1991-92 and did not apply in assessee’s case as the condonation was applicable in only those cases in which
the return of income u/s 55 (1) had been filed in time.
9. AR of assessee reiterates earlier contention made before the assessing officer as well as the CIT (A) that the assessee could not
be expected to be aware of the official notification dated 24-08-1991 regarding option when the closing
(4) ITA Nos. 6274-6275/LB/98
date for filing of return was 31-07-1991 that had statedly been extended to 30-08-1991. The AR argues that the assessee had acted
in good faith and should not therefore be punished by making an unrealistic interpretation of the law. As for belated filing of option in
assessment year 1992-93, the AR reiterated that the assessee genuinely believed that the option filed in assessment year 1991-92 would
also be good for assessment year 1992-93.
10. We have heard both sides and have examined the available record and in our considered judgement, option to opt out of the
presumptive tax regime in terms of Clause (9), Part-IV of the Second Schedule to the Ord is available only to those assessees who have

filed returns of income u/s 55 (1) in time i.e. by 31-07-1991 in cases where the calendar year is the income year. The CBR’s
condonation announced through circular referred to Supra makes it abundantly clear that only those assessees’/manufacturers who had
filed return of income u/s 55 (1) by 3-07-1991 were to be treated as having filed option to opt out of the presumptive tax regime
alongwith the return for 1991-92 as the official notification regarding option had been issued on 24-08-1991. That being so, the
condonation announced by CBR cannot apply in assessee’s case as the assessee admittedly did not file return of income u/s 55 (1) for
1991-92 by 31-07-1991. Infact, the assessee did not file return of income for 1991-92 even by 30-08-1991. Rather, the return for 1991-92
was filed on 27-06-1992 and the option was filed even later.
11. The statutory stipulation laid down in Clause (9), Part-IV of the Second Schedule to the Ord makes it expressly clear in the proviso
to Clause (9) that the declaration of final and irrevocable option to opt out of the presumptive tax regime was to be furnished in writing
alongwith the return of total income filed u/s 55 (1). The assessee has not complied with this express statutory stipulation.
(5) ITA Nos. 6274-6275/LB/98
12. The case law cited by assessee is of Indian jurisdiction and is found to be of no avail to the assessee as the situation envisaged
therein is not parimateria with the situation obtaining in assessee’s case. The CBR having taken cognizance of the belated issuance of
notification regarding option has formally waived the requirement of filing option alongwith the return of income for assessment year 1991-
92 provided the return for 1991-92 has been filed “in time” i.e. by 31-07-1991. The assessee having filed return of income for
1991-92 on 27-06-1992 is thus clearly not eligible for the waiver announced by the CBR.
13. Assessee’s contention that the condonation was under a bona fide misunderstanding regarding filing of option for each year
separately and honestly believed that option filed for 1991-92 would be good for 1992-93 as well does not hold force. It is trite law that
each year is an independent assessment year and statutory stipulation regarding filing of return of income and option to opt out of the
presumptive tax regime applies for each year separately.
14. Looking at all pertinent aspects, we find that the CIT (A) had interpreted the law regarding filing of option incorrectly and has
therefore wrongly held that the assessee’s case qualifies for assessment u/s 62. We therefore vacate the orders of the CIT (A) for
assessment year 1991-92 & 1992-93 and reinstate the orders of the DCIT.
15. Resultantly, the departmental appeals succeed.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No.4620/LB/94
NTN: 07-17-1723274
DCIT, Circle – 12, Coy. Zone – I, Lahore. Appellant

Versus
M/s Zaman Paper & Board Mills (Pvt) Limited, Lahore. Respondent
Appellant by : Mr. Abdul Rasheed, DR
Respondent by : Mr. Zia Ullah Kayani, ADV.
ORDER
This appeal by Revenue is directed against order of the CIT (A), Zone – I, Lahore, dated 101-10-1994.
2. It is the departmental contention that the first appellate authority has unjustifiably deleted addition made u/s 12 (18)/30 of the Ord
amounting to Rs. 86 lacs.
3. The facts in this case are that the assessee company purchased factory land at 46.5 K.M., Lahore – Sheikhupura – Faisalabad
Road and a registered sale deed was executed accordingly. As the Company statedly did not have adequate resources to make the
purchase on its own it relied on its Managing Director, Mr. Qamar-uz-Zaman, to contribute the requisite financing.
4. In return of income filed on 31-07-1993 by the assessee company for the assessment year 1993-94, a balance sheet duly signed
by the Directors, is attached in which amount of Rs. 86,32,404/- is shown as a loan amount outstanding under the Head “CURRENT
LIABILITIES” as at 31-12-1992. Subsequently, on 03-03-1994 another balance sheet has been filed in which the loan amount outstanding
as at 31-12-1992 stands reduced to Rs. 32,404/- only and the issued subscribed and paid up capital of the company stands augmented to
Rs. 30,600,000/- from Rs. 22,000,000/- shown in the previous balance sheet filed on 31-07-1993 alongwith the return.
(2) ITA No. 4620/LB/94
5. At assessment stage, the DCIT after examination of the company’s accounts opined that in the balance sheet filed on 03-03-1994
the assessee had altered the figures disclosed under “CAPITAL AND LIABILITIES” by arbitrarily transferring Rs. 86 lacs under the Head
“Current Liabilities” to the Head “CAPITAL” in order to evade the tax liability arising u/s 12 (18) /30 of the Ord. According to the DCIT, the
purchase of land by the company by tapping the resources of its Director, Mr. Qamar-uz-Zaman, was tantamount to receipt of a ‘loan’ by
the company from its Director and since such ‘loan’ amount had not been advanced to the company by crossed cheque drawn on a bank it
was therefore liable to be treated as the company’s deemed income u/s 12 (18) read with section 30 of the Ord.
6. In reply filed, the assessee company denied any liability u/s 12 (18) and explained that so called revision of balance sheet on 03-
03-1994 was the result of the discovery of an “error” in the so called ‘provisional balance sheet’ filed on 31-07-1993 insofar as loan amount
outstanding as at 31-12-1992 had been incorrectly cited, allegedly inadvertently, and the same was therefore “corrected” in the so called
‘revised balance sheet’ filed on 03-03-1994 statedly in line with the recommendations of the company’s auditors. The DCIT was advised
that there had been no transfer of cash funds as such from the Director to the company & no loan had been advanced to the Company by
the Director and only an “asset” i.e. land had statedly been purchased by the Director, Mr. Qamar-uz-Zaman, and “subsequently”
transferred to the company.
7. The DCIT rejected the explanations tendered and held that the so called revised balance sheet was not relevant for assessment
purposes as in the original balance sheet filed on 31-07-1993 alongwith the return of income for 1993-94 an amount of Rs.86,32,404 was
cited and which represented the loan advanced by Mr. Qamar-uz-Zaman, Director of the company to M/s. Zaman Paper and Board Mills
(Pvt) Limited, for purchase of factory land by the company. As the amount in question had not been made available to the company
through crossed cheque drawn on a bank the same was treated as deemed income of the company u/s 12 (18) read with section 30 of the
Ord.
(3) ITA No. 4620/LB/94
8. Before the CIT (A) the assessee company agitated that the DCIT had misconstrued the factual position obtaining and had
unjustifiably ignored the explanations offered for revision of the company’s balance sheet. It was emphasized that the revision was legally
justified and had been resorted to only on the discovery of a bona fide ‘mistake’ in the original balance sheet by the company’s auditors.
9. The CIT (A) in his appellate order has recapitulated at length the observations recorded by the DCIT and reply filed by the
assessee and has come to the conclusion that the provisions of section 12 (18)/30 were not attracted as no ‘loan’ amount had ever been
advanced by the Director to the Company.
10. Before the Tribunal, the assessee company has reiterated earlier submissions made before the DCIT and CIT (A) and has further
argued that in view of Hon’ble Lahore High Court judgement cited as (2001) 83 Tax 451, there was now no justification to invoke the
provisions of section 12 (18)/30 in the assessee’s case.
11. The DR has been heard. The DR supports the findings recorded by the DCIT and argues that the learned CIT (A) has not
appreciated the factual position correctly and has unjustifiably knocked down the addition made u/s 12(18)/30 by the DCIT.
12. We have heard both sides and have examined the relevant record, including the assessment record , and our findings are recorded
as under:-
13. Under the law an assessee has the prerogative to ‘revise’ the return of income before finalization of assessment. In the case of the
present assessee, there is no “revision” of return of income filed for 1993-94 as such. There is only one return of income for 1993-94 on
record filed on 31-07-1993 declaring Nil income with exemption claimed vide clause 118-D of the Second Schedule to the Income Tax
Ordinance, 1979. The assessee company has filed two balance sheets for assessment year 1993-94, the first on 31-07-1993 and the
second on 03-03-1994. The balance sheet filed on 31-07-1994 is

(4) ITA No. 4620/LB/94

marked as ‘provisional”. The differences between the two balance sheets include the tabulation made on account of “issued subscribed
and paid up capital” of the company and the company’s Current Liabilities as well as the fact that the second balance sheet is signed by
the Manager Finance and two Directors namely Mr. Imran Qamar & Mr.Momin Qamar and theompany’s Auditors whereas the first balance
sheet filed on 31-07-1993 is signed by two Directors namely Mr. Qamar-uz-Zaman and Mr. Imran Qamar. {Mr. Qamar-uz-Zaman died on
18-11-1992}.
14. As per the registered sale deed executed for the purchase of factory land, it is patent that the land in question has been purchased
by the assessee company and not by the Director. Now, the question arises as to the mode of financing involved in the said purchase as
the Company statedly did not have the necessary funds at that time to make the purchase on its own. As stated Supra, the funds for
making the purchase of said factory land had been made available by the Director of the Company Mr. Qamar-uz-Zaman. It is a fact that
payment to the seller was made directly by Mr. Qamar-uz-Zaman,
while the Sale Deed was executed in favour of the Company.
15. In our considered view, the facts clearly show that an amount of Rs. 86 lacs was made available to the company by the Director in
order for the company to be able to purchase the factory land in question. No doubt the payment was made directly by Mr. Qamar-uz-
Zaman to the seller of the land. That, however, does not alter the fact that the purchase of factory land had been made by the company. It
is of no consequence whatsoever that the cash for the purchase was handed over to the seller by the Director who has made the
finances available to the compan,y as the benefit of the payment so made is to the company. The manner in which the finances
have been made available by Mr.Qamar-uz-Zaman to the company to purchase the said land makes it abundantly clear that a loan of Rs.
86 lacs has been advanced by Mr. Qamar-uz-Zaman to the company and it is so cited in the balance sheet as at 31-12-1992 filed on
31-07-1993. The said balance sheet is unambiguous in its declaration that amount of Rs. 86,32,404/- constitutes loan and advances of the
company.
(5) ITA No. 4620/LB/94
16. The DCIT in assessment order for 1993-94 passed u/s 62 dated 29-03-1994 has pointed out that journal entry dated 31-10-1992
credits Directors loans and advances account and debits land cost account and it is on the basis of these entries that the original balance
sheet as at 31-12-1992 has been filed on 31-07-1993 alongwith the return of income for assessment year 1993-94. The subsequent
revision of the balance sheet has been made in the absence of Mr.Qamar-uz-Zaman, who died on 18-11-1992. The reasons given
for the revision of the balance sheet by the assessee company, namely, that a “mistake” had been discovered by the auditors insofar as
‘loan’ amount of Rs. 86,32,404/- had been, statedly inadvertently, cited in the original balance sheet does not appear at all plausible. The
original balance sheet filed on 31-07-1993 is signed by Mr.Qamar-uz-Zaman (Managing Director) alongwith Mr.Imran Qamar (Director) and
Mr. Qamar-uz-Zaman could not possibly have made any “mistake” with regard to loan amount due to him from the company as he had
admittedly made available the amount of Rs. 86 lacs to the company for purchase of factory land and it was this very amount that had
been shown as ‘loan’ amount payable by the company. Thus, Mr.Qamar-uz-Zaman in his life time had unequivocally affirmed that a
loan had been advanced by him to the company as per the original balance sheet filed on 31-07-1993. Mr.Qamar-uz-Zaman well
knew the factual position and indeed he is the only person who is in a position to state the factual position correctly as it is he
who has made available the amount of Rs. 86 lacs to the company for purchase of factory land. The subsequent revision of balance
sheet has been made after the death of Mr. Qamar-uz-Zaman. The persons signing the so called revised balance sheet filed on 03-03-
1994 are in no position to alter the true nature of the financing involved for purchase of factory land when Mr.Qamar-uz-Zaman, M.D. of the
company had himself approved and signed the original balance sheet filed by the company alongwith the company’s return of income. The
CIT (A) has completely ignored the fact that the original balance sheet filed on 31-07-1993 is duly signed by Mr. Qamar-uz-Zaman who
made the amount of Rs. 86 lacs available to
(6) ITA No. 4620/LB/94
the company for its purchase of factory land and resultantly loan amount of Rs. 86 lacs was included in the amount of Rs. 86,32,404/- cited
as the company’s Current Liabilities. The CIT (A) does not appear to be even aware of the fact that the 2nd balance sheet filed on 03-03-
1994 has not been signed by Mr.Qamar-uz-Zaman.
17. The AR’s reference to Lahore High Court judgement cited as (2001) 83 Tax 451 is of no avail to the company in its attempt to
evade tax liability u/s 12(18)/30. The situation envisaged in the cited case is not obtaining in the case presently before us insofar as there
is no question here of any ‘share deposit money’ in excess of authorized capital. Furthermore, the conditions precedent laid down in
the cited judgement of the Lahore High Court for an amount to qualify as a “loan” are fully satisfied as the balance sheet as at 31-12-1992
duly signed by Mr. Qamar-uz-Zaman, M.D. and filed by the company alongwith its return of income on 31-07-1993, clearly shows that
“loan” amount of Rs.86,32,404/- is outstanding and is payable by the company and which is an acknowledgment that a “loan”’ had
actually been received by the assessee company. As per the criteria laid down by the Lahore High Court, therefore, amount of Rs. 86 lacs
utilized by the company for purchase of factory land cited as a “loan” in the company’s balance sheet signed by a Mr. Qamar-uz-Zaman,
duly qualifies as “loan” received by the company from its Director, Mr. Qamar-uz-Zaman.
18. The manner in which the 2nd balance sheet dated 03-03-1994 has been drawn up makes it quite clear that the so called ‘revision’
has been provoked by an intention to evade tax liability u/s 12 (18)/30. The (belated) allotment of shares to Mr.Qamar-uz-
Zaman, is of no consequence and it is abundantly clear that as at 31-12-1992 Mr.Qamar-uz-Zaman, held shares of the value of
Rs. 3.5 Million only and an amount of Rs.8.6 Million was owing to him by the company and which amount is included in the company’s
balance sheet as at 31.12.1993 filed on 31-07-1993 under the Head, “Current Liabilities.” As pointed out Supra, Mr. Qamar-uz-Zaman,
has duly signed the original Balance Sheet as at 31-12-1992 filed on 31-07-1993 by the Company
(7) ITA No. 4620/LB/94
and in that Balance Sheet amount of Rs. 86,32,404/- is unambiguously cited as a “loan” amount due under the Head “Current Liabilities”.
Also, the company’s share capital (issued, subscribed and paid up) is cited therein at Rs.22 Million as against the authorized capital of Rs.
100 Million. The subsequent revision of this Balance Sheet after the death of Mr.Qamar-uz-Zaman, is clearly an after thought contrived
solely to evade tax liability u/s 12 (18)/30 of the Ord. Had the company actually allotted shares to Mr.Qamar-uz-Zaman amounting to Rs.
86 lacs the same would have been reflected in the Balance Sheet signed by him i.e. the original Balance Sheet filed by the Company on
31-07-1993. It is indeed also highly significant that Form-III was not filed by the Company before the Registrar within 30 days of the alleged
allotment (i.e. by 30.11.1992) as required u/s 73 of the Companies Ordinance, 1984. Rather, Form-III was filed before the Registrar
belatedly on 16-03-1994 – i.e. when the DCIT requisitioned the same during the course of assessment proceedings. The ambient
circumstances thus clearly give a lie to the company’s claim that shares had actually been allotted on 29-10-1992 to Mr. Qamar-uz-Zaman,
amounting to Rs. 86 lacs.
19. In view of the above, we find that the addition made u/s 12 (18)/30 of the Ord. by the DCIT is fully justified by the operative
circumstances and relief accorded by the CIT (A) is without any justification. We accordingly vacate the order of the CIT (A) and reinstate
the order of the DCIT.

ACCOUNTANT MEMBER

JUDICIAL MEMBER
Back to TOC

IN THE INCOME TAX APPELLATE TRIBUNAL, LAHORE

Back to TOC
ITA No. 4023/LB/1999

NTN: 10-01-1543188
M/s Grays of Cambridge (Pakistan) Ltd, Sialkot.. Appellant
Versus
ACIT, Circle -01, Sialkot. Respondent
Appellant by : Mr. Rizwan Bashir, ACA
Respondent by : Mrs. Talat Altaf, DR
ITA No.5034/LB/1999
(Assessment year 1993-94)
ITA No.5035/LB/1999)
ACIT, Circle-01, Sialkot. Appellant
Versus
M/s. Grays of Cambridge (Pakistan) Ltd, Sialkot. Respondent
Appellant by : Mrs. Talat Altaf, D.R.
Respondent by : Mr. Rizwan Bashir, ACA.
Date of hearing : 11.05.2000 & 13.06.2000.
Date of order : 28.06.2000.
ORDER
These are cross-appeals by revenue and the assessee against order of the CIT (A), Sialkot Zone, Sialkot dated 5.6.1999 in which
in assessment year 1993-94 the first appellate authority has struck down the assessing officer’s recourse to the provisions of section 65
and declared the assessment framed u/s 62 to be null and void. For the assessment year 1994-95, however, the CIT (A) has upheld
assessing officer’s recourse to the provisions of section 65(1) (c) of
(2) ITA Nos. 4023, 5034-5035/LB/1999
the Income Tax Ordinance,1979. However, addition made u/s 13(1)(aa) in the amount of Rs.2,09,75,904/- has been set-aside for denovo
appraisals and penalty proceedings initiated u/s 116(b) stand abated as a result. Finally, levy of Workers Welfare Fund for 1994-95
amounting to Rs.5,15,808 has been deleted on the ground that the assessee’s income is covered under the presumptive tax regime and
reference has been made to decision cited as (1998) 77 Tax 121 (Trib) in support.
2. Briefly stated, the facts, the facts in this case are that the appellant, a public limited company deriving income mainly from
manufacture and export of assorted sports goods has been hit by the mischief of section 80CC(4). The provisions of this section are
reproduced hereunder:-
“Where an assessee while explaining the nature and source of any sum, investment, money, valuable article, excess
amount or expenditure , referred to in section 13, takes into account any source of income which is subject to tax in
accordance with the provisions of this section, he shall not be entitled to credit of any sum as is in excess of an amount
which if taxed at a rate or rates, other than the rate applicable to income chargeable to tax under this section., would have
resulted in tax liability equal to the tax payable in respect of income under this section”.
3. The appellant being an exporter is subject to the provisions of section 50(5AA) of the Income Tax Ordinance, 1979 and tax
deducted at export stage as per cited provision constitutes final discharge of liability. The appellant company thus falls squarely in the
presumptive tax regime. In assessment originally framed u/s 62 for the assessment year 1993-94, the assessing officer took cognizance
of the fact that income declared by appellant company for the period from 01-07-1992 to 31-12-1992 was hit by the provisions of section
80CC(4) in so far as presumptive income on work back basis was indicated at
(3) ITA Nos. 4023, 5034-5035/LB/1999
Rs.8,57,229 as against declared Rs.1,80,01,866. The differential amount of Rs.1,71,44,637 being in excess of the presumptive income
arrived at on work back basis was brought to tax by resort to the provisions of section 80CC(4).
4. In appeal, the first appellate authority upheld the treatment as accorded by the assessing officer. However, the Income Tax
Appellate Tribunal cancelled the assessment made for 1993-94 on the ground that the assessing officer had directly invoked the provisions
of section 80CC(4) without referring to section 13 of the Income Tax Ordinance. It was held that the law did not permit such recourse, by
passing the procedure laid down u/s 13 for the express purpose of taxing the excess / unexplained income.
5. As the case was not hit by expiry of limitation time laid down in law for recourse to the provisions of section 65, the assessing
officer on receipt of ITAT’s order issued notices u/s 65 on 25-04-1997 with the prior approval of the IAC. Prior to issuance of such notice
u/s 65, a show cause notice had also been issued by the assessing officer proposing action u/s 65 on 18-03-1997. The appellant filed reply
to such show cause notice on 31-03-1997 but the same was found to be unsatisfactory.
6. After receipt of notice u/s 65, the assessee filed Writ Petition before the Hon’ble Lahore High Court who vide order dated 21-05-
1997 stayed the proceedings. As the Writ Petition has not been disposed off after expiry of six months from the date of stay granted, the

assessing officer resumed assessment proceedings and issued notice u/s 61 on 16-02-1998. In response the assessee submitted reply
dated 27-02-1998 and referred to Hon’ble Supreme Court of Pakistan’s decision reported as (1997) PTD 1555 in which decision the Apex
Court has held that in the case of an ‘importer’ subject to the provisions of section 80C of the Income Tax Ordinance, where the said
importer …………
(4) ITA Nos. 4023, 5034-5035/LB/1999
“makes profit more than what is subject to tax under sub-section (1) of section 80C, the revenue has no
power to charge tax on the additional income as long as the above additional income is earned by him on
account of transactions, which have been subject to tax under sub-section (1) of section 80C. However, if
the assessee claims that he has made unusual profit, for example, he has earned Rs. 1,00,000/- instead of
Rs.5,000/- which would have been the normal profit, the protection of above sub-section (4) would still be
available to him if he can on the basis of reliable evidence prove the above fact to the satisfaction of the
forum provided under the Ordinance. But if he fails to discharge above burden of proof, in that even sub-
section (5) can be invoked” (SIC)
7. The appellant had obviously referred to the Supreme Court decision announced in the case of an “importer” subject to the
provisions of “section 80C” of the Income Tax Ordinance for the reason that the provisions of section 80C and 80CC have been held
to be analogous.
8. The assessing officer did not stop assessment proceedings and again issued notice u/s 61 requisitioning complete books of
account / details of exports etc. The assessee, however, sought adjournment which was allowed and then furnished written reply on 15-12-
1998 again making reference to cited Hon’ble Supreme Court of Pakistan’s decision. The assessing officer then pointed to the assessee
that unless necessary documentary evidence was produced to establish that unusual profit had indeed been earned by the assessee on its
normal transaction subject to tax u/s 80CC (1) in the relevant period, the excess amount of Rs.1,61,32,165/-, over and above the imputed
income calculated on work back basis would be brought to tax u/s 13 (1) (aa) of the Ordinance.
9. In response, Accounts Officer of the Company appeared on 29-12-1998 and produced ledger book only. Other account books viz
cash book, stock
(5) ITA Nos. 4023, 5034-5035/LB/1999
register, invoices etc. were not produced. The assessing officer then pointed out to the assessee’s AR vide order-sheet entry dated 29-12-
1998 that reliable evidence must be produced if it is claimed that the excess over presumptive income calculated on work back basis is
due to unusual profit earned by the company. The assessing officer specifically pointed out that in order to be able to earn such unusual
profit, the company would have to show GP rate at 58.21% and income / sale ratio of 42.12% which is totally out of line with the past
history of the case as well as the results disclosed in other similar cases of sports goods manufacturers / exporters.
10. In response to the assessing officer’s direction, the assessee filed another reply pointing out that the entire proceedings initiated
u/s 65 were a nullity in the eye of law as there had been, according to the assessee, no escapement or underassessment of assessee’s
income in any manner and that the assessing officer had no definite information in this regard. Furthermore, it was pointed out that the
assessing officer had failed to identify the investment, money or valuable articles which he sought to bring to tax u/s 13 (1) (aa). The
assessee argued that the general reference to increase in assessee’s assets did not provide any basis for action u/s 13 (1) (aa). The
assessee also brought it to the assessing officer’s notice that the entire book profit declared by the assessee was on account of export
goods and other income declared which was fully supported by Audited Accounts. Finally, the assessee again made reference to cited
decision of the Hon’ble Supreme Court and requested that proceedings initiated u/s 65 be withdrawn. The assessee then undertook to
prove to the satisfaction of the assessing officer that the additional unusual profit targeted by the assessing officer was directly related to
export sales of sports goods and had already
(6) ITA Nos. 4023, 5034-5035/LB/1999
suffered tax u/s 80CC (1). The assessee declared that complete books of accounts would be produced before the assessing officer for
examination and his satisfaction on the matter.
11. The assessing officer rejected the assessee’s reply as he was not satisfied that the evidence placed before him established that
the excess over imputed income calculated on work back basis was indeed the result of unusual profits earned by the company from
export sales of sports goods.
12. With regard to action taken u/s 65 in 1993-94 the assessing officer has recorded a finding that the excess income over and above
the presumptive income had gone untaxed and was, therefore, within the purview of section 65 of the Ordinance, 1979. Furthermore, the
information with regard to such excess over presumptive income was definite and clearly established from the evidence on record and
necessary approval had been obtained from the IAC. The assessing officer also noted that the unusual profits quantified by him at
Rs.1,61,32,165/- were admittedly in excess of the presumptive income calculated on work back basis and were ultimately at close of year
bound to be reflected in the company’s balance sheet as moneys available to the appellant company in any garb viz cash/asset/investment
etc. The assessing officer concluded that comprehensive records including complete set of books of account had not been produced
before him and, therefore, it had not been possible for him to establish that unusual profits had indeed been earned by the appellant
company from manufacture and export of sports goods in the relevant period during the assessment year 1993-94. Addition was then
made u/s 13 (1) (aa) in the amount of Rs.1,61,32,165/-. The assessing officer further directed
(7) ITA Nos. 4023, 5034-5035/LB/1999
that notice u/s 116 (b) be issued for concealment/furnishing of inaccurate particulars of income. Charge of Workers Welfare Fund was also
raised u/s 4 (2) of the Workers Welfare Fund Act, 1971.
13. The position in assessment year 1994-95 is similar with regard to income available to appellant company in excess of the
presumptive income calculated on work back basis. However, there is a difference in that the original assessment for 1994-95 was framed
u/s 59-A of the Ordinance and this was reopened u/s 65(1) (c). In the first round of appeals, the first appellate authority has upheld
recourse to provisions of section 65 (1) (c) and addition made on account of excess income over and above the presumptive income with
reference to the provisions of section 80CC (4). However, such addition made did not find favour with the Income Tax Appellate Tribunal
as in the case of such addition made in assessment year 1993-94. Subsequently, the case has followed the same general pattern as
detailed in above discussion for assessment year 1993-94 with the assessing officer again issuing notice u/s 65 (1) (c) and attempting to
interrogate the assessee with regard to the alleged availability of unusual profits given rise to the excess income over presumptive income
and statedly relatabale to the general business of the appellant company i.e. manufacture and (export) sale of assorted sports goods.
Again the assessing officer has found that the assessee has not been able to establish through pertinent documentation, the nexus
between the alleged availability of unusual profits and the transactions subject to tax u/s 80CC (1). Consequently, the assessee company
has again, as in the assessment year 1993-94, not been found able to satisfy the condition laid down in the Hon’ble Supreme Court of

Pakistan’s decision cited as (1997) PTD 1555 that the assessee establish before
(8) ITA Nos. 4023, 5034-5035/LB/1999
the assessing officer, through reliable evidence, that the unusual profits giving rise to excess income over presumptive income are indeed
on account of transaction which has been subject to tax under sub-section (1) of section 80C (80CC in the case of the assessee being an
exporter).
14. The first appellate authority upheld recourse to the provisions of section 65 (1) (c) in 1994-95 on the ground that clause (c) of sub-
section (1) of section 65 has been inserted by Finance Act, 1992 substituting the old section 65 (1) (c) and through the substituted clause,
it was not possible to invoke the provisions of section 65 where assessment had originally been made under sub-section (1) of section 50
or section 59-A (as in the case of the assessee). However, while upholding recourse to the provisions of section 65 in the assessment
year 1994-95, the CIT (A) has struck down the addition made u/s 13 (1) (aa) read with section 80CC (4) making reference to cited Apex
Court’s decision (1997) PTD 1555 and accepting assessee’s argument that in the light of cited Apex Court’s decision, the provisions of
section 80CC (4) should not have been invoked as the excess income over presumptive income was not relatable unusual profits from
“undisclosed sources”. Rather, the unusual profits were relatable to transactions that had already suffered tax u/s 80CC (1).
15. The department is in appeal against the orders of CIT (A) for both the assessment years 1993-94 & 1994-95. However, the
grounds of appeal filed for 1993-94 are patently defective in so far as these make reference to “setting aside” of addition u/s 13 (1) (aa)
when the CIT (A) in 1993-94 had held recourse to the provisions of section 65 to be illegal and as a consequence the assessment made
u/s 62 for that year i.e. 1993-94 has been held to be null and
(9) ITA Nos. 4023, 5034-5035/LB/1999
void. In the Grounds filed the department has failed to contest the CIT (A) finding with regard to reopening of the original assessment u/s
65 and has instead wrongly contested so called setting-aside of addition u/s 13 (1) (aa) when, as stated above, the CIT (A) has not
set aside the said addition u/s 13 (1) (aa) in adjudication made for 1993-94, but has rather found the same to be null and void once the
action u/s 65 has been held to be illegal. The departmental appeal for 1993-94 is thus rendered infructuous and accordingly dismissed.
16. As far as assessment year 1994-95, is concerned, the sequence of event leading to addition u/s 13 (1) (aa) is the same as
explained in detail in the above paragraphs for assessment year 1993-94, however, the first appellate authority upheld recourse to the
provisions of section 65 (1) (c) but set aside the addition u/s 13 (1) (aa) for the reason that the assessing officer was found to have acted in
haste and had, in the view of the CIT (A), rather summarily discarded appellant’s books of accounts produced before him during the course
of assessment proceedings.
17. In assessment year 1994-95, the total income for the year, as per return filed, aggregates Rs.2,57,90,387/- out of which business
income is shown at Rs.2,38,81,432/- and other income at Rs.19,08,955. The presumptive income imputed with reference to tax deducted
u/s 50 (5AA) amounting to Rs.2,83,289/- quantifies as Rs.29,05,528/-. The balance excess income over imputed income amounts to
Rs.2,09,75,904/-. Such excess have been found by the assessing officer to be unexplained as the assessee could not establish that the
same arose to the assessee from the transactions that had suffered tax u/s 80CC (1).
(10) ITA Nos. 4023, 5034-5035/LB/1999
18. We have heard the two sides and given the matter our earnest consideration and our findings on the various issues involved are
recorded as under:-
(i) There is no doubt that the law embodied in section 80CC clarifies the limit upto which credit for presumptive tax will be
available to an assessee placed in the presumptive tax regime. As assessee is not debarred from declaring actual income
over and above the deemed income on presumptive basis. However, in such a situation return of total income should be filed
which the assessee has done in the present case leading to assessment u/s 62. The present assessee admittedly enjoys
excess income over and above the presumptive income imputed. Such excess income is hit by the mischief of sub-section
(4) of section 80CC.
(ii) Sub-section 4, 5 and 6 of section 80CC have been added to provide for a method of working out the amount of income for
which credit shall be admissible in cases of exporters and to provide for a deemed assessment in such cases on the lines of
section 80B and 80C. The provisions of section 80CC(4) are required to be interpreted in the light of the Hon’ble Supreme
Court of Pakistan’s cited decision (1997) PTD 1555. The cited decision is in respect of the provisions of section 80C.
However, as the provisions of section 80C are analogous to the provisions of section 80CC, therefore, the Apex Court’s
verdict is fully applicable in the present case. In the cited decision, the Hon’ble
(11) ITA Nos. 4023, 5034-5035/LB/1999
Supreme Court of Pakistan has held that resort to the provisions of sub-section (5) of section 80C (equivalent to sub-section
(4) of section 80CC) cannot be made routinely as a matter of course. Rather, it is to be invoked in exceptional
circumstances. As pointed out while discussing assessee’s assessment for 1993-94, section 80CC(4) may only be invoked
legitimately in the light of cited Apex Court’s decision where the assessee is not able to establish that the excess income
over presumptive income is relateable to, say, unusual profits arising out of transactions that have been subject to tax under
sub-section (1) of section 80CC. However, the Apex Court has made it incumbent on the assessee to establish, through
“reliable evidence”, that the claim of unusual profits, where made, is proved to the satisfaction of the forum provided under
the Ordinance. In the present case such a forum is the office of assessing officer who has passed the order u/s 62.
(iii) The assessing officer has laboured to show that despite ample opportunity accorded, the assessee was unable to lead
reliable evidence before him to establish his bona fides on the matter relating to excess income over presumptive income in
order be sable to escape the mischief of section 80CC(4).
From the ambient circumstances, it is quite clear that the assessing officer has not made a hasty assessment. This is evident
from the fact that proceedings in this case in the second round, after the original assessment had been cancelled by the
ITAT.
(12) ITA Nos. 4023, 5034-5035/LB/1999
were started through show cause notice dated 18.3.1997 and concluded on 31.12.1998. Six months stay period granted by
Lahore High Court was duly honoured and after expiry of the same, proceedings were re-started and notices issued u/s 61
and section 13(1)(aa). It is evident from the record that the assessee filed replies to the assessing officer’s notices and also
produced some account books before him for his scrutiny and satisfaction. It cannot therefore, be fairly said that necessary
said that necessary opportunity as envisaged in law had not been given to the assessee to explain its position on the matter.
iv) It is the departmental contention in 1994-95 that the matters having been examined at length by the assessing officer and

the assessee being unable to satisfy him in the manner required by the Apex Court’s decision, the first appellate authority should
have upheld the addition u/s 13(1)(aa) rather than set-aside the same on flimsy pretexts.
The appellant, on the other hand, assails the confirmation of section taken u/s 65(1) (c) in 1994-95 as wholly misconceived
as the department statedly had no definite information readily available on record that could be seen to justify recourse to the
provisions of section 65. This objection of the assessee has been looked into and we find that the CIT(A) has rightly upheld
the assessing officer’s recourse to the provisions of section 65(1)(c) as it is patent that there is definite information of excess
income over presumptive income available to the company in 1994-95
(13) ITA Nos. 4023, 5034-5035/LB/1999
amounting to Rs.2,09,75,904 and the original assessment having been made u/s 59-A clause (c) of sub-section (1) of
section 65 permitted such excess to be assessed under the law. Needless to say, the only requirement for recourse to the
provisions of section 65(1) (c) is that the original assessment have been made under sub-section (1) of section 59 or section
59-A. This condition IS fully satisfied in the present case as the original assessment for 1994-95 was admittedly made u/s
59-A. No doubt the subsequent assessment made u/s 62 was cancelled by the ITAT. After cancellation, however, the
assessment that remained in the field was that made u/s 59-A. It cannot therefore, be said that for 1994-95 after cancellation
of the assessment made u/s 62, the assessing officer had lost jurisdiction to act u/s 65. That being so, recourse to the
provisions of section 65(1)(c) is found to be in order and maintained.
v) Coming now to the CIT(A)’s decision to set-aside the addition u/s 13(1)(aa), it is the assessee’s contention that the CIT (A)
should have cancelled the said addition rather than remand the matter back to the assessing officer. The assessee submits
that the assessing officer has failed to pinpoint any unexplained investment, money or valuable article as noted in the said
section and had instead arbitrarily made addition with reference to general accretion in assets. The assessing officer has
given full working for the accretion referred to by the assessee, on page-2 of the assessment order for 1994-95. The total
accretion of
(14) ITA Nos. 4023, 5034-5035/LB/1999
Rs.2,57,90,387 tallies with the total income declared by the assessee of like account. However, it is the assessing officer’s contention
that out of such total income of Rs.2,57,90,387 the presumptive income imputed against tax deducted u/s 50(5AA) amounts to
Rs.29,05,528 only and the balance amount of Rs.2,09,75,904 remains untaxed and unexplained as to source. It is further submitted
that such unexplained amount must eventually be reflected in the balance sheet as it is incorporated in the assessee’s Final Accounts.
That being so, such reflection in the balance sheet will take the garb of moneys available to the assessee and which availability can
manifest itself in various form viz assets investments cash etc. In our view of the matter, so long as it appears that such (unexplained)
excess income shown is indeed reflected in the balance-sheet, the provisions of section 13(1)(aa) need not be interpreted narrowly and
excess “moneys available” is sufficient to invoke 13(1)(aa).
vi) In the present case, it is only too clear that excess income over presumptive income imputed on work back basis is indeed
available to the assessee in the period relevant to assessment year 1994-95. That being so, the assessing officer was well
within his jurisdiction to interrogate the assessee on the same. It being the assessing officer’s contention that the assessee
has not been able to establish that such excess income is contrived out of super normal profits statedly available to the
assessee out of its regular business of export of sports goods, therefore, the provisions of section 13(1)(aa) are required to
be invoked. The CIT (A) is of the
(15) ITA Nos. 4023, 5034-5035/LB/1999
opinion that the matter needs to be investigated further. We feel that the assessee has indeed been somewhat evasive in producing
comprehensive documentation to establish its bona fides on the matter on the lines indicated in Apex Court’s decision cited above. For
this reason, we find that no prejudice will be caused to the assessee if the company were to make an attempt again to convince the
assessing officer that the excess income of Rs.2,09,75,904 is indeed arising to the company against its regular transactions that have
suffered tax u/s 80CC(1). The assessing officer, however, must not unnecessarily complicate matters and must make a specific
requisition of the precise record/ documentation, he considers necessary in order to arrive at a firm finding on the matter. Similarly, the
assessee must cooperate fully to facilitate firm decision making by the assessing officer.
vii) No WWF to be levied as assessee is placed in the presumptive tax regime.
19. Resultantly, the departmental appeals for 1993-94 and 1994-95 and assessee’s appeal for 1994-95 are disposed off in the manner
specified above.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
Back to TOC


Back to TOC
2002 85 Tax 387 Trib
ITA No.3811/LB/97
ITA No.3812/LB/97
ITA No.3813/LB/97
ITA No.3814/LB/97
ITA No.3815/LB/97
NTN: 05-21-1137842
M/s. Paisa Akhbar Markaz, 10-Paisa Akhbar, Lahore. Appellant

Versus
IAC, Range-I, Coys. Zone-A, Lahore. Respondent
Appellant by : Mr. Shahbaz Butt, Advocate alongwith

Ch: Anwar-ul-Haq, Advocate.
Respondent by : Mr. Shafqat Mehmood Chohan, LA alongwith

Mrs. Talat Altaqf, D.R.
Date of hearing : 21.6.2000
Date of order : 23.6.2000
ORDER
These appeals by an A.O.P. known as Paisa Akhbar Markaz, 10 Paisa Akhbar Road, Lahore constituted by 7 persons Dr. Jehangir
Alam, Lt. Col (Retd) Abid Rashid Minhas, Mr. Amjad Rashid, Mr. Habib Alam, Dr. Aftab Alam, Dr. Azra Qureshi and Mst. Salma Zafar, are
directed against the order of IAC, Range-I, Lahore dated 5.6.1997 in which the IAC cancelled the assessment made u/s 62 of the Income
Tax Ordinance, 1979 for the assessment years 1989-90 to 1993-94 for the reason that such assessments made had been found to be
erroneous in so far as these were prejudicial to the interests of revenue due to the fact that the DCIT had filed assessment proceedings
initiated in the case of the AOP and had directed that the individual members of the AOP be assessed separately with regard to the
income earned by them
(2) ITA Nos. 3811 to 3815/LB/97
and investment made by each member of AOP also directed to be appraised in their individual hands in view of the fact that their
respective shares in the property known as Paisa Akhbar Markaz, 10 Paisa Akhbar Bazar,Lahore, was definite and ascertainable. This
direction of the DCIT was seen by the IAC as detrimental to revenue as the property known as Paisa Akhbar Markaz comprising a
commercial Plaza, had been constructed as a single unit, collectively, by the individual members of AOP, as per a deliberate plan, duly
approved by LDA. Construction of the Plaza being a commercial venture was required as per the IAC’s perception of the law, required to
be assessed to income tax globally on the total income emanating from sale/rent, as the case may be, of shops, offices etc. constructed
therein. By arbitrarily directing that the assessment of income emanating from AOP be assessed in the hands of members of the AOP in
their respective shares, a revenue loss is statedly manifest and is, therefore, cause for action u/s 66-A as such revenue loss renders the
order passed u/s 62 to be erroneous, by definition.
2. The action of the IAC has been strongly contested by the appellant/ AOP on the ground that the action u/s 66-A is statedly illegal as
shares of individual members being definite and ascertainable, assessment has rightly been directed to be made in the individual hands as
per order passed u/s 62 for the charge years 1989-90 to 1993-94.
3. It is the A.R.’s contention that the assessing officer had examined the matter pertaining to construction of Plaza in its entirety and
had come to the conclusion, after conscious deliberation, that the individual members, co-owners of the cited property, were liable to be
assessed individually in respect of the income realized from sale of shops/units constructed within the Plaza and investment made by them
individually was liable to be appraised in their individual hands.
4. Appellant’s A.R’s basic premise is to the effect that the individual, alleged , co-owners of cited property, inherited the land on which
the Plaza has consequently been constructed and at the time of inheritance, their ownership in the said land was definite and
ascertainable and this ownership continued to be exercised in like manner when the Plaza was constructed by them. According to the
appellant, specific portions
(3) ITA Nos. 3811 to 3815/LB/97
in the Plaza have been assigned to the alleged co-owners according to their individual share holding which as cited above is allegedly a
continuation of their share holding in the land received by inheritance by each one of them. It is the appellant’s contention that investment
too has allegedly been contributed by each alleged co-owner in precisely the share that the co-owner had in the said Plaza. Furthermore, it
is the appellant’s contention that the alleged co-owners have simply constructed the Plaza and as per deposition made by the appellant
before the Tribunal, the construction of Plaza is statedly not motivated by an intention of making profit out of the venture. The A.R.
emphasized that the purpose of the whole venture was basically to construct a Plaza and the earning of income therefrom was statedly
not central to the construction of Plaza. It is the appellant’s contention that where a property (such as the Plaza in question) is alienated
since its inception, then in such a situation status of AOP cannot be assigned. The AR pointed out that the Arrangement between the
alleged co-owners had statedly been accepted by the Excise & Taxation Department for the purpose of property tax levy.
5. According to the AR, the DCIT had correctly appraised the factual position and had come to a conscious decision to file
proceedings in the case of AOP and direct that assessment be made of individual co-owners separately. It is contended that there is no
illegality in such a decision consciously made by the DCIT and as there is no error in such decision made, therefore, it was not open to the
IAC to take action u/s 66-A.
6. As per grounds of appeal, it is also the appellant’s contention that the action u/s 66-A has also been, statedly, rendered void for the reason that the IAC who had initiated the action u/s 66-A and
cancelled the assessment made by DCIT u/s 62 had also, statedly, in the same case, accorded permission for addition to be made u/s 13(2)(d) earlier on 28.5.1992 for an amount of Rs.59,28,600/-
(assessment year 1991-92)
7. It is the appellant’s contention that the IAC acted without lawful authority and there was allegedly no basis in law for his direction
that the assessment of income arising from cited Plaza be assessed in the hands of AOP globally besides assessment
(4) ITA Nos. 3811 to 3815/LB/97
made in the hands of alleged co-owners in their respective shares in the cited Plaza. It is also the AR’s contention that the DCIT’s order

dated 30.6.1994 u/s 62 in the case of AOP is neither erroneous no prejudicial to the interests of revenue.
8. The AR has cited cases law in support of his contention that in the case of property alienated since inception, status of AOP cannot
be assigned (1971) –23 Tax 223 (S.C. Pak.), (1964) 10 Tax-175 (S.C. Ind). The AR has also referred to cases law in support of his
contention that in the case of an AOP, a key purpose in forming the AOP is to earn income (1992) PTD 102 & (1992) PTD 104. The AR
has also cited case law in support of contention made that IAC having exercised option to direct that assessment of income from Plaza be
made in the individual hands of alleged co-owners, such option exercised was legally in order and not open to question subsequently
(1993) PTD Notes 2711, (1992) PTD Notes 40, (1969) 20 Tax 90 (S.C.) Ind.)
9. The AR has also referred to an alleged ‘Agreement dated 12.10.1986 in which the legal heirs of late Mr. Abdul Majeed and late Mr.
Abdul Rasheed owners of property No.S-III-13-S-10/1 and property No.S-III-13-S-10, respectively, have agreed to construct a multi-storey
building after obtaining permission from LMC, as per “their own arrangements in a manner that each individual owner being directly
responsible to construct and defray the cost of construction to the extent of his /her ownership in the said property.” It is emphasized that
the cited individuals have allegedly sub-divided their respective properties viz S-III-13-S-10/1 and S-III-13-S-10 in Paisa Akhbar Street in
accordance with their individual shares (as per inheritance of each) and such sub-division indicated by way of colour coded Site Plan –
except those portions of the property that are for common use viz open space, excalators, passage and corridor etc. have not been so
colour coded and have been left blank. It is further stated in the cited agreement that through such agreement general power of attorney
has been assigned to Lt. Co.(Retd) Abid Rashid Minhas by Mr. Aftab Alam
(5) ITA Nos. 3811 to 3815/LB/97
and Mst. Salama Zafar S/o and D/O Late Abdul Majeed for the reason that they were residing in Karachi and, therefore, unable to execute
this agreement in person.
10. The D.R. has contested the appellant’s stance as utterly misconceived and artificially contrived on the basis of a, so called,
“agreement” that finds no specific mention whatsoever in the order of DCIT dated 30.6.1994 u/s 62 for the charge years 1989-90 to 1993-
94 passed in the case of AOP. Furthermore, the said agreement again finds no mention whatsoever in any of the assessment orders
passed by DCIT in the case of individual members of the AOP.
11. The D.R. who was assisted by Legal Advisor has first of all taken issue with appellant’s AR for repeatedly referring to the so called,
‘agreement’ between members of the AOP dated 12.10.1986, when the said agreement was never before the DCIT as pointed out above
when he was making appraisal of the AOP’s affairs. The so called agreement is not registered and as it is central to appellant’s case
against the IAC’s action u/s 66-A, the fact that it has not been mentioned in any of the orders passed by DCIT in the case of individual
members or the order passed by the same DCIT in the case of AOP itself has been highlighted as a matter of considerable significance. It
is argued that the so called agreement , never placed before the DCIT at the relevant time cannot be used to provide legal cover for the
contention regarding individual specification of shares of the members of the AOP in the cited property as per colour coding of Site Plan
attached with the said agreement. It is the D.R.’s contention, fully supported by L.A., that the so called agreement having never been
considered by the DCIT at the relevant time could not be relied upon belatedly at appeal stage to substantiate appellant’s contention.
12. It is the D.R.’s contention that the entire construction of Plaza and subsequent sale of its constituent units and income realized
therefrom is a pure and simple business venture in which all members of the AOP have participated ‘collectively’, of their own volition and
with the express purpose of realizing income therefrom. Appellant’s contention that the cited purpose as per so called agreement between
the
(6) ITA Nos. 3811 to 3815/LB/97
members of AOP dated 12.10.1986 was simply to construct a multi-storey building is rebutted as utterly implausible and making no sense
whatsoever. It was argued strongly that the ultimate purpose of construction of cited Plaza was to realize income therefrom.
13. The Legal Advisor specifically pointed out to the Tribunal that the fact that shares of individual members of AOP were ascertainable
still did not absolve the AOP from assessment of its global income arising as a result of sale/rental constituent units of the Plaza. In any
case the L.A. emphasized that each member of the AOP had a vested interest in each and every inch of the property considered as a unit.
The building i.e. commercial Plaza, was one unit jointly owned by the members of AOP and the purpose of construction of the Plaza was
only to earn income therefrom. In this context reference was made to the printed Brochure available in the market and prepared by the
promoters of the Plaza i.e. all the members forming the AOP. The promoters of Paisa Akhbar Markaz are clearly cited on the cover of the
Brochure as Paisa Akhbar Markaz, Associates. Similarly, the site plan submitted to LDA made no reference to the members of the AOP
as individual clients of the Architect who made out the site plan and submitted it to LDA.
14. The D.R. explained that the essential ingredients of an AOP included unity of purpose, volition and object of realizing income profits
and gains. In the present case each and every members of the AOP had independently decided to become member of the AOP and each
one of them were agreed that they would get together to construct a Plaza in a location of premier commercial significance. As is evident
from the brochure, the object of the AOP was to sell the constituent unit i.e. shops, offices etc located within the Plaza at commercial rates.
It was thus statedly established beyond doubt that the Plaza had been constructed for commercial gain i.e. earning of income by the
members of the AOP over and above the cost that had been incurred in constructing the Plaza. The D.R. assailed the appellant’s
contention that the earning of profits /gains from the Plaza was not the main objective of its construction as a blatant
(7) ITA Nos. 3811 to 3815/LB/97
& brazen misstatement before the Tribunal simply to show that the construction of Plaza was not a business venture and hence its income
not liable to be assessed on global basis in the hands of the AOP.
15. The D.R. further pointed out that none of the individual members of AOP had executed sale deeds independently in respect of the
portions within the Plaza to which they claimed specific ownership as per colour coded annexure with the so called agreement of
12.10.1986. Rather it was pointed out that all the sale deeds without exception had been executed by Lt. Col. (Retd) Abid Rashid Minhas,
attorney holder for all the members of the AOP. This, according to the D.R., further established that the contention made regarding specific
individual ownership of specific portions within the Plaza was an artificial arrangement that had no basis in reality and had been contrived
only to confuse and confound the Income Tax Authorities so that the AOP as a global unit escaped proper levy of income tax to the benefit
of its individual members. It was pointed out that had this not been so, than the individual members of the AOP must have executed sale
deeds individually in respect of their individually marked portions within the Plaza. As this is not so, it is, therefore, established that the
Plaza as a unit is jointly owned and there was no question of ownership being strictly restricted to individual members in respect of specific
portions of the Plaza.
16. The D.R. further pointed out that in the sale deeds it is the attorney holder who has negotiated the sale and the attorney holder has
not stated that he was acting on behalf of a specific member of the AOP in respect to the particular sale being made.
17. The D.R. submitted that the order acted upon by the IAC passed u/s 62 by the DCIT in the case of AOP dated 30.6.1994 was
without doubt prejudicial to the interests of revenue as the income from sale of constituent units of Plaza when considered globally in the
hands of AOP would, without any doubt, suffer much greater taxation than when considered in the individual hands of members of AOP.
(8) ITA Nos. 3811 to 3815/LB/97
Loss of revenue is thus patent and, by definition, (66-A) an assessment order resulting in loss of revenue was also erroneous.

18. The D.R./L.A. have referred to case Law which shows that the construction of Plaza involves a collective effort for a common
purpose and the earning of income from such commercial venture was on essential feature (1997) 223 (S.C. Pak), (1993) 200 ITR, (1973)
88 ITR 2930 (S.C. Ind.) & (1994) 209 ITR 888.
19. We have heard the arguments made by the A.R. and the Revenue. After due consideration of the matter, we find:-
(i) Commonality of purpose of all members of AOP with regard to construction of a commercial multi-storey building known by the
name of Paisa Akhbar Markaz, is all too evident. The members of the AOP are without doubt united in a common objective viz to
construct a commercial Plaza. Construction of a commercial Plaza is itself indicative of its real purpose i.e. to earn income
therefrom by realizing profits/ gains over and above the construction cost incurred. We are, therefore, convinced that construction
of the Plaza is essentially a commercial venture and income realized therefrom is business income assessable u/s 22 of the
Income Tax Ordinance, 1979.
(ii) The so called “agreement” dated 12.10.1986 between the members of the AOP indeed finds no mention whatsoever either in the
order passed in the case of the AOP u/s 62 for the charge years 1989-90 to 1993-94 dated 30.6.1994 or any of the orders passed
in the case of the individual members of the AOP. It is pertinent that the same DCIT has assessed both the AOP as well as the
individual members and has no where made any mention of the agreement dated 12.10.1986. It is also pertinent that this so called
agreement is not a registered document.
(9) ITA Nos. 3811 to 3815/LB/97

20. The appellant has not been able to cite a single case involving a commercial Plaza in which the primary objective of constructing
the Plaza was not the earning of income and making of profits/gains over and above the construction cost.
21. The appellant has gone to great lengths to establish individual ownership of specified portions of the Plaza. However, the sale
deeds executed by the attorney holder do not lend support to sale of specific portions of the Plaza by their specified owners. Rather the
sale deeds indicate that sale of constituent units of Plaza had been made on a global basis and sale proceeds therefrom were not shown
to have been routed to specified individual members of the AOP but rather to form the collective income/profits of the AOP as a unit to be
shared subsequently by the individual members in their respective shares.
22. The so called contribution made by individual members of AOP for the construction of cited Plaza has not been specifically
quantified any where in any document before us nor does such, so called, individual contribution, find specific mention in any assessment
order. The ambient circumstances clearly suggest that the members of the AOP have pooled their resources to realize their collective
objective of construction of a commercial Plaza. There is nothing on record to suggest that the contribution made by individual members
was strictly consistent with their specified shares in the AOP.
23. The so called alienation of shares of individual members referred to by appellant does not change the basic character of the AOP
which is that of a collective effort by all members to constructed a commercial Plaza and exploited the same on strictly commercial lines.
The Brochure printed by the promoters of the Plaza, who are the members of the AOP, makes it abundantly clear that the constituent units
of the Plaza are up for sale in the market at commercial rates and it is the AOP as a global unit that is making the sale and not the
individual members in their personal capacity. Thus the repeated reference to so called alienation of property is contrived to evade proper
incidence of taxation only and in no way prevents the AOP from acting collectively to realize maximum profits from sale of constituent units
of the Plaza.
(10) ITA Nos. 3811 to 3815/LB/97
24. The status of AOP has been assigned by the DCIT in his order dated 30.6.1994 passed u/s 62 for the charge years 1989-90 to
1993-94. The IAC has not changed this status in any way. However, the IAC has rightly acted to neutralize the DCIT ‘s direction to make
assessment of income realized from Plaza exclusively in the individual hands of the members of AOP in their respective shares and not to
make any assessment of income in the hands of AOP.
25. The DCIT has wrongly accepted the appellant’s contention to the effect that “there is no assessee with the name of “Paisa Akhbar
Markaz.” (Page-2 of assessment order dated 30.6.1994 in the case of AOP). Rather, Paisa Akhbar Markaz is the AOP that is made up of 7
members. As is evident from the detailed discussion above it is clear that Paisa Akhbar Markaz is a fully functioning AOP with the avowed
objective of realizing income profits and gains from the cited commercial Plaza. That being so, the option exercised by DCIT, to which
reference has been made by the appellant in his appeals before us., to assessee the individual members separately with respect to their
respective shares in the income of the Plaza, is mis-guided and misconceived and hence a nullity in the eye of law. Such option having
been illegally exercised as a result of incorrect/improper interpretation /appraisal of law and facts, cannot debar the IAC from taking
remedial action u/s 66-A, especially when the misconceived decision of DCIT has without doubt resulted in heavy loss of revenue as a
necessary consequence of splitting up, per force, the total income realized by AOP.
26. The reference by the appellant in the grounds of appeal (No.2 ) to alleged earlier notice u/s 13(2)(d) dated 28.5.1992 has not been
explained /elaborated by the appellant during the present appeal proceedings as a bar to the action currently taken u/s 66-A for the charge
years 1989-90 to 1993-94. Nothing whatsoever has been placed on record by the appellant during the course of appeal proceedings to
show that the IAC taking action u/s 66-A has contradicted any earlier “finding” recorded by him on the matter. It has also not been shown
that any other IAC had ever recorded a contrary finding on the matter at an earlier date.
(11) ITA Nos. 3811 to 3815/LB/97
27. The decision of IAC to proceed u/s 66-A is not a mere ‘change of opinion’ as alleged by appellant viz-a-viz decision of DCIT in his
order dated 30.6.1994 in the case of AOP (assessment years 1989-90 to 1993-94). The IAC has simply taken cognizance of the all too
evident fact that Paisa Akhbar Markaz is a commercial Plaza collectively built by 7 members that constitute an AOP and that such Plaza
being a purely commercial enterprise was liable to be assessed directly with respect to the total income realized globally by the AOP.
28. The so called agreement of 12.10.1986 referred to by appellant before the Tribunal (and which was not proved to have been
produced before DCIT when he passed order u/s 62 in the case of AOP on 30.6.1994 or when he made assessments in the case of
individual members of the AOP on 28.11.1994) does not in any way debar the individual member from exploiting the Plaza for commercial
purposes. Rather, the sale having been made in each and every case by the attorney holder, Lt. Col. (Retd) Abid Rashid Minhas acting
directly in his individual capacity without any reference whatsoever to any individual member of the AOP, clearly shows that the attorney
holder has not been encumbered in any manner in negotiating the sale of constituent units of the Plaza viz shops, offices apartments
etc.
29. In the case of an AOP it is to be noted that it is “a creature of contract.” (ITA No.1198/1996-97 decided on 13.12.1977; Citation:
1978 PTD 54 -43 Tax 14 – ITA 0698). In the present case by appellant has referred to agreement dated 12.10.1986 as the contract terms
by which the AOP is governed. According to the appellant, the so called agreement of 12.10.1986 establishes the individual ownership of
members of the AOP of specified portions of the cited commercial Plaza constructed by them. By doing so, the appellant clearly seeks to
escape global assessment of AOP’s total income. However, as pointed out in above paragraphs, appellant’s contention of strict individual
roles played by members of the AOP and strict individual contributions allegedly made for specified portions of cited commercial Plaza is
belied by the facts on record as well as the ambient circumstances. Thus it is not possible at all to establish from the material on record,
the precise amount
(12) ITA Nos. 3811 to 3815/LB/97
contributed by each member towards construction of the cited Plaza. The appellant was specifically asked during the appeal proceedings
whether it can be established from bank accounts of each member that specified sums of money equal to the members shares in the AOP
had been contributed. The AR of the appellant avoided a direct answer to the question and instead made a general response to the effect

that members of the AOP have contributed towards construction of cited Plaza in the amounts that they held shares in the AOP. It is
reiterated that specific documents in the shape of bank statements in respect of each individual member of AOP have not been produced at
any stage by appellant to establish its contention on the matter. Furthermore, the agreement dated 12.10.1986 does not make specific
reference to precise share of each individual member of AOP and even the annexure appended with the agreement comprising colour coded
Site Plan of cited Plaza, does not specifically cite the precise square feet involved in respect of each individual member. The appellant’s A.R.
was questioned on the matter but again made a general response that the precise sq.ft. of covered area owned by each individual member
can be worked out from the colour coded drawings appended with the Agreement. It is further to be noted that the individual members in no
case have negotiated sale of their so called individual portions in the cited Plaza with the purchaser. Rather the entire sale agreements have
been negotiated by the attorney holder of all members of AOP Lt. Col.(Retd) Abid Rashed Minhas. This fact is of crucial significance as the
sale deeds executed do not cite the names of any individual member of AOP and the attorney holder only is cited. Also, the appellant has not
been able to establish by reference to the sale deeds, the so called “individual stake” of each member of AOP in the cited Plaza. All this goes
to show that sale of constituent units of the Plaza have been made on a global basis, collectively, by the AOP as such, and not by individual
members of the AOP. Furthermore, it is established from the ambient circumstances surrounding the sale transactions that the terms of
agreement dated 12.10.1986 have not been implemented strictly which shows that the members of AOP had agreed to dispose off
constituent unit of cited Plaza on a purely commercial basis, collectively, through their attorney holder. Thus in reality it is the AOP
‘collectively’ that has finalized sale of constituent units of
(13) ITA Nos. 3811 to 3815/LB/97
cited commercial Plaza and not the individual members of AOP as is the contention of the appellant before us. It is thus obvious that
appellant’s contention during appeal has been made simply to rebut IAC’s action u/s 66-A and is not based on facts, as discussed above.
30. In the matter of assigning the status of AOP, it is be noted that the Income Tax Ordinance, 1979 does not specifically define ‘AOP’
as such. Rather, the term AOP is included in the definition of “person” (sub-section 32 of section 2). The dictionary meaning of Association
of Persons is “an organized body of people who have an interest, an activity, or a purpose in common; a society”. (The American Heritage
Dictionary of the English Language, 3rd Edition, 1992). It is obvious that such a definition applies well in the situation before us as the 7
individual members in the present case clearly have agreed to construct a Plaza (objective) on purely commercial lines. The 7 members,
therefore, have a common interest. Case law on the subject further clarifies that “volition” is also a necessary ingredient of an AOP and it is
evident that element of volition is clearly present in the present case as is evident from the fact that each individual member has
participated in the joint enterprise of his own free will and has not been subjected to any coercion or pressure of any sort. Available case
law on the subject of AOP also indicates that the earning of income is also an ingredient of an AOP. This is quite understandable in a
business context as the term business as understood in the ordinary parlance, indicates transactions made with a view to earning profit. As
the cited Plaza is without any doubt whatsoever a commercial building, it follows therefore, that this is a business enterprise and the
earning of income has to be a key feature of the construction of the Plaza. The A.R. of appellant vehemently denied during the appeal
proceeding that the earning of income was the central purpose of construction of cited Plaza. However, his denial has no merit whatsoever
as it is completely belied by the factual position obtaining on the ground and the ambient circumstances which establish beyond any
shadow of doubt that the members of the AOP constructed the Plaza to earn income.
(14) ITA Nos. 3811 to 3815/LB/97
31. Looking at the matter in its totality, we have come to the conclusion that Paisa Akhbar Markaz is indeed an AOP made up of 7
members and that this AOP is a collective enterprise set up to commercially exploit the multi-storey building at 10-Paisa Akhbar Bazar,
Lahore. That being so, the order of the IAC u/s 66-A for the charge years 1989-90 to 1993-94 dated 05-06-1997 is found to be in order as
the DCIT had passed an order u/s 62 on 30.6.1994 directing that income realized from such commercial Plaza be assessed in the hands
of individual members only and not also be assessed globally in the hands of the AOP, which direction is, prima facie, detrimental to the
interests of revenue and, therefore, also erroneous in terms of the express statutory stipulation contained in section 66-A of the Income
Tax Ordinance, 1979.
32. Resultantly, the appeals filed by the appellant, fail.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No.3811/LB/97
ITA No.3812/LB/97
ITA No.3813/LB/97
ITA No.3814/LB/97
ITA No.3815/LB/97
NTN: 05-21-1137842
M/s. Paisa Akhbar Markaz, 10-Paisa Akhbar, Lahore. Appellant

Versus
IAC, Range-I, Coys. Zone-A, Lahore. Respondent
Appellant by : Mr. Shahbaz Butt, Advocate alongwith

Ch: Anwar-ul-Haq, Advocate.
Respondent by : Mr. Shafqat Mehmood Chohan, LA alongwith

Mrs. Talat Altaqf, D.R.
Date of hearing : 21.6.2000
Date of order : 23.6.2000
ORDER
These appeals by an A.O.P. known as Paisa Akhbar Markaz, 10 Paisa Akhbar Road, Lahore constituted by 7 persons Dr. Jehangir
Alam, Lt. Col (Retd) Abid Rashid Minhas, Mr. Amjad Rashid, Mr. Habib Alam, Dr. Aftab Alam, Dr. Azra Qureshi and Mst. Salma Zafar, are
directed against the order of IAC, Range-I, Lahore dated 5.6.1997 in which the IAC cancelled the assessment made u/s 62 of the Income
Tax Ordinance, 1979 for the assessment years 1989-90 to 1993-94 for the reason that such assessments made had been found to be
erroneous in so far as these were prejudicial to the interests of revenue due to the fact that the DCIT had filed assessment proceedings
initiated in the case of the AOP and had directed that the individual members of the AOP be assessed separately with regard to the
income earned by them
(2) ITA Nos. 3811 to 3815/LB/97
and investment made by each member of AOP also directed to be appraised in their individual hands in view of the fact that their
respective shares in the property known as Paisa Akhbar Markaz, 10 Paisa Akhbar Bazar,Lahore, was definite and ascertainable. This
direction of the DCIT was seen by the IAC as detrimental to revenue as the property known as Paisa Akhbar Markaz comprising a
commercial Plaza, had been constructed as a single unit, collectively, by the individual members of AOP, as per a deliberate plan, duly
approved by LDA. Construction of the Plaza being a commercial venture was required as per the IAC’s perception of the law, required to
be assessed to income tax globally on the total income emanating from sale/rent, as the case may be, of shops, offices etc. constructed
therein. By arbitrarily directing that the assessment of income emanating from AOP be assessed in the hands of members of the AOP in
their respective shares, a revenue loss is statedly manifest and is, therefore, cause for action u/s 66-A as such revenue loss renders the
order passed u/s 62 to be erroneous, by definition.
2. The action of the IAC has been strongly contested by the appellant/ AOP on the ground that the action u/s 66-A is statedly illegal as
shares of individual members being definite and ascertainable, assessment has rightly been directed to be made in the individual hands as
per order passed u/s 62 for the charge years 1989-90 to 1993-94.
3. It is the A.R.’s contention that the assessing officer had examined the matter pertaining to construction of Plaza in its entirety and
had come to the conclusion, after conscious deliberation, that the individual members, co-owners of the cited property, were liable to be
assessed individually in respect of the income realized from sale of shops/units constructed within the Plaza and investment made by them
individually was liable to be appraised in their individual hands.
4. Appellant’s A.R’s basic premise is to the effect that the individual, alleged , co-owners of cited property, inherited the land on which
the Plaza has consequently been constructed and at the time of inheritance, their ownership in the said land was definite and
ascertainable and this ownership continued to be exercised in like manner when the Plaza was constructed by them. According to the
appellant, specific portions
(3) ITA Nos. 3811 to 3815/LB/97
in the Plaza have been assigned to the alleged co-owners according to their individual share holding which as cited above is allegedly a
continuation of their share holding in the land received by inheritance by each one of them. It is the appellant’s contention that investment
too has allegedly been contributed by each alleged co-owner in precisely the share that the co-owner had in the said Plaza. Furthermore, it
is the appellant’s contention that the alleged co-owners have simply constructed the Plaza and as per deposition made by the appellant
before the Tribunal, the construction of Plaza is statedly not motivated by an intention of making profit out of the venture. The A.R.
emphasized that the purpose of the whole venture was basically to construct a Plaza and the earning of income therefrom was statedly
not central to the construction of Plaza. It is the appellant’s contention that where a property (such as the Plaza in question) is alienated
since its inception, then in such a situation status of AOP cannot be assigned. The AR pointed out that the Arrangement between the
alleged co-owners had statedly been accepted by the Excise & Taxation Department for the purpose of property tax levy.
5. According to the AR, the DCIT had correctly appraised the factual position and had come to a conscious decision to file
proceedings in the case of AOP and direct that assessment be made of individual co-owners separately. It is contended that there is no
illegality in such a decision consciously made by the DCIT and as there is no error in such decision made, therefore, it was not open to the
IAC to take action u/s 66-A.
6. As per grounds of appeal, it is also the appellant’s contention that the action u/s 66-A has also been, statedly, rendered void for the
reason that the IAC who had initiated the action u/s 66-A and cancelled the assessment made by DCIT u/s 62 had also, statedly, in the
same case, accorded permission for addition to be made u/s 13(2)(d) earlier on 28.5.1992 for an amount of Rs.59,28,600/- (assessment
year 1991-92)
7. It is the appellant’s contention that the IAC acted without lawful authority and there was allegedly no basis in law for his direction

that the assessment of income arising from cited Plaza be assessed in the hands of AOP globally besides assessment
(4) ITA Nos. 3811 to 3815/LB/97
made in the hands of alleged co-owners in their respective shares in the cited Plaza. It is also the AR’s contention that the DCIT’s order
dated 30.6.1994 u/s 62 in the case of AOP is neither erroneous no prejudicial to the interests of revenue.
8. The AR has cited cases law in support of his contention that in the case of property alienated since inception, status of AOP cannot
be assigned (1971) –23 Tax 223 (S.C. Pak.), (1964) 10 Tax-175 (S.C. Ind). The AR has also referred to cases law in support of his
contention that in the case of an AOP, a key purpose in forming the AOP is to earn income (1992) PTD 102 & (1992) PTD 104. The AR
has also cited case law in support of contention made that IAC having exercised option to direct that assessment of income from Plaza be
made in the individual hands of alleged co-owners, such option exercised was legally in order and not open to question subsequently
(1993) PTD Notes 2711, (1992) PTD Notes 40, (1969) 20 Tax 90 (S.C.) Ind.)
9. The AR has also referred to an alleged ‘Agreement dated 12.10.1986 in which the legal heirs of late Mr. Abdul Majeed and late Mr.
Abdul Rasheed owners of property No.S-III-13-S-10/1 and property No.S-III-13-S-10, respectively, have agreed to construct a multi-storey
building after obtaining permission from LMC, as per “their own arrangements in a manner that each individual owner being directly
responsible to construct and defray the cost of construction to the extent of his /her ownership in the said property.” It is emphasized that
the cited individuals have allegedly sub-divided their respective properties viz S-III-13-S-10/1 and S-III-13-S-10 in Paisa Akhbar Street in
accordance with their individual shares (as per inheritance of each) and such sub-division indicated by way of colour coded Site Plan –
except those portions of the property that are for common use viz open space, excalators, passage and corridor etc. have not been so
colour coded and have been left blank. It is further stated in the cited agreement that through such agreement general power of attorney
has been assigned to Lt. Co.(Retd) Abid Rashid Minhas by Mr. Aftab Alam
(5) ITA Nos. 3811 to 3815/LB/97
and Mst. Salama Zafar S/o and D/O Late Abdul Majeed for the reason that they were residing in Karachi and, therefore, unable to execute
this agreement in person.
10. The D.R. has contested the appellant’s stance as utterly misconceived and artificially contrived on the basis of a, so called,
“agreement” that finds no specific mention whatsoever in the order of DCIT dated 30.6.1994 u/s 62 for the charge years 1989-90 to 1993-
94 passed in the case of AOP. Furthermore, the said agreement again finds no mention whatsoever in any of the assessment orders
passed by DCIT in the case of individual members of the AOP.
11. The D.R. who was assisted by Legal Advisor has first of all taken issue with appellant’s AR for repeatedly referring to the so called,
‘agreement’ between members of the AOP dated 12.10.1986, when the said agreement was never before the DCIT as pointed out above
when he was making appraisal of the AOP’s affairs. The so called agreement is not registered and as it is central to appellant’s case
against the IAC’s action u/s 66-A, the fact that it has not been mentioned in any of the orders passed by DCIT in the case of individual
members or the order passed by the same DCIT in the case of AOP itself has been highlighted as a matter of considerable significance. It
is argued that the so called agreement , never placed before the DCIT at the relevant time cannot be used to provide legal cover for the
contention regarding individual specification of shares of the members of the AOP in the cited property as per colour coding of Site Plan
attached with the said agreement. It is the D.R.’s contention, fully supported by L.A., that the so called agreement having never been
considered by the DCIT at the relevant time could not be relied upon belatedly at appeal stage to substantiate appellant’s contention.
12. It is the D.R.’s contention that the entire construction of Plaza and subsequent sale of its constituent units and income realized
therefrom is a pure and simple business venture in which all members of the AOP have participated ‘collectively’, of their own volition and
with the express purpose of realizing income therefrom. Appellant’s contention that the cited purpose as per so called agreement between
the
(6) ITA Nos. 3811 to 3815/LB/97
members of AOP dated 12.10.1986 was simply to construct a multi-storey building is rebutted as utterly implausible and making no sense
whatsoever. It was argued strongly that the ultimate purpose of construction of cited Plaza was to realize income therefrom.
13. The Legal Advisor specifically pointed out to the Tribunal that the fact that shares of individual members of AOP were ascertainable
still did not absolve the AOP from assessment of its global income arising as a result of sale/rental constituent units of the Plaza. In any
case the L.A. emphasized that each member of the AOP had a vested interest in each and every inch of the property considered as a unit.
The building i.e. commercial Plaza, was one unit jointly owned by the members of AOP and the purpose of construction of the Plaza was
only to earn income therefrom. In this context reference was made to the printed Brochure available in the market and prepared by the
promoters of the Plaza i.e. all the members forming the AOP. The promoters of Paisa Akhbar Markaz are clearly cited on the cover of the
Brochure as Paisa Akhbar Markaz, Associates. Similarly, the site plan submitted to LDA made no reference to the members of the AOP
as individual clients of the Architect who made out the site plan and submitted it to LDA.
14. The D.R. explained that the essential ingredients of an AOP included unity of purpose, volition and object of realizing income profits
and gains. In the present case each and every members of the AOP had independently decided to become member of the AOP and each
one of them were agreed that they would get together to construct a Plaza in a location of premier commercial significance. As is evident
from the brochure, the object of the AOP was to sell the constituent unit i.e. shops, offices etc located within the Plaza at commercial rates.
It was thus statedly established beyond doubt that the Plaza had been constructed for commercial gain i.e. earning of income by the
members of the AOP over and above the cost that had been incurred in constructing the Plaza. The D.R. assailed the appellant’s
contention that the earning of profits /gains from the Plaza was not the main objective of its construction as a blatant
(7) ITA Nos. 3811 to 3815/LB/97
& brazen misstatement before the Tribunal simply to show that the construction of Plaza was not a business venture and hence its income
not liable to be assessed on global basis in the hands of the AOP.
15. The D.R. further pointed out that none of the individual members of AOP had executed sale deeds independently in respect of the
portions within the Plaza to which they claimed specific ownership as per colour coded annexure with the so called agreement of
12.10.1986. Rather it was pointed out that all the sale deeds without exception had been executed by Lt. Col. (Retd) Abid Rashid Minhas,
attorney holder for all the members of the AOP. This, according to the D.R., further established that the contention made regarding specific
individual ownership of specific portions within the Plaza was an artificial arrangement that had no basis in reality and had been contrived
only to confuse and confound the Income Tax Authorities so that the AOP as a global unit escaped proper levy of income tax to the benefit
of its individual members. It was pointed out that had this not been so, than the individual members of the AOP must have executed sale
deeds individually in respect of their individually marked portions within the Plaza. As this is not so, it is, therefore, established that the
Plaza as a unit is jointly owned and there was no question of ownership being strictly restricted to individual members in respect of specific
portions of the Plaza.
16. The D.R. further pointed out that in the sale deeds it is the attorney holder who has negotiated the sale and the attorney holder has
not stated that he was acting on behalf of a specific member of the AOP in respect to the particular sale being made.
17. The D.R. submitted that the order acted upon by the IAC passed u/s 62 by the DCIT in the case of AOP dated 30.6.1994 was
without doubt prejudicial to the interests of revenue as the income from sale of constituent units of Plaza when considered globally in the
hands of AOP would, without any doubt, suffer much greater taxation than when considered in the individual hands of members of AOP.

(8) ITA Nos. 3811 to 3815/LB/97

Loss of revenue is thus patent and, by definition, (66-A) an assessment order resulting in loss of revenue was also erroneous.
18. The D.R./L.A. have referred to case Law which shows that the construction of Plaza involves a collective effort for a common
purpose and the earning of income from such commercial venture was on essential feature (1997) 223 (S.C. Pak), (1993) 200 ITR, (1973)
88 ITR 2930 (S.C. Ind.) & (1994) 209 ITR 888.
19. We have heard the arguments made by the A.R. and the Revenue. After due consideration of the matter, we find:-
(i) Commonality of purpose of all members of AOP with regard to construction of a commercial multi-storey building known by the
name of Paisa Akhbar Markaz, is all too evident. The members of the AOP are without doubt united in a common objective viz to
construct a commercial Plaza. Construction of a commercial Plaza is itself indicative of its real purpose i.e. to earn income
therefrom by realizing profits/ gains over and above the construction cost incurred. We are, therefore, convinced that construction
of the Plaza is essentially a commercial venture and income realized therefrom is business income assessable u/s 22 of the
Income Tax Ordinance, 1979.
(ii) The so called “agreement” dated 12.10.1986 between the members of the AOP indeed finds no mention whatsoever either in the
order passed in the case of the AOP u/s 62 for the charge years 1989-90 to 1993-94 dated 30.6.1994 or any of the orders passed
in the case of the individual members of the AOP. It is pertinent that the same DCIT has assessed both the AOP as well as the
individual members and has no where made any mention of the agreement dated 12.10.1986. It is also pertinent that this so called
agreement is not a registered document.
(9) ITA Nos. 3811 to 3815/LB/97

20. The appellant has not been able to cite a single case involving a commercial Plaza in which the primary objective of constructing
the Plaza was not the earning of income and making of profits/gains over and above the construction cost.
21. The appellant has gone to great lengths to establish individual ownership of specified portions of the Plaza. However, the sale
deeds executed by the attorney holder do not lend support to sale of specific portions of the Plaza by their specified owners. Rather the
sale deeds indicate that sale of constituent units of Plaza had been made on a global basis and sale proceeds therefrom were not shown
to have been routed to specified individual members of the AOP but rather to form the collective income/profits of the AOP as a unit to be
shared subsequently by the individual members in their respective shares.
22. The so called contribution made by individual members of AOP for the construction of cited Plaza has not been specifically
quantified any where in any document before us nor does such, so called, individual contribution, find specific mention in any assessment
order. The ambient circumstances clearly suggest that the members of the AOP have pooled their resources to realize their collective
objective of construction of a commercial Plaza. There is nothing on record to suggest that the contribution made by individual members
was strictly consistent with their specified shares in the AOP.
23. The so called alienation of shares of individual members referred to by appellant does not change the basic character of the AOP
which is that of a collective effort by all members to constructed a commercial Plaza and exploited the same on strictly commercial lines.
The Brochure printed by the promoters of the Plaza, who are the members of the AOP, makes it abundantly clear that the constituent units
of the Plaza are up for sale in the market at commercial rates and it is the AOP as a global unit that is making the sale and not the
individual members in their personal capacity. Thus the repeated reference to so called alienation of property is contrived to evade proper
incidence of taxation only and in no way prevents the AOP from acting collectively to realize maximum profits from sale of constituent units
of the Plaza.
(10) ITA Nos. 3811 to 3815/LB/97
24. The status of AOP has been assigned by the DCIT in his order dated 30.6.1994 passed u/s 62 for the charge years 1989-90 to
1993-94. The IAC has not changed this status in any way. However, the IAC has rightly acted to neutralize the DCIT ‘s direction to make
assessment of income realized from Plaza exclusively in the individual hands of the members of AOP in their respective shares and not to
make any assessment of income in the hands of AOP.
25. The DCIT has wrongly accepted the appellant’s contention to the effect that “there is no assessee with the name of “Paisa Akhbar
Markaz.” (Page-2 of assessment order dated 30.6.1994 in the case of AOP). Rather, Paisa Akhbar Markaz is the AOP that is made up of 7
members. As is evident from the detailed discussion above it is clear that Paisa Akhbar Markaz is a fully functioning AOP with the avowed
objective of realizing income profits and gains from the cited commercial Plaza. That being so, the option exercised by DCIT, to which
reference has been made by the appellant in his appeals before us., to assessee the individual members separately with respect to their
respective shares in the income of the Plaza, is mis-guided and misconceived and hence a nullity in the eye of law. Such option having
been illegally exercised as a result of incorrect/improper interpretation /appraisal of law and facts, cannot debar the IAC from taking
remedial action u/s 66-A, especially when the misconceived decision of DCIT has without doubt resulted in heavy loss of revenue as a
necessary consequence of splitting up, per force, the total income realized by AOP.
26. The reference by the appellant in the grounds of appeal (No.2 ) to alleged earlier notice u/s 13(2)(d) dated 28.5.1992 has not been
explained /elaborated by the appellant during the present appeal proceedings as a bar to the action currently taken u/s 66-A for the charge
years 1989-90 to 1993-94. Nothing whatsoever has been placed on record by the appellant during the course of appeal proceedings to
show that the IAC taking action u/s 66-A has contradicted any earlier “finding” recorded by him on the matter. It has also not been shown
that any other IAC had ever recorded a contrary finding on the matter at an earlier date.
(11) ITA Nos. 3811 to 3815/LB/97
27. The decision of IAC to proceed u/s 66-A is not a mere ‘change of opinion’ as alleged by appellant viz-a-viz decision of DCIT in his
order dated 30.6.1994 in the case of AOP (assessment years 1989-90 to 1993-94). The IAC has simply taken cognizance of the all too
evident fact that Paisa Akhbar Markaz is a commercial Plaza collectively built by 7 members that constitute an AOP and that such Plaza
being a purely commercial enterprise was liable to be assessed directly with respect to the total income realized globally by the AOP.
28. The so called agreement of 12.10.1986 referred to by appellant before the Tribunal (and which was not proved to have been
produced before DCIT when he passed order u/s 62 in the case of AOP on 30.6.1994 or when he made assessments in the case of
individual members of the AOP on 28.11.1994) does not in any way debar the individual member from exploiting the Plaza for commercial
purposes. Rather, the sale having been made in each and every case by the attorney holder, Lt. Col. (Retd) Abid Rashid Minhas acting
directly in his individual capacity without any reference whatsoever to any individual member of the AOP, clearly shows that the attorney
holder has not been encumbered in any manner in negotiating the sale of constituent units of the Plaza viz shops, offices apartments
etc.
29. In the case of an AOP it is to be noted that it is “a creature of contract.” (ITA No.1198/1996-97 decided on 13.12.1977; Citation:
1978 PTD 54 -43 Tax 14 – ITA 0698). In the present case by appellant has referred to agreement dated 12.10.1986 as the contract terms
by which the AOP is governed. According to the appellant, the so called agreement of 12.10.1986 establishes the individual ownership of
members of the AOP of specified portions of the cited commercial Plaza constructed by them. By doing so, the appellant clearly seeks to
escape global assessment of AOP’s total income. However, as pointed out in above paragraphs, appellant’s contention of strict individual
roles played by members of the AOP and strict individual contributions allegedly made for specified portions of cited commercial Plaza is
belied by the facts on record as well as the ambient circumstances. Thus it is not possible at all to establish from the material on record,
the precise amount
(12) ITA Nos. 3811 to 3815/LB/97

contributed by each member towards construction of the cited Plaza. The appellant was specifically asked during the appeal proceedings
whether it can be established from bank accounts of each member that specified sums of money equal to the members shares in the AOP
had been contributed. The AR of the appellant avoided a direct answer to the question and instead made a general response to the effect
that members of the AOP have contributed towards construction of cited Plaza in the amounts that they held shares in the AOP. It is
reiterated that specific documents in the shape of bank statements in respect of each individual member of AOP have not been produced at
any stage by appellant to establish its contention on the matter. Furthermore, the agreement dated 12.10.1986 does not make specific
reference to precise share of each individual member of AOP and even the annexure appended with the agreement comprising colour coded
Site Plan of cited Plaza, does not specifically cite the precise square feet involved in respect of each individual member. The appellant’s A.R.
was questioned on the matter but again made a general response that the precise sq.ft. of covered area owned by each individual member
can be worked out from the colour coded drawings appended with the Agreement. It is further to be noted that the individual members in no
case have negotiated sale of their so called individual portions in the cited Plaza with the purchaser. Rather the entire sale agreements have
been negotiated by the attorney holder of all members of AOP Lt. Col.(Retd) Abid Rashed Minhas. This fact is of crucial significance as the
sale deeds executed do not cite the names of any individual member of AOP and the attorney holder only is cited. Also, the appellant has not
been able to establish by reference to the sale deeds, the so called “individual stake” of each member of AOP in the cited Plaza. All this goes
to show that sale of constituent units of the Plaza have been made on a global basis, collectively, by the AOP as such, and not by individual
members of the AOP. Furthermore, it is established from the ambient circumstances surrounding the sale transactions that the terms of
agreement dated 12.10.1986 have not been implemented strictly which shows that the members of AOP had agreed to dispose off
constituent unit of cited Plaza on a purely commercial basis, collectively, through their attorney holder. Thus in reality it is the AOP
‘collectively’ that has finalized sale of constituent units of
(13) ITA Nos. 3811 to 3815/LB/97
cited commercial Plaza and not the individual members of AOP as is the contention of the appellant before us. It is thus obvious that
appellant’s contention during appeal has been made simply to rebut IAC’s action u/s 66-A and is not based on facts, as discussed above.
30. In the matter of assigning the status of AOP, it is be noted that the Income Tax Ordinance, 1979 does not specifically define ‘AOP’
as such. Rather, the term AOP is included in the definition of “person” (sub-section 32 of section 2). The dictionary meaning of Association
of Persons is “an organized body of people who have an interest, an activity, or a purpose in common; a society”. (The American Heritage
Dictionary of the English Language, 3rd Edition, 1992). It is obvious that such a definition applies well in the situation before us as the 7
individual members in the present case clearly have agreed to construct a Plaza (objective) on purely commercial lines. The 7 members,
therefore, have a common interest. Case law on the subject further clarifies that “volition” is also a necessary ingredient of an AOP and it is
evident that element of volition is clearly present in the present case as is evident from the fact that each individual member has
participated in the joint enterprise of his own free will and has not been subjected to any coercion or pressure of any sort. Available case
law on the subject of AOP also indicates that the earning of income is also an ingredient of an AOP. This is quite understandable in a
business context as the term business as understood in the ordinary parlance, indicates transactions made with a view to earning profit. As
the cited Plaza is without any doubt whatsoever a commercial building, it follows therefore, that this is a business enterprise and the
earning of income has to be a key feature of the construction of the Plaza. The A.R. of appellant vehemently denied during the appeal
proceeding that the earning of income was the central purpose of construction of cited Plaza. However, his denial has no merit whatsoever
as it is completely belied by the factual position obtaining on the ground and the ambient circumstances which establish beyond any
shadow of doubt that the members of the AOP constructed the Plaza to earn income.
(14) ITA Nos. 3811 to 3815/LB/97
31. Looking at the matter in its totality, we have come to the conclusion that Paisa Akhbar Markaz is indeed an AOP made up of 7
members and that this AOP is a collective enterprise set up to commercially exploit the multi-storey building at 10-Paisa Akhbar Bazar,
Lahore. That being so, the order of the IAC u/s 66-A for the charge years 1989-90 to 1993-94 dated 05-06-1997 is found to be in order as
the DCIT had passed an order u/s 62 on 30.6.1994 directing that income realized from such commercial Plaza be assessed in the hands
of individual members only and not also be assessed globally in the hands of the AOP, which direction is, prima facie, detrimental to the
interests of revenue and, therefore, also erroneous in terms of the express statutory stipulation contained in section 66-A of the Income
Tax Ordinance, 1979.
32. Resultantly, the appeals filed by the appellant, fail.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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(2000) 84 TAX 81 (Trib.)

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DCIT VS FATIMA ENTERPRIZES, MULTAN.
[ THE INCOME TAX APPELLATE TRIBUNAL LAHORE BENCH, LAHORE]

Present: Muhammad Munir Qureshi, Accountant Member and Khawaja Farooq
Saeed, Judicial Member.
Finance Act, 1991 - Section 12 - Levy of Corporate Assets Tax - Additional tax for short payment of CAT and penalty for late filing of
return- Deletion of unallocated cap ital expenses from fixed assets and additional tax for short payment of CAT, but upholding of penalty
for late filing of return by C.l. T. (A) - Validity - Expenses to operationalise and make company’s fixed assets fit for normal commercial use -
Nature of - Whether unallocated capital expenses had been incurred in context of company’s aggregate fixed assets therefore, nature of
such capital expenditure remained unchanged - Held yes
- Whether so far as levy of Corporate Assets Tax was concurred, capitalized expenditure, though unallocated must form part of company’s
fixed assets - Held yes- Whether there was to be no charge of penalty for late filing of return and no charge of additional tax - Held yes
It is, the contention of the respondent that such expenses should not be considered part of the fixed assets as they are statedly excluded
for purposes of determination of depreciation allowance. It was explained that these expenses Include different items of expenditure
incurred to ‘operationalise and make the Company’s fixed assets fit for commercial use: As stated above such expenses have been
incurred to “operationalise”
and make the Company’s fixed assets fit for normal commercial use.
Nevertheless where the capital expenditure has been admittedly incurred in the context of the Company’s aggregate fixed assets, the
nature of such capital expenditure remains unchanged and it must form part of the over all value of the Company’s fixed assets. Hence. so
far as levy of corporate assets tax is concerned, the capitalized expenditure, though unallocated” must form part of the Company’s fixed
assets. Penalty and additional tax should not be levied. The cancellation of additional tax by the CIT(A), is therefore, maintained but not for
the reason assigned by the learned CIT(A). As regards levy of penalty that has been upheld by the CIT(A) we agree with the Respondent’s
citation of decision recorded in ITA. No. 1872/LB/1997 (Assessment Year 1992-93) dated 26-5- 1999 and direct that penalty is not to be
levied In the result the departmental appeal succeeds to the extent that unallocated capital expenses are to be included in the fixed assets
of the Company. However, there is to be no charge of penalty for late filing of Return and no charge of additional tax.
Mian Munawar Ghafoor, D.R., for the Appellant.
Ahmad Mushir Qadri, F.C.A., for the Respondent.
ORDER
[ Order was passed by Muhammad Munir Qureshi, Accountant Member-]
I.T.A.T. (Full Bench) decision recorded in ITA No. 897/LB/98 (Assessment Year 1992-93) dated 30-11-1999 is the subject matter of a
Miscellaneous Application filed by the Respondent in that appeal as the Respondent seeks clarification as to the scope of cited decision.
The need for such clarification has arisen as the department has statedly interpreted the Full Bench decision of 30-11-1990 to mean that
the assessment order levying C.A.T dated 12-2-1997 passed u/s 12 of the Finance Act, 1991, by the DCWT, Wealth Tax Circle Multan,
stood restored “In toto”. The Respondent asserted that the Full Bench decision has only adjudicated matter pertaining to capital work in
progress in the context of charge of Corporate Assets Tax.
2. ITA No. 897/lB/98 (Assessment Year 1992-93) is a departmental appeal
against order of CIT(A), Zone-Ill, Karachi, (Camp at Multan) dated 21-1-
1998, wherein the first appellate authority has deleted the charge of Corporate
Assets Tax on:-
a) Non-operating fixed assets valuing
b) Capital work in progress amounting to
3. The CIT(A) has further deleted additional tax charged amounting to
Rs 17,17,150/- after holding that there has been no short payment of corporate
assets tax paid by the Company along with Return filed u/s 12 of the Finance
Act, 1991.
c) Unallocated capital expenses aggregating Rs. 36,34,438/-Rs. 20,16,822/- and
Rs. 71,12,537/- [2001] APPL TRIBUNAL [ No. 897/LB of 1998]
4. The question as to whether the fixed assets of a Company include capital work in progress or not has been finally decided in ITA No.
597/LB/98 (Assessment Year 1992-93) dated 30-11-1999 and it has been held that fixed assets include capital work in progress. Similarly,
in the case of ‘non- operating’ fixed assets, it has been held that these too form part of fixed assets, except where they constitute “stock in
Trade”.
5. The Full Bench decision on the cited points is exhaustive. However, no decision has been recorded on the CIT(A) deletion of
unallocated capital expenses from the fixed assets liable to charge of Corporate Assets Tax. Also, there is no finding on the levy of penalty
for late filing of return amounting to Rs. 4,000/- upheld by the CIT(A) and the charge of additional tax amounting to Rs. 17,17,150/-, for
short payment of Corporate Assets Tax deleted by the CIT(A). These matters will now be taken up for necessary adjudication.
6. With regard to unallocated capital expenses, it is, the contention of the respondent that such expenses should not be considered part of
the fixed assets as they are statedly excluded for purposes of determination of depreciation allowance. It was explained that these
expenses include different items of expenditure incurred to ‘operationalise’ and make the Company’s fixed assets fit for commercial use.
7. The matter relating to treatment of unallocated capital expenses has been looked into. As stated above such expenses have been
incurred to “operationalise” and make the Company’s fixed assets fit for normal commercial use. For purposes of illustration, examples of.
such Capitalized Expenditure may be given as under:
(a) Expenditure on installing an asset i.e. installation charges.
(b) Expenditure on repairs to property, if the production capacity or utility of the property is increased. It may, however, be noted that
sometimes a new asset may require some repair after its purchase but before it is installed and put into operation. Cost of such repair,
although it may not increase the production capacity of the asset, will be treated as capitalized expenditure.
(c) Expenditure incidental to purchase of fixed assets, e.g. freight, clearing charges, customs duty, carriage, octroi duty, import duty on
assets purchased.
(d) Expenditure on removal of old property.
(e) Cost of repair to second-hand assets. Repair is a revenue expenditure. But the cost of repair after buying a second-hand asset to bring
them into proper working condition is treated as Capitalized Expenditure.
(f) Wages; It is a revenue expenditure but if paid for installation of a machine or plant, then it is create as capitalized expenditure.
(g) Legal Charges; Legal charges i.e. lawyer’s fee, court fee in connection with the purchase of assets of permanent nature are regarded
the capital expenditure.
(h) Interest: Interest paid is generally a revenue expenditure. But in some a industries like iron & steel, cement industry, a concern has to

wait for a long period before it starts operation. Interest for such period on capital and loan is treated as capital expenditure.
8. Notwithstanding the department’s treatment of such expenses at the time of determination of depreciation allowance, the fact of the
matter is that since these expenses are directly connected with the Company’s fixed assets, they constitute “Capitalized Expenditure”. The
Company would be able to derive “Recurring Benefit” from its fixed assets only if such “Capitalized Expenditure” has been actually
incurred. These expenses eventually merge into the cost incurred on the acquisition of fixed assets. However, it may not be possible to
precisely relate the capital expenditure to “a” particular fixed asset. In other words such expenditure may be spread over a number of
different fixed assets viz different plant/machinery/building items. In such a situation it may not be possible to tell immediately, the exact
quantum of capital expenditure “embodied” in “a” particular fixed asset. That is one reason why such unallocated capital expenses are
often excluded at the time of determination of depreciation allowance. Nevertheless where the capital expenditure has been admittedly
incurred in the context of the Company’s aggregate fixed assets, the nature of such capital expenditure remains unchanged and it must
form part of the over all value of the Company’s fixed assets. Hence. so far as levy of corporate assets tax is concerned, the capitalized
expenditure, though “unallocated” must form part of the Company’s fixed assets.
9. The unallocated capital expenditure cited by Respondent Company in the balance sheet as on 30-9-1991 is as under:-
“Salaries and benefits Rs 143,498/-
Traveling and conveyance Rs. 23,741/-
Vehicle running and maintenance Rs. 74,734/-
Electricity Rs.250,985/-
Printing & Stationery Rs. 59,774/-
Communication Rs. 3,779/-
Rent, rates and taxes Rs. 9,338/-
Fee and subscription Rs. 856,487/ Rs. 18,549/ Rs. 7,112,537/-
It is evident that these expenses are broadly consistent with the illustrative example cited in para-7 above.
10. Penalty amounting to Rs. 4,000/- has been levied for late filing of C.A.T. Return by four days at the rate of Rs. 1.000/- per day. Also
additional tax amounting to .
Rs 17,17,150 has been charged at the rate of 24% per annum calculated from the date it was due (i.e. 30-9-1991) up to 12-2-1997 which
is the date of finalization of assessment..
The AR. of Respondent Company has pointed out that in ITA No. 1872/LB/1997 (Assessment year 1992.93) dated 26-5-1998, the Income
Tax Tribunal (Lahore Bench) had; directed that penalty/additional tax not be levied in the context of C.A.T. as CBR had issued multiple
circulars relating to C.A.T. that had created confusion in the minds of tax payers. It is argued that the cited decision is applicable to the
facts and circumstances of Respondents case and penalty and additional tax may not be charged.
.After due consideration of the matter, we are of the opinion that in the facts and circumstances of the respondents’ case penalty and
additional tax should not be levied. The deletion of additional tax by the CIT(A) is therefore maintained but not for the reason assigned by
the learned CIT(A). As regards levy of penalty, that has been upheld by the ClT(A) we agree with the respondent 's citation of decision
recorded in ITA. No 1872/LB/1997 assessment Year 1992 93) dated 26 5 1999 and direct that penalty is not to be levied
In the result the departmental appeal succeeds to the extent that capital expenses are to be included in the fixed assets of the
company. However, there is to be no charge of penalty for late filing of Return & no charge of additional tax.
ITA No. 897/LB/98 (Assessment Year 1992 dated 30-11-1999, is left intact and adjudication made above vide ITA No 897/LB/98 Asstt
Year 1992-93) dated 29-3-2000 is to be read along with ITA No./98 (Assessment Year 1992-93) dated 30-11-1999.
Legal and professional charges , Advertisement, Insurance Rs.
Mark up and Bank charges Rs13,582/-.
Lease rent of humidification Rs21,646/-, Others Rs.21,866/-,Rs 5,038,063/- Rs.576,495/-
15. To summarize, the Respondent Company’s fixed assets liable to charge of C.A.T. are as under:
Operating fixed assets 9.19.82,355
Less value of vehicles as clarified by CBR vide C.No. 3(1)/CAT/91 dated 26-4-1992, 28.21.607 Rs. 8,91,60,748/.
Non operating fixed assets Rs. 36,34,438/-
Capital work in progress Rs. 20,59,16,822/.
Unallocated capital expenses Rs. 71.12.537/- Rs. 30.58.24,545/
Order accordingly.
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[ 83 TAX 35 (Trib.)]
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Present: Muhammad Munir Quresh4 Accountant Member and Muhammad
Tauqir Aizal Ma//k, Judicial Member.
I.T.A. No. 240/LB of 1999 (Assessment year 1996-97),.
Assessee Versus Department
I.T.A. No. 304/LB of 1999 (Assessment year 1996-97)
Income Tax Ordinance, 1979 O of 19.79) - Sections 80L, 1 18D - Minimum tax on income - Turnover tax - Income from interest - bevy of
tax - Exemption disallowed - Validity - Assessee private limited company engaged in manufacture and sale of ghee - Enjoying statutoi’y
exemption from levy of tax - Assessment, completed and exemption allowed - Turnover and inter income brought to tax - Contention of
assessee that redii tax at the rate of 10% rather than 45°h repelled - CIT (A) held that r ;SlOflS of s.. ion 800 were not applicable and
accepted appeal of ass e- .. - Challenqe to Levy
36
TAXATION
[
of tax on turnover - Validity - Application of section BOD - Scope - Whether exemption available to assessee In terms of section 1 18D
could not be allowed to be defeated by recourse to provision of section 600 - Held yes - Whet her turnover tax was leviable on assessee’s
sales - Held no
Exemption available to the company in terms of section 11 8-D of the Ord. cannot be allowed to be defeated by recourse to the provisions
of section 80- D. The turnover that section 80-p seeks to tax is the sale of ts marujfactured product viz ghee. Income of the enterprise is
nothing but gross profit realized from sale of manufactured product, I.e., ghee, less all Indirect expenses and depreciatIon Incidental to
manufacturing activity. Thus if we tax s,qles,’ we would in effect not be allowing exemption to the company’s income in the manner
envisaged u/s 11 8-D.
In view of the discussion above, we hold that turnover tax u/s 80-a is not leviable on the company’s sales. [ 38 ]A.
Nemo, for the Appellant/Assessee.
Mian Javed-ur-Rehman, D.R., for the Respondent/Department.
2. Briefly stated, the relevant facts in this case are that the assessee/company Is engaged In the manufacture and sale of ghee, enjoying
statutory exemption from levy of income tax as envisaged in clause 1 18-D, Part-I, of the second Schedule to the Ord. Assessment for
1996-97 was completed u/s 62 at Nil (Business) Income and exemption allowed in terms of Clause ii 8-D. However. Turnover Tax u/s 80D
was charged amcantlng to Rs. 28,96,667/-. Also, interest income earned by the company was brought to tax u/s 30 of the Ord. and
subjected to tax © 45%.
3. In appeal preferred before the CIT(A), the assessee argued against levy of tax u/s 80-0 on the ground that the provisions of section 80-0
were not applicable In the case of exempt units. Fur4ier, as regards Interest Income earned by the .company, it was argued that the
provisions of section 80-B were applicable In the case of assessee as It was a company and hence tax at the reduced rate of 10% should
be charged rather than the 45% rate applied
by the assessing officer.
5. The C1T(A) has accepted assessee comp claim for non levy of tax u/s 80-0 and he has referred to Supreme Court of Pakistan decision
in the case of Elahi Cofton Mills Ltd. In this context. In the case of Interest income-
ORDER
[ Order was passed by Muhammad Munir Qureshl, Ac Memberj. - The assessee, a private limited company and the department have filed
appeals against the order of the C1T(A), Zone-i, Lahore, dated 4-11- 1998.
2001]
APPL TRIBUNAL [ No. 240/LB OF 1999]
37
however, the CIT(A) has held that the provisions of section 80-B were not applicable In the company’s case and reference has been made
to ITAT decision cited as (1998k77 Tax 151 (Trib.)
6. In appeal filed against the orders of the first appellate authority, the assessee company has contested the CIT(A)’s ruling regarding non
applicability of the provisions of section 80-B in the case of interest income earned by the company. According to assessee the CIT(A) was
misconceived in his view and 80B was applicable in assessees case. Alternately, it is argued that If interest income earned by the
company was to be brought to tax u/s 30 at normal tax rates then expenditure statedly incurred by assessee amounting to Rs. 190,630/-
towards earning of said interest income must be set off against such income.
7. In appeal filed by the department, it is contended that the CIT(A) has wrongly allowed exemption from 80-0 and reliance placed on Elahi
Cotton decision was misplaced as section 80-D was placed on the statute much
• before decision announced in Elahi Cotton v. CBR etc.
8. According to AR. of assessee company, the CIT(A) has referred to ITAT decision cited as (1998) 77 Tax 151 (Trib.) but he has
conveniently Ignored ITAT decision ITA Nos. 2942-3/LB/1997 (assessment years 1993-94 & 1994- 95) dated 16-6-1998 In which the
provisions of section 80-B have been held to be applicable to a company. Similarly, in ITA Nos. 2444-50/LB/98 (assessment years 1988-
89) to 1992-93 and 1994-95 & 1995-96) was (consolidated) order dated 3-9-1998 and (cross appeals) bearing ITA Nos. 2295-2301 /LB/98
and 2597 to 2603/LB/98 (assessment years 1991-9?, to
1997-98) (Consolidated) order dated 31-5-1999, the provisions of section 80-B have been held to be applicable in the case of Cooperative
Societies registered under the Societies Registration Act. As a cooperative society so
• registered Is a body corporate/artificial juridial person, therefore, it Is argued that if 80-B is applicable to a cooperative society then it must
also be held
applicable to a company.
The OR. has been heard.
10. After hearing both sidesand examining the relevant record, we find that
so far a interest Income is concerned, while there is no cavil with the
propositionithat both ‘company’ and ‘cooperative society’ are artificial Juridical
persons, however, section 80-B of the Ord. does not specifically cite
• ‘company’ as an ai entit’ In terms of charge of tax at reduced rate of
10% on Interest income earned. Thus Individual, unregistered firm, AOP, &
HUF are specificallycited in section 80-B(1) but company is not so cited. Neither is local auth Also, regi,tered firm too finds no mention. To
us these omissIons are a clearly d and Indicative of a cortcious decIsion to exclude theseéntities from the uMew of section 80-B in the
context of interest income ‘earned. This line of reasoning is consistent with
38
TAXATION [
ITAT (Peshawar D. B.) decision cited as (1998) 77 Tax 151 .(Trib.) that authoritatively and comprehensively explains the rationale of

section 80-B. No doubt hA No. 2942-3/LB/1997 dated 16-6-1998 is at variance with aforesaid Peshawar D.B. decision. It is, however,
noted that the Peshawar D.B. decision was announced earlier on 20-9-1997 and duly reported in the major tax journals and, all ITAT
benches are required to follow the same. As no attempt has been made to distinguish the Peshawar D.B. decision from the matter under
consideration before’ the Lahore D.B. of the ITAT that announced decision in ITA No. 2942-3/LB/97 dated 16-6-1998. The ambient
circumstances seem to suggest that the Lahore D.B. was unaware of thc Peshawar D.B. decision when it announced its decision on 16-6-
1998.
11. In our considered view, the Peshawar D.B. decision of 20-9-1997 correctly focuses on the construction of section 80-B (1), taking
cognizance of the omission of entities like registered firm, local authority and company therefrom before reaching the conclusion that 80-B
is not applicable to a company and it is rightly pointed out that if it were the intention of legislature to allow a company the benefit of
concessionary tax rate of 10% as against the normal higher rate, then section 80-B would have been so constructed as to clearly and
unambiguously enable the same to be done. Contrariwise, as section 80-B is not so constructed, then it must follow that this was not the
intention of legislature. A similar conclusion Is also inevitable in the case of cooperative societies.
12. As for the alternate plea that expenses be allowed and set off against interest income of the company, we find that expenses as
claimed are not allowable u/s 30 of the Ordinance, Interest income earned by the company does not constitute the company’s business
income and no expenses therefore, are allowable u/s 23(1). We accordingly hold that reliance placed by the first appellate authority on the
(reported) Peshawar D.B. decision of 20- 9-1 997 is well placed. The same is, therefore, maintained.
13. Coming now to the 80-D matter, we have given the same our anxious consideration and we find that the exemption available to the
company in terms of section 118-0 of the Ord cannot be allowed to be defeated by recourse to the provisions of section 80-0. The turnover
that section 80-D seeks to tax is the sale of its manufactured product viz ghee. Income of the enterprise is nothing but gross profit realized
from sale of manufactured product, i.e., ghee, less all indirect expenses and depreciation incidental to manufacturing activity. Thus if we
tax sales, we would in effect not be allowing exemption to the company’s Income in the manner envisaged u/s 11 8-D.
14. In view of the discussion above, we hold that turnover tax u/s 80-D Is not levlable on the company’s sales. ‘
15. Resultantly, appeals filed by both the assessee and the department FAIL
Appeals dismissed.
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[ 1) 83 TAX 71 (Trib.)]
[ THE INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH, LAHORE]
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Present: Muhammad Munir Qureshi, Accountant Member and Muhammad
Tauqir Afzal Malik, Judicial Member.
W.T.A. No. 932/LB of 1999 (Assessment year 1995-96),
Wealth Tax Act, 1963 Q(V of 1963) - Sections 2 (16)(ii), 17-B - Powers of IAC to revise order of DC - Securing of debts against assets -
LeW of Tax - Validity - Assessee, AOP, secured bank loon against assets of one of member of AOP including landmark project - Total
saleable area of project reduced by valuation date and sold out to customers - l.A. C. found that total liability claimed in return by assessee
had been wrongly and illegally allowed by A. C. W. T. prejudicial to interest of revenue - Assessment cancelled and
A.C.W.T. directed to reframe assessment - Appeal against - Section 2(16) (ii) - Application and scope - Selling out assets by assessee
prior to valuation date
- Effect of - Availability of assets for levy of tax - Condition precedent to invoke section 17-B - Whether assets against which liability
contrived by obtaining bank loan was secured must be actually available for levy of wealth tax in order that liability be admitted for set off
against total assets declared - Held yes - Whether wealth Tax was payable on part of assets of AOP when these assets had been sold out
prior to valuation date - Held no - Whether provisions of section 17-B had been rightly invoked byA.O - Held yes.
The assessing officer had failed to recognize that a significant part of the
assets against which the bank loan had been obtained did not suffer wealth
taxation as they had been sold but before the valuation date. [ 74 ]A.
As per provisions of Pakistan Wealth tax Law, the assets against which liability contrived by obtainir j bank loan is secured must be
actually available for levy of wealth tax in order that the liability be admitted for set off against the total assets declared. The provisions of
section 2(16)(ii) of the Wealth Tax Act, 1963, are quite explicit on this score. In the case presently before us, wealth tax is ‘not payable” on
part of the assets of the AOP as these assets have been sold out prior to the valuation date. [ 74 lB.
Law requires that these assets be available for charge of wealth tax and where these are not available for any reason that wealth tax
demand cannot possibly be raised against them, than the liability claim must be restricted to that extent as per statutory tipuIation i.e.
section 2(16)(ii) of the Wealth Tax Act. It is pointed out that wealth tax is “payable” only when the assets are available for levy of wealth
tax, and where the assets are not available, wealth tax would not be payable. [ 74 Ic.
The provisions of section 17-B o the Wealth Tax Act, have been rightly
invoked by the assessing officer. [ 75 ]D.
Naeem Akhtar Sh., FCA, for the appellant.
Mian Javed-ur-Rehman, DR., for the Respondent.
ORDER
[ order was passed by Muhammad Munir Qureshi, Accountant
Member,]. This is an appeal by an AOP against order of the lAO, Range-I,
Zone-A, Lahore dated 27-3-1999.
2. Briefly stated, the facts in this case are that on Inspection of appellant’s assessment record, the IAC found that the assessment framed
for 1995-96 by the ACWT was erroneous and prejudicial to the interest of revenue insofar as
72
TAXATION
[ 83
2001] APPL. TRIBUNAL [ No. 932/LB of 1999] 73
liabilities allowed by the ACWT amounted to As. 11,68,82,478. when these were actually cited by appellant in the wealth tax Return at As.
11,61,64,604/-. Resultantly the excess allowance of liabilities to the tune of Rs. 717874/- was found to be without any justification and had
statedly resulted in loss of revenue and was therefore cause for action u/s 17-B. Furthermore, the IAC also found that whereas the
liabilities were secured against the Landmark project and bank loan as on the valuation date (i.e. 30-6-1995) stood at As. 144,81,271, the
total saleable area of the project originally cited at 254437 sq. ft. had been reduced to 75989 sq. ft. by valuation date with defference of
178448 sq. ft. sold out to customers. The area sold out had not suffered wealth taxation and only the unsold area of 75989 sq. ft. was
offered for wealth tax. In the IAC’s view this state of affairs was violative of the provisions of section 2(1 6) (ii) of the Wealth Tax Act which
provides for disallowance of such debts which are-secured on, or which have incurred in relation to any asset in respect of which wealth
tax is not payable. Thus as a significant part of the Landmark Project in the IAC’s view had escaped wealth taxation, there was no cause to
admit the liabilities claim in its entirety as the loan obtained from bank was for the complete project and the entire project was assumed to
be liable to levy of wealth tax and when the entire project did not actually suffer wealth taxation, the liabilities claim too was required to be
curtailed.
3. The IAC issued show cause notice on the matter and in reply filed the appellant explained that so far as excess liabilities of As.
717,874/- were concerned, here the position had been misconceived insofar as this amount represented the personal capital of Mr. lmtiaz
Rafi Butt, member of AOP and/the same had been reduced from the AOP’s capital as Mr. Imtiaz Rafi Butt had declared the same in his
personal case and if the said amount had not been reduced from the AOP’s capital, there was an apprehension that it might suffer double
taxation - both in the hands of the AOP as well as the individual member in his personal wealth tax case. As for reduced unsold area of
Landmark Project on the valuation date It was explained that the loan was secured against all assets of Mr. Imtiaz Rafi Butt, including the
Landmark Project and all these were liable to levy of wealth tax. It was further argued that there was no sanction for partial allowance of
claimed liability and the liability was required to be allowed in full or not at all. It was also contended that as per case law from Indian
jurisdiction, that there was no sanction in law to restrict a liability claim even where loan obtained is secured against assets that may be
partially exempt from levy of wealth tax.
4: Appellant’s reply was duly considered by the IAC and found to be unsatisfactory. Accordingly, the IAC calculated that liability claim to be
extent of As. 101,38,361/- was Inadmissible and had been allowed in excess. The IAC also apparently maintained his initial finding that
total liabilities claimed at Rs. 11,61,64,604/- In the Return had been wrongly and illegally allowed at Rs. 11,68,82,478/- The assessment for
1995-96 was accordingly cancelled and
1
ACWT directed to reframe the same in the light of observations recorded in the order passed u/s 1 7-B of the Wealtj T Act.
5. Before the Tribunal, the appellant has cited copious case law from Indian jurisdiction to substantiate his contention that liability amount
cited by appellant in the wealth tax Return was correct and had been rightly assessed by the ACWT.
6. The DR. has been heard.
7. We have heard both sides and have given the matter our earnest consideration and we find that keeping in mind the relevant provisions
of the Wealth Tax Act, 1963, the assessing officer had failed to recognize that a significant part of the assets against which the bank loan
had been obtained
did not suffer wealth taxation as they had been sold but before the valuation A date. No doubt the appellant has asserted that the entire
assets against which
the bank loan was secured was “liable’ and “chargeable” to wealth tax. However, the catch is that notwithstanding their asserted
chargeablility to wealth, the sold out portion of the Landmark Project had not actually suffered wealth tax. The appellant apparently feels

that this position has not been contrived deliberately and when the loan, amount was negotiated the assets subsequently sold out were
available and the liability claim should therefore be allowed in full as the department has not established that the assets against which the
loan amount was secured were ever “exempt” (either in full or in part) from levy of wealth tax.
8. After looking into the matter in depth, we find that as per provisions of Pakistan Wealth tax Law, the assets against which liability
contrived by obtaining bank loan Is secured must be actually available for levy of wealth tax in order that the liability be admitted for set off
agai. the total assets declared. The provisions of section 2(16)(ii) of the Wealth Tax Act, 1963, are
• quite explicit on this score. In the case presently before us, wealth tax is “not payable” on part of the assets of the AOP as these assets
have been sold out prior to the valuation date. it is immaterial in our view that the appellant could not have anticipated their sale prior to the
valuation date. The fact of the matter remains that as a result of their sale, the appellant did not suffer wealth taxation on these sold out
assets which is violative of the fundamental requirement of taxability of assets against which liabilities are secured. It is not enough that
these assets be “chargeable” to wealth tax. Rather, it is our view that the law requires that these assets be available for charge of wealth
tax and where these are not available for any reason that wealth tax demand cannot possibly be raised against them, then the liability
claim must be restricted to that extent as per statutory stipulation i.e. section 2(1 6) (ii) of the
74
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[ 83
2001] APPL.TRIBUNAL [ No. 795/KB, of 1999-2000] 75
Wealth Tax Act. It is pointed out that wealth tax is payable” only when the assets are available for levy of wealth tax, and where the assets
are not available, wealth tax would not be payable.
9. It is to be noted that wealth tax law in India apparently does not have the equivalent of section 2(16)(ii) of the Wealth Tax Act, 1963 in
Pakistan, For that reason the Indian case law cited by appellant is not on all fours with appellant’s situation In Pakistan.
10. In view of the discussion above, we hold that the provisions of section D
17-B of the Wealth Tax Act, have been rightly invoked by the assessing officer.
11. Resultantly, the appeal fails.
Appeal dismissed.
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[ 84 TAX 77 (Trib.)]
[ INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH, LAHORE)
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Present: Muhammad Munir Qureshi, Accountant Member and Syed Nadeem
Saqlain, Judicial Member.
Income Tax Ordinance, 1979 f)Oc’Xl of 1979) - Section 66-A - C.B.R. Circular No. 11, dated 9-9- 1997- Power of I.A.C. to revise order -
Assessment under SAS completed - Ousting of return by l.A.C. from puMew of SAS - Validity - Taking of additional grounds by assessee
at appellate stage - Scope
- Approbate and reprobate - Principle of - Whether it was trifle law that tax payer could not approbate and reprobate in same breath - Held
no - Whether additional grounds filed by assessee could be of any help to it incontesting I.A.C’s action u/s 66-A - Held no - Whether if it be
accepted that A.O.P had in effect been exempted from filing wealth statement, fact remained that prima facie, capital available vis-a-vis
income declared was grossly understated/deficient and was unacceptable for SAS - Held yes
It is trite law that a taxpayer cannot approbate and reprobate in the same breath. This is exactly what the appellant is doing in the present
appeal. First the appellant argues before the IAC that the assessment u/s 59 (1) be left undisturbed and now before the Tribunal the same
appellant asserts that there Is no assessment u/s 59(1) in the field at all. Clearly this is a contradiction in terms and undoubtedly an after
thought. [ 80 IA.
That being so we find that the additional ground filed is of no help to the
appellant in contesting the IAC’s action u/s 66A. [ 80 ]B.
Even if it be accepted that the AOP had in effect been exempted from
tiling wealth statements the fact remains that prima fade, capital available vis a-vis income declared is grossly understated/deficient and
income cited on
the return Is as a consequence, inadequate and unacceptable for self assessment purposes. As stated above, a flour mill requires
significant investment ranging anywhere between As. 75 lakhs to As. 1 crore. No doubt the appellant says (beLatedly) that the AOP had
sold out the mill to one member of the AOp for As. 277,000/- only. However, this contention is uncorroboFated, unsubstantiated and
unproved and appears to have been contrived artificially simply to escape due levy of tax u/s 66A.
S.A. Khan, Advocate, for the Appellant.
Ahmad Kamal,D.R., for the Respondent.
ORDER
[ Order was passed by Muhammad Munir Qureshi, Accountant
Member.J - This appeal by an AOP is directed against Order of the IAC, dated
2-11-1999.
2. According to the appellant, IAC’s action u/s 66A is not tenable in law as there is, statedly, no order of assessment u/s 59(1) available on
the assessment record of appellant. It is argued that the lAG can only exercise revisionary jurisdiction u/s 66A provided an order u/s 59(1)
exists ‘on the assessment record and as in the present ease revision has been made in the alleged absence of an order of assessment,
the condition precedent for.action u/s 66A has statedly been violated rendering the impugned order u/s 66A to be a nulity in the eye of law.
3. The above contention of appellant has been made through “Additional Ground of Appeal” filed on 7-9-2000 and this Ground is statedly
additional to the grounds already filed by appellant alongwith appeal in which it had been argued that reliance placed by the l on CBR
Circular No. 5 of 1997 was misplaced as the said Circular had statedly been superseded/modified by CBR Circular No. 11 of 1997.
4. The DR. has been heard.
5. We have looked into the matter and after examining the available record and the submissions made by both parties we find that the
appellant has made what amounts to an about-face” on filing the additional ground of appeal. This is evident from the fact that in the
original grounds the appellant had simply contested lAG’s reliance on Circular No. 5 insofar as the action u/s 66A had been initiated on the
basis of alleged violation of the self assessment schemes requirement that (a) wealth statements of members of AOP accompany the
Return of Income and (b) that income and capital be cited In the Return in the ratio of 1:3. The lAG having noted on inspection of
appellant’s assessment record that no wealth statement had been filed by the members of the AOP and total income declared as per
Return at Rs. 43,200/-
2001] APPL TRIBUNAL [ No. 6134/LB OF 1999J 79
was, prima facie, wilfully inadequate in that the minimum capital investment required to be made in the case of a flour mill stood in the
range of As. 75 lacs to As. I crore and resultantly total income too had to be cited at between Rs. 25 lacs to Rs. 33 lacs vis-a-vis capital of
Rs. 75 lacs to Rs. 1 crore if it was to be acceptable under the SAS for 1997-98. As against this, the appellant had declared Total Income at
As. 43,200/- only and on the basis of such level of Income, the capital derived at Rs. 129,600/- (i.e. 3 times the income declared) was
insufficient/deficient/understated thereby ousting return from the purview of self assessment. Acceptance of such a Return u/s 59 (1) was
found to be erroneous as it was In conflict with express statutory stipulation and it was prejudicial to the Interest of revenue as tax required
to be paid on the basis of total Income so declared was significantly less than the tax required to be paid with a return that cited correct
capital & income.
6. The appellant vehemently contested the IAC’s findings when show cause
notice was issued and it was submitted by the appellant that the CBR had
allegedly modified the original self assessmenf scheme through Circular No.
11 of 1997 and the IAC by statedly ignoring Circular No. 11 had made an error
that was allegedly fatal to the action u/s 66A.
7. We have examined Circular No. 11 dated September 9, 1997, in it is laid down that the one page Return pf Income prescribed under the
simplified SAS for 1997-98 would be acceptable without any accompanying statement, accounts, details and documents as stipulated in
the SSAS itself. Thus what Circular No. 11 does is to further simplify the SSAS and free assessee from the hassle of filing supporting
documentation/statement/details of any sort with the return. This in effect would mean that assessee’s would no longer be required to file
wealth statements too and thus assessee’s failure to file wealth statements alongwith the return would be taken care off and would not
invalidate the return from the purview of SSAS for 1997-98. The IAC had replied back to the appellant then that Circular No. 11 was not
applicable to “new assessee’s” and as the appellant was a new assessee therefore, the appellant would still be required to file wealth
statement etc. The appellant had strongly contested this rebuttal by IAC and had reiterated that the Circular was applicable to new
assessee’s as well as the existing assessee’s.
8. As regards the IAC’s second reason for invoking 66A (deficient capital/income) the appellant had taken the stance that enquiry
regarding capital or cost of assets is not within the purview of Section 66A and that no probing enquiry was possible in exercise of
revisionary jurisdiction.
9. In view of the discussion supra, it is patent that the appellant had asserted before the IAC that assessment made u/s 59 (1) by the
assessing officer, accepting the return filed by the AOP under the simplified self Assessment scheme for 1997-98 was consistent with
statutory stipulation and there being no valid grounds for action under 66A, that assessment made (u/s 59(1)) had attained finality and
could not be disturbed.
0. Now the appellant is telling us through its additional grounds of appeal iat there is no order of assessment u/s 59 (1) in the field as no
copy thereof Ilegedly obtains on appellant’s assessment record and notwithstanding the )resence of Form IT-30, Notice of Demand u/s 85

and entry in DCR and entry n under that the IAC is, according to the appellant, debarred from taking any iction u/s 66A.
1. We have duly considered appellant’s changed stance and we find that it s trite law that a taxpayer cannot approbate and reprobate in
the same )reath. This is exactly what the appellant is doing in the present appeal. First
he appellant argues before the IAC that the assessment u/s 59 (1) be left A undisturbed and now before the Tribunal the same appellant
asserts that there
is no assessment u/s 59(1) in the field at all. Clearly this is a contradiction in terms and undoubtedly an after thought.
11. As the appellant never challenged the alleged non availability of assessment order passed u/s 59(1) when the IAC issued his show
cause notice and the appellant supported that assessment and asserted the same to be valid in all respects, the appellant cannot contest
alleged non availability of said order u/s 59(1) at this stage. If for some reason the order u/s 59(1) is not now available on the assessment
record at this stage, the only conclusion is that it has been misplaced and was available when the (AC took action u/s 66A. In any case it.
is to be noted that an order u/s 59(1) is generated automatIcally once return filed under SAS Is found to be in order and taken up for
processing by making appropriate entry on the order sheet. In the present case, it is not denied that order sheet entries, IT-30 calculations,
DCR entry and Notice of demand issued u/s 85 of the Ord. alongwith the assessment order, are all in order. That being so we find that the
additional ground filed is
of no help to the appellant in contesting the IAC’s action u/s 66A. B
12. Coming now to the original grounds of appeal, we find that the appellant has belatedly filed documents purporting to show that the
appellant AOP had sold out his flour mill assets comprising machinery and furniture to Mr. Qaiser Rashid for a consideration of Rs.
277,000/- as on 1-7-1996. This assertion was never made before the (AC earlier. No registered sale deed is available to substantiate
contention made. We will therefore ignore this contention of the appellant, belatedly made before us for the first time.
13. The only matter remaining is the applicability and scope of Circular No.
11. We have given the matter our undivided attention and we find that even if it be accepted that the AOP had in effect been exempted
from filing wealth statements the fact remains that prima facie, capital available vis-a-vis income declared is grossly understated/deficient
and income cited on the return is as
a consequence, inadequate and unacceptable for self assessment purposes. C As stated above, a flour mill requires significant investment
ranging anywhere
between Rs. 75 lakhs to Rs. 1 crore. No doubt the appellant says (belatedly)
2001] APPL TRIBUNAL [ No. 897/LB of 1998} 81
that the AOP had sold out the mill to one member of the AOp for Rs. 277,000/. only. However, this contention is uncorroborated,
unsubstantiated and unproved and appears to have been contrived artificially simply to escape due levy of tax u/s 66SA. We therefore,
reject the same and maintain the order of the IAC.
14. Resultantly, the appeal is rejected.
Appeal rejected Back to TOC

[ 84 TAX 189 (Trib.)]

Appeal Accepted.
Back to TOC
Present: Muhammad Munir Quresh4 Accountant Member and Syed Nadeem Saqlain, Judicial Member.
W.T.A. Nos. 1381/LB to 1384/LB of 1996 (Assessment years 1986-87 to
1989-90),
Department
Wealth Tax Act, 1963 (XV of 1963) - Sections 16(5), 17(1)(b) - Annulment of assessment - Validity - A.ssessee an individual failed to file
wealth tax return
- Notice for filing returns for assessment years 1986-87 to 1989-90 - Persistent non compliance of notices resulting assessment u/s 16(5) -
A.A.C found that assessments for charge years had been illegaly framed and should have been finalized u/s 17- Annulment of assessment
and exercise of jurisdiction also found to be without statutory sanction - Challenge to - Escapement of
2001]
189
Versus
Assessee
4
assessment - Availability of information - Nature and concept of - Ex-parte assessment - Jurisdiction and condition precedent - Whether
section 17(1) (b) stipulated that notice u/s 17 might be issued in consequence of “any information’ in W.T.O’s possession indicating that
assessee’s net wealth chargeable to tax had escaped assessment for any year by reason of under assessment or assessment at too lower
rate or otherwise - Held yes - Whether W.T.O did have in formation before him including information contaIned In assessee ‘S Income tax
assessment record whici. was precisely sort of in formation envisaged in section 17(1)(b) - Held yes - Whether if assessee failed to file
return in responce to notice W. T.O was fully justified in finalizing assessment Ws 16(5) - Held yes - Whether A.A.C had clearly
misinterpreted provisions of section 17 and had wrongly held that assessments for 1986-87 to 1989-90 could only have been made u/s 17
and not u/s 16(5) - Held yes - Whether assessments for 1986-87 to 1989-90 had been framed u/s 16(5) read with section 17 whIch was
consistent with statutoiy stipulation - Held yes
The assessee’s contention before us that the assessing officer had no I ‘definite information’ in his possession regarding assessee’s Net
Wealth has been looked Into and Is found to be incorrect. Section 17(1)(b) stipulates that notice (u/s 17) may be Issued in consequence of
“any information” in the WTO’s possession indicating that assessee’s Net Wealth chargeable to tax had escaped assessment for any year
whether by reason of under assessment or assessment at too lower rate or otherwise. It is clear in the case before us that the WTO did
have Information before him, including information contained In assessee’s income tax asstt. record, which is precisely the sort of
Information that is envisaged in Section 17(1) (b).
[ 193-1 94 ]A.
As regards exparte action taken in assessee’s case, we find that as the assessee failed to file Return in response to notice issued u/s 17,
the WTO was fullyfustified in finalizing assessment u/s 16(5). Looking at the matter in its entirety, we are satisfied that the learned MC has
clearly mis-interpreted the provisions of section 17 of the Wealth Tax Act and has wrongly held that assessments for 1986-87 to 1989-90
could only have been made u/s 17 and not u/s 16(5). Assessments for 1986-87 to 1989-90 have been framed u/s 16(5) read with section
17 of the Wealth Tax Act, 1963 and this is consistent with statutory stipulation. The annulment ordered by the MC is thus found to be
without any legal sanction. We, therefore, vacate the order of the MC and reinstate the order of the assessing officer for assessment year
1989-90. As for assessment years 1986-87 to 1988-89, there have been held above to be ‘time barred’ and the AAC annulment for these
years Is maintained. [ 194 ]B.
Anwar UI Haq, D.R., for the Appellant. Sh. Sharif Hussain, Advocate, for the Respondent.
190
TAXATION
[ 84
Date of hearIng: 20-6-2001.
2001] APPL. TRIBUNAL [ No. 1381/LB OF 1996] 191
ORDER
[ Order was passed by Muhammad Munir Oureshi, Accountant
Member.] - These appeals by Revenue are directed against order of the MC,
Sahiwal dated 1 7-4-1996.
2. According to the department, the first appellate authority has wrongly annulled the wealth tax assessment order for the assessment
years 1986-87 to 1989-90. It is argued that jurisdiction has been correctly exercised u/s 17 of the Wealth Tax Act, 1963 and assessments
correctly framed u/s 16(5) read with section 17 of the Act. Finally, it is contended that even if it be accepted that wrong section has been
cited in the order of assessment, that should not be made the basis for annulment as notice u/s 17 had been duly issued and jurisdiction
properly assumed.
3. Briefly stated, the facts in this case are that the assessee/respondent was found by the WTO to be liable to file wealth tax Returns that
had not been
filed ‘suo moto’. Notice u/s 17 was sent through registered post calling for Returns the assessment years 1986-87 to 1989-90 as service in
the ordinary manner could not be made but there was no compliance. Notices u/s 16(4) were then issued and assessee sought
adjournments which were allowed. As many as (8) opportunities were given to the assesee to file Returns of Wealth. Finally, because of
persistent non-compliance, the WTO finalized the assessments u/s 16(5).
4. The assessee filed appeal before the MC and argued that, firstly, the assessments were “time barred” and secondly they had been
finalized in an illegal manner u/s 16(5) when they were statedly required to be finalized u/s 17. The MC after examination of the matter
found that the assessments for the charge years 1986-87 to 1989-90 had been illegally framed u/s 16(5) of the Wealth Tax Act, 1963 and
should have been finalized u/s 17. Exercise of jurisdiction u/s 16(5) was found to be without statutory sanction and hence assessment
orders for 1986-87 to 1989-90 were annulled.
5. According to the AR. of assessee/respondent, the AAC’s finding on the matter is consistent with law. It is argued that this being the case
of “escaped assessment” the provisions of section 17 of the Act were applicable exclusively and it is further argued that section 17 of the
Act empowers the WTO to not only call for Return of Net Wealth but also to pass order of assessment. According to the AR, in cases
where notice u/s 17 is required to be issued for the reason that Net Wealth has ‘escaped assessment’ or has been ‘under assessed’ or
‘assessed at too low rate’ etc. then the asset. is also required to be made u/s 17 of the Act and not u/s 16. It is the AR’s contention that
section 16 governs assessment proceedings only in those cases where Return has been filed u/s 14 and not where Return of Net Wealth
is filed u/s 17. The AR. also argued that the wealth tax assessments for 1986-87 to 1989-
90 were time barred as per limitation of time laid down in section 17-A (2)(b).
4
TAXATION [ 84
Furthermore, the AR. contended that there has been no service of statutory notices in this case on the assessee and also that there was
no ‘define information’ available to the’ assessing officer and no approval had been sought from the lAG.
6. The DR. has opposed the arguments made by AR. of asses According to the DR, the notices have been duly Issued and served through

registered post and the regd. letter containing the notice was not received back unserved by the assessing officer which would have been
the case had the assessee not been available at the cited premises. The DR. further pointed out that notices u/s 17 of the Wealth Tax Act,
1963 had been correctly issued as per law and because of their noncompliance, the assessing officer had no choice but to finalize asset.
exparte u/s 16(5) of the Wealth Tax Act. The DR. insists that section 16(5) has been correctly cited. The DR. denies that the assessments
for 1986-87 to 1989-90 were time barred.
7. We have heard both sides and have examined the available record and we find that, prima facie, the assessments for 1986-87, 1987-88
& 1988-89 are time barred. However, the assessment for 1989-90 is within time. The limitation for issuance of notice u/s 17 for assessment
years 1986-87 to 1988- 89 will be reckoned w.e.f. close of the financial year in the case of each assessment year (i 30-6-1 987 in the case
of assessment year 1986-87 and so on for the other assessment years) and notice u/s 17(1)(a) can be issued within a period of 5 years
from the close of the financial year in question. Reckoned in this manner, notice u/s 17 can be issued by 30-6-1992 for assessment year
1986-87, by 30-6-1 993 for assessment year 1987-88, by 30-6- 1994 for assessment year 1988-89 and by 30-6-1995 for assessment year
1989-90. Now the notices u/s 17 have been issued on 31-7-1994 and assessments have been finalized in August, 1995. Prima facie, the
notices Issued u/s 17 are hit by limitation so far as assessment years 1986-87, 1987- 88 & 1988-89, are concerned. However, the notice
u/s 17 is “in time” so far as assessment year 1989-90, is concerned (limitation for issue of notice expired on 30-6-1995 while notice was
Issued on 31-7-1994). Notice having been issued on 31-7-1994 for assessment year 1989-90, assessment was required to be completed
within 2 years reckoned from 30-6-1 995 i.e. assessment was to be completed by 30-6-1997 and assessment has been completed in
August, 1995 so that it is well in time.
8. The assessee’s contentioi that assessment framed u/s 16(5) is illegal and could only have been framed under section 17 has been
looked into and is found to be completely misconceived. The assessee’s AR. has clearly mis interpreted the relevant provisions of law as
assessment under the Wealth tax Act, 1963, whether current assessment or arrear assessment, is governed by the provisions of Section
16. Section 17 of the Act is relevant only for the purpose of calling of Return of Net wealth where escapement/under assessment or
assessment at too low a rate is detected. When provisions of
2001]
APPL TRIBUNAL [ No. 1381/LB OF 1996]
193
Section 17 are invoked, the provisions of the Wealth Tax Act shall, so far as may. be applied as if the notice had been issued under sub-
section 2 of Section 14. This means that order of assessment of Net Wealth pursuant to issuance of notice u/s 17 is also governed by the
provisions of section 16. The assessee’s AR contention that assessment provisions under Wealth Tax Act are specified both in sections 16
& 17 is found to be misconceived and as explained above, the provisions governing assessment are stipulated in Section 16 while the
provisions governing issuance of notice where wealth has escaped asstt. (for whatever reason) are specified in section 17.. It is to be
noted that the Head Notes to Section 14, 16 & 17 of the Wealth Tax Act, 1963 also clarify the meaning attached to the provisions
contained in these sections. Thus the Head Note to Section 14 is titled “Return of wealth”. Similarly, the Head Note to Section 16 is titled
“Assessment” and the Head Note to Section 17 is titled “Wealth escaping assessment”. While it is acknowledged that the meaning
attached to statutory provisions is not governed by the Head note to the provisions of law concerned, nevertheless, it cannot be denied
that the Head Note has been put there intentionally and indeed throws light on the meaning attached to the relevant provisions to which
the Head Note relates. It is also to be noted that in the entire Wealth Tax Act, 1963, each separate Section has only one Head Note. This
can be interpreted to mean that each separate Section deals with one subject matter only. Thus if it were the intention of the legislature to
permit both calling of Return of Net Wealth and making of wealth tax assessment by recourse to the provisions contained in Section 17 of
the Wealth Tax Act, 1963, then Section 17 would have had two Head Notes viz: (I) Wealth escaping assessment and (ii) Assessment. The
fact that this is not so is clarificatory of the legislature’s intention to provide one section of law for a particular subject matter only. This is
the scheme of the wealth Tax Act, 1963. That being so, we find that the assessee having failed to comply with the terms of statutory notice
issued u/s 17, assessment has rightly been made u/s 16(5), exparte which is to be read with section 17. As for issuance and service of
notice u/s 17, we are satisfied that service made through registered post is in order. We note that adjournments sought by assessee
repeatedly have been granted by the Wealth Tax Officer. The ‘ambient circumstances’ thus establish that the assessee was very much
aware of the proceedings initiated in his case (including recourse to Section 17) and he did appear before the WTO also; in the context of
these proceedings. It is further noted that besides notice u/s 17, the WTO also issued notice u/s 16(4) in which the DCWT’s intended
valuation of assessees assets was confronted.
9. The assessee’s contention before us that the assessing officer had no ‘definite information’ in his possession regarding assessee’s Net
Wealth has been looked into and is found to be incorrect. Section 17(1) (b) stipulates that notice (u/s 17) may be issued in consequence of
“any information” in the
A
194
TAXATION [ 84
WTO’s possession indicating that assessee’s Net Wealth chargeable to tax had escaped assessment for any year whether by reason of
under assessment or assessment at too lower rate or otherwise. It is clear in the case before us that the WTO did have information before
him, including information contained In assessee’s Income tax asstt. record, which is precisely the sort of information that Is envisaged in
Section 17(1) (b).
10. As regards exparte action taken in assessee’s case, we find that as the assessee failed to file Return in response to notice issued u/s
17, the WTO was fully justified In finalizing assessment u/s 16(5). Looking at the matter in its entirety, we are satisfied that the learned
AAC has clearly mis-interpreted the provisions of section 17 of the Wealth Tax Act and has wrongly held that assessments for 1986-87 to
1989-90 could only have been made u/s 17 and not u/s 16(5). Assessments for 1986-87 to 1989-90 have been framed u/s 16(5) read with
section 17 of the Wealth Tax Act, 1963 and this is consistent with statutory stipulation. The annulment ordered by the MC is thus found to
be without any legal sanction. We, therefore, vacate the order of the MC and reinstate the order of the assessing officer for assessment
year 1989-90. As for assessment years 1986-87 to 1988-89, there have been held above to be time barred’ and the Mc’s annulment for
these years is maintained.
11. Resultantly, the departmental appeals are disposed off as above.
Order accordingly.
[ 84 TAX 194 (Trib.)) r
[ THE INCOME TAX APPELLATE TRIBUNAL (PAKISTAN) KARACHI)
Present: Muhammad Akhtar Nazar Mian, Acccountant Member and Syed
Kabirul Hasan, Judicial Member.
W.T.A. Nos. 608/KB and 609/KB of 1999-2000 (Assessment years 1997-
98 and 1998-99),
Wealth Tax Act, 1963 (XV of 1963) - Section 5(1)(xv) - Letter No. /TJ/(42)/85, dated 22-8-1985 - C.B.R. letter C. No. 8(9)-WT/IT-V/79,
dated 30- 6-1985 - Exemption -• Creation of assets out of foreign remittance - Disallowance - Validity - Previously assessee had created
immoveable assets out of foreign remittance received and disposed of partialy in assessment years 1997-98 and 1998-99 - Contention of
assessee that exempt/on was still available vide C.B.A. Circular dated 30-6-1985 accepted by D.C. W. T - l.A. C held that exemption could
be allowed only to assets created for first time out of foreign remittance and set aside order of Assessing officer - Appeal against -
Conditions and requirements for availing exemption - Consideration for - Whether exemption was available u/s 5(1)(xv) to all assets
fulfilling

Back to TOC


Back to TOC
RA No. 153/LB/03
RA No. 154/LB/03
RA No. 155/LB/03
RA No. 156/LB/03
RA No. 157/LB/03
RA No. 158/LB/03
RA No. 159/LB/03
RA No. 160/LB/03
NTN: 06-34-0000101
Commissioner of Income Tax, MTU, Lahore. Appellant
Versus
Mr. Muhammad Naeem Goods, Akbari Mandi, Lhr. Respondent
Appellant by : Mr. Muhammad Asif, DR
ORDER
These reference applications by Revenue arise out of Tribunal’s order bearing ITA No. 1708 to 1715/LB/2000 (Assessment Years
1990-91 to 1997-98) dated 21-11-2003.
(2) RA No. 153-160/LB/2004

2. The applicant formulates the following questions, statedly, questions of law: -
a. Whether a single (combined) notice u/s 56 issued for more than one assessment years is incurably defective in spite
of the fact that section 56 of Income Tax Ordinance, 1979 does not lay down any such restriction.
b. Whether improper service of a notice is an incurable defect, making the assessment liable to annulment instead of
setting-aside.
3. The assessee / respondent is not present. The applications will be disposed off on merits.
4. According to the DR, issuance of combined notice u/s 56 for multiple assessment years does not warrant annulment and setting
aside of the assessments so made by the CIT(A) was consistent with statutory stipulation. It is submitted that where no notice u/s 56 has
been issued then any assessment framed would not be tenable in law but in the present case, a notice had admittedly been issued and
any defect therein with regard to service was curable and fresh assessment proceedings were therefore in order as a remedial measure. In
this context, the DR has referred to judgment cited as 39 Tax 30 SC. Pak, also reported as 98 SCMR 91.
5. We have heard the DR and have perused the case law cited.
6. In our considered judgment, the Tribunal while ordering annulment of assessments proceedings for 1990-91 to 1997-98 in this
case has taken cognizance of multiple defects, including defect of a grave nature and the annulment is thus the accumulative result of all
these defects. Thus, the Tribunal has held that; (a) Notices
(3) RA No. 153-160/LB/2004
u/s 56 & 61 have not been served on the assessee at all nor these notices have been served on someone who has appeared before the
assessing officer at any stage or on someone who has filed any document at any stage; (b) the single notice u/s 56 issued for multiple
years, bears evidence of tampering insofar as assessment year “ 1996-97” has been altered perforce to assessment year “1997-98”, and
(c) A single notice u/s 56 has been issued for eight years. As held on Page-4 of Tribunal’s order, after taking cognizance of “all pertinent
aspects”, the Tribunal has come to the conclusion that the assessments framed u/s 63 for 1990-91 to 1997-98 are incurably defective and
hence liable to be annulled.
7. Looking at the matter in its entirety, we are satisfied that Tribunal’s findings do warrant annulment and the questions as formulated
by Revenue do not properly arise from Tribunal’s cited order as the issuance of a single notice u/s 56 for multiple years is not the only
reason given by the Tribunal for annulment. Admittedly, notice u/s 56 is required to be issued for the current as well as proceeding years

for which a new assessee is required to file returns of income where such returns have not been filed by the assessee on his own violation.
Previously, notice u/s 56 could only be issued for the current assessment year and for previous years notice u/s 65 was required to be
issued. However, that position has changed and necessary amendment has also been made in the statute. In the present case, there is no
cavil with the proposition that notice u/s 56 is required to be issued for assessment years 1990-91 to 1997-98.
(4) RA No. 153-160/LB/2004
However, in our judgment, just as an assessee is required to file return of income separately for each year so it is that statutory notice
should also be issued separately for each year. Thus, where an assessee is required to file returns of income for eight years, the assessee
cannot disclose lump sum income for eight years but has to bifurcate his income for each year separately and file separate returns of
income on a yearly basis. The law as well as propriety requires that the assessing officer compute income separately for each year even
when a ‘consolidated’ order of assessment is passed. By calling on the assessee to file returns for eight years through a single notice
followed by notice u/s 61 for a similar period, the assessee is caused prejudice insofar as the assessee may feel constrained to explain the
income arising in these eight years in a single appearance before the assessing officer. Imagine the assessees discomfiture in an
“accounts case” where accounts and supporting documentation for many years have to be produced before the assessing officer on a
single date for which a combined notice has been issued. This is certainly not what statute contemplates. The text of the statute [section
56 of the repealed Ordinance, 1979] unequivocally refers to assessment in the ‘singular’. No where in the statute is “assessment” referred
to in the ‘plural’. We are aware that ‘singular’ may be read as ‘plural’ in certain situations. However, we do not think it appropriate to read
the provisions in this manner here.
(5) RA No. 153-160/LB/2004
8. Besides, the observations recorded Supra, we have to point out that the multiple assessments made in this case have been held to
suffer from a grave infirmity insofar as strong indications of “tampering” have been pointed out by the Tribunal. The department has not
filed any misc. application to contest the Tribunal’s finding with regard to such tampering. The department has also not filed any misc.
application to contest the Tribunal’s finding that the single notice u/s 56 / 61 has not been served on the assessee or on any person who
had any connection with the assessee. It would thus appear that the department has accepted the Tribunal’s findings on both these
aspects. The conclusion is therefore inescapable that given the ambient circumstances referred to Supra, assessments such as have been
made in the present case are indeed incurably defective and hence do merit annulment.
9. Reference is rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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(2004) 90 Tax 325 (Trib)

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ITA No.4666/LB/2003
ITA No.4667/LB/2003
NTN: 24-22-0988590
CIT, Bahawalpur Zone, Bahawalpur Appellant
Versus
M/s Aslam Sweet Merchant, Multan Road,

Lodhran Respondent
Appellant by : Mr. Abdul Sattar Abbasi, DR
Respondent by : Qari Habib-ur-Rehman Zubari, Advocate
ORDER
These appeals by Revenue arise out of order passed by the CIT (A), Bahawalpur Zone, Bahawalpur dated 5.8.2003.
It is the departmental contention that the first appellate authority has failed to dispose off Ground No.2 filed by assessee challenging the
validity in law of assessments finalized under section 63 on 18-09-2002 when notice under section 61 was issued on 06-09-2002 for
appearance on 12.-09-2002. Reduction in estimate of sales is also contested.
According to learned DR the assessee repeatedly defaulted to the terms of notices issued under section 61 as detailed in the body of the
assessment order and final notice under section 61 was issued on 06-09-2002 for 12.09.2002. Earlier a show cause notice under section
62 had also been issued on 09-04-2002 indicating
ITA No.4666/LB/2003 etc.
-2-
intention to finalize net income at Rs.1,22,500/- and Rs.140,000/- for the assessment years 2000-01 and 2001-02 and that notice too
remained un-complied with. Under the circumstances the assessing officer finalized assessments ex-parte at the figure for total income
confronted to the assessee. Admittedly the consolidated assessment order for the two years is dated 18-09-2002 which is not the date
cited in the final notice issued under section 61. However, it is the DR’s contention that passing of formal order on 18-09-2002 when
default under section 61 has indeed occurred albeit on 12-09-2002 will not invalidate the assessments made. Moreover, the persistent
default on assessee’s part would appear to indicate a deliberate intention to avoid appearance before the assessing officer and to get the
assessments finalized ex-parte. In the case of turnover estimated, the learned DR emphasises that notice under section 62 issued on 09-
04-2002 duly confronted the assessee with an intended estimate of sales of Rs.700,000/- and Rs.800,000/- in the two years respectively.
The assessee having failed to respond to the notice under section 62 also an adverse inference was statedly rightly drawn and the CIT (A)
has un-justifiably reduced the assessed sales on sheerowever, the preHowev whim.
AR of assessee / respondent emphasis that finalization of assessments ex-parte on a date later than that intimated to the assessee in the
final notice under section 61 has been held by the Tribunal to be illegal in a number of judgments. That being so, it is contended that the
assessments for the two years were liable to be treated as un-tenable in law on this score alone. As for as the relief
ITA No.4666/LB/2003 etc
-3-
accorded by the CIT (A), it is argued that the same was fair and reasonable and the department should have no objection on the matter.
I have heard both sides and have examined the available record and in my considered judgment default under section 61 is patent.
Notices under section 61 have been issued on as many as six occasions. In the case of notice under section 61 issued on 09-04-2002 for
17-04-2002, the assessee sought adjournment for 23-04-2002 and the same was granted by the assessing officer. However, on the due
date there was no compliance. Looking at the matter in its entirety, it appears to me that default under section 61 is patent and persistent
and appears to be deliberately contrived to force the assessing officer’s hand and gain un-warranted benefit in appeal. The assessee has
defaulted not only in the case of notices issued under section 61 on as many as six occasions but has also failed to respond to notice
under section 62 issued on -09-04-2002. The ambient circumstances are thus very compelling and lead to the inescapable conclusion that
the assessee has deliberately avoided appearance before the assessing officer. As for finalization of assessments under section 63 on 18-
09-2002 as against final notice under section 61 issued for 12-09-2002 I find that judgments of the Lahore High Court (1996-PTD-1125 &
PLD-1975-Lah-893) lend strong support to the validity of the assessing officers action In these two judgments the High Court has held
unequivocally that finalization of assessment exparte on a date later than the date for which final notice for appearance had been issued
ITA No.4666/LB/2003 etc
-4-
was not illegal provided default on the due date was established. As the facts and circumstances in the cited judgment of the High Court
are broadly similar to assessee’s case these judgments must prevail and any contrary decision recorded by the ITAT is required to be
ignored. Ex-parte assessments finalized for assessment years 2000-01 and 2001-02 on 18-09-2002 as against notice under section 61
issued for 12.09.2002 are thus found to be in order. As for the quantum of relief accorded by the first appellate authority in the case of
sales estimates for the two years, I find that the first appellate authority has indeed acted whimsically and has reduced the assessed sales
arbitrarily in an ad-hoc manner. The proposed computation of income for the two years as confronted by the assessing officer through
notice issued under section 62 on 09-04-2002 appears to be fair and reasonable given the facts and circumstances of assessee’s case
including status of the business / nature of business etc. I will, therefore vacate the orders of the CIT (A) and re-instate the assessments as
made for the two years by the Taxation Officer.
The departmental appeals succeed.

ACCOUNTANT MEMBER

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(2004) 90 Tax 344 (Trib)

NCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH
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ITA No. 1209/LB/04
ITA No. 1210/LB/04

NTN: 19-21-TR-38364
Commissioner of Income Tax, Sialkot. Appellant
Versus
Mr. Shahid Javed, Sialkot. Respondent
Appellant by : Mr. Abdul Sattar Abbasi, DR
Respondent by : Mr. Ahmad Shuja Khan, Adv.
ORDER
These appeals by Revenue arise out of order passed by the CIT(A), Sialkot dated 05-12-2003.
2. It is the departmental contention that the CIT(A) has unjustifiably directed that share income of assessee (an individual) from AOP
in which he is member not be clubbed with the assessee’s share income from property for rate purposes on the ground that income of the
AOP in question is covered by the provisions of section 80-CC [presumptive regime] and tax withheld u/s 50 (5A) of the I.T. Ordinance,
1979 (since repealed) constitutes its final discharge of income tax liability.
3. According to the DR, the CIT(A) view regarding assessee’s share from AOP is misconceived for the reason that the assessee,
besides enjoying share income from the said AOP, also is in receipt
(2) ITA No. 1209-1210/LB/04
of rental income from property which income is admittedly taxable u/s 19 of the I.T. Ordinance, 1979. That being so assessee’s share
income from AOP has rightly been included in the assessee’s total income for rate purposes, as provided in proviso to clause (110), Part-I
of the Second Schedule to the I.T. Ordinance, 1979. Furthermore, the DR has pointed out that per the provisions of clause (111A), Part-I
of the Second Schedule, only assessee’s share income from a registered firm placed in the presumptive tax regime within the purview of
section 80-C or section 80-CC, qualifies for exemption and is not to be included in the assessee’s total income even for rate purposes
when the assessee has other income besides such share income. In the case of the present assessee, it is emphasized that not only does
the assessee receive rental income from property but also derives share income from an AOP placed in the presumptive tax regime and
not from a registered firm. It is argued that if it was the intention of the legislature to also exempt such share income from AOP even for
rate purposes then the law would have so provided as it has done in the case of share income from registered firm covered by the
provisions of section 80-C / 80-CC [vide clause (111A)].
4. AR of assessee / respondent strongly contests the submissions as made by the DR and argues that all entities placed in the
presumptive tax regime [such as the assessee who is an exporter and enjoys exclusive income from this source only / section 80-CC]are
immune from any additional taxation in any guise whatsoever when they are subject to tax withholding u/s 80-C/
(3) ITA No. 1209-1210/LB/04
80-CC. The learned AR emphasis that section 80-C starts with a non obstante clause [ “notwithstanding” any thing contained in this
Ordinance ……….] that highlights the fact that the provisions i.e. [sections 80-C / 80-CC] has primacy over all other provisions of the
Ordinance and will hence override all other provisions of the Ordinance. Thus, according to the AR, there can be no levy of additional
taxation on the AOP, directly or indirectly, even by including share income from AOP in the assessee’s total income for rate purposes as
the assessee is a member of the AOP and such inclusion of share income from AOP in the assessee’s total income would lead to an
additional tax burden on the AOP albeit in an indirect manner. The AR submits that clauses (110) & (111A), Part-I of the Second Schedule
only clarify the limits to exemption from levy of income tax but he reiterates that these provisions cannot be interpreted in a manner as to
justify, including share income from AOP in the total income of the assessee. Finally, the AR argues that CBR through circular instructions
issued to its field officers has directed that even share income from RF whose income falls within the purview of section 80-CC, [being a
exporter], is not to be included in the total income of an assessee [individual] who is a partner in such registered firm. Case law has also
been cited in this context viz: 2000-PTD-2173 ; (1992) 66 Tax page 70 (statutes).
5. In the view of the AR therefore, the relief as accorded by the CIT(A) is consistent with statutory stipulation.
6. I have heard both sides and have examined the available record and in my considered judgment, no exception can be taken
(4) ITA No. 1209-1210/LB/04
to the relief as accorded by the CIT(A) as it is indeed consistent with express statutory stipulation. The AOP in question enjoying income
exclusively as exporter is placed in the presumptive tax regime within the purview of the provisions of section 80-CC of the I.T. Ordinance,
1979. Tax and income tax withheld u/s 50 (5A) amounts to final discharge of the AOP’s tax liability and the AOP cannot be burdened,
directly or indirectly with any additional taxation in any guise or manner such as it would be burdened if part of its income were included in
the total income of one of its members even for rate purposes. The one exception however would be when such assessee has income in
excess of the imputed presumptive income [arrived at on work back basis] and is not able to satisfactorily explain the same then the
excess income over presumptive income is indeed liable to levy of income tax as held in [(2003) 87 Tax 8 (trib)] and [(2004) 89 Tax 509
(trib)].
7. The departmental appeals are rejected.


ACCOUNTANT MEMBER
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(2004) 90 Tax 346 (Trib)
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MA No. 662/LB/03
NTN: 19-02-0391558
Mr. Irfan Farooq C/o Prestige Surgical

(Pvt) Limited, Sialkot. Applicant
Versus
DCIT/WT, Circle –02, Sialkot. Respondent
Applicant by : Mr. Shafqat Mehmood Chohan, Adv.
Respondent by : Dr. Abdul Sattar Abbasi, DR
ORDER
This misc. application by an individual is for recall of Tribunal’s order bearing WTA No. 1276/LB/02 (Assessment Year 2000-01)
dated 15-08-2003.
2. As per applicant, the judgment as passed by the Tribunal is in conflict with the judgment allegedly announced in Court on 13-08-
2003 when, as per affidavit filed by the assessee, the Tribunal had, statedly, rejected the departmental appeal. Further, according to the
applicant, the aforecited order of the Tribunal is erroneous insofar as the facts of applicant’s case have not been properly appreciated and
reliance has wrongly been placed on Supreme Court of Pakistan judgment cited as [1964 PLD 456] and the applicant has been wrongly
cited as “co-owner” in plot measuring 34 Kanals (680-marlas) at Zafar Ali Road, Sialkot Cantt, in which assessee’s share had been
determined at 85 marlas & has been appraised for purposes of levy of wealth tax by
(2) MA No. 662/LB/03

the assessing officer at Rs. 1,27,0000/- per marla thus aggregating total value in assessee’s hands at Rs. 10,795,000/-.
3. Briefly stated, the relevant facts in this case are that the assessee filed return of net wealth for the assessment year 2000-01 in
which assessee’s share in the plot of land referred to Supra has been duly declared at Rs. 2,50,000/-. On scrutiny of the return, the
assessing officer found the declared value to be understated and proceeded to appraise the plot as per rate schedule notified by the
District Collector, Sialkot (Sr.No.73 of the rate list) at Rs. 1,27,000/- per marla and resultantly, the total value in assessee’s case for 85
marlas came to Rs.10,795,000/-. The treatment as accorded by the assessing officer was contested by the assessee before the CWT(A)
who held that there being no mutation of the cited property in assessee’s name, therefore the said plot of land was not to be included in the
“net wealth” of the assessee as defined in section 2 (1) (16) of the Wealth Tax Act, 1963 (since repealed). Resultantly, the order of the
assessing officer was held to be not sustainable on this issue and vacated.
4. The department filed appeal before the Tribunal against the order of the CWT(A) contesting the findings as recorded by the first
appellate authority with regard to the cited property. The Tribunal vide WTA No. 1276/LB/02 (Assessment Year 2000-01) dated 15-08-
2003 disposed off the departmental appeal and after examination of various pertinent aspects pertaining to valuation of the cited property
held that the assessee was indeed the “owner”
(3) MA No. 662/LB/03

of said property and the order of the CWT (A) accordingly vacated and assessing officer’s order reinstated. In reaching the conclusion that
the assessee is “owner” of the said plot, the Tribunal has taken cognizance of the all important fact that the assessee has himself cited the
said plot in his personal wealth tax return as his immovable property and has included the same in his net wealth. Further more, the
Tribunal has noted that the assessee having made full payment to the seller and an agreement to sell having been executed and duly
registered with the sub-Registrar, Sialkot, the assessee’s rights in the said property were fully protected and reference has been made in
this context to Hon’ble Supreme Court of Pakistan judgment as recorded in the case of Mst. Ghulam Sakeena Vs. Umer Baksh and
another Civil Appeal No.66 of 1963 decided on 2nd April, 1964 and reported as PLD-1964-SC-456. Also, the Tribunal has referred to
judgment cited as 1-ITC-140 (Burma). The conclusion drawn by the Tribunal is that:
“Ownership” for purposes of levy of wealth tax under the Wealth Tax Act, 1963 (since repealed) does not have the narrow and technical
meaning that has been assigned to it by the CWT (A). It is significant that the term “owner” has not been defined in the Wealth Tax Act,
1963, and this, in our view, this is deliberate and if the law had indeed intended to define “owner” in a narrow technical sense of the word
then it would have done so. The fact that the law had not done so shows that the law never intended to give it this narrow and technical
meaning that has been wrongly held to be applicable by the CWT (A)”. (SIC)
5. The assessee has now filed misc. application in which it is contended that the Tribunal’s order was erroneous and reliance
(4) MA No. 662/LB/03
placed on cited Supreme Court of Pakistan judgment is misplaced as the said judgment allegedly did not have relevance in the context of
levy of wealth tax under the Wealth Tax Act, 1963 (since repealed). It has been further contended that the Tribunal has unjustifiably held
earlier judgments of the Tribunal cited by the assessee when arguing the main appeal to be order passed “per incurium” and according to
the applicant, the said judgments had binding force and were bound to have been followed by the Tribunal. Also, it has been pointed out
by the learned AR of the applicant that the Hon’ble Lahore High Court had restrained the assessee from any subletting of main plot and
also its alienation.
6. As pointed out Supra, the applicant has filed an affidavit with the misc. application in which it has been stated that the Tribunal on
13-08-2003, when the main appeal had come up for hearing, had rejected the departmental appeal and had so announced in open Court.
This contention of the applicant has been looked into. Applicant has been told that as per noting made in the court registers of both the
Judicial Member and Accountant Member of the Bench, there is no mention of any judgment having been announced in open Court on 13-
08-2003. Also, the Members of the Bench do not recall that had they made any such announcement nor is there any independent
corroboration thereof. After discussion of the matter, the AR of applicant submitted that in actual fact he had gathered the impression that

the departmental appeal had been rejected and he acknowledged that the Bench did not make any specific announcement regarding
(5) MA No. 662/LB/03
rejection of the departmental appeal. That being so, this part of the affidavit is rendered infructuous as it is admittedly based on a mis-
appreciation of the factual position.
7. The departmental representative has contested the submissions made by the learned AR and it is argued that the Tribunal having
taken a conscious decision as to the meaning of the term “owner”, as envisaged in wealth tax law, that firm finding could not now be
looked into afresh as it would amount to a “review” which is not permissible in law.
1. The condition precedent for any action u/s 35 of the Wealth Tax Act, 1963, is the existence of a mistake on the face of the record.
According to the learned AR of applicant such a mistake is present insofar as the Supreme Court of Pakistan judgment cited by the
Tribunal as [1964 PLD SC 456] is statedly not applicable as the facts in that particular case are different from those obtaining in the
present assessee’s ease insofar as the case of the assessee involves wealth tax assessment / appraisal of immovable property for
purposes of levy of wealth tax whereas in the cited Supreme Court judgment, question of ‘dower debt’ etc was involved. In view of the
different context of the two cases, it is contended
(6) MA No. 662/LB/03
that there is both a factual as well as a legal mistake in the main order of the Tribunal dated 15-08-2003 and hence recourse to the
provisions of section 35 of the Wealth Tax Act, 1963 (since repealed) is justified.
We have looked into the applicant’s contention and in our considered judgment, the “ratio” of the cited Supreme Court of Pakistan
judgment is fully applicable in the case of the present assessee. We have made it abundantly clear on Page-6 of Tribunal’s main order
dated 15-08-2003 that “ownership” for purposes of levy of wealth tax under the Wealth Tax Act, 1963 has a much broader scope than that
attached to it by the CWT (A). It has been pointed out that the term “owner” has not been specifically defined in the Wealth Tax Act, 1963
and this has been held to be deliberate because if the law had indeed intended to define “owner” in a narrow technical sense of the word
then it would have done so [1-ITC-140(Burma)]. We have then explained that as held by the Supreme Court of Pakistan in [PLD-1964-SC-
456], the rights of the present assessee making payment for purchase of immovable properly & who is in possession of the cited property
are fully protected notwithstanding the fact that a registered sale deed had not been executed. Thus once payment has been made and
possession handed
(7) MA No. 662/LB/03
over in the presence of a formal document viz; agreement to sell, there was no way the seller could curtail in any manner the rights of the
purchaser in the said property and there was no way any one claiming title to the said property under the seller could alter the rights of the
purchaser to the purchaser’s disadvantage. This finding of the Supreme Court of Pakistan has been found to be fully applicable in
assessee’s case, as the purchase of immovable property in assessee’s is similar insofar as plot of land had been purchased without
execution of sale deed and there is an agreement to sell, duly registered, payment has been made and possession handed over to the
assessee. As per ratio of the Supreme Court of Pakistan judgment therefore, the assessee is now, “owner” of the said plot of land under
the Wealth Tax Law.
In view of the observations recorded, we hold that reliance placed by the Tribunal on the Supreme Court of Pakistan judgment cited as
[1964 PLD SC 456] is not misplaced.
2. When the assessee has himself asserted “ownership” of the said plot of land in the Return of net wealth filed by him and when the
law protects the rights of the assessee who holds the cited property without fear of challenge from the seller or any one
(8) MA No. 662/LB/03
acting under him, there cannot, in our considered judgment, be any doubt as to the assessee being “owner” of the said property “under
wealth tax law”. In the case of the present assessee, the said plot of land is specifically cited by him in his Wealth Tax Return as his asset.
A specific value has been attached to the said asset by the assessee in the return and the asset has been included in the assessee’s net
wealth. As assessee is admittedly in possession of the plot and has made full payment to the seller and formal agreement to sell has been
executed and registered, the assessee is indeed the “owner” of the said plot “under wealth tax law”.
3. The Tribunal in WTA No. 1123/LB/00 (Assessment Year 1998-99) dated 31-07-2003 has held that the assessee is “owner” of shop
at Sadiq Plaza, for which payment at Rs. 6,83,000/- has been made and possession is admittedly with the assessee. Notwithstanding the
fact that sale deed has not been executed, it has been held that the “ambient circumstances” were compelling and clearly indicated
“constructive ownership” of the assessee in respect of the premises and although the assessee in that case said that the payment made
was only an “advance”, the Tribunal rejected that contention and held the assessee held to be “owner” of the shop. In the present
assessee’s case as well, it is asserted by
(9) MA No. 662/LB/03
the learned AR that payment made by the assessee for the plot may be treated as “advance” etc. Tribunal’s judgment WTA No.
1123/LB/00 (Assessment Year 1998-99) dated 31-07-2003 has been passed by the same Bench / Member that has passed judgment in
WTA No. 1276/LB/02 (Assessment Year 2000-01) dated 15-08-2003. Precedent law of the Bench itself is of considerable significance and
cannot be ignored by the Bench.
4. The judgments cited by the assessee before the Tribunal have been held to be orders passed “per incurium” as the law pertaining
to meaning of “ownership” under wealth tax law has not been properly appreciated in the said judgments, as explained Supra.
5. Notwithstanding the fact that the assessee has been stopped from subletting / alienation of plot, he still, in our judgment, remains
“owner”, under wealth tax law,as explained Supra. We reiterate here that under wealth tax law the term “owner” has a broader connotation
than that ordinarily attached.
The present application is found to be devoid of any merit and is hereby rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 509/LB/2000
NTN: 07-05-1708124
Safa Rice Mills Limited, Lahore. Appellant
Versus
DCIT, Circle – 05, C. Zone – I, Lahore. Respondent
Appellant by : Mr. Anwar-ul-Haq, ADV.
Respondent by : Mr. Javed-ur-Rehman, DR
ITA No. 258/LB/2000

DCIT, Circle – 05, C. Zone – I, Lahore. Appellant
Versus
Safa Rice Mills Limited, Lahore. Respondent
Appellant by : Mr. Javed-ur-Rehman, DR

Respondent by : Mr. Anwar-ul-Haq, ADV.
ORDER
These cross appeals have been filed by Revenue and assessee, a private limited company, are directed against order of the CIT
(A) Zone-I, Lahore, dated 05-11-1999.
2. It is the assessee’s contention that the CIT(A) has wrongly maintained the order passed u/s 12(5) / (6) of the Finance Act 1991,
levying C A T and addl tax u/s 12(8) for delayed payment of CAT.
3. The facts in this case are that the Balance Sheet of the company as on 31-8-91 cited Fixed Assets of Rs 62124000 comprising
operating assets of the value of Rs 2211000 and capital work in progress at Rs 59913000.The assessee company admittedly
(2) ITA No. 509-528/LB/2000
did not file CAT return by the due date and notice u/s 12(4) of the FA 1991 was issued on 20-8-98 and matter pertaining to levy of CAT
discussed with AR of the assessee company. The company denied it’s liability to pay CAT because it’s Fixed Assets were statedly only Rs
2211000 – much below the threshold of Rs 50 million laid down in law for CAT levy. The assessee argued before the DCIT that although
the company had imported machinery of the value of Rs 48834000 the same was allegedly not installed till 31-8-91 and was not therefore
relevant for purposes of determining company’s liability to pay CAT. It was further argued that the capital work in progress cited in the
balance sheet was statedly inclusive of unallocated pre-production expenses amounting to Rs 10905000 and pre-production financial
expenses of Rs 94000 which were allegedly not part of fixed assets liable to CAT levy.
4. The DCIT looked into the submissions made by the assessee company and determined that operating fixed assets (Rs 2211000),
plant & machinery (Rs 52822000) and civil works (Rs 7091000) out of the company’s total fixed assets as on 31-8-91 were in the
aggregate in excess of the threshold of Rs 50 million and the company was therefore liable to CAT Levy. The company was also
separately found liable to pay addl tax for delayed payment ( by 2535 days) of CAT.
5. Before the CIT(A) the assessee company contested the findings as recorded by the DCIT and reiterated it’s contention that capital
work in progress was not to be included in fixed assets as the imported machinery had not been installed by 31-8-91 and was therefore not
operational and hence could not be taken into account for purposes of ascertaining liability to CAT. The CIT(A) duly considered appellant’s
arguments and found the same to be misconceived and referred to tribunals order (ITA No 1872\LB\97 (AY 92-93) dated 26-5-98 ) in
which it had been held that capital work in progress was to be included in “fixed assets” for purposes of CAT.
(3) ITA No. 509-528/LB/2000

6. Before the tribunal the assessee has challenged the jurisdiction of the DCIT /DCWT to levy CAT and it is argued that a separate
order conferring specific jurisdiction in CAT cases was required to be passed and in the absence of such an order, the DCIT/DCWT was
not competent to levy CAT. On merits, the AR argues that the assessment as made in the present case vide order dated 23/2/98 was “time
barred”. According to the AR, although no limitation of time for issuance of notice for filing CAT Return had been specified in the finance
Act 1991, however it is contended that since CAT law was linked to wealth tax law for purposes of recovery etc, the time limitation laid
down in the wealth tax act (5 years) was also applicable in CAT cases and by this criteria, the time limitation expired on 30-6-98 and
consequentially the notice issued by the DCIT u/s 12(4) of the finance act 1991 on 20-8-98 calling for filing of CAT return was allegedly out
of time and the assessment made on 23-2-99, time barred. Alternately, the AR argues that since no time limitation is laid down in specific
terms for issueing notice for filing of CAT Return, therefore under the law, “reasonable time” only could be allowed to revenue to issue
formal notice u/s 12(4) calling an assessee/company to file CAT Return and such “reasonable time” should not exceed 90 days – as in the
case of WWF.
7. Grounds other than those cited Supra have not been pressed/argued by the assessee.
8. The department assails the deletion of additional tax amounting to Rs.8,36,055/- by the CIT (A) as unjustified. The first appellate
authority has deleted charge of additional tax relying on earlier judgement of the Tribunal holding that due to repetition issue of misleading

and ambiguous circulars by the CBR on the levy of CAT, confusion has been created in the minds of the taxpayers (ITA No. 1872/LB/97,
asst. year 1992-93 dated 26-05-1998). That being so, charge of additional tax has been deleted as well. In our view, the CIT (A)
adjudication on the matter is well founded and no interference is called for by the Tribunal. The departmental is therefore rejected.
(4) ITA No. 509-528/LB/2000
9. The DR has been heard.
10. We have heard both sides and have examined the available record.
11. In our considered view, the DCIT who is also the DCWT is fully competent to levy CAT in cases of companies in his charge.
Although there is no wealth tax on companies, nevertheless company director’s are subject to charge of wealth tax where their net wealth
exceeds Rs 10,00,000 and where a company is placed in the charge of a DCIT for purposes of income tax assessment, that company
would also fall in his charge for purposes of levy of CAT notwithstanding that CAT is linked to wealth tax law and not income tax law,
jurisdiction is not required to be conferred on the DCIT separately in respect of CAT cases as contended by the AR. CAT cases all over
Pakistan have been assessed by the DCIT who is also the DCWT. Although CAT law is linked to wealth tax law on grounds of expediency,
it’s similarity to wealth tax law is only superficial. While wealth tax is the charge on the net wealth of an individual, CAT is a levy on the
Fixed Assets (only ) of a corporate entity. However since CAT is a direct tax it is to be administered (assessed and collected) by the same
functionary (ie DCIT/DCWT) who holds jurisdiction over the company for purposes of assessment and levy of income tax.It would make no
difference at all if the directors of that company are not subject to levy of wealth tax and the company would be subject to levy of CAT if it’s
fixed assets are in excess of Rs 50 million in value as on the date that it’s balance sheet is drawn up relevant to assessment year 1991-92.
12. Coming now to the question of time limitation. In our view, CAT is a unique one time levy and the law envisages it’s assessment
and collection under all circumstances, where the fixed assets of a company exceed Rs 50 million in value and the legislature, in it’s
wisdom, has deliberately not laid down any time limitation for calling of CAT return in cases where the same is not filed voluntarily by the
due date. As pointed out above, the similarity with wealth tax law is only superficial. There is therefore no reason at all why
(5) ITA No. 509-528/LB/2000
the time limitation laid down in wealth tax law ( a regular statute) must apply in CAT cases as well. Only those provisions in the wealth tax
act ( such as those pertaining to collection) are to apply in CAT cases that are specifically referred to in the Finance Act 1991 provisions
governing CAT. There is no sanction in CAT law for all wealth tax provisions to be applicable in CAT cases. Similarly, WWF levy is not
relevant to CAT. WWF, like wealth tax, is levied on a regular basis through a separate statute. Any limitation of time found relevant to
WWF levy need not apply to CAT cases.
13. For the reasons recorded Supra, we find that the appellants grounds relating to jurisdiction of the DCIT/DCWT and time limitation
for issueing notice to file CAT return are misconceived in law and are hereby rejected.
14. The tribunal in its decisions cited as ITA NO\897\LB\98\ (AY 92-93) (Full Bench) dated 30-11-99 and ITA No 897\LB\98 (AY 92-93)
dated 23-2-2000 (Division Bench) has already held that “Work in progress” is very much part of “Fixed Assets”, as are “non operating”
Fixed Assets and “unallocated capital expenses”. Furthermore, levy of penalty/addl tax has been held to be not leviable under CAT as the
CBR had issued multiple circulars pertaining to CAT levy that had created confusion in the mind of taxpayers. (ITA 1872\LB\97 (AY 92-93)
dated 26-5-98).

ACCOUNTANT MEMBER
(RASHEED AHMAD SHEIKH)
JUDICIAL MEMBER Back to TOC


Back to TOC
ITA No. 3857/LB/2001
NTN: 05-05-New
Sh. Ahsan Ali, 32-PS, ACM, Lahore. Appellant
Versus
IAC, Range – III, Zone – A, Lahore. Respondent
Appellant by : Mr. Shahbaz Butt, Adv.
Respondent by : Mr. Mehmood Jaffery, DR
ORDER
This appeal by the assessee, an individual, arises out of order passed by the IAC in exercise of revisionary jurisdiction u/s 66A of
the IT Ord’79 (since repealed).
2. The bare facts in this case are that assessment has been finalized u/s 59A for the asstt year 2000-01 on 26 July, 2001 when the
assessee had filed Return of Income voluntarily u/s 55(1) by the due date. The assessee had declared total income for the year at Rs.
1,53,650/- as a “new assessee” and had declared capital at Rs.17,07,650/-. The assessing officer had “accepted” assessee’s Return u/s
59A on 26 July, 2001 and a “No demand “ Notice alongwith Form IT-30 had been issued accordingly. However no separate “written Order”
of assessment u/s 59A had been issued.
3. On inspection of assessment record, the IAC had held that the Return did not qualify to be “accepted” as the total income declared
was less than 1/3rd the capital declared for the year thus
(2) ITA No. 3857/LB/2001
violating the express stipulation obtaining in para 2 (vi) of the self assessment scheme for 2000-01. He then issued a show cause notice to
the assessee calling on him to explain why the assessment should not be cancelled u/s 66A. The AR of assessee filed a written reply and
explained that as the assessment had been made u/s 59A and not u/s 59(1) the IAC did not have jurisdiction to invoke the provisions of
section 66A as these provisions could only be invoked in the case of assessments that had been finalized u/s 59(1)/SAS while assessment
in assessee’s case had been finalized u/s 59A. The AR also argued that as assessment had been finalized in assessee’s case on 26 July
2001, section 59A was “bound” to be invoked as the deadline for finalization of assessment u/s 59(1) had expired on 30-06-2001, per the
provisions of section 59(4) read with proviso thereto. The reply was duly considered by the IAC and rejected and the IAC then passed
order u/s 66A canceling the assessment u/s 59A and directing that fresh assessment be made in accordance with law. Apparently the IAC
held the assessment made u/s 59A to be erroneous and prejudicial to the interest of revenue as the total income declared was less than
1/3rd the capital declared, as mandated in the Self Assessment Scheme for 2000-01 in the case of a ‘new assessee’ filing Return u/s 55(1)
by the due date.
4. Before the tribunal the AR of appellant has reiterated his earlier contention made before the IAC. In the AR’s view the provisions of
section 59A are qualitatively quite different from the provisions of section 59(1) and the exercise of revisionary jurisdiction is not possible in
the case of an assessment made u/s 59A.
(3) ITA No. 3857/LB/2001
5. Furthermore, the AR of appellant has emphasized that no “written Order” has been passed u/s 59A and in the absence of a “written
order” there can be no exercise of revisionary jurisdiction u/s 66A. Additionally, the AR deposed before the tribunal that the appellant had
not filed the return under the self assessment scheme and thus there was no reason that the return be appraised in the light of parameters
stipulated in the SAS for 2000-01.Finally, the AR emphasized that the deptt could not now say that the return had infact been processed
under self assessment provisions as, per the provisions of section 59(4), assessment u/s 59(1) could only have been made by 30th june
2001 whereas in assessee’s case the assessment had been made on 26 July 2001.
6. The AR of appellant has referred to the following case law:

(2003) 87 Tax 545 (Trib)
(2001) 84 Tax 45 (Trib)
(2003) 88 Tax 50 (HC. Lah) ‘
(1976) 33 Tax 285 (Kar)
(1991) PTD (Trib) 812
7. The DR argued that the provisions of section 66A had been rightly invoked as the total income declared as per return was less than
1/3rd the capital declared – as a new assessee- thus violating the express stipulation made in para 2 (vi) of the self assessment scheme
for 2000-01 and resultantly it is contended that the assessment made is rendered both erroneous as well as prejudicial to the interest of
revenue and it is so expressly stated in the IAC’s order u/s 66A. There is thus no defect of law & procedure in the IAC’s order.
(4) ITA No. 3857/LB/2001
8. We have heard both sides and have examined the available record and have also perused the case law cited and our findings are
recorded as under:
1. Prima facie, the AR of appellant is patently wrong in his view that as per the provisions of section 59(4) assessment in assessee’s
case could not possibly have been finalized u/s 59(1). This is evident from the fact that sub-section (4) of section 59 was not on the
statute in the period 1st july 2000 to 30th June 2001 (ie assessment year 2000-01) and the limitation laid down therein was thus not
effective in this period. It appears from the ambient circumstances that the assessing officer was also labouring under this
misconception when he finalized assessment u/s 59A. As the 30th June deadline had, in the ITO’s (erroneous) view, expired when he
took up assessment in assessee’s case in July, 2001, therefore, the ITO felt compelled to finalize proceedings u/s 59A and not u/s 59
(1).

2. Before the IAC the assessee never stated that return for 2000-01 had not been filed under self assessment law. Even in the
Grounds filed before the Tribunal there is no express assertion to this effect and it is only while making his oral arguments before
the tribunal that the AR has taken this stance. Apparently the AR is laboring to establish that the return for 2000-01 is outside the
purview of the self assessment scheme. From the ambient circumstances it is clear that this is a belated assertion contrived
artificially to
(5) ITA No. 3857/LB/2001
derive unwarranted benefit. Very importantly, the assessee’s AR’s repeated reference to the provisions of section 59(4)
make it all too evident that the return had in fact been filed under self assessment law as section 59(4) is expressely
concerned with the processing of self assessment returns and not with normal law returns.
3. All returns filed voluntarily u/s 55(1) by the “ due date” are to be treated as self assessment returns UNLESS there be a specific
reason to treat the return otherwise. In assessee’s case there is no indication whatsoever that it is not a return filed under self
assessment law and the assessee made no submission in this regard when the IAC issued show cause notice u/s 66A. The
conclusion is therefore inescapable that this is a self assessment return and is required to be processed u/s 59 (1) unless it stood
disqualified under the law. The ITO should have straight away rejected the return under SAS as the total income declared was not
consistent with the express stipulation made in the SAS for 2000-01 that where “capital” declared by a new assessee the total
income declared should be at least 1/3rd the amount of cited capital. In assessee’s case this was not so. Also, the assessee had not
appended particulars of sources of investment which too is a mandatory requirement under the SAS for 2000-01. Thus assessee’s
return should have been taken up for normal law assessment and a probe made regarding sources of investment. However, having
failed to find any defect in
(6) ITA No. 3857/LB/2001
assessee’s return, under self assessment law, the ITO should then have finalized assessment u/s 59 (1) and he was not bound to
do so by 30-06-2001 as the provisions of section 59 (4) had been omitted from the statute in assessment year 2000-01.
4. Section 59A is not concerned with the processing of self assessment returns at all. Where a return qualifies under self assessment
law, it is bound to be processed u/s 59 (1). Where the return does not qualify it is to be taken up for assessment under normal law.
Such a return is not to be processed u/s 59A. Only such returns as have not been filed under self assessment law ( viz a return filed
u/s 57) can be taken be taken up for assessment u/s 59A. As return filed by the assessee is to all intents and purposes a self
assessment return the order passed u/s 59A is required to be treated as an order u/s 59(1) as the ITO has accepted a self
assessment return which he could only have done if the return duly qualified under SAS. In other words as the ITO considered
assessee’s return to be free of all disqualifications listed in the SAS for 2000-01, “acceptance” of such a return could only have been
made u/s 59 (1) and not u/s 59A.
5. Assessee’s AR’s contention that the provisions of section 66A cannot be brought into play in the absence of a “written order” of
assessment’ has been looked into and in our judgment this too has no force as following his “acceptance” of assessee’s return for
2000-01 u/s 59A [which as explained
(7) ITA No. 3857/LB/2001
Supra is actually an order u/s 59(1)] and issuance of a ‘No Demand Notice’ and Form IT-30, the assessing officer is ‘deemed’ to
have passed an Order u/s 59(1) just as for any other assessment year where the provisions of section 59(4) are operative the ITO is
deemed to have passed an order u/s 59(1) on 30th june next following the income year in respect of which a return has been filed
u/s 55(1) where no assessment is made by 30th june. It has been held by the Tribunal in reported judgment cited as 2001-84-Tax-
45 that that such deemed order is at par with a written order. It may also be pointed out here that in amendment made in
section 59(4) proviso through Finance Act 1995 it has been expressly laid down that the printed Acknowledgement given
when the self assessment return is handed in is to constitute an assessment order and demand notice. That being so the
provisions of section 66A can certainly be invoked with reference to such deemed order u/s 59A [which, as explained Supra is
actually an order u/s 59(1)] as section 66A refers to ‘ any order’ under the ordinance where such order is found to be erroneous
insofar as it is prejudicial to the interest of revenue. In the case of the present of the present assessee it is all too clear that the
assessee filed return u/s 55(1) voluntarily by the due date as a ‘new assessee’ AND declared Capital in the wealth statement
appended with the return. However the total income declared in the return was much less than 1/3rd of the capital declaration. As
the return was to all intents and
(8) ITA No. 3857/LB/2001
purposes a self assessment return and was to be so treated in the absence of any explicit assertion to the contrary by the
assessee the said return could only have been “accepted” by the assessing officer at the returned figure if it met ALL the
conditionalities stipulated in the self assessment scheme for the year. Assessee does not meet the conditionality with regard to
quantum of income vis a vis quantum capital declared by a new assessee. Additionally, the assessee has not rendered any
explanation with regard to sources of capital which was also mandatory under the self assessment scheme for 2000-01. There was
thus no justification for ‘acceptance’ of such a patently erroneous /defective return that was also prejudicial to the interest of revenue
as higher tax would have been realized if the return had been correctly filed as per the parameters laid down in the self assessment
scheme for the year.
6. The case law cited has been looked into and is found to be of no avail to the assessee. ITAT judgment cited as 1991-PTD-812 does
not relate to assessments finalized under section 59(1) / 59A. The absence of a written Order in assessments “other than those
finalized under self assessment law” after amendment in section 59(1) proviso through Finance Act, 1995 would certainly be fatal to
any action taken under section 66A. However this is not so in the case presently before us. Similarly with regard to judgement cited
as 1976-33 TAX 285 (HC Kar). This judgement too precedes promulgation of self assessment law.
(9) ITA No. 3857/LB/2001
- Judgment cited as 2003-88-TAX-50 (HC LAH) deals with reopening of already completed assessment under section 59(1)
which is clearly not the case here. Very importantly , it is explained in this judgement that “…. In absence of
assessment order in writing till addition of proviso by Finance Act No 1 of 1995 dated 2-7-1995 in section 59(1) no
additional assessment could be framed unless order sought to be reopened was assessment order in writing under
any of provisions of late ordinance”. The case of the present assessee falls in assessment year 2000-01 which is well
after above amendment in law and the implications of same quite obviously favor of revenue.
- Judgment cited as 2001-84 TAX 45 (Trib) records the very important observation that “………… “Order” would include a
deemed order unless the law specifically excluded the same.” (para 5 page 48). In the present appeal this clealy helps
revenue’s case. Also in the case of the present assessee, prejudice to revenue is patent given the clear violation of self
assessment conditionality with regard to quantum of income vis a vis quantum of capital. In the appellant’s case this is not
so.
- Judgment cited as 2003-87 TAX 545 Trib is a ‘per incurium’ judgement as it fails to take cognizance of the fact that a
‘deemed’ order u/s 59 (1) is at par with a
(10) ITA No. 3857/LB/2001
written order. As explained Supra, the order passed u/s 59A in the case of the present assessee is required to be treated as
an order passed u/s 59 (1) and the ratio of order cited as 2001-84-Tax-45 (Trib) is thus fully applicable here.

9 For the reasons recorded Supra we hold that no exception can be taken to the exercise of revisionary jurisdiction by the IAC
as the (deemed) Order acted upon is both erroneous and prejudicial to the interest of revenue.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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MA No. 264/LB/04
MA No. 265/LB/04
MA No. 266/LB/04
MA No. 267/LB/04
MA No. 268/LB/04
NTN: 05-21-1137842
Paisa Akhbar Markaz, 10-Paisa Akhbar, Anarkali, Lhr. Applicant
Versus
Taxation Officer, Circle – 14, Coys. Zone – II, Lahore. Respondent
Applicant by : Ch. Anwar-ul-Haq, Adv.
Respondent by : Mr. Bashir Ahmad Shad, DR
ORDER
These miscellaneous applications are for “rectification” of Tribunals Order bearing ITA No’s. 3811 to 3815/LB/97 (Assessment Years
1989-90 to 1993-94) dated 23-06-2000 on the grounds that :
i. That the assessment order dated 28-11-1994 u/s 62 in the hands of legal heirs (AOP) of (late) Aftab Alam had attained
finality prior to the passing of order dated 23-06-2000, as the same was never rectified in terms of order 05-06-1997 u/s
66-A.
ii. That in addition to the aforesaid order, in consequence of notice dated 24-10-1993 u/s 56 for the subject assessment
year issued to another alleged member of AOP Dr. Jehangir Alam by the respondent, he under protest filed the income
tax return with the remarks that “original already filed and assessed under NTN 06-03-1430525” and
(2) MA No. 264 to 268/LB/04
vide letter dated 18-09-1996 he further submitted that he is an existing assessee of Circle 15, Companies Zone-I,
Lahore. But none of his assessment orders already passed at the said NTN was neither cancelled nor any objection
was made in this regard by the respondent. Hence, the investment made and income earned by him from the said
plaza also attained finality.
iii. That since the assessments of two aforesaid persons alleged members of AOP wherein their investments and income
out of aforesaid property have attained finality and thus the same investment / income could not be again assessed in
the hands of AOP as separate entity. Hence, the order u/s 66-A was liable to be cancelled being illegal, without lawful
jurisdiction and discriminatory.
iv. That neither any of the legal heirs of (late) Aftab Alam including the applicant was impleaded as necessary party to the
proceeding u/s 66-A of the repealed Ordinance nor they were served with any notice, despite the fact, the death of
Aftab Alam was acknowledged in the assessment order dated 28-11-1994 u/s 62 in the hands of the legal heirs. Hence,
the order dated 05-06-1997 u/s 66A with out impleading the legal heir of said deceased person is of no legal effect.
v. That the assessing officer while exercising his exclusive jurisdiction has rightly opt to assess the property in the hands
of the individuals and the said jurisdiction regarding assign of status was only in the domain of the assessing officer.
Thus, the direction of the learned IAC to the assessing officer for assessment of the property in the hands of the AOP is
illegal, without jurisdiction even merely disagreement of the officers and therefore invoking of jurisdiction u/s 66A was of
no legal effect.
2. According to the applicant the so called “errors” pointed out in Tribunals afore cited order are prima facie, manifest and self evident
and hence intervention u/s 156 of the (repealed) Income tax ordinance 1979 is called for as a remedial measure.
(3) MA No. 264 to 268/LB/04
3. At the very outset the Bench directed the learned AR of applicant to point out where in the original order passed by the Tribunal the
said “errors” had occurred. The AR was unable to point out specifically where in the Tribunal’s order the so called “errors” had occurred.
Rather the AR launched a lengthy “explanation” on various aspects of the appeal filed by assessee against the order of the IAC u/s 66A of
the (repealed) I.T. ordinance ’79 that statedly found no comment in the Tribunals order disposing off assessee’s appeal and this alleged
“lapse” on the part of the Tribunal necessitated action u/s 156 in order to plug the various alleged legal and factual loopholes in Tribunal’s
impugned order. Furthermore, in his oral deposition before the Tribunal the AR “explained” that Grounds (2) and (3) in the Grounds filed by
assessee before the Tribunal in assessee’s appeal against the order of the IAC u/s 66A had allegedly not been disposed off by the
Tribunal in it’s impugned order and these Grounds are required to be now taken up and properly disposed off and this can only be done by

amending the impugned order.
4. AR of appellant has also deposed before the tribunal that the miscellaneous applications now before the Tribunal appear to have
been deemed to be accepted by operation of law as the applications having been filed on 29-04-2004 when the tribunal’s Order is dated
23-06-2000 were allegedly required to be taken up for ‘rectification purposes’ by 22-06-2004 -ie within four years of the date of Tribunal’s
Order sought to be ‘rectified’ -as per provisions of section 156(4) of the repealed Ord. As this was not done, the
(4) MA No. 264 to 268/LB/04
applications are therefore, according to the applicant, allegedly required by law to be treated as “accepted.”
5. A 27 page stack of documents has been appended by the applicant alongwith the applications for perusal. Additionally, case law
text , including judgment (2004 PTD 330) not available when the Tribunal heard assessee’s appeals against the IAC’s Order u/s 66A, is
also attached for perusal.
6. The following “case law” has been referred to by the applicant:
2004 PTD 330 (KHC); (1990 ) 186 ITR 0339;

(1992) 197 ITR 0321; (1991) 191 ITR 0077;
7. The DR has taken strong exception to the applicant’s Grounds and submits that these (a) do not properly arise out of the
Tribunal’s impugned order (b) are argumentative and , most importantly, (c) none of the so called “mistakes” are evident on the face of the
impugned order. Resultantly, the DR argues that the applications filed are not competent and no rectification is therefore permissible. As
for the AR’s oral deposition, the DR submits that assessee’s Grounds (2) and (3) against the IAC’s Order u/s 66A have indeed been
disposed off by the Tribunal in paragraphs (26), (27) and (28) of it’s impugned order and the AR’s contention in this context is not correct.
As regards the case law referred to by applicant, the DR submits that “the relevant case” cited before the Tribunal when the assessee
argued it’s appeals against the IAC’s Order u/s 66A law has been duly taken into account by the Tribunal in it’s impugned order.
(5) MA No. 264 to 268/LB/04
8. We have heard both sides and have examined the available record and perused the case law referred to and in our considered
judgment the present applications are barred from adjudication as they violate the strict criteria laid down by the Honorable Supreme Court
of Pakistan in CIT Companies-II, Karachi Vs National Food Laboratories (1991 SCC 869) whereby only such mistakes can be taken up for
rectification as are patent and can reasonably be seen as “floating on the surface of the record.” Disposal of the present applications
necessitates extensive research, enquiry and much, possibly, highly contentious debate which in the context of “rectification” is expressly
forbidden by the Apex Court. We are satisfied that all Grounds taken up by the assessee against the IAC’s Order u/s 66A have indeed
been properly disposed off by the Tribunal in it’s impugned order and no Ground remains undisposed.
9. With regard to case law now cited by applicant before us, we find that the applicable case law has duly been considered by the
Tribunal in it’s impugned order.
10. Coming now to the matter pertaining to limitation u/s 156(4), we have looked into the matter and we find that the applicant’s
contention is wholly misconceived. We note here that no proceedings u/s 156 were “pending” till 30-06-2001. Although the assessee had
duly received copy of Tribunal’s judgment disposing off assessee’s appeal against the IAC’s Order in july 2000, however no miscellaneous
application had been filed by assessee till 30-06-2001. On 01-07-2001, the I T Ord 1979 ceased to be operative and was superseded
by the I T Ord 2001 as enacted
(6) MA No. 264 to 268/LB/04
through the Finance Ordinance July 2001. The assessee chose to file miscellaneous applications against the Tribunal’s cited judgment on
29-04-2004 when in the assessee’s view limitation for action u/s 156 expired on 22-06-2004. Prima Facie, the assessee had waited till 29-
04-2004 with deliberate design so as to engineer a default u/s 156(4) and thus claim benefit perforce. This is evident from the fact that the
assessee made no attempt to advise the Tribunal that he was filing miscellaneous application at what is, in his view, the fag end of the
limitation period. Assessee’s bonafides here are clearly wholly suspect and such artificial default deliberately engineered by applicant
cannot be used to claim benefit arbitrarily. The applicants “maneuvering” must be seen as “tainted” and thus not tenable in law.
11. Furthermore, as pointed out supra, no proceedings u/s 156 were pending in assessee’s case till 30-06-2001 on which date the I. T
Ord ’79 ceased to be operative and was superseded by the I T Ord 2001. Thus the I T Ord 2001 became the “applicable law” with regard
to all matters connected to assessments made in assessee’s case including matter pertaining to rectification of Tribunal’s cited Order and
the miscellaneous applications are thus liable to be treated as applications u/s 221 of the I T Ord 2001. Had the assessee filed
miscellaneous applications for rectification of Tribunal’s cited Order by 30-06-2001 then the Tribunal was bound to have disposed these
applications by 22-06-2004 ( and these applications would then continue to be treated as applications u/s 156 of the I T Ord 1979) in order
to comply with the stipulated
(7) MA No. 264 to 268/LB/04
limitation. Now as the miscellaneous applications were filed on 29-04-2004 on which date the I T Ord 2001 was in force, limitation is to
be reckoned as per the changed law ie the I T Ord 2001 and resultantly stands extended by one year and consequently limitation would
now expire on 22-06-2005. Thus the miscellaneous applications have been taken up well in time by the Tribunal and there is clearly no
question of expiry of limitation period here.
12. The following ‘case law’ is referred to support the contention that in all matters connected with proceedings under the Income Tax
statute ( ie including rectification) the “applicable law” is the “current law” as notified through the Finance Bill:
1960-SCC 80; 1972-SCC-395; 1997-SCC-1097; (1985) 52 Tax 123 (H C Kar); 1948 (16) ITR 240; 1955 (27) ITR 709.
13. For the reasons recorded Supra, we find that no error(s) are readily discernible on the face of Tribunal’s impugned Order and
resultantly the present miscellaneous applications filed by assessee are rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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WTA No. 29/LB/03
WTA No. 30/LB/03

WTA No. 31/LB/03

NTN: 07-11-0848030
Mr. Munir Ahmed Khan, Lahore. Appellant
Versus
IAC, Range – II, Coy. Zone – I, Lahore. Respondent
Appellant by : Mr. Viqar A. Khan, FCA
ORDER
These appeals by an individual arise out of order passed by the IAC u/s 17-B of the Wealth Tax Act 1963 (since repealed) vacating
the order of the DCWT u/s 16(3) and directing that formal cognizance be taken of assessee’s patent failure to declare immoveable property
comprising 2 Kanal plot of land and house property built thereon (plot No 170-K.B. , Khanaspur,Ayubia, Distt Hazara (Hill Tract)
improvement trust, Abbottabad ) held by him at Khanaspur, Nathiagali, in Wealth Tax Returns filed for assessment years 1991-92 to 1993-
94 and penalty for concealment be levied, as provided for in law.
2. The relevant facts in this case are that the assessee has admittedly not declared above cited immoveable property standing
(2) WTA No. 29 to 31/LB/03
in his name at Khanaspur, Nathiagali and he says he has deliberately done so as the property in question is allegedly held by him ‘benami’
and the real owner of the property is identified as Syed Bhai’s (PVT) LTD. That being so, it is the appellant’s contention that as alleged
‘benamidar’ of the property in question he was not ‘liable’ to cite himself as ‘owner’ of the said property in his wealth tax returns
notwithstanding the (admitted) fact that it is the assessee who is cited as ‘owner’ of the said property in the registered sale deed duly
executed for the transaction. Furthermore, it is the appellant’s contention that no action u/s 17-B could be taken in 1991-92 as the
provisions of section 17-B were not on the statute in the period relevant to asstt year 1991-92. Also, it is the appellant’s contention that
action u/s 17-B could not have been initiated as no action u/s 17-B has been taken in asstt year 1996-97 although the non declaration of
cited immoveable property in 1996-97 is on similar lines as in asstt years 1992-92 to 1993-94. The provisions of Clause (i), Part-II of the
IInd Schedule to the Wealth Tax Act 1963 (since repealed) have been referred to in this context.
3. The appellant has referred to case law cited as (1980) 3 Supreme Court Cases 72 (India) , PLD 1975 Karachi 979, (2002) 87 Tax
32 (H.C. Lah), (2002) 86 Tax 165 (H C Lah ). Also CBR Circular instructions contained in Circular No 14 of 1959 dated 10-08-59 have
also been referred to.
4. The DR argues that it being patent that cited property has not been declared by the appellant any claim for exemption
(3) WTA No. 29 to 31/LB/03
automatically stood ousted notwithstanding the fact that the appellant says that he holds the said property as ‘benamidar.’ The appellant’s
contention is statedly belied by the fact that he holds clear title to the said property as per registered sale deed executed at the time of
purchase and also by the fact that a building site plan in appellants name was duly approved on 09-10-94.
5. Both sides have been heard, record examined and cited case law perused.
6. In our considered judgment, it is patent that action u/s 17-B for asstt year 1991-92 is not within the competence of the IAC as the
relevant provision was not then borne on the statute. The IAC’s Order u/s 17-B for 1991-92 is thus a nullity in the eye of law and is hereby
quashed.
7. As regards asstt years 1992-93 and 1993-94, we find that the appellant has not been able to establish conclusively that he is
indeed the ‘benamidar’ of Syed Bhai’s (Pvt) Ltd for the said property. The only ‘direct evidence’ referred to here is the registered sale deed
and the Building Plan and both pieces of evidence admittedly cite appellant as ‘owner’ of said property. As per the registered sale deed the
appellant admittedly holds clear title to the property and is therefore it’s ‘owner.’ The appellant has referred to ‘indirect evidence’ only to
establish that he is the ‘benamidar’ and not the actual owner Viz Balance Sheet of Syed Bhai’s (Pvt) Ltd as on 30-06-96, cash payments
for the sale of the said property allegedly received by the sellers from Syed Bhai’s (pvt) Ltd on 14-07-94 and 13-07-95 . Neither of
these two
(4) WTA No. 29 to 31/LB/03
pieces of evidence has any direct nexus with the periods relevant to asstt years 1992-93 and 1993-94 (30-06-92 & 30-06-93) - to which
periods the registered sale deed relates. It is quite obvious to us that the position obtaining in ‘subsequent years’ is being deliberately
referred to with a view to confuse and confound and not to enlighten us.
8. As for the provisions of the IInd Schedule referred to by appellant, we find that the appellant does not qualify for the said exemption
as he is guilty of concealment of an asset that is his as per law. Furthermore, action u/s 17-B in 1996-97 cannot be made a condition
precedent in order for action u/s 17-B to be taken in 1992-93 and 1993-94 when the assessee is admittedly concealing an asset in these
years that is his as per law.
9. Appellant’s contention that he was not accorded sufficient opportunity as provided for in law to explain his position before the IAC

has been looked into and found not correct. As per record show cause notice was duly served on appellant and reply filed by assessee in
response, which reply finds full mention in the IAC’s order. The requirements of ‘due process’ are clearly satisfied here.
10. For the reasons recorded supra, the appeal for 1991-92 SUCCEEDS and the appeals for 1992-93 & 1993-94 FAIL.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 5306/LB/02
ITA No. 5307/LB/02

ITA No. 5308/LB/02

NTN: 22-10-0452902
Commissioner of Income Tax, Coys. Zone –II, Lahore. Appellant
Versus
Flying Board & Paper Products Ltd, Lahore. Respondent
Appellant by : Mr. Bashir Ahmad Shad, DR
Respondent by : Mr. Zia Ullah Kiyani, Adv.
ORDER
These appeals by Revenue arise out of order passed by the CIT(A) who has cancelled the orders passed u/s 52 of the Income Tax
Ordinance, 1979 (since repealed) for the reason that three separate assessment orders u/s 52 have statedly been made in respect of
transactions falling in the period relevant to assessment year 1997-98 which is held to be not permissible in law.
2. The facts in this case are that the assessee company has, as per books of accounts, deducted an amount of Rs. 58,31,718/- u/s 50
(4) in 1997-98 and has not deposited the same in treasury within the stipulated period. When interrogated on the matter, the assessee’s
only reply was that in order passed u/s 52 on 30-04-1998, the assessee was held to be “assessee in default” in respect
(2) ITA No. 5306-5308/LB/02
of purchases aggregating Rs. 50 Millions only. That order was duly confirmed in appeal by the CIT (A) [order No. 2858 dated 13-
12-2000]. However, subsequently two more orders u/s 52 were passed dated 28-02-2000 & 12-05-2001. Order u/s 52 dated 28-02-
2000 was passed to take cognizance of tax deduction made by the assessee company in respect of purchases made from T.Z. Chemicals
Inds. (Pvt) Limited, Lahore, which tax deduction the assessee company had not been deposited in treasury within the stipulated period.
Third order u/s 52 dated 12-05-2001 has been passed to bring to collection the balance tax deducted by the assessee company u/s 50 (4)
but not deposited in treasury in the period relevant to assessment year 1997-98 i.e. Rs.24,20,220/-. Additional tax u/s 86 has also been
charged in this order for assessee’s failure to deposit the deducted tax in the treasury.
3. According to AR of appellant, the law does not permit three separate assessment orders u/s 52 in respect of the same assessment
year. The appellant does not deny that the total amount of tax deducted and not deposited in treasury is Rs.58,31,718/- referred to by the
assessing officer in his order u/s 52 dated 12-05-2001. Rather, it is the AR’s contention that whatever tax was due u/s 52 had already been
assessed vide order u/s 52 dated 30-04-1998 and no further demand could be raised subsequently, especially as the original order u/s 52
had been confirmed in appeal by the CIT (A).
4. The DR submits that there was no bar in law to the assessing officer making three separate attempts at recovery of the tax
(3) ITA No. 5306-5308/LB/02
amount deducted u/s 50 (4) by the assessee company and not deposited in treasury within the stipulated period.
5. The following case law has been referred to by the assessee:
1978 ITR 50 (HC. Mad)

1961 ITR 511 (HC. Mad)
PLD 1987 SC. 145
1990 CLC 1241
6. We have heard both sides, have perused the case law cited and our findings are recorded as under: -
1. Under the law, and as explained by the Supreme Court of Pakistan in (2002) PTD 1, where the assessee is held to be liable, the
assessing officer is bound to recover tax due u/s 50 (4) when the same has not been deducted or where the same has been
deducted but not deposited in treasury within the stipulated period – as has happened in the present assessee’s case. As per
assessee company’s accounts as on 30-06-1997, the assessee had deducted an amount of Rs.58,31,718/- against transactions
made in the period relevant to assessment year 1997-98 but had not deposited the same in treasury within the stipulated period.
Thus default on assessee company’s part is patent. The assessing officer while passing order u/s 52 dated 20-04-1998 has simply
held that the assessee was liable u/s 52 but the DCIT did not quantify the exact amount for which the assessee was held liable u/s
52.
(4) ITA No. 5306-5308/LB/02
The order u/s 52 dated 28-02-2000 has taken cognizance of assessee’s transactions with T.Z. Chemicals Inds. (Pvt) Ltd, in which
case the assessee company had made tax deduction u/s 50 (4) of Rs. 3.4 Million (odd) which was not deposited in treasury and had
been retained by the assessee company illegally. In the order u/s 52 dated 12-05-2001, the assessing officer has taken cognizance
of the balance of amount of Rs.24,20,220/- [out of total deduction of Rs.58,31,718] deducted by the assessee company u/s 50 (4)
and not deposited in treasury but retained by the assessee company illegally. Additionally, an amount of Rs.27,06,774/- has been

charged u/s 86 of the Income Tax Ordinance, 1979 (since repealed) for assessee’s patent failure to deposit the already deducted tax in
treasury and the same is also cited in the order u/s 52.
2. In our considered judgment, the assessee company by resorting to technicalities, is trying to wriggle out from its clear and
undisputed obligations under the law to deposit Rs.58,31,718/- admittedly deducted by the assessee company u/s 50 (4) in the
period relevant to assessment year 1997-98 but not deposited in treasury. No doubt, the assessing officer did not quantify precisely
the tax due u/s 52 in the Ist order passed u/s 52 dated 30-04-1998. Nevertheless, the hard fact of the matter is that the assessee
company had admittedly deducted amount of Rs. 58,31,718/- u/s 50 (4) in assessment year 1997-98 and as per the
(5) ITA No. 5306-5308/LB/02
available record, has still not deposited the said amount in treasury. This is a patent and glaring illegality committed by the
assessee company and the company cannot be granted reprieve simply because the department did not take proper cognizance of
assessee’s default in its order dated 30-04-1998. No doubt, the department should have properly quantified the amount due u/s 52
in the very first order passed u/s 52 dated 30-04-1998. However, once it is clear that the department did not properly quantify the
amount due u/s 52 in its order dated 30-04-1998 then the question arises as to how the situation can be retrieved. One solution was
to rectify the order u/s 52 dated 30-04-1998 by recourse to the provisions of section 156. However, instead of making rectification
the department chose to pass another order u/s 52 in order to demand an amount of Rs.3.4 Millions in respect of T.Z. Chemicals
Inds (Pvt) Ltd that had not been specifically demanded earlier in the order u/s 52 dated 30-04-1998. This was done by passing 2nd
order u/s 52 dated 28-02-2000. The tax being demanded u/s 52 through this 2nd order dated 28-02-2000 is well within the total tax
deducted by the assessee company upto 30-06-1997 and not deposited in treasury i.e. Rs. 58,31,718/-.
3. Under the law, where the assessee has correctly deducted tax due u/s 50 (4) but has not deposited the same in treasury, the
department cannot demand u/s 52 any amount greater than the amount so deducted by the assessee and not
(6) ITA No. 5306-5308/LB/02
deposited in treasury. However, as per law the amount that is actually due u/s 50 (4) has got to be deposited in treasury under all
circumstances. In the case of the present assessee, the department is not demanding any amount u/s 52 that is more than what the
assessee company has itself already deducted but not deposited in treasury. The tax demand raised u/s 86 is a separate charge
that is required to be compulsorily raised in view of assessee’s patent failure to deposit the deducted tax in treasury. Thus,
notwithstanding, the fact that the department has made three separate attempts to take to collection the tax withheld by the
assessee company and not deposited in treasury, the fact remains that it is the assessee company that has acted illegally by
holding on to the withheld tax and by refusing to deposit the same in treasury. Now, the assessee company is trying to take cover
behind technicalities and simply appropriate for its own use the amount of Rs.58,31,718/- deducted by the company u/s 50 (4) but
not deposited in treasury. This we do not find to be at all proper. While we do not approve of the methodology adopted by the
department to recover the outstanding demand, at the same time we cannot exempt the assessee company from depositing the
already deducted tax in treasury. By confusing matters, the assessee company is attempting to exploit the clumsy departmental
attempts at recovery of the deducted tax and thus get an unwarranted exemption from the statutory requirement to deposit the
deducted tax in treasury.
(7) ITA No. 5306-5308/LB/02
4. For the reasons recorded Supra, we hereby vacate the order of the CIT (A) and confirm orders u/s 52 dated 28-02-2000,
raising demand of Rs. 34,11,498/- and order u/s 52 dated 12-05-2001 raising demand u/s 52 amounting to Rs.24,20,220/-. These
two demands u/s 52 aggregate Rs.58,31,718/- which is equal to the total amount that the assessee company deducted u/s 50 (4) till
30-06-1997 (i.e. Rs.58,31,718) and has not deposited in treasury within the stipulated period. As for the Ist order u/s 52 dated 30-
04-1998, no demand of tax u/s 52 had actually been quantified as such in the said order. Rather, the assessing officer had only
made an observation by way of a Note to the order u/s 62, holding the assessee company to be liable u/s 52 in respect of
purchases aggregating Rs. 50 Million only. As this Ist order u/s 52 dated 30-04-1998 did not mention any specific amount of tax as
such, it cannot therefore be said to create a legitimate liability. On the other hand, the orders u/s 52 dated 28-02-2000 & 12-05-
2001, specifically refer to amounts due u/s 52. In the case of the order u/s 52 dated 28-02-2000, the amount demanded is
Rs.34,11,498/- and in the order u/s 52 dated 12-05-2001 the amount u/s 52 being demanded is Rs. 24,20,220/-. These two
amounts aggregate Rs.58,31,718/- which is precisely the amount cited in the assessee company’s accounts as on 30-06-1997.
5. Resultantly, the orders u/s 52 dated 28-02-2000 and 12-05-2001 are found to demand the correct amount of
(8) ITA No. 5306-5308/LB/02
tax demand due from the assessee company u/s 52 and these orders are hereby maintained. As for order u/s 52 dated 30-04-1998
that order has been confirmed by the CIT(A) and no appeal by Revenue lies against that order. The departmental appeal against
that order is rendered infructuous and dismissed. The departmental appeals against deletion of orders u/s 52 dated 28-02-2000 and
12-05-2001 are accepted.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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WTA No. 680/LB/2004
NTN: 04-26-GIR/407
Mst. Safia Abida, Multan. Appellant

Versus
WTO, Circle – 26, Multan. Respondent
Appellant by : Mr. A.D. Randhawa, Adv.
Respondent by : Mr. Bashir Ahmad Shad, DR.
ORDER
This appeal by an individual arises out of order passed by the CWT(A), Multan dated 25-06-2004.
2. It is the appellant’s contention that the first appellate authority has wrongly maintained the order of reassessment made by the
assessing officer u/s 16 (3) / 23 dated 23-06-2003, as the original assessment framed u/s 16 (3) on 25-06-2001 that had been set aside by
the CWT(A) Multan,was allegedly time barred.
3. According to the AR of appellant, assessment for 1996-97 was required by law to have been completed within two years as a
revised return had statedly been filed by the assessee but assessment was made u/s 16 (3) / 23 on 25-06-2001 and that assessment was
allegedly time barred. That being so, it is argued that notwithstanding the fact that the original assessment finalized u/s 16 (3) on 25-06-
2001 was contested by the assessee before the CWT (A), Multan “WITHOUT CHALLENGING LIMITATION OF TIME LAID DOWN IN
LAW”, the assessee can still raise the issue
(2) WTA No. 680/LB/2004
of limitation before the Tribunal as it was a legal issue and could be raised at any stage of the proceedings under wealth tax law. The AR
of assessee has also referred to Tribunal’s judgments bearing WTA No’s. 417 to 419/LB/2003 (Assessment Years 1997-98 to 1999-00)
dated 21-08-2003, WTA No’s. 1865-1866/LB/2002 (assessment Years 1997-98 & 1998-99) dated 16-09-2004 and WTA No. 432/LB of
1994 (Assessment Year 1989-90) dated 24-06-2000.
4. The DR has been heard. The DR argues that the limitation matter was not pressed before the assessing officer at all when he
made reassessment on 23-06-2003 and the CWT(A) vide his order dated 25-06-2004 has rightly ignored assessee’s belated challenge on
the point of limitation.
5. We have heard both sides and have examined the available record and in our considered judgment, none of the Tribunal’s
judgments referred to by assessee’s AR are at all applicable in assessee’s case. It is to be noted that the order of the CWT(A) dated 25-
06-2004 arises out of order of “reassessment” made u/s 16(3)/23 of the Wealth Tax Act, 1963 dated 23-06-2003. This “reassessment” is
quite distinguishable from the original assessment made in assessee’s case u/s 16 (3) vide order dated 25-06-2001. The original order
dated 25-06-2001 u/s 16 (3) was duly contested by the assessee before the CWT (A), Multan and incidentally the AR of the assessee then
was the same person (Mr. Allah Ditta Randhawa) as is now before us and it appears from the record that not a single word was said
regarding alleged expiry of
(3) WTA No. 680/LB/2004
limitation of time laid down in law. Not only that, before the assessing officer also this same AR appeared at the original assessment as
well as reassessment stage and on no occasion was any reference made to alleged expiry of limitation of time. The assessment for 1996-
97 u/s 16(3) dated 25-06-2001 is today “a past and closed transaction” and has been superceded by order of reassessment u/s 16 (3) / 23
dated 23-06-2003 and we cannot now probe the original assessment u/s 16 (3) dated 25-06-2001. Prima facie, the assessment for
assessment year 1996-97 having been finalized on 25-06-2001 pursuant to filing of return of net wealth suo moto by the assessee u/s 14
(1) (a) is well within the four years limitation laid down in section 17A (1) (a). Assessee’s AR has deposed before the Tribunal that actually
the assessee had filed revised return u/s 15 but that assertion is a bald assertion without any corroboration of any kind. The record that we
have examined makes no reference to a revised return u/s 15.
6. Under the given facts and circumstances referred to Supra, we find that assessee’s belated challenge to alleged expiry of limitation
of time laid down in law is bereft of any merit and is hereby rejected and the order of the CWT (A) dated 25-06-2004 is MAINTAINED.
Appeal rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 279/LB/2002
ITA No. 1387/LB/2002

NTN: 06-11-
M/s Sahib Jee, Lahore. Appellant

Versus
IAC, Range – II, Zone – B, Lahore. Respondent
Appellant by : Mr. M. Younas Khalid, Adv.
Respondent by : Mr. S.A. Masood Raza Qizalbash, DR
ORDER
These appeals by an AOP arise out of Order passed by the IAC u/s 66A in exercise of his revisionary jurisdiction.
2. It is the appellant’s contention that it’s Return of Income for 2000-01 had been rightly accepted as filed as it was consistent with the
conditionalities as laid down in the Self Assessment Scheme for the year.
3. AR of appellant explains that the IAC has acted u/s 66A on the wholly mistaken view that (i) tax demand incidental to declared
income had been wrongly calculated and (b) “lump sum” addition made to declared income was violative of the conditionalities laid down in
the SAS for the year and consequently he had held that the Return was required to have been ousted from SAS and processed under
Normal Law which was not done and instead the allegedly ‘defective’ Return was accepted u/s 59A thereby justifying intervention by the
IAC u/s 66A - as the assessment made u/s 59A
(2) ITA No. 279 & 1387/LB/2002
was allegedly both erroneous and prejudicial to revenue. The AR submits that the income tax demand on declared income of Rs.1310653
cited by the appellant in it’s Return for the year indeed aggregates Rs 348401/- and not Rs 253144/- as wrongly calculated by the IAC.
Secondly, the AR emphasizes that the appellant has not infact made any adhoc lump sum addition to declared income as alleged by the
IAC and instead it is submitted that addbacks of inadmissible claim out of P & L expenses had been made Headwise totaling Rs 510653/-
and added back to the declared income as per P & L a/c of Rs 800,000/- to evolve Total Income of Rs 1310653/- and it is vehemently
asserted that there was absolutely nothing wrong with this methodology in the context of SAS for 2000-01 as this was not an adhoc lump
sum addition to declared income .
4. The following ‘case law’ is referred to by the AR:

PLD 1981 SC. 293
1995 PTD 1128
1992 PTD 954
5. The DR reiterates what has been stated by the IAC in his Order u/s 66A.
6. We have heard both sides, examined the available record and perused the cited case law and we agree with appellant that neither
has “less tax” been paid than that stipulated under SAS for the year nor has any “adhoc” lump sum addition been made to Returned
Income. The addbacks as made are Headwise addback
(3) ITA No. 279 & 1387/LB/2002
of patently inadmissible amount out of total expenditure claim preferred and this is evident from the appellant’s computation of income as
appended with the Return of Income. Under the given facts and circumstances therefore we find that the IAC has wrongly exercised
jurisdiction u/s 66A and his Order is held to be a nullity in the eye of law and is hereby annulled.
7. The appeal succeeds.
8. Assessee’s appeal against order passed u/s 156 / 66A by the IAC dated 12-02-2002 is a sequel to the main appeal filed against
IAC’s order u/s 66A dated 31-12-2001 which appeal stands disposed off by the Tribunal. The only Ground relevant to assessee’s appeal
against order u/s 156/66A dated 12-02-2002 pertains to alleged lump sum addition made by the assessee in the Return of Income filed.
That matter also stands disposed off in Tribunal order [ITA No. 279/LB/02].

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 89/LB/2002
NTN: 30-04-1703503
M/s Monnoo Industries Limited, Lahore. Appellant
Versus
DCIT, Circle – 04, Special Zone, Lahore. Respondent
Appellant by : Mr. Muhammad Iqbal Kh., Adv.
ORDER
This appeal by a limited company arises out of order passed by the CIT (A), Zone – III, Lahore, dated 03-11-2001.
2. It is the appellant’s contention that order passed u/s 52 is not maintainable being allegedly time barred [Additional Ground filed by
appellant]. Furthermore, it is contended that no order u/s 52 was called for as tax demand in both Seller’s as well as Purchaser’s cases
had allegedly been settled by the time action u/s 52 was taken by the department. It is also the appellant’s contention that the provisions of
section 52 are not attracted as, statedly, the purchases targeted by the department are below taxable limit / across the counters purchases
(i.e. of less than Rs. 25,000/- value), hence not liable to withholding tax provisions. Levy of additional tax u/s 86 is also assailed as
misconceived in law.
3. According to the AR of appellant, the action u/s 52 has been taken belatedly long after assessment had been made u/s 62 and
(2) ITA No. 89/LB/2002
the protracted time lapse has rendered the action u/s 52 as hit by limitation of time laid down in law. It is argued that the extended time
frame between assessment and action u/s 52 is not “reasonable”. Furthermore, the appellant argues that the extended time frame is also
beyond the time laid down in section 61 / 62 for examination of books of accounts. According to the AR, as assessee’s books of accounts
could not have been legally requisitioned, action u/s 52 was not possible in assessee’s case as the purchases in question were tabulated
in the books of accounts. Finally, it is the appellant’s contention that as assessments have been made and tax demands settled in both
Purchaser’s as well as Seller’s case, therefore, no tax demand remains now to be raised against the Purchaser u/s 52 for alleged default
of provisions of section 50 (4).
4. The DR submits that the action u/s 52 is in accordance with the statutory stipulation and appellant’s submissions are misconceived.
.
5. The following case law has been referred to by appellant:
2001 PTD (Trib) 2605

(1976) 33 Tax 176 (Lah.)
2004 PTD 921
PLD 1989 SC. 360
2003 PTD (Trib) 1167
6. We have heard both sides, perused the cited case law and have examined the available record and in our considered judgment:
(3) ITA No. 89/LB/2002
1. Appellant’s contention that order u/s 52 is time barred is not correct. No limitation of time is laid down in law for action to be
taken u/s 52 and no arbitrary deadline in this context can be laid. In any case, the order u/s 52 is well within the limitation
period specified in section 156. As for appellant’s contention that the order u/s 52 is hit by time limit for examination of books
of accounts, here again, the appellant is misconceived. In the first place examination of books of accounts is not a condition
precedent for invoking the provisions of section 52. So long as the assessing officer has reliable information with him that the
assessee company has made purchases on which tax is required to be withheld u/s 50 (4), there is no requirement of
examination of books of accounts in order to be able to charge withholding tax u/s 50 (4) and where the assessee has not
deducted withholding tax in accordance with law then that assessee is indeed liable u/s 52 – which is precisely what has
happened in the case of the present assessee company. It is also to be noted here that in so called “no account cases”
provisions of section 50 (4) are also applicable and in such cases there are no books of accounts to call for examination.
However, the assessing officer has every right in such like cases to look into compliance with withholding tax provisions.
(4) ITA No. 89/LB/2002
2. Section 52 is an independent charging section and it is not necessary to first frame assessment u/s 62 and then invoke the
provisions of section 52 where default u/s 50 (4) is patent.
3. Appellant’s contention that the purchases involved in assessee company’s case were BTL purchases is without any
corroboration whatsoever. As laid down by Supreme Court of Pakistan in (2002) PTD 1, it is the bounden duty of the
assessee to establish that the purchases are indeed BTL purchases. As per record, it is clear that the assessee during the
course of proceedings u/s 52 did not place the requisite evidence before the assessing officer and it cannot therefore be
claimed at this stage that the purchases involved are BTL purchases.
4. Coming to assessee’s contention that the due tax demand in both Seller’s as well as Purchaser’s cases had been settled by

the time order u/s 52 was passed, we find that, here too, it is not established through pertinent documentation that the due tax
demand in both Purchaser’s and Seller’s had been finally settled by the time order u/s 52 was passed. As laid down by the
Supreme Court of Pakistan in (2002) PTD 1, it is the responsibility of the assessee to place relevant information before the
assessing officer and
(5) ITA No. 89/LB/2002
this mandatory requirement has not been satisfied in the present case. It is not enough to say that income tax assessments
in both Seller’s and Purchaser’s cases have been finalized. It is the assessee’s responsibility to establish that “due tax” has
indeed been paid. The provisions of section 52 cannot be circumvented by mere assertion that tax demand in the case of
Purchaser and Seller has been settled. The law requires that tax u/s 50 (4) be withheld at the time of purchases by the
Purchaser and balance amount be then paid to the Seller and this requirement cannot be avoided by resort to technicalities.
The Supreme Court of Pakistan in (2002) PTD 1, has made it abundantly clear that tax withholding called for u/s 50 (4) has
got to be made when the assessee is held liable under the law. Obviously, there can be no double taxation and the tax
withheld u/s 50 (4) cannot be demanded again at assessment stage and has not been demanded in assessee’s case.
5. As for charge of additional tax u/s 86, such charge is required to be made compulsorily whenever due tax has not been
charged / paid within the statutory time frame. In the case of the present assessee company, it is patent that tax u/s 50 (4) was
not withheld / deposited in the treasury within the statutory time frame. That being so, additional tax u/s 86 is required to be
charged from the
(6) ITA No. 89/LB/2002
date that the tax withholding was required to be made / deposited in treasury to the date that the order has been passed u/s 86.
It is to be noted that the additional tax u/s 86 is by no means in the nature of a penalty. By definition it is the “additional tax” that
is required to be charged alongwith normal tax demand raised on assessment.
For the reasons recorded Supra, we hold that the demand u/s 52 has been raised in accordance with law and has been rightly maintained
by the first appellate authority. The appeal filed by assessee is hereby rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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INCOME TAX / WEALTH TAX APPELLATE TRIBUNAL, LAHORE BENCH , LAHORE

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M.A. No. 22/LB/2005
M.A. NO 23/LB/2005
NTN: 30-03-0658674
M/s Faisal Weaving (PVT)Ltd Faisalabad Applicant
Versus
Commissioner of Income Tax / Wealth Tax,

Special Zone, Lahore Respondent
Applicant by : Mr Shahbaz Butt , Adv
Respondent by : Mr Mahmood Aslam DR
ORDER
1. These are miscellaneous applications by a private limited company arising out of Tribunal’s Order bearing
WTA No’s 654 / 655 /LB/2005 (AY 1997-98 & 1998-99)
dated 22-12-2004.
2. As per Grounds filed it is the applicants contention that the Tribunal in it’s aforecited judgment has erred in not following judgment
referred to by the assessee respondent [ ie (2004) 89 Tax 234 (Trib) ] when responding to the Departmental arguments at the time
that the Departmental Appeals against the Order of the CIT(A) were taken up for hearing by the Tribunal. According to Appellant, the
Tribunal was “bound” to follow the cited judgment and could not deviate from the findings recorded in that judgment without referring
the same to the Chairman ITAT for constituting a larger bench. It is also the applicant’s contention that the Tribunal had also erred in
allegedly not recording submissions statedly made by AR of assessee respondent to the effect that the assessee company had been
‘forced’ to let out the mill due to recurring losses allegedly suffered by the company when it operated the mill on it’s own and this
alleged omission by the Tribunal had caused grave prejudice to assessee’s rationale for leasing out the mill. It is the applicant’s
contention that had the AR’s alleged submissions on this aspect been recorded by the Tribunal then the Supreme Court of Pakistan
judgment in the BP Biscuit Factory case [(1996) 74 Tax 81 (S C Pak)] would apply in assessee’s case as well and no wealth tax would
be leviable on the lease rentals realized by the assessee company in 1997-98 & 1998-99.
3. In his oral arguments, the AR of applicant argued that a Division Bench of the Tribunal was not competent to declare a judgment of
another Bench of equal strength to be a judgment rendered ‘per incuriam.’ It is the AR’s contention that this was the sole prerogative of
a larger Bench and the AR has referred to the legal principle of ‘stare decisis’ in this context. The AR has especially emphasized that
the author of the judgment having himself acknowledged that he had earlier followed the judgment referred to by assessee/respondent
in another Appeal decided by the Tribunal and in which too he was the author, could not now take a different view with regard to that
judgment in the present (Departmental) Appeals against the Order of the CWT(A).
4. The following case law has been referred to by the AR of applicant:
(1997) 75 Tax 108 (Trib); PTCL 1998 CL. 218;

(2003) PTD (Trib) 835; (2004) PTD 2180;
(1998) SCMR 1618; PLD 1963 (W P ) Karachi 79;
(1994) SCMR 1900; PLD 1987 Supreme Court 145;
PLD 1987 Supreme Court 172; 2003 PTD 835 Trib;
2004 PTD 2180 LHC; 2005 PTD 280 Trib.
5. The DR submits that the applicant is wholly misconceived in it’s view that the impugned order of the Tribunal contains mistakes that
could be ‘rectified’ under the law. It is argued that the Tribunal has passed a ‘speaking order’ that has considered all arguments / case
law referred to by the assessee / respondent when the assessee responded to the departmental arguments. It is emphasized strongly
that no ‘mistakes’ could be seen as floating on the surface of Tribunal’s impugned order and under the law it was not permissible to
resort to elaborate discussion and involved arguments to artificially make out a case for ‘rectification.’
6. We have heard both sides, perused the cited case law and the available record and our findings are recorded as under:
a) The AR of applicant has stated that the Tribunal in it’s aforecited Order has allegedly not recorded the AR’s arguments when
responding to the Departmental arguments the AR had allegedly pointed out that the assessee company was statedly forced to
lease out the mill due alleged recurring losses suffered by the company.
This contention of the AR has been looked into very carefully and we find that on page (5) paragraph (3) of Tribunal’s
impugned Order, the argument as made by the AR has been duly incorporated and considered and has then been rejected
for the reason that the argument that the assessee company was (allegedly) compelled to
lease out it’s business premises due to extraordinary business exigency, was couched in general and not precise terms and
was being made before the Tribunal for the first time and had not been made earlier before the assessing officer or the first
appellate authority. Then on page (6) paragraph (4) of it’s impugned Order, the Tribunal has gone on to explain that the BP
Factory case judgment of the Apex Court did not apply in assessee’s case as unlike the present assessee, in the BP Factory

case it had apparently been satisfactorily established before the Apex Court that there was indeed office space in excess of
it’s own requirements on it’s business premises and letting out of such office space had no nexus with the normal commercial
operation of the factory. There is thus a world of difference in assessee’s contention and the contention of BP Factory and
assessee’s contention in it’s miscellaneous application that it’s AR’s arguments on the matter had not been recorded by the
Tribunal in it’s impugned order is just not correct. Rather the relevant record shows that whatever argument was made
by the AR has infact been duly recorded by the Tribunal. If the argument was not sufficiently proved / corroborated but
found to be couched only in general terms then the Tribunal cannot reasonably be expected to accept such an unproved /
uncorroborated argument especially one that was being made before it for the first time in this manner and had not been
previously been made before the assessing officer and /or the CWT(A). This contention of the applicant is thus found not
correct.
b) In it’s Grounds the applicant has made no reference at all to the fact that the Tribunal in it’s impugned order had held that
the judgment relied on by the assessee/respondent had been found to be a judgment rendered‘per incuriam’ for the reason
that it was not consistent with the statute/applicable rules under the statute and consequently did not constitute a valid
precedent and had no binding force. This the Tribunal has explained at length in paragraphs 6(1), 6(2) and 6(6) of it’s
impugned order.
In our considered judgment, the heart of the matter here is Tribunal’s unequivocal finding that the judgment relied upon by
the respondent was a judgment rendered ‘per incuriam’ as it was in clear conflict with the statute / applicable rules under the
statute insofar as that judgment had wrongly held that after withdrawal of Rule 8(4B) of the wealth tax rules 1981 there was
no Rule applicable in the case of leased out mills/factories for purposes of appraisement of it’s assets for wealth tax levy
when infact Rule 8(3) was very much on the statute and was being routinely invoked by the Department in all cases of leased
out factories/mills subjected to wealth tax levy. Because the legal position had been misconstrued the DB had held that there
being no provision in the statute to enable assets of leased out mills to wealth tax levy therefore it appeared that the
government had infact exempted such leased out factories from wealth tax levy. Furthermore, the said judgment also
appears to categorize “plant & machinery” in the case of a factory such as the assessee’s, as “movable asset” which is prima
facie, an incorrect finding, patently in conflict with the definition of “asset” liable to wealth tax levy as given in the wealth tax
act 1963 (since repealed). There can thus be no doubt at all that on both counts enumerated supra the said judgment is a
judgment rendered “per incuriam” and hence of no consequence in the eye of law.
c) In our view, the applicant’s AR’s repeated reference to the rule of ‘stare decisis’ in the present case is misconceived
as when a cited judgment has been held to be rendered‘per incuriam’ then there can be no question of following that
judgment and the ‘stare decisis’ rule clearly does not apply. However without first holding the judgment to be rendered ‘per
incuriam’ a Division Bench of the Tribunal cannot discard the judgment of another Division Bench of the Tribunal. In the case
of the assessee company, this requirement is duly satisfied as this DB has not followed the judgment of another DB cited
before it AFTER holding that cited judgment to be rendered ‘per incuriam’ for reasons duly recorded ‘in extenso’ in the
impugned order. As for applicant’s AR’s contention made before us that before refusing to follow the judgment of another DB
reference to the Chairman ITAT for constitution of a larger Bench was mandatory, the view of the learned AR is clearly
misconceived as there is no requirement in law that this be done “ where a cited judgment is shown to be rendered‘per
incuriam.” A case cannot be referred to a larger Bench on the mere asking of a party ( 2004 (4) SCC 262 Govt of Andhra
Pradesh & another Vs B Satyanarayana Rao by LR’s).
In State of U.P. and another v. Synthetics and Chemicals Ltd. & anr. 1991 (4) S.C.C. 139, it has been observed :
"Ìncuria' literally means `carelessness'. In practice per incuriam appears to mean per ignoratium. English Courts have
developed this principle in relaxation of the rule of stare decisis. The `quotable in law' is avoided and ignored if it is rendered,
in ignoratium of a statute or other binding authority'. (Young v. Bristol Aeroplane Co. Ltd.) (1944) 1 KB 718; (1944) 2 All ER
293. Same has been accepted, approved and adopted by the Supreme Court of India while interpreting Article 141 of the
Indian Constitution which embodies the doctrine of precedents as a matter of law.
In (1991) 4-S.C.C.139 (SC IND) it was held that doctrine of per incuriam operates as an exception to the rule of
precedents and where a judgement is passed in ignoratium i.e. in ignorance of a provision of law or binding
authority then it is not binding and quotable in law.
d) It is patent from the relevant record that the per incuriam judgment has been rendered because the correct statutory
position regarding levy of wealth tax on the assets of leased out Mills was not appreciated and it was wrongly held that in with
the withdrawal of Rule 8(4B) of the wealth tax rules 1981 there was no way to subject such assets to wealth tax levy when in
fact Rule 8(4B) had been withdrawn precisely because it was seen as having been rendered redundant in the presence of
Rule 8(3) of the wealth tax rules that catered fully to wealth tax levy on leased out assets of a factory. Neither the DR nor the
counsel for the respondent brought this crucial aspect to the knowledge of the Bench and this resulted in an incorrect
appreciation of the correct legal position.
e) Applicant’s AR’s contention that the author of the impugned order of the Tribunal having himself acknowledged that he had
followed the judgment cited by assessee respondent while deciding another appeal and he was therefore ‘bound to follow’
the same in the case of the appeal filed by the Department also , has been examined with the utmost care and we find that
there was no requirement of law that a view once taken wrongly is required to be so taken forever! Indeed it is absurd to hold
that a view stated by a Bench to be incorrect be repeated by that Bench in another judgment simply because it had once
acquiesced to the incorrect view. No judge is expected to be a slave to his own judgments. A judge can become wiser at any
time as a result of some ‘discovery’ that he makes on his own or as the result of something pointed out to him by another
judge or by counsel.
f) The case law referred to by applicant has been perused carefully and we find that it is of no avail to the applicant in the
matter presently before us. None of the cited judgments are “on all fours” with the situation obtaining presently before us. The
present DB has the same strength as the DB whose judgment it has refused to follow because it was a judgment rendered “ per
incuriam.” It is not at all the case here that a lower court has held the judgment of a superior court to have been rendered ‘per
incuriam.’ Rather two DB’s of ‘coordinate jurisdiction’ are involved and one is perfectly competent to declare the judgment of the
other to have been rendered ‘per incuriam.’
g) It is reiterated that when the assessee’s AR responded to the departmental submissions at the time that the departmental
appeals against the order of the CWT(A) were heard, the AR of applicant did not make elaborate argument to establish
conclusively that it was indeed never the intention of the assessee to lease out the Mill and that it was compelled by
extraordinary circumstances to so lease out the Mill. Even at this stage no detailed and exhaustive submissions have been made
and no detailed documentation has been submitted to establish the nature of the compelling circumstances that allegedly forced

the assessee to lease out the Mill. Assessee’s statement before the Tribunal made for the first that it was never it’s intention
to lease out the Mill is obviously an inspired statement calculated to secure exemption from wealth tax levy arbitrarily.
For the reasons recorded supra, we find that there is no cause for any intervention by the Tribunal u/s 35 of the Wealth Tax Act 1963
(since repealed) and there is no patent mistake, either of fact or of law, floating on the surface of Tribunal’s impugned Order, that could be
rectified.
The application is refused.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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INCOME TAX / WEALTH TAX APPELLATE TRIBUNAL, LAHORE BENCH , LAHORE

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M.A. No. 22/LB/2005
M.A. NO 23/LB/2005
NTN: 30-03-0658674
M/s Faisal Weaving (PVT)Ltd Faisalabad Applicant
Versus
Commissioner of Income Tax / Wealth Tax,

Special Zone, Lahore Respondent
Applicant by : Mr Shahbaz Butt , Adv
Respondent by : Mr Mahmood Aslam DR
ORDER
7. These are miscellaneous applications by a private limited company arising out of Tribunal’s Order bearing
WTA No’s 654 / 655 /LB/2005 (AY 1997-98 & 1998-99)
dated 22-12-2004.
8. As per Grounds filed it is the applicants contention that the Tribunal in it’s aforecited judgment has erred in not following judgment
referred to by the assessee respondent [ ie (2004) 89 Tax 234 (Trib) ] when responding to the Departmental arguments at the time
that the Departmental Appeals against the Order of the CIT(A) were taken up for hearing by the Tribunal. According to Appellant, the
Tribunal was “bound” to follow the cited judgment and could not deviate from the findings recorded in that judgment without referring
the same to the Chairman ITAT for constituting a larger bench. It is also the applicant’s contention that the Tribunal had also erred in
allegedly not recording submissions statedly made by AR of assessee respondent to the effect that the assessee company had been
‘forced’ to let out the mill due to recurring losses allegedly suffered by the company when it operated the mill on it’s own and this
alleged omission by the Tribunal had caused grave prejudice to assessee’s rationale for leasing out the mill. It is the applicant’s
contention that had the AR’s alleged submissions on this aspect been recorded by the Tribunal then the Supreme Court of Pakistan
judgment in the BP Biscuit Factory case [(1996) 74 Tax 81 (S C Pak)] would apply in assessee’s case as well and no wealth tax would
be leviable on the lease rentals realized by the assessee company in 1997-98 & 1998-99.
9. In his oral arguments, the AR of applicant argued that a Division Bench of the Tribunal was not competent to declare a judgment of
another Bench of equal strength to be a judgment rendered ‘per incuriam.’ It is the AR’s contention that this was the sole prerogative of
a larger Bench and the AR has referred to the legal principle of ‘stare decisis’ in this context. The AR has especially emphasized that
the author of the judgment having himself acknowledged that he had earlier followed the judgment referred to by assessee/respondent
in another Appeal decided by the Tribunal and in which too he was the author, could not now take a different view with regard to that
judgment in the present (Departmental) Appeals against the Order of the CWT(A).
10. The following case law has been referred to by the AR of applicant:
(1997) 75 Tax 108 (Trib); PTCL 1998 CL. 218;

(2003) PTD (Trib) 835; (2004) PTD 2180;
(1998) SCMR 1618; PLD 1963 (W P ) Karachi 79;
(1994) SCMR 1900; PLD 1987 Supreme Court 145;
PLD 1987 Supreme Court 172; 2003 PTD 835 Trib;
2004 PTD 2180 LHC; 2005 PTD 280 Trib.
11. The DR submits that the applicant is wholly misconceived in it’s view that the impugned order of the Tribunal contains mistakes that
could be ‘rectified’ under the law. It is argued that the Tribunal has passed a ‘speaking order’ that has considered all arguments / case
law referred to by the assessee / respondent when the assessee responded to the departmental arguments. It is emphasized strongly
that no ‘mistakes’ could be seen as floating on the surface of Tribunal’s impugned order and under the law it was not permissible to
resort to elaborate discussion and involved arguments to artificially make out a case for ‘rectification.’
12. We have heard both sides, perused the cited case law and the available record and our findings are recorded as under:
a) The AR of applicant has stated that the Tribunal in it’s aforecited Order has allegedly not recorded the AR’s arguments when
responding to the Departmental arguments the AR had allegedly pointed out that the assessee company was statedly forced to
lease out the mill due alleged recurring losses suffered by the company.
This contention of the AR has been looked into very carefully and we find that on page (5) paragraph (3) of Tribunal’s
impugned Order, the argument as made by the AR has been duly incorporated and considered and has then been rejected
for the reason that the argument that the assessee company was (allegedly) compelled to
lease out it’s business premises due to extraordinary business exigency, was couched in general and not precise terms and
was being made before the Tribunal for the first time and had not been made earlier before the assessing officer or the first

appellate authority. Then on page (6) paragraph (4) of it’s impugned Order, the Tribunal has gone on to explain that the BP
Factory case judgment of the Apex Court did not apply in assessee’s case as unlike the present assessee, in the BP Factory
case it had apparently been satisfactorily established before the Apex Court that there was indeed office space in excess of
it’s own requirements on it’s business premises and letting out of such office space had no nexus with the normal commercial
operation of the factory. There is thus a world of difference in assessee’s contention and the contention of BP Factory and
assessee’s contention in it’s miscellaneous application that it’s AR’s arguments on the matter had not been recorded by the
Tribunal in it’s impugned order is just not correct. Rather the relevant record shows that whatever argument was made
by the AR has infact been duly recorded by the Tribunal. If the argument was not sufficiently proved / corroborated but
found to be couched only in general terms then the Tribunal cannot reasonably be expected to accept such an unproved /
uncorroborated argument especially one that was being made before it for the first time in this manner and had not been
previously been made before the assessing officer and /or the CWT(A). This contention of the applicant is thus found not
correct.
b) In it’s Grounds the applicant has made no reference at all to the fact that the Tribunal in it’s impugned order had held that
the judgment relied on by the assessee/respondent had been found to be a judgment rendered‘per incuriam’ for the reason
that it was not consistent with the statute/applicable rules under the statute and consequently did not constitute a valid
precedent and had no binding force. This the Tribunal has explained at length in paragraphs 6(1), 6(2) and 6(6) of it’s
impugned order.
In our considered judgment, the heart of the matter here is Tribunal’s unequivocal finding that the judgment relied upon by
the respondent was a judgment rendered ‘per incuriam’ as it was in clear conflict with the statute / applicable rules under the
statute insofar as that judgment had wrongly held that after withdrawal of Rule 8(4B) of the wealth tax rules 1981 there was
no Rule applicable in the case of leased out mills/factories for purposes of appraisement of it’s assets for wealth tax levy
when infact Rule 8(3) was very much on the statute and was being routinely invoked by the Department in all cases of leased
out factories/mills subjected to wealth tax levy. Because the legal position had been misconstrued the DB had held that there
being no provision in the statute to enable assets of leased out mills to wealth tax levy therefore it appeared that the
government had infact exempted such leased out factories from wealth tax levy. Furthermore, the said judgment also
appears to categorize “plant & machinery” in the case of a factory such as the assessee’s, as “movable asset” which is prima
facie, an incorrect finding, patently in conflict with the definition of “asset” liable to wealth tax levy as given in the wealth tax
act 1963 (since repealed). There can thus be no doubt at all that on both counts enumerated supra the said judgment is a
judgment rendered “per incuriam” and hence of no consequence in the eye of law.
c) In our view, the applicant’s AR’s repeated reference to the rule of ‘stare decisis’ in the present case is misconceived
as when a cited judgment has been held to be rendered‘per incuriam’ then there can be no question of following that
judgment and the ‘stare decisis’ rule clearly does not apply. However without first holding the judgment to be rendered ‘per
incuriam’ a Division Bench of the Tribunal cannot discard the judgment of another Division Bench of the Tribunal. In the case
of the assessee company, this requirement is duly satisfied as this DB has not followed the judgment of another DB cited
before it AFTER holding that cited judgment to be rendered ‘per incuriam’ for reasons duly recorded ‘in extenso’ in the
impugned order. As for applicant’s AR’s contention made before us that before refusing to follow the judgment of another DB
reference to the Chairman ITAT for constitution of a larger Bench was mandatory, the view of the learned AR is clearly
misconceived as there is no requirement in law that this be done “ where a cited judgment is shown to be rendered‘per
incuriam.” A case cannot be referred to a larger Bench on the mere asking of a party ( 2004 (4) SCC 262 Govt of Andhra
Pradesh & another Vs B Satyanarayana Rao by LR’s).
In State of U.P. and another v. Synthetics and Chemicals Ltd. & anr. 1991 (4) S.C.C. 139, it has been observed :
"Ìncuria' literally means `carelessness'. In practice per incuriam appears to mean per ignoratium. English Courts have
developed this principle in relaxation of the rule of stare decisis. The `quotable in law' is avoided and ignored if it is rendered,
in ignoratium of a statute or other binding authority'. (Young v. Bristol Aeroplane Co. Ltd.) (1944) 1 KB 718; (1944) 2 All ER
293. Same has been accepted, approved and adopted by the Supreme Court of India while interpreting Article 141 of the
Indian Constitution which embodies the doctrine of precedents as a matter of law.
In (1991) 4-S.C.C.139 (SC IND) it was held that doctrine of per incuriam operates as an exception to the rule of
precedents and where a judgement is passed in ignoratium i.e. in ignorance of a provision of law or binding
authority then it is not binding and quotable in law.
d) It is patent from the relevant record that the per incuriam judgment has been rendered because the correct statutory
position regarding levy of wealth tax on the assets of leased out Mills was not appreciated and it was wrongly held that in with
the withdrawal of Rule 8(4B) of the wealth tax rules 1981 there was no way to subject such assets to wealth tax levy when in
fact Rule 8(4B) had been withdrawn precisely because it was seen as having been rendered redundant in the presence of
Rule 8(3) of the wealth tax rules that catered fully to wealth tax levy on leased out assets of a factory. Neither the DR nor the
counsel for the respondent brought this crucial aspect to the knowledge of the Bench and this resulted in an incorrect
appreciation of the correct legal position.
e) Applicant’s AR’s contention that the author of the impugned order of the Tribunal having himself acknowledged that he had
followed the judgment cited by assessee respondent while deciding another appeal and he was therefore ‘bound to follow’
the same in the case of the appeal filed by the Department also , has been examined with the utmost care and we find that
there was no requirement of law that a view once taken wrongly is required to be so taken forever! Indeed it is absurd to hold
that a view stated by a Bench to be incorrect be repeated by that Bench in another judgment simply because it had once
acquiesced to the incorrect view. No judge is expected to be a slave to his own judgments. A judge can become wiser at any
time as a result of some ‘discovery’ that he makes on his own or as the result of something pointed out to him by another
judge or by counsel.
h) The case law referred to by applicant has been perused carefully and we find that it is of no avail to the applicant in the
matter presently before us. None of the cited judgments are “on all fours” with the situation obtaining presently before us. The
present DB has the same strength as the DB whose judgment it has refused to follow because it was a judgment rendered “ per
incuriam.” It is not at all the case here that a lower court has held the judgment of a superior court to have been rendered ‘per
incuriam.’ Rather two DB’s of ‘coordinate jurisdiction’ are involved and one is perfectly competent to declare the judgment of the
other to have been rendered ‘per incuriam.’
i) It is reiterated that when the assessee’s AR responded to the departmental submissions at the time that the departmental
appeals against the order of the CWT(A) were heard, the AR of applicant did not make elaborate argument to establish
conclusively that it was indeed never the intention of the assessee to lease out the Mill and that it was compelled by

extraordinary circumstances to so lease out the Mill. Even at this stage no detailed and exhaustive submissions have been made
and no detailed documentation has been submitted to establish the nature of the compelling circumstances that allegedly forced
the assessee to lease out the Mill. Assessee’s statement before the Tribunal made for the first that it was never it’s
intention to lease out the Mill is obviously an inspired statement calculated to secure exemption from wealth tax levy
arbitrarily.
For the reasons recorded supra, we find that there is no cause for any intervention by the Tribunal u/s 35 of the Wealth Tax Act 1963
(since repealed) and there is no patent mistake, either of fact or of law, floating on the surface of Tribunal’s impugned Order, that could be
rectified.
The application is refused.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 7006/LB/96
NTN: 31-32-0798828
IAC, Range – II, Coys. Zone, Faisalabad. Appellant

Versus
Rana Textile Mills (Pvt) Ltd, Lahore. Respondent
Appellant by : Mr. S.A. Masood Raza Qizalbash, DR

Respondent by : Mr. Shahid Pervaiz Jami, Adv.
ORDER
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 cancelled the assessment order for 1994-95 passed u/s 62 / 118D of the Income Tax Ordinance, 1979 (since
repealed) dated 29-03-1995 by wrongly treating it as rectified assessment order u/s 156.
2. It is the departmental contention that in fact the assessing officer had made no rectification of the assessment order and
tax u/s 80-D had been correctly charged in the assessment order on the declared turnover. According to the DR, the same CIT
(A) who had passed appellate order dated 12-05-1996 in assessee’s appeal had himself earlier held in his order No.1008 dated
31-12-1995 in the case of M/s Nishat Mills Limited, NTN:31-52-3353042, that tax u/s 80-D was to be calculated with reference to
export sales “inclusive” of export rebate and duty drawback and now in the case of the present assessee the same CIT(A) had
taken a summersault and says that the turnover tax u/s 80-D be charged with reference to export sales “exclusive” of export
rebate u/s 50(5A.
(2) ITA No. 7006/LB/96
2. AR of assessee / respondent says that under the law turnover tax u/s 80-D, is required to be charged with reference to
declared sales and export rebate / duty drawback did not form part of such sales.
3. We have heard both sides and have examined the available record and in our considered judgment, the assessee
company has not filed any appeal against the assessment for 1994-95 u/s 62 / 118D dated 29-03-1995 in which turnover tax u/s
80-D has apparently been levied with reference to declare sales of Rs.79,613,748/-. Another order for 1994-95 passed u/s 156
dated 25-02-1996 is obtaining on record in which the assessing officer has allowed credit to the assessee for tax paid u/s 50
(5A) aggregating Rs.361,696/- and resultantly revised calculation of additional tax u/s 88 was made at Rs.8623/- wrongly
determined earlier at Rs.39273/- after giving effect of tax deduction u/s 50(5A) not given earlier The present appeal has been
instituted on 30-10-1996 against this order u/s 156 dated 25-02-1996 that was apparently communicated to the assessee on
02-09-1996.
4. It is the assessee’s submission before the CIT(A) that the export rebate allowed to the assessee u/s 50 (5A) did not form
part of declared sales and was included in the cost of sales in the books of accounts of the assessee.
5. If that be the position then we fail to understand how the assessing officer has erred in charging tax u/s 80-D as per the
assessment order u/s 62 / 118D dated 29-03-1995 because in this order tax u/s 80-D has been charged with reference to sales
as declared by the assessee and the assessee having not included export sales in the
(3) ITA No. 7006/LB/96
declared export sales [as per the assessee’s own statement] but rather having adjusted the same in the cost of sales
separately, the assessee’s objection in appeal before the Tribunal to the treatment as accorded by the assessing officer with
regard to tax charged u/s 80-D would appear to be misconceived and the subsequent order u/s 156 passed to give credit for tax
deducted u/s 50 (5A) and to recalculate additional tax u/s 88 would appear to have nothing to do with the quantum of tax
payable u/s 80-D.
6. The CIT(A) has apparently cancelled the order u/s 156 for 1994-95 and not the order u/s 62 / 118D as contended by
Revenue in the Grounds of appeal filed. Prima facie, the department has misconceived the factual position with regard to order
passed by the CIT (A). At the same time we are constrained to observe that there appears to be no justification for the CIT (A) to
cancel the order u/s 156 for 1994-95 as that order has nothing whatsoever to do with the tax charged u/s 80-D and the tax u/s
80-D has been correctly charged in the order u/s 62 / 118D with reference to assessee’s declared sales in which export rebate /
duty drawback is not included – as per the assessee’s own statement.
4. In view of the overall confusion in this case, we deem it expedient to vacate the order of the CIT (A) and remand matter
back to the first appellate authority for denove adjudication, strictly in accordance with law. The CIT (A) will pass a speaking
order, strictly with reference to the Grounds raised by the assessee in its appeal. The CIT (A) will keep in mind that no appeal
has been filed by the assessee company
(4) ITA No. 7006/LB/96
against the order for 1994-95 u/s 62 / 118D dated 29-03-1995 and it is not open to the assessee company to take up
matters arising in the assessment order u/s 62 / 118D through an appeal against the order u/s 156 which apparently

deals only with the credit to be allowed for deduction of tax u/s 50 (5A) and liability u/s 88.
5. Resultantly, the appeal is disposed off as above.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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ITA No. 2956/LB/2001
NTN: 21-06-0021021
Mughal Steel, Peco Road, Lahore. Appellant
Versus
SOIT/WT, Circle – 06, Zone – C, Lahore. Respondent
Appellant by : M. Sarwar Khawaja, ADV.
Respondent by : Agha Hadayat Ullah Khan, DR
ORDER
This appeal by an AOP is directed against exercise of revisionary jurisdiction by the IAC u/s 66-A of the Ord. for the assessment
year 1999-2000.
2. It is the appellant’s contention that the provisions of section 66-A of the Income Tax Ordinance, 1979, have been unjustifiably
invoked when the IAC statedly did not have ‘definite information’ before him on record conclusively establishing prejudice to revenue
consequent to an erroneous assessment made by the DCIT.
3. According to the appellant, the assessment for 1999-2000 made by the DCIT is consistent with statutory stipulation and
incorporates an exhaustive appraisal of the sources of investment available to the AOP. It is contended that the assessment order has
been passed after obtaining approval from the then (predecessor) IAC and it was not open to a ‘review’ in the garb of ‘revision’ by the
successor IAC.
(2) ITA No. 2956/LB/2001
4. The IAC’s intervention u/s 66-A is assailed by the appellant as wholly arbitrary, misconceived in law and without proper objective
basis. It is the appellant’s contention that the sources of investment were subjected to indepth probe by the DCIT and after proper
explanations rendered the declared investment was accepted. Such investment includes Rs. 10,90,000/- for purchase of land measuring 38
Kanals & 14-Marlas at Tehsil Ferozewala and construction thereon for an amount of Rs. 20,75,130/- on 3906 sq.f.t. built up area at a per
sq.ft. cost of Rs. 561/-. Plant and machinery purchased during the year includes Induction furnace, C.C. Plant, Gas oven, Flow meter, Fiber
mold, Measuring machine, AOD converting lining, Shapering machine etc. etc. for an amount of Rs. 20,473,212/-. The total investment
aggregates some Rs.2,95,50,000/- and the same has statedly been contrived exclusively exclusively against foreign remittances.
5. According to the IAC, the assessing officer has erred in failing to recognize alleged discrepancy between the opening capital
accounts as on 01-07-1998 of the members of the AOP cited in the balance sheet of the AOP as on 30-06-1999 at Rs. 23,50,000/- as
against opening cash balance of the members individual accounts aggregating Rs. 95,83,855/- as per reconciliation statement filed before
the DCIT at assessment stage. It is thus the IAC’s contention that the AOP had “short declared” an amount of Rs. 72,33,855/- being the
differential amount between the balances referred to Supra and such amount statedly remains unexplained in the hands of the AOP as the
same constitutes moneys available with the individual members of the AOP for use by the AOP but not so declared in the capital accounts
of the members as at 01-07-1998 cited in the balance sheet of the AOP as on 30-06-1999. In the opinion of the IAC, the said unexplained
investment was actionable u/s 13 (1) of the Ord and the assessing officer having failed to take proper cognizance of the same, loss of
revenue was patent and the assessment made rendered erroneous.
(3) ITA No. 2956/LB/2001
6. Additionally, the IAC is of the opinion that the DCIT has failed to appraise cost of construction of building/factory premises properly
and here too there is an alleged lapse u/s 13 (1). The IAC is also of the opinion that the DCIT has failed to appraise closing stock of raw-
material properly insofar as raw-material has been shown to have been purchased at 10,520/- per ton whereas the closing stock has been
valued at Rs. 13,000/-per ton which has not been probed by the assessing officer and no consequential addition made.
7. The appellant does not deny formal confrontation by the IAC with regard to the alleged lapses referred to Supra. However, it has
been emphasized by the appellant that multiple show cause notices have been issued by the IAC and confrontation made in a confused
and haphazard manner leading to the inescapable conclusion that the IAC was pre-determined to invoke the provisions of section 66-A,
one way or the other.
8. According to the appellant, the cash resources available with the individual members can be freely put to use by the AOP without
any let or hindrance and there is no bar in law that need be overcome before this can be done. It is further the appellant’s contention that
the individual members had more than adequate cash resources available to them as on 01-07-1998 and this is allegedly borne out from
their individual wealth tax assessments. It is contended that such resources have been contrived against foreign remittances received by
the members and these are consequently statutorily exempt from levy of income tax under the Second Schedule to the Ord.
(4) ITA No. 2956/LB/2001

9. The very assumption of jurisdiction by the IAC u/s 66-A is contested by the appellant on the ground that the DCIT’s order u/s 62
having allegedly been passed after obtaining prior approval from the then IAC could not be subjected to exercise of revisionary jurisdiction
u/s 66-A by the successor IAC. It is also the appellant’s contention that the IAC has not recorded an unequivocal finding to the effect that
the order of the DCIT was erroneous and prejudicial to the interests of revenue.
10. Appellant further argues that the IAC has taken action u/s 66-A on the basis of ‘presumption and surmises’ and the alleged
absence of any ‘definite information’ showing prejudice to revenue relatable to erroneous/defective appraisal of investment by the DCIT in

the order passed u/s 62.
11. In the matter pertaining to construction of premises, it is the appellant’s contention that cost of construction declared at Rs. 561/-
per sq.ft. is actually in excess of the cost confronted to the appellant through show cause notice issued on the matter.
12. Case law has been cited by the appellant as under:-
2000-82-Tax-20 (Trib)
1987-PTD-Trib (563)
1998-PTD-3319
1993-68-Tax-86
13. The DR has contested the submissions made by the appellant. According to the DR, the discrepancy between cash available to the
individual members in their hands and that declared in their respective capital accounts as on 01-07-1998 appearing in the balance
sheet of the AOP as on 30-06-1999 is patent and such discrepancy is “proof positive” that the actual cash resources available with the
members have not been explained as to source before the
(5) ITA No. 2956/LB/2001
DCIT at assessment stage and the IAC is fully justified in his conclusion that the “short declaration” of cash actually held by members was
actionable u/s 13 (1) of the Ord. The DR strongly contests the appellant’s contention that the assessment made by the DCIT u/s 62 had
been formally approved by the then IAC. It is pointed out that no approval letter at all had been issued by the then IAC and routine
guidance given to the DCIT at assessment stage did not amount to formal approval under the Ord and the order u/s 62 hence remained an
order passed by the DCIT. It is emphasized that discussion of the case by the DCIT with the IAC cannot be interpreted to mean formal
approval of the assessment order by the IAC.
14. The DR has further contested the appellant’s contention that the IAC has invoked revisionary jurisdiction u/s 66-A on the basis of
mere presumption and surmises. It is pointed out that the discrepancy between the resources available to the individual members as on
01-07-1998 and that declared in their capital accounts in the balance sheet of the AOP as on 30-06-1999 was a very real difference and
there was no question of any presumption here.
15. The DR has also argued that revisionary jurisdiction u/s 66-A can be invoked by the IAC when there is reasonable cause to hold
that an assessment is erroneous insofar as it is prejudicial to the interests of revenue and it is not mandatory that the information available
in this regard be 100% definite. It is pointed out that “definite information” referred to by the appellant was indeed necessary to invoke the
provisions of section 65 but in the case presently before the Tribunal, it is argued by the DR that there was enough material on record at
the relevant time for the IAC to invoke the provisions of section 66-A notwithstanding the fact that the provisions of section 65 may not be
invokable given this kind of information.
(6) ITA No. 2956/LB/2001
16. As for alleged repetitive issuance of show cause notices by the IAC, the DR argues that the IAC can issue multiple show cause
notices so long as different matters are raised in each separate show cause notice and there was nothing in the law that mandated
issuance of single show cause notice only.
17. The DR emphasis that resources available with the individual members do not become available to the AOP automatically. It is
argued that the resources available with the individual members are required to be formally made available to the AOP either through an
increase in the capital account of the individual members in the AOP or through loan amount advanced by them to the AOP. It is pointed
out that in the present case there was no change in the capital contribution of the members in the AOP and no loan amount had been
advanced by them to the AOP and it could therefore be not said, as has been argued by the AR, that the total moneys available to the
individual members as on 01-07-1998 were automatically available for use by the AOP in their totality in the period relevant to assessment
year 1999-2000 (i.e. 01-07-1998 to 30-06-1999).
18. We have heard both sides and have examined the available record. We have also perused the case law cited before us and our
findings are recorded as under:-
(i). The exercise of revisionary jurisdiction u/s 66-A has clearly been provoked by the fact that in the opinion of the IAC, the DCIT’s
appraisal of quantum of investment and sources thereof declared by the AOP as on 01-07-1998 was erroneous insofar as the said
investment had been “short declared” to the tune of Rs.72,33,855/- being the difference between moneys actually available with the
members in their individual hands as
(7) ITA No. 2956/LB/2001
cited in the reconciliation statement filed by them before the DCIT and the amounts declared on 01-07-1998 in their respective
opening capital account balances in the balance sheet of the AOP as at 30-06-1999. In our judgement, the IAC is clearly
misconceived in his view that the aggregate of the total moneys available in the individual hands of the members i.e. Rs.95,83,855/-
, as on 01-07-1998 must also be so cited in the partners opening capital account in the balance sheet of the AOP as at 30-06-1999.
We see no reason why the individual members cannot withhold a part of their total cash availability and retain the same in their
personal hands as has happened in the present case when the individual members are shown to have made a opening capital
account contribution as on 01-07-1998 of Rs. 23,50,000/- in the balance sheet of the AOP as on 30-06-1999 when the aggregate
amount of moneys available with the members as on 01-07-1998 is Rs. 95,83,855/-. There is nothing in the law that compels the
individual members to declare the total amount available with them in their respective opening capital accounts in the AOP if they
choose to retain part of the total cash availability with them. Thus the individual members having duly declared aggregate amount of
Rs.23,50,000/- as their opening capital account balance as on 01-07-1998 in the balance sheet of the AOP as at 30-06-
1999 and having admittedly rendered explanation for the same before the DCIT at assessment stage, there is nothing here that can
be assailed as being detrimental to the interest of revenue. The fact of the matter is that the individual members have declared a
certain amount as their opening capital balances in the AOP and have duly explained the same before the DCIT.
(8) ITA No. 2956/LB/2001

(ii). While the IAC is correct in his view that the resources available to the individual members do not automatically become available to
the AOP and has rightly pointed out that the AOP and the individual members are different entities in law, however, we fail to see
any transfer of “unexplained resources” by the members to the AOP as on 01-07-1998. As pointed out above, the individual
members have shown an investment of Rs.23,50,000/- in their opening capital accounts in the AOP as on 01-07-1998 when they
were actually in possession of an aggregate amount of Rs.95,83,855/- on that date. There is nothing on record to show that the
actual balance amount in their respective capital accounts as on 01-07-1998 is higher than Rs.23,50,000/- in the aggregate. The
differential amount of Rs.72,33,855/- referred to by the IAC is the amount available with the individual members admittedly in excess
of the amounts cited in their respective capital accounts. There is nothing on record to show that any amount out of this

Rs.72,33,855/- has actually been transferred to the AOP as on 01-07-1998 and not so declared in the partners capital accounts. It would
have been an entirely different matter if the IAC had been able to establish that the individual members had declared an amount of
Rs.23,50,000/- in their respective opening capital balances in the AOP but had actually disbursed a higher amount or had declared
an aggregate amount of Rs.23,50,000/- when the total moneys available to them was less than Rs.23,50,000/-. It is not enough to
say that whatever moneys are available with the individual members are automatically freely available for use in the AOP. Needless
to say, if the individual members are to increase their investment in the AOP over and above that declared in their capital accounts
in the AOP then they would be required to either augment their capital contributions in the AOP/or
(9) ITA No. 2956/LB/2001
make an advance to AOP by way of loan. In the case presently before us, there is no augmentation in the capital balances of the
respective members in the AOP as on 01-07-1998 and no advance has been made by any of the members to the AOP by way of
loan. In short, individual members of the AOP have done nothing that can reasonably be interpreted as an unexplained investment
made by them in the AOP. The analysis as made by the IAC in this regard is thus found to be faulty and the same can provide no
justification for invocation of revisionary jurisdiction u/s 66-A. It is pertinent to note here that it is the appellant’s assertion that the
“entire moneys” in the hands of the individual members have been contrived against foreign remittances received by them todate
that admittedly enjoys statutory exemption from levy of income tax under the Second Schedule to the Ord. The total investment by
the members in the AOP uptill 30-06-1999 aggregates Rs.27,446,236/- The IAC has not contested the inflow of foreign remittances.
Indeed he has kept silent on the issue of remittances except to say that the wealth tax returns showing the individual members net
wealth as on 30-06-1998 & 30-06-1999 did not specify the exact “form” that the foreign remittances assume i.e. whether in dollar or
pound sterling denomination etc. In our view, the cash reconciliation statements filed by the individual members satisfactorily
establish the availability of moneys in their individual hands as on 01-07-1998 & 30-06-1999 and no defects at all in these
statements have been identified by the IAC in the order passed by him u/s 66-A. As to the exact denomination (i.e. dollar/pound
sterling etc) of the remittances, as the foreign remittances ‘per se’ have not been challenged by the IAC, their “form” is not really
germane to the issues raised by him.
(10) ITA No. 2956/LB/2001
(iii). Our examination of the assessment record and the record of the IAC u/s 66-A requisitioned by us shows that the action taken by
the IAC u/s 66-A is a sequel to the directions given by the then Commissioner of Income Tax, Zone-C, Lahore, vide his letter No.
191/PA dated 01-11-2000 who after inspection of ht DCIT’s assessment order had evidently taken Umbrage at his handling
of the case and he had made an endorsement to the IAC, Range-II, Lahore, “for taking appropriate measures to set right the
things” (SIC). It appears to us that the IAC’s invokation of revisionary jurisdiction u/s 66-A is a sequel to this letter to him from the
Commissioner of Income Tax, Zone-C, Lahore and it is fair to conclude that the IAC may not have acted on his own in this manner
but he felt compelled to do so after receipt of the Zonal CIT’s above cited letter. Although this objection has not been raised by
appellant before us however we cannot but take cognizance of the factual position after having examined the relevant
record of the IAC where the facts stare us in the face and we cannot - indeed must not – close our eyes to the same .
In our judgement, exercise of revisionary jurisdiction u/s 66-A by the IAC is a very special statutory authority that must be exercised
independently by the IAC without any advice or direction from any other authority, including the Zonal CIT. In the present case, it is
patent that the IAC has reacted to the observations recorded by the Zonal CIT in his cited letter endorsed to him. The exercise of
jurisdiction by the IAC u/s 66-A is thus not shown beyond reasonable doubt to have indeed been exercised independently by the IAC
as the law requires that it must be exercised.
(11) ITA No. 2956/LB/2001
19. Looking at the matter in its totality, we are of the view that the order passed u/s 66-A is not tenable in law for the reasons recorded
Supra. The said order u/s 66-A is therefore hereby annulled.
Resultantly, the appeal succeeds.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
Back to TOC


Back to TOC
RA No. 153/LB/03
RA No. 154/LB/03
RA No. 155/LB/03
RA No. 156/LB/03
RA No. 157/LB/03
RA No. 158/LB/03
RA No. 159/LB/03
RA No. 160/LB/03
NTN: 06-34-0000101
Versus
Mr. Muhammad Naeem Goods, Akbari Mandi, Lhr. Respondent
Appellant by : Mr. Muhammad Asif, DR

ORDER
These reference applications by Revenue arise out of Tribunal’s order bearing ITA No. 1708 to 1715/LB/2000
(Assessment Years 1990-91 to 1997-98) dated 21-11-2003.
(2) RA No. 153-160/LB/2004

2. The applicant formulates the following questions, statedly, questions of law: -
a. Whether a single (combined) notice u/s 56 issued for more than one assessment years is incurably defective
in spite of the fact that section 56 of Income Tax Ordinance, 1979 does not lay down any such restriction.
b. Whether improper service of a notice is an incurable defect, making the assessment liable to annulment
instead of setting-aside.
3. The assessee / respondent is not present. The applications will be disposed off on merits.
4. According to the DR, issuance of combined notice u/s 56 for multiple assessment years does not warrant annulment and
setting aside of the assessments so made by the CIT(A) was consistent with statutory stipulation. It is submitted that where no
notice u/s 56 has been issued then any assessment framed would not be tenable in law but in the present case, a notice had
admittedly been issued and any defect therein with regard to service was curable and fresh assessment proceedings were
therefore in order as a remedial measure. In this context, the DR has referred to judgment cited as 39 Tax 30 SC. Pak, also
reported as 98 SCMR 91.
5. We have heard the DR and have perused the case law cited.
6. In our considered judgment, the Tribunal while ordering annulment of assessments proceedings for 1990-91 to 1997-98 in this
case has taken cognizance of multiple defects, including defect of a grave nature and the annulment is thus the accumulative result of all
these defects. Thus, the Tribunal has held that; (a) Notices
(3) RA No. 153-160/LB/2004
u/s 56 & 61 have not been served on the assessee at all nor these notices have been served on someone who has appeared before the
assessing officer at any stage or on someone who has filed any document at any stage; (b) the single notice u/s 56 issued for multiple
years, bears evidence of tampering insofar as assessment year “ 1996-97” has been altered perforce to assessment year “1997-98”, and
(c) A single notice u/s 56 has been issued for eight years. As held on Page-4 of Tribunal’s order, after taking cognizance of “all pertinent
aspects”, the Tribunal has come to the conclusion that the assessments framed u/s 63 for 1990-91 to 1997-98 are incurably defective and
hence liable to be annulled.
7. Looking at the matter in its entirety, we are satisfied that Tribunal’s findings do warrant annulment and the questions as formulated
by Revenue do not properly arise from Tribunal’s cited order as the issuance of a single notice u/s 56 for multiple years is not the only
reason given by the Tribunal for annulment. Admittedly, notice u/s 56 is required to be issued for the current as well as proceeding years
for which a new assessee is required to file returns of income where such returns have not been filed by the assessee on his own violation.
Previously, notice u/s 56 could only be issued for the current assessment year and for previous years notice u/s 65 was required to be

issued. However, that position has changed and necessary amendment has also been made in the statute. In the present case, there is no
cavil with the proposition that notice u/s 56 is required to be issued for assessment years 1990-91 to 1997-98.
(4) RA No. 153-160/LB/2004
However, in our judgment, just as an assessee is required to file return of income separately for each year so it is that statutory notice
should also be issued separately for each year. Thus, where an assessee is required to file returns of income for eight years, the assessee
cannot disclose lump sum income for eight years but has to bifurcate his income for each year separately and file separate returns of
income on a yearly basis. The law as well as propriety requires that the assessing officer compute income separately for each year even
when a ‘consolidated’ order of assessment is passed. By calling on the assessee to file returns for eight years through a single notice
followed by notice u/s 61 for a similar period, the assessee is caused prejudice insofar as the assessee may feel constrained to explain the
income arising in these eight years in a single appearance before the assessing officer. Imagine the assessees discomfiture in an
“accounts case” where accounts and supporting documentation for many years have to be produced before the assessing officer on a
single date for which a combined notice has been issued. This is certainly not what statute contemplates. The text of the statute [section
56 of the repealed Ordinance, 1979] unequivocally refers to assessment in the ‘singular’. No where in the statute is “assessment” referred
to in the ‘plural’. We are aware that ‘singular’ may be read as ‘plural’ in certain situations. However, we do not think it appropriate to read
the provisions in this manner here.
(5) RA No. 153-160/LB/2004
8. Besides, the observations recorded Supra, we have to point out that the multiple assessments made in this case have been held to
suffer from a grave infirmity insofar as strong indications of “tampering” have been pointed out by the Tribunal. The department has not
filed any misc. application to contest the Tribunal’s finding with regard to such tampering. The department has also not filed any misc.
application to contest the Tribunal’s finding that the single notice u/s 56 / 61 has not been served on the assessee or on any person who
had any connection with the assessee. It would thus appear that the department has accepted the Tribunal’s findings on both these
aspects. The conclusion is therefore inescapable that given the ambient circumstances referred to Supra, assessments such as have been
made in the present case are indeed incurably defective and hence do merit annulment.
9. Reference is rejected.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
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INCOME TAX APPELLATE TRIBUNAL OF PAKISTAN

Back to TOC
-----------------------------------------------------------------
ITA No. 2789/LB OF 1999 DECIDED ON 28/07/2004
CITATION: DTAT2608 ; ; 2005PTD224 ;
-----------------------------------------------------------------
Income Tax Ordinance, 1979 -- Sections 2(29), 23(1)(viii),
23(1)(xviii), 134 --
Deductions -- Department had assailed in appeal order passed by

Commissioner Income Tax with regard to deletion of addback made
by Assessing Officer on account of payment of `service charges'
by assessee to Federal Bank on account of use of credit line
extended by said Bank to assessee -- Department also had
contested deletion of addition made by DCIT on account of amount
realized by assessee from sale of various immovable properties of
loan defaulters -- In case of `service charges' Department had
emphasized that amount in question was not èxpenditure' at all,
but was part of income earned by assessee from its member Banks
and was Federal Bank's share in such income -- `Service charges'
were the same as ìnterest' as defined in Section 2(29) of Income
Tax Ordinance, 1979, if so, the service charges would qualify to
be treated as admissible expenditure there placement in Section
23(1)(viii) of Income Tax Ordinance, 1979 could conceivably pose
problems but provisions of Section 23(1)(XVIII) of the Ordinance,
appeared to come to assessee's rescue as payment did appear to
have been made wholly and exclusively for the purpose of business
-- No justification existed to treat payment of service charges
as inadmissible more so on technicalities -- With regard to gain
from disposal of defaulter's immovable properties held by
assessee as collateral, assessee's case was less than convincing
-- No evidence had been produced by assessee at any stage of
proceedings to establish that a genuine effort had been made to
dispose of properties by way of auction at the time of default --
Facts had shown that assessee held the properties for a
considerable length of time before finally selling them and
making a significant gain on the transaction -- In the
interregnum no capital investment was made in the commercial
`development' of those properties and the gain on their
disposition could not be described as a `Capital gain' -- Said
properties came into assessee's possession as collateral for loan
advanced and title passed on to assessee when the debtors
defaulted -- No capital outlay, in circumstances was involved for
their acquisition by assessee -- Assessee had held on to said
properties with deliberate design and it was assessee's intention
to make a profit from their sale in the market over and above the
amount actually owed to assessee by debtors -- Said gain, in
circumstances could not be treated as accidental windfall gain,
but instead it was a gain contrived by deliberate design -- Order
of Commissioner Income Tax in that regard was vacated and
findings as recorded by Assessing Officer were reinstated --
Present: KHAWAJA FAROOQ SAEED, JUDICIAL MEMBER and MUHAMMAD

MUNIR QURESHI, ACCOUNTANT MEMBER.
I.T.As. Nos. 2789/LB, 4491/LB and 5269/LB of 1999, decided on

28th July, 2004.
Mehmood Jaffery, D.R. for Appellant.
Iqbal Hashmi and Abdul Hameed Khan, F.C.A. for Respondent.
Date of hearing : 25th May, 2004.
-----------------------------------------------------------------
ORDER
Assessment years 1997-98 and 1998-99 (under section 62)
1. These appeals by Revenue arise out of order passed by the

CIT(A) Zone-I, Lahore, dated 15-4-1999.
2. In both these years the department assails the deletion of

add-back made by the Assessing Officer on account of payment of
`service charges' by the assessee to the Federal Bank for
Cooperatives on account of use of credit line extended by the
said bank to the assessee. The Department also contests the
deletion of addition made by the DCIT on account of amount
realized by the assessee from sale of various immovable
properties of loan defaulters. For 1998-99 the Department also
contests the CIT(A) direction for application of tax rate @ 20%

on dividend income.
3. According to the DR the amount charged by the assessee to

it's profit and loss account in the two years does not qualify to
be treated as `business expenditure' as it does not fall in any
of the Heads listed in section 23(1) of the Ordinance, 1979. In
fact the Department is of the view that these so-called service
charges are not èxpenditure' at all but a passing on by the
assessee to the Federal Bank of part of the income earned by the
assessee from it's member banks on account of their use of the
credit line provided to the assessee by the Federal Bank. The
D.R. has further emphasized that these service charges are not
the payment of a definite and ascertained amount of interest on
any loan amount advanced to the assessee but is rather a peculiar
and unique financing arrangement contrived in league with the
Federal Bank on a profit and loss sharing basis for which there
is no statutory sanction as admissible business expenditure.
4. As regards amount realized by the assessee from sale of

the immovable properties of it's loan defaulters, the DR argues
that the ambient circumstances go to show that the realized
amount constitutes `revenue' being an àdventure in the nature of
trade' and has thus rightly been included in the assessee's total income.
5. AR of assessee respondent has contested the departmental

arguments and with regard to `service charges' has aruged that
various appellate decision support the assessee's stance that
such service charges to qualify to be treated as legitimate
business expenditure.
6. These judgments are referred to as under:
I.T.As. Nos. 1087/LB of 1989-90, I.T.As. Nos. 1105, 1106

and 3139/LB of 1992-93, I.T.As. Nos. 3819 to 3822/LB of
1997, I.T.As. Nos. 1834 and 4404/LB of 1999, I.T.As. Nos.
1075/LB of 1989-90, 599/LB/1993, I.T.As. Nos. 4491 to
4495/LB of 1997 (Assessmet years 1987-88 to 1989-90 and
1991-92 to 1998-99) order dated 7-12-1999.
7. The A.R. further argues that these `service charges' are

included in the definition of ìnterest' given in section 2(29)
of the Ordinance, 1979.
8. In the case of amount realized from sales of defaulters

immovable properties, the AR submits that the proceeds over and
above the amount in default is a `windfall' gain and hence exempt
under the law from levy of income-tax. The assessee has referred
to ITAT judgment bearing W.T.As. Nos. 1458/LB to 1462/LB of 1997
and W.T.As. Nos. 788 and 789/LB of 2000 (Assessment years 1991-92
to 1997-98), dated 15-8-2003 in support of its contention.
9. We have heard both sides and have examined the available

record and perused the judgments cited and our findings are
recorded as under:
`Ìn the case of service charges Revenue has emphasized

that the amounts in question are not èxpenditure' at all
but rather a part of the income earned by the assessee
from it's member banks and are the Federal Banks share in
such income. Now if this were to be treated as correct
then it follows that there is a joint venture between the
Federal Bank and the assessee (as members of an AOP) and
the Federal Banks alleged share in aggregate receipts of
the assessee Bank must then be excluded from the
assessee's income. This of course would be of no benefit
to Revenue. In any case this scenario does not appear to
be consistent with the factual position on the ground.
Shorn of semantics, and looking at matters in a broad

perspective, the operative facts and circumstances do
appear to suggest strongly that these `service charges'
are the same as ìnterest' as defined in section 2(29) of
the Ordinance, 1979. If so, the service charges would
qualify to be treated as admissible expenditure.
Admittedly their placement in section 23(1)(viii) of the
Ordinance, 1979 (since repealed) could conceivably pose
problems but the provisions of section 23(1)(xviii) of the
Ordinance do appear to come to assessee's rescue as the
payment does appear to have been made wholly and
exclusively for the purposes of business. There is no
denying that the assessee is in the business of making
available moneys to it's members on a concessional basis

for common (cooperative) benefit. Thus the credit line

provided to the assessee by the Federal Bank on a
concessional basis (i.e. not the market rate of interest)
is in turn made available by the assessee to it's members
who invest the money in Government securities and any
gains realized are shared by the members with the assessee
who then passess on a part of such gains to the Federal
Bank by way of compensation for making the credit line
available to the assessee in the first place. This is
clearly a `bona fide' arrangement especially taking into
account it's context (i.e. the fact that it is part of a
cooperative venture). That being so there appears to be no
justification to treat the payment of service charges as
inadmissible more so on technicalities. The judgments
referred to by the assessee also lend strong and
convincing support to assessee's case. It is also
significant that the amount received by the assessee from
member banks for making the credit line available to them
has been offered for levy of Income Tax. Looking at all
pertinent aspects we will maintain the CIT(A) findings
with regard to `service charges.'
With regard to gain from disposal of defaulter's immovable

properties held by the assessee as collateral, the
assessee's case is less than convincing. The ITAT judgment
referred to by the assessee has been examined and is found
to be of no avail. It deals with wealth the assessment in
assessee's case and is of no relevance here. A crucial
question here is assessee's ìntention' when it held on to
the properties after the default took place and made
little or no effort to dispose them in the market and
realize the amount in default. No evidence has been
produced by the assessee at any stage of the proceedings
to establish that a genuine effort had in fact been made
to dispose off the properties by way of auction at the
time of default. Rather, the facts go to show that the
assessee held on to the properties for a considerable
length of time before finally selling them and making a
significant gain on the transaction. In the interregnum no
capital investment was made in the commercial
`development' of these properties and the gain on their
disposition cannot therefore be described as a `capital
gain.' Admittedly these properties came into assessee's
possession as collateral for loan advanced and title
passed on to the assessee when the debtors defaulted. No
capital outlay is thus involved for their acquisition by
the assessee. The ambient circumstances are clearly
compelling and in our considered view lead to the
inescapable conclusion that the assessee had held on to
the properties with deliberate design and it was the
assessee's intention to make a profit from their sale in
the market over and above the amount actually owned to the
assessee by the debtors. Under these circumstances the
gain cannot be treated as accidental, windfall gain but
instead it is a gain contrived by deliberate design and
hence an àdventure in the nature of treade.' The CIT(A)
has not applied his mind properly to the pertinent facts
and circumstances involved and has unjustifiably relied
largely on `past history' in reversing the departmental
treatment. Needless to say, in income tax proceedings each
year is independent and is required to be so treated and
assessment is required to be finalized strictly on the
basis of the operative facts, prevalent circumstances and
the relevant transactions that have taken place in the
given timeframe. Looking at the matter in it's entirety we
hold that the CIT(A) findings with regard to gain on
disposition of defaulter's immovable properties are
misconceived. We therefore, vacate the order of the CIT(A)
in this regard and reinstate the findings as recorded by
the Assessing Officer.
As regards departmental ground relating to tax rate on

dividend, this ground has not been pressed by the D.R. in
any case the CIT(A) has assigned assessee the status of
banking company and has directed that the applicable tax
rate available in the case of banking companies be applied
in assessee's case. This direction is entirely reasonable
and no interference is called for here.''
10. Resultantly, the departmental appeals for 1997-98 and

1998-99 succeed to the extent and in the manner described Supra.

Assessment year 1997-98 (under section 91).
11. This is a departmental appeal arising out of order passed

by the CIT(A) Zone-I, Lahore, dated 11-5-1999.
12. It is the departmental contention that the CIT(A) has

unjustifiably deleted the penalty levied for non-payment of tax
amount in default.
13. It is the assessee's contention that penalty as levied was

no maintainable as the penalty action was taken at a time when
the amount in question had not yet become `due'.
14. The DR is unable to rebut the assessee's contention.

Looking at the facts and circumstances we find that no exception
can be taken to the adjudication as made by the CIT(A) with
regard to deletion of penalty amount in question.
15. The departmental appeal is rejected.
Order accordingly.
Back to TOC

ITA No. 2438/LB/04

NTN: 05-24-0153757
M/s Ashfaq Brothers, SAM, Lahore. Appellant
Versus
Taxation Officer, Circle – 24, Zone – A, Lahore. Respondent

Appellant by : Sh. M. Akram, Adv.
Respondent by : Mr. S.A. Masood Raza Qizalabash, DR
ITA No. 5597/LB/04

Taxation Officer, Circle – 24, Zone – A, Lahore. Appellant
Versus
M/s Ashfaq Brothers, SAM, Lahore. Respondent
Appellant by : Mr. S.A. Masood Raza Qizalabash, DR

Respondent by : Sh. M. Akram, Adv.

ORDER
ITA No. 2438/LB/04
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 u/s 12 (18) of the Income Tax Ordinance, 1979 (since
repealed) when the amount in question i.e. Rs.9 lacs 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 u/s 122 of the Income Tax Ordinance, 2001,
addition of Rs. 9 lacs u/s 12 (18) of the repealed
(2) ITA No. 2438/LB/04 etc
Income Tax Ordinance, 1979 was illegal as section 12 (18) of the Income Tax Ordinance, 1979 (since repealed) was not on the
statute on 10-04-2003 when assessment order for 2000-01 was passed u/s 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 2000-01
and decision of the President of Pakistan in Complaint No. 530-L/2002 [Zahid Sadiq Vs. CBR] communicated by CBR 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. 01-07-2002 and cannot be
applied to the assessment order for assessment year 2000-01”
2. According to the DR, scrutiny of the assessment for 2000-01 revealed that amount of Rs.9 lacs had been declared by the
assessee in the wealth statement as on 30-06-2000 In reconciliation statement filed by the assessee, it was clarified that this
amount of Rs.9 lacs 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 u/s 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 lacs had been received by the assessee other than
through normal banking channels and appeared to be in the
(3) ITA No. 2438/LB/04 etc
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 no where stated that the amount of Rs. 9 lacs 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
(2005) 91 Tax 60 (FTO Pak)
Vol. 9 No. 3 Tax Forum 27
1. In the case presently before us assessment for 2000-01 has originally been finalized u/s 59 (1) of the Income Tax
Ordinance, 1979 (since repealed) by operation of law and this assessment has been subsequently taken up for
“amendment”
(4) ITA No. 2438/LB/04 etc
u/s 122 (1) of the Income Tax Ordinance, 2001 when on scrutiny it was found that amount of Rs. 9 lacs had been
received by the assessee from his real brother otherwise than through crossed cheque or normal banking channels. In
our considered judgment, on 10-04-2003 order has rightly been passed u/s 122 (1) of the Income Tax Ordinance,
2001, as the Income Tax Ordinance, 2001, [sub-section (1) of section 122] thereof was amended through Finance
Ordinance, 2002 to extend its applicability to assessment orders issued u/ss 59, 59A, 62, 63 & 65 of the repealed
Income Tax Ordinance, 1979. This has been duly clarified by CBR in its letter C. No. 3 (12)IT-Jud/04 dated 24-04-
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 2000-01 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.
(5) ITA No. 2438/LB/04 etc
3. As no assessment proceedings for 2000-01 in the case of the assessee were pending as on 01-07-2002, the
amendment to assessment finalized u/s 59 (1) of the repealed Income Tax Ordinance, 1979 [by operation of law] could
only to have been made on 10-04-2003 u/s 122 of the Income Tax Ordinance, 2001.
4. As for invokation 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 lacs is concerned, the assessee has admitted in the reconciliation statement that
the amount of Rs. 9 lacs 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 lacs 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, advance 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
(6) ITA No. 2438/LB/04 etc
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 thru 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 lacs 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 and 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 10-04-2003 when the
order u/s 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 10-04-2003, 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
(7) ITA No. 2438/LB/04 etc
have referred to section 39 (3) of the Income Tax Ordinance, 2001 in the order passed u/s 122 (1) of the Income Tax
Ordinance, 2001, on 10-04-2003. 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 lacs 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 u/s 12 (18) of the repealed
Income Tax Ordinance, 1979 may therefore be taken as addition u/s 39 (3) of the Income Tax Ordinance, 2001 read
with section 12 (18) of the repealed I.T. 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 lacs
back to the assessing officer so that the bona fides of the person from whom the amount of Rs. 9 lacs 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
(8) ITA No. 2438/LB/04 etc

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 vacate the direction of the CIT (A) to the assessing officer to reexamine the addition made u/s 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 lacs 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.
ITA No. 5597/LB/04
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 lacs to Rs.64,50,000/-.
2. According to the DR, the assessee failed to produce any books of accounts / supporting documentation at assessment
stage and declared version was therefore rightly discarded and sales reasonably estimated at Rs.70 lacs 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 u/s 62 was also served. It is further the DR’s contention that spot
enquiry
(9) ITA No. 2438/LB/04 etc
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
u/s 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 lacs and so cited in the survey form. That being so, it is contended that sales estimate of
Rs.70 lacs in assessment year 2002-03 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.

ACCOUNTANT MEMBER
JUDICIAL MEMBER
Back to TOC
ITA No. 5373/LB/03

ITA No. 5374/LB/03

NTN: 06-09
Versus
Muhammad Ashraf Sukara, Prop: Q Tech

Computers, Lahore. Respondent

Respondent by : None.
ORDER
These appeals by revenue assail the order of the CIT(A) on the Grounds that (i) the CIT(A) “VACATION” of the assessing
officers order was not consistent with the statute (ii) issuance of (single) notice u/s 56 for two years was not illegal and (iii)ex

parte decision taken by the AO for default of notice u/s 56 after the last date specified in the notice for compliance was not
illegal.
2. The assessee respondent is not present and no adjournment has been sought. The appeal will be decided on merits.
3. According to the DR the departmental Grounds as filed are self explanatory and it was patent that the order of the CIT(A)
was not tenable in law and that the findings recorded were not consistent with express statutory stipulation.
4. I have heard the DR and examined the available record and I find that under the Statute the first appellate authority may
confirm, reduce,
(2) ITA No. 5373-5374/LB/03
set aside or annul an assessment in appeal before him. Before doing that he will ofcourse “vacate” the impugned order of the
assessing officer. In the present case, the CIT (A) has “vacated” the order of the assessing officer but he has not specified,
precisely, what consequential action he had in his mind after the vacation. To that extent therefore the order of the CIT (A) is
“inchoate”.
5. As for issuance of single notice u/s 56 for two assessment years, though not a preferred mode to call for returns of
Income for two asstt years, is not illegal. Issuance of “Multiple Statutory Notices” under different provisions of the statute ( such
as notice u/s 56 and Notice u/s 61) simultaneously, is however illegal, as it causes prejudice to the assessee, and it has been so
held by the Tribunal [(2005) PTD (Trib 234)]. As for an exparte asstt made after the date of compliance cited in the notice, the
Lahore High Court in at least two Division Bench judgments has held that that this is not illegal PROVIDED default is properly
established and the assessing officer takes cognizance of assessee’s default on the due date ie the date specified in the notice.
[(1996) PTD 1125 (LHC)] & [PLD 1975 Lah 893.] The ITAT has followed these in its judgments reported as [(2004) 90 Tax 325
(Trib)] [(2005) PTD Trib 211].
6. After due consideration, the order of the CIT (A) is hereby vacated and the CIT(A) is directed to rehear the appeals for
1998-99 & 1999-2000 filed by the assessee against the orders of assessment of assessee’s total income for these years and to
pass a speaking order, strictly in accordance with law.

ACCOUNTANT MEMBER
(empowered u/s 130(8)(a) of the Income Tax Ordinance, 2001 -------sitting singly)
Back to TOC
ITA No. 4203/LB/03

NTN: 16-22-0731900
Commissioner of Income Tax, Gujranwala. Appellant
Versus
Saifullah Iron Merchant, Jalalpur Bhattian. Respondent

Respondent by : Syed Nisar Gillani, Adv.
ORDER
This appeal by Revenue arises out of order passed by the CIT(A) and it is the departmental contention that the first
appellate authority has unjustifiably deleted addition made u/s 13 (1) (aa) amounting to Rs.342,897/-.
2. According to the DR, the assessing officer had given full opportunity to the assessee at assessment stage to explain
accretion in wealth amounting to Rs. 342,897/- and the assessee had deposed that the said amount had arisen to the assessee
from agricultural lease land. However, necessary corroboration from the pertinent Revenue record could not be made to
substantiate assessee’s contention and resultantly the assessing officer rejected the assessee’s assertion and included the
amount in assessee’s total income u/s 13 (1) (aa) as being unexplained as to source. In first appeal, however, the CIT (A)
accepted assessee’s contention that the said amount represented assessee’s agricultural income from land obtained on lease
and the CIT (A) has referred to a statement from the landlord (lessor) that he had indeed given land
(2) ITA No. 4203/LB/03
measuring 115 acres to the assessee (lessee). However, this statement was not further corroborated before the CIT (A) and no
Revenue record was referred to nor placed before him and it is the departmental contention that mere statement of the landlord
was not enough as this was a statement obtained by the assessee in a collusive manner simply to obtain tax benefit and such a
bald assertion cannot therefore be made basis for allowing credit to the assessee in the manner done by the CIT (A) in the
appellate order. In this context, it is explained that the alleged lessor is a close relative of the assessee and the reliability of this
statement from the alleged lessor is thus suspect.
3. The AR of assessee / respondent has referred to Supreme Court of Pakistan judgment cited as [1991 PTD 488] in
support of his contention that the land given out on lease by the landlord to the assessee was in the nature of a contract
between the assessee and the landlord and the income tax department had no power to interfere in the modalities or the terms
of said contract. It is explained that the land was given out to the assessee on lease @Rs.3500/- per acre and from such lease
land the assessee was able to realize agricultural income and the accretion in wealth for the amount of Rs. 342,897/- represents

the net amount realized by the assessee from such land.
4. The AR of assessee / respondent has submitted a document statedly issued by the “Patwari” to substantiate the
contention that the land in question had in fact been obtained on lease by the assessee. This document was examined by the
DR and he has pointed out several defects / deficiencies therein; (1) The document purportedly issued by the “Patwari” has not
been properly authenticated. The identity of the
(3) ITA No. 4203/LB/03
“Patwari” statedly issuing the certificate is not readily established at all. (2) The document does not specify precisely the exact
amount of land given to the assessee on lease. In column-5, it is stated that “approximately 100 acres” of land is involved.
According to the assessee, he has obtained 115 acres land on lease. Whenever, the “Patwari” certifies land given on lease, the
exact area is invariably specified and there can be no “approximate” entry in this regard. (3) The lease period is no where
specified in the document. It is not readily apparent as to which period it relates to. (4) It is not at all clear whether the land
allegedly obtained on lease by the assessee is irrigated land or otherwise. Column-4 makes no clarification in this regard. If it is
not irrigated land but “Banjar land” then how can it be reasonably expected to yield “income” to the extent claimed by the
assessee? (5) In column-3, no personal details of the lessor allegedly giving land on lease to assessee have been entered. Only
particulars of the lessee had been entered. (6). The top portion of the document has not been filled in at all and there is no entry
against “Mauza”, “Tehsil” & “District”.
5. These defects / deficiencies were confronted to the AR of assessee / respondent and by way of rebuttal, the AR
submitted that the so called defects / deficiencies cited were not substantive in nature and the essential contention of the
assessee was in fact properly established through the said document.
6. The DR reiterated that assessee’s contention as to source of amount in question treated as unexplained by the assessing
officer was not properly established as required under the law and that the CIT (A) had wrongly deleted the said amount. It was
emphasized that the
(4) ITA No. 4203/LB/03
document now being placed before the Tribunal had not been earlier placed before the assessing officer or before the CIT (A)
and that this document was wholly defective.
7. I have heard both sides and have examined the available record and in my considered judgment, the deletion of the
amount in question by the CIT (A) is not proper as the assessee has indeed not been able to establish conclusively that the
accretion in the wealth to the extent of Rs. 342,897/- represented assessee’s income from agriculture. No reliable documentary
evidence regarding assessee’s alleged agricultural income has been placed either before the assessing officer or before the CIT
(A) and the document now being placed before the Tribunal again does not conclusively and properly establish assessee’s
contention. No doubt, in the case of a contract between two parties a third party does not have any right to interfere with regard
to the modalities / terms and conditions of the said contract. However, the first condition is that there should be a bona fide,
“arms length”, transparent, contract between two genuine parties and there should be no doubt that the contract had been
artificially contrived to illegally benefit one party with regard to its income tax liability. In the present case, as explained Supra, at
the appropriate forum i.e. income tax assessment officer, the assessee was not able to properly substantiate his contention that
there was in fact a genuine contract in existence at the material time and that the assessee was actually able to realize
agricultural income to the extent being claimed as a direct consequence of the contract entered into by him with the owner of the
land in question. A simple statement by one person that he has given his land on lease to another person would not be sufficient
in the context of the case of the present assessee’s accretion in wealth.
(5) ITA No. 4203/LB/03
The ambient circumstances are strongly against the assessee. The alleged “contract” appears to be in the nature of an
afterthought and appears to have been artificially contrived when assessee was questioned on the accretion in his wealth by the
assessing officer. No documentary evidence whatsoever was furnished by the assessee before the assessing officer to
establish conclusively that the land allegedly obtained by him on lease was in fact used for agricultural cultivation by him and
that agricultural produce allegedly grown on this land was actually disposed off in the market at a net gain of Rs.342,897/- that
resulted in accretion in the assessee’s wealth. The document from “Patwari” is wholly suspect. It throws no light whatsoever on
the exact nature of the land and on the alleged cultivation made thereon. The document does not clarify whether it is canal
irrigated land or otherwise or whether it is “Banjar” land. The alleged document appears to be hastily filled in and no attention
appears to have been paid to the various columns, as detailed Supra. Looking at the matter in its totality, therefore, given the
facts and circumstances obtaining in assessee’s case, I am of the considered opinion that the Hon’ble Supreme Court of
Pakistan judgment referred to Supra, is not properly applicable at all. That being so, I hereby vacate the order of the CIT (A) and
reinstate the order of the assessing officer.
8. The departmental appeal is accepted.

ACCOUNTANT MEMBER
(empowered u/s 130(8)(a) of the Income Tax Ordinance, 2001 -------sitting singly)
Back to TOC
1•
See “ Taxing reserves the right way” by M Iqbal Patel FCA in THE PAKISTAN ACCOUNTANT July-Aug 2002.
2
So held by the Tribunal in ITA No 51/LB/2002 (AY 1999-2000)dated 14-5-2002.

RJ MMQ

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Reported Judgments by M Munir Qureshi Page 1 of 122

Muhammad Munir Qureshi

Judgments written as Member,

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((2000) 82 TAX 105 (Trib.)J

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1992-93 Gross Loss 35% 35%

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BEFORE THE INCOME TAX APPELLATE TRIBUNAL,LHR BENCH,LHR

Late Haji Muhammad Hanif C/o Zohaib Jewellers, Lahore Applicant

CIT/WT, Zone-C, Lahore. Respondent

Applicant by : Mian Aashiq Hussain,ADV.

Respondent by : Mr. Anwar-ul-Haq,DR.

Date of hearing : 25-07-2001

Date of order : 27-07-2001

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The Reference application is disposed off as above.

(SYED NADEEM SAQLAIN ) (MUHAMMAD MUNIR QURESHI

ITA No. 552/LB/02

Commissioner of Income Tax, Multan. Appellant

Muhammad Shahid, Ex-Prop: Madina Cold Storage

Appellant by : Mr. Anwar Ali Shah, DR

Respondent by : Mirza Saleem Baig, Adv.

Date of hearing : 10-02-2004

Date of order : 10-02-2004

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(4) ITA No. 552/LB/02

(MUHAMMAD MUNIR QURESHI)

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INCOME TAX APPELLATE TRIBUNAL, LAHORE BENCH

Commissioner of Income Tax, MTU, DHA, Lahore. Applicant

Faiq Qayyum, Kashmir Chemical Ind., Lahore. Respondent

Applicant by : Mr. Bashir Ahmad Shad, DR

Date of hearing : 11-05-2004

Date of order : 11-05-2004

4. The question has been examined.

(2) ITA No. 100/LB/04

(4) ITA No. 100/LB/04

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the general industry norm.

10. Reference is refused.

(MUHAMMAD MUNIR QURESHI)

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INCOME TAX APPELLATE TRIBUNAL,LAHORE BENCH

M/s TetraPak Pakistan Limited, Lahore. Applicant

Taxation Officer, Circle – 11, Coys. II, Lahore. Respondent

Applicant by : Mr. Shahzad Hussain, FCA.,

Respondent by : Mr. Anwar Ali Shah, DR and

Date of hearing : 13-06-2003

Date of order : 25-08-2003

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(1997) 76 Tax 5 (SC. Pak) ; (2003) 87 Tax 8 (Trib) ;

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(MUHAMMAD MUNIR QURESHI)

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