KHALID WAHEED AHMED, JUDICIAL MEMBER.- Cross appeals have been filed by the assessee as well as the Revenue to impugn the order dated 16.6.2000 passed on I.T.A. No. 825 by the learned CIT & WT (A), Bahawalpur pertaining to the assessm ent year 1998-99.
2. As per grounds of appeal taken by the assessee, the Assessing Officer as well as the C.I.T.(A) have wrongly denied the right of exemption under Clause 118-C of Part I of Second Schedule to the income of the Industrial Undertaking earned through lease. The other ground of appeal taken by the assessee is that the C.I.T.(A) was not justified to confirm the addition of Rs. 16,000/- on account of Machinery Repairs in spite of his admission of the fact that this expenditure was the Lessor's responsibility as per agreement.
3. On the other hand, the contention of the Revenue, as per grounds of appeal, the learned C.I.T.(A) was not justified in directing to accept the declared fease money although the assessee has failed to substantiate it.
4. Relevant facts of the case under consideration are that the assessee is a private limited company deriving income from leasing out its cotton ginning and pressing factory. Return for the year under appeal was filed declaring total loss at Rs. 97,070/-. The Assessing Officer finalized the assessm ent u/S. 62 and determined total income at Rs. 73,030/-. During the year under appeal Cotton Ginning Factory was leased by the assessee to M/s. Ittefaq Corporation for yearly lease money of Rs. 2,00,000/-. The Assessing Officer did not accept the lease income on the basis of reasons stated in the assessm ent order and while finalizing the assessment he raised the lease money to Rs. 3,50,000/- and also refused exemption to the assessee u/S. 118-C. The Assessing Officer also made addition of Rs. 16,000/- in the machinery repair account. Being dis-satisfied with the assessm ent order, the assessee preferred first appeal. Learned C.I.T.(A) confirmed the assessm ent on the issue of Exemption with the findings that in the assessment years 1995 96, 1996- 97 and 1997-98, the exemption u/S. 118-C was also refused at the assessment stage. The assessee went in appeal against the orders for the above-mentioned years and .The first appellate authority vide Order dated 7.1.1999 in Appeal No. 947 for the assessment year 1995-96 and order dated 5.5.1999 in Appeals Nos. 200 and 201 for the assessment years 1996-97 and 1997-98 has confirmed the action of the Assessing Officer on this issue. Regarding addition out of P&L A/c under the Head Machinery Repairs, the findings of the learned C.I.T.(A) are that according to the agreement, if any big part is broken whose value exceed Rs. 15,000/- will be replaced by .First party i.e. The assessee.
However, the expenses in question pertain to repairs which are not covered under any para/point of the agreement, In view of this action of the Assessing Officer, according to the learned C.I.T.(A) the disallowance of expenses at Rs. 16,000/- was quite justified and he, accordingly, confirmed the same. As far as the issue with regard to the enhancement of lease income is concerned, the learned C.I.T.(A) considering the relevant facts for the year under appeal and past history of the case as well as appellate decision of his learned predecessor in the immediately preceding years, held that the DCIT was riot justified to enhance the' lease money to Rs.
4,0, 000/- and deleted the same addition accordingly.
5. The departmental appeal was earlier decided by the Tribunal vide an ex parte order under Rule 20(2) of the I.T.A.T. Rules. However, the order dated 30.6.2001 in I.T.A. No. 3738/LB/2000 pertaining to the assessm ent year 1998-99 was recalled by the Tribunal through order dated 7.11.2001 in M.A. No. 452/LB/2001.
6. Learned A.R. Stated that the issue of exemption under Clause 118-C of the Schedule is pending before the Lahore High Court in the writ filed against the order passed in revision pertaining to the assessm ent years 1996-97 and 1997-98 whereby the same issue was decided against the assessee. Learned A.R. Further informed that the issue was decided against the assessee by the I.T.A-.T. In the appeals pertaining to the assessment year 1990-91. However, it is the contention of the learned A.R. That the assessee is entitled for exemption under the provisions of Clause 118-A of Part-1 of Second Schedule being an Industrial Establishment which was formed exclusively for the purpose envisaged therein, It is the contention of the learned A.R. That the condition to engage in manufacturing was attributed to Industrial Undertaking and not to assessee and thus even if the Undertaking was leased out the assessee was entitled for exemption, It is also the contention of the learned A.R. That the Assessing Officer was not justified in rejecting the declared lease amount.
According to the learned A.R., the amount shown in the lease agreement was verifiable and could not be rejected by the Assessing Officer without any evidence contrary to it. In this context, learned A.R. Referred to the provisions of enforcement of Shariah Act, 1991 and submitted that the contract between the two parties was binding and third party was prohibited from intervening into the mutual agreement between the two parties, In support of his contention, learned A.R. Has also cited a decision of the Supreme Court of Pakistan reported as 1991 PTD 488. Learned A.R. Further contended that the order of the C.I.T.(A) for the assessment years 1996-97 and 1997-98 whereby the issue of leased amount was decided in favour of the assessee was confirmed by the I. T.A.T. Vide order dated 21.7.2000 in I.T.As. Nos. 4718 and 4719/LB/1999.
7. Learned D.R., on the other hand, depended the assessment order for the same reasons as quoted therein. According to the learned D.R., the lease agreement was not validly executed and the Assessing Officer was justified in rejecting the same.
8. ' Arguments of both the parties have been heard and the orders of the authorities below, perused, In the departmental appeals for the assessment years 1996-97 and 1997-98, he Tribunal upheld the directions of the learned C.I.T.(A) to accept the declared lease money with the following .Observations:- "Learned D.R. Who is present without assessment record was unable to provide any information with regard to filing of second appeal by the Revenue for the assessment year 1995-9.6. Learned A.R. Further submitted that the lease money declared by the assessee was also verifiable since complete particulars of the lessee were available. Under the circumstances of the case the findings of the C.I.T.(A) with regard to acceptance of declared lease income do not. Call for any interference which is hereby maintained."
9. The facts of the case remaining the same for the year under appeal, the impugned order of the C.I.T.(A) on the issue is also upheld and the appeal of the Revenue .0n this score fails. The contention of the assessee on the issue of exemption is not accepted in view of the history of the case. The appeal of the assessee on this ground, therefore, fails. With regard to the addition under the Head of "Machinery Repairs", the order of the C.I.T.(A) is also not disturbed since the assessee has failed to substantiate his claim on this issue.
10. Consequently, both the titled appeals of the assessee as well as of the Revenue being devoid of any merit are dismissed accordingly.