1. Through these two appeals, the appellant has objected against the consolidated impugned order of the learned CIT(A), dated 15.7.2005 for the assessment years under review i.e. 2000-2001 and 2001-2002 on the following common grounds:--
(1) That the order of the learned CIT(A) is bad in law and facts and circumstances of the case.
(2) That the learned CIT(A) is not justified in confirming the- execution of the assessee's case from the ambit of presumptive tax regime which otherwise fully qualified for assessment under Section 80C.
(3) That learned C!T(A) has erred in upholding the initiation of the proceeding under Section 56 and consequential proceedings on the basis of the same.
(4) That finalization of assessm ent under Section 63 by the Assessing Officer and its confirmation by the CIT(A) is against the law and facts of the case.
(5) That the order passed by the succeeding Assessing Officer is without jurisdiction for want of notice and its confirmation by the CIT(A) is equally unjustified.
(6) That the learned CIT(A) was not justified to confirm the estimate of entire receipts in the hands of the assessee-taxpayer whereas the assessee only earned commission income by rendering services to its principal company.
(7) That without prejudice to above grounds, the learned CIT(A) was not justified to maintain Assessing Officer's estimate of daily receipts at Rs. 1,96,800/- in total disregard to the bald estimate of total contracts traded daily and commission accrued per contract.
(8) That the estimate of receipts by the Assessing Officer at Rs. 7,08,48,000/- as against declared at Rs. 42,51,746/- and modification of the same by the learned CIT(A) to Rs. 4,92,0, 000/- for the assessee year 2000-2001 and at Rs. 7,79,32,800/- as against declared at ' Rs. 46,76,918/-for the assessm ent year 2001- 2002 and modification of the same by the learned CIT(A) to Rs.
2. 5,41,20,000/- is still arbitrary, harsh and highly excessive.
(9) That the learned CIT(A) has totally ignored that the concept of allowance of expenses @ 50% of the total receipts is alien, to the law of income tax and facts borne on record in this case.
(10) That the appellant reserves his right to alter, add or amend any grounds of appeal before the disposal of present appeals.
3. The facts of the case as mentioned in the impugned orders of the Officers below are that the appellant in this case is an URF deriving income from brokerage/commission and dealing in foreign exchange. As per the assessm ent order, the appellant filed statements under Section 143-B of the repealed Ordinance, 1979 declaring commission at Rs. 42,51,746/-. And at Rs. 46,76,918/- for the two assessm ent years under review i.e. 2000-2001 and 2001-2002 respectively. Tax was not deducted at source on commission under Section 50(4) of the repealed Ordinance, 1979 and the appellant itself paid an amount of Rs. 2,12,600/- and at Rs. 1,80,000/- for the two years respectively.
4. The Assessing Officer did not accept the contention of the appellant and framed the assessment under. Normal law. Notices issued under Section 56 of the repealed Ordinance, 1979 remained un- complied with. The appellant has been dealing in US Dollars alongwith other major currencies. Most of the forex transactions are performed electronically. Trades are executed in standard contract sizes by depositing a fraction of the contract value. US Dollars 80 are charged per contract as commission irrespective of any profit or loss accruing to the investor. Enquiries were conducted and as per assessm ent order, trading house registers were quietly perused and some vital information also gathered from inside the business premises as per the assessment order. Notice under Section 62 of the repealed Ordinance, 1979 was issued and reply received was considered while framing the assessm ent. The Assessing Officer treated 41-investors capable of trading and considered the same number of contracts/offered/traded daily. Total commission for the assessm ent year 2000-2001 was estimated by taking commission US Dollars 80 per contract and number of working days being 360. Dollars' conversion rate to Pak Rupees was taken at Rs. 60/-.
5. Total receipts were estimated for the assessment year 2000-2001 at Rs. 7,08,48,000 and for the assessm ent year 2001-2002 at Rs. 7,79,32,800/- by increasing 10% of the receipts estimated in the assessm ent year 2000-2001. Expenses were allowed being l/3rd of gross receipts at Rs.
6. 2,36,16,000/- and at Rs. 2,59,77,600/- and. Net income worked out at Rs. 4,72,32,000/- and at Rs.
7. 5,19,55,200/- for the two years under review respectively.
8. The appellant filed appeal before the learned CIT(A), who has upheld the action of the Assessing Officer framing the assessm ent under normal law with the following observations:- ."Perusal of details of certificates furnished by the appellant has revealed that the appellant could not produce, both at assessm ent and appeal stage, any evidence regarding receipt of commission on its name from the Principal, Messrs Harvest Top worth |(Macau) Limited on the basis of which statements under Section 143-B of the Income Tax Ordinance, 1979 were filed, It becomes obvious that the appellant is an independent Forex broker who is soliciting, contracting, advising and assisting the clients of its own behalf and is supposed to pay tax on the income earned from its operation in Pakistan. Moreover, under Section 80C(1) read with Section 80C(2)(ia) and Section 80C(4) of the Income Tax Ordinance, 1979, the amount representing payments from which tax is deductible under Section 50(4A) is deemed to be the income of the recipient and the tax deducted under Section 50(4A) is deemed to be the final discharge of this tax liability/ The appellant has not been able to produce any supporting evidence in respect of its claim that the "indenting commission" was received on its name from Top worth Investment (Macau), Limited which could justify the filing of statements and^f Section 143B of the Income Tax Ordinance, 1979. The Assessing Officer has rightly rejected the contention of the appellant and he was also justified to frame the assessm ent under normal law."
9. Likewise, the action of the Assessing Officer framing the assessment under Section 63 of the repealed Ordinance, 1979 has been upheld with the following observations:-- "Statutory notices under Sections 56 and 62. Were issued and properly served upon the appellant.
10. Reply furnished by the appellant in response to notice under Section 62 was examined and considered by the Assessing Officer while framing the assessment. During the course of assessm ent proceedings, a number of opportunities of being heard were provided which also availed by the appellant. The successor Assessing Officer was not legally required to issue such notices again as sent by his predecessor during the course of assessment proceedings. As the legal requirements of giving an opportunity of being heard has been fulfilled by the Assessing Officer, therefore, the contention of the appellant on his account is not justified. The appellant failed to furnish returns of income in response to notice issued under Section 56 of the Income Tax Ordinance, 1979, therefore, the assessment framed under Section 63 is justified and action of the Assessing Officer is, therefore, upheld."
11. However, relief has been allowed while reducing the working days in the following manner:-- "The Assessing Officer rejected the contention of the appellant regarding filing of statements under Section , 143B, therefore, he was justified to frame the assessment under normal law. Daily receipts have been estimated after considering the contention of the appellant and examination of documents furnished at the time of assessment proceedings. The appellant could not produce sufficient evidence in support of its receipts and the Assessing Officer has rightly estimated daily receipts at Rs. 1,96,8007-'for the assessment year 2000-2001. The estimation of daily receipts are, therefore, found justified and upheld. However, the-contention of the A.R, of the appellant regarding excessive number of working days adopted by the Assessing Officer is correct, In the written arguments the A.R. Of the appellant has worked out the number of working days. Being 250. In the comments on written arguments, the Assessing Officer (Legal), MTU, Lahore has also accepted that number of working days being 250 are reasonable. Accordingly, receipts are to be estimated by taking number of working days being 250 relevant to the assessment year 2000-2001. Receipts for the assessm ent year 2001 -2002 are to be worked out by increasing 10% of the receipts, as worked out above for the assessm ent year 2000-2001."
12. The learned CIT(A) has also directed to allow P&L-expenses to the extent of 50% of the receipts observing as. Under:- "The perusal of record indicates that the appellant only provided details of expenses incurred under the head rent and utilities on the .Basis of which the Assessing Officer allowed-expenses for both the assessm ent years. Details of total expenses incurred by the appellant were not provided during the assessm ent proceedings, whereas the Assessing Officer accorded proper opportunity to the appellant to provide details of actual expenses incurred during the course of business, In the written arguments-the A.R. Of the appellant has mentioned that "the department has full knowledge of the detail of expenses". On the one hand the A.R. Of the appellant failed to furnish any evidence in support of actual expenses and on the other hand the^ Assessing Officer allowed expenses, without any grounds, It is common knowledge that substantial expenses are incurred in this line of business which would have been allowed while calculating net income. The Assessing Officer is, therefore, directed to allow P&L expenses to the extent of 50% of the receipts worked out in consequence of this ."
13. Now, .The appellant is before this Tribunal on the above mentioned grounds of appeal.
14. Mr. Rehan Bashir, ITP alongwith Mr. Irfan Ahmed Pasha, Advocate have appeared on behalf of the appellant and have contended that the assessee is an AOP, deriving income from indenting commission. The nature of business of the assessee is explained for proper understanding. The FOREX. (Foreign Exchange) market is the largest and most transparent financial market of the human history. There are systems and procedures to participate/trade in this massive market which is through Inter Bank Forex Market (IBFX) and financial intermediaries' broker. Top worth Investments (Macau) Ltd. Is. One-such financial intermediary broker. To bring it down the lane, upto the reach of common public, these big financial, brokers appoint further lower level representatives/brokers/agents and thus chain continues and works. Therefore. Top worth Investment (Maccau) Ltd., in the same practice of the system, appointed Harvest Top worth International, Head Office, Lahore as their lower level representative/brokerage/agent in Pakistan against commission consideration. The assessee, an AOP, was appointed as indenter/representative in Pakistan under letter/agreement, dated 3.1.1994 by Messrs Top worth Investment (Macau) , Limited. The assignments to the assessee by the principal were as under:-
(i) to identify investment projects for Messrs Top worth Investments (Macau) Limited,-Hong Kong.
(ii) to prepare feasibility on acquiring share in projects to be privatized by Goyt of Pakistan.
(iii) To solicit customers for trading divisions of Messrs Top worth . Investments (Macau) Limited, Hong Kong to -deal in foreign exchange.
(iv) to project the name of Messrs Top worth, Investments (Macau) Limited, Hong .Kong in Pakistan.
(v) to establish relations for Messrs Top worth Investments (Macau) Limited, Hong Kong with .
15. Business community in Pakistan.
16. As per Clause 4(iii) of Agreement with Harvest Top worth Investment (Macau), Messrs Harvest Top worth International is responsible to solicit L customers for trading with Messrs Top worth Investment (Macau) Limited, Learned counsel in this regard has referred the agreement, dated 3,1.1994. According to clause 6 of the said agreement, Messrs Top worth Investments (Macau) Limited,' is responsible for reimbursement of the following expenses:-
(i) Rent of business premises/offices and its maintenance (Net).
(ii) Electricity expenses (Net) excluding Federal Taxes),
(iii) Telephone expenses (Net)/Communication (excluding Federal Taxes).
(iv) -Sui gas expenses (Net). (excluding Federal Taxes).
(v) Advertisement (Net).
(vi) Salaries and Allowances of Business Executives.
(vii) Any other expenses mutually agreed.
17. The above expenses are paid by the assesses for and on behalf of the principal and are passed on to them. Therefore, the assessee is not claiming such expenses against the indenting commission/brokerage received from the principal. However, in term of Agreement, the taxes paid on utilities etc. Are responsibility of the assessee. Hence claimed for adjustment against assessee's tax' liability. The assessee during the assessment years 2000-2001 and 2001-2002 received following commission from the principal:- 2000- 2001 Rs. 42,51,746/- 2001- 2002 Rs. 46,76,918/- According to the learned counsel, the above commission received fall under Section 50(4A) and as such the assessee filed statements under Section 143-B for both the years under consideration as a new sub-section 2(ia) and proviso 2 of sub-section (4) of Section 80C were inserted w.e.f. 1.7.1999 through Finance Ordinance, 1999. He has contended that the statements filed under Section 143-B are full and final settlement of tax liability and are required t<\ be accepted as such. According to the learned counsel, i.e Assessing Officer excluded the statements from the ambit of presumptive tax regime by giving the following reasons:-- "Important fact that full tax on the commission shown was not deducted under Section 50(4) at source. Resultantly, the assessee paid Rs. 21,26,000/- on 26.10.2000 before filing the statement under Section 143B for the assessm ent year 2000-2001. And Rs. 1,80,000/-on 26th September, 2001 before filing the statement for the assessment year 2001-2002. Perusal of the statement reveals that those were-invalid."
18. He has argued that the Assessing Officer issued a notice under Section 56 for filing of returns. The assessee at the very outset challenged the assumption of jurisdiction tinder Section 56 and agitated the issuance of notice under Section 56 by filing written reply to the notices. The Assessing Officer apparently accepted the contentions and case was kept aside accordingly.