JUDGMENT MAZHAR FAROOQ SHIRAZI, ACCOUNTANT MEMBER -- The titled three appeals pertaining to assessm ent year 1998-99, is preferred by assessee while for assessment years 1999-2000 and 2000-01, are preferred by department, arising out of orders passed by the learned CIT(A), Faisalabad.
Departmental appeals for 1999-2000 and 2000-01
1. For assessm ent year 1999-2000, it is the departmental contention that the learned CIT(A) was not justified in deleting the penalty imposed u/S. 111 at Rs. 23,10,246/- on the basis of addition under Section 13(1)(c). It is contended that the CIT(A) was not justified in holding that no tax .Was; sought to- be evaded. As far as assessm ent year 2000-01, is concerned, it is the departmental contention that the learned CIT(A) was not justified in deleting the addition' u/S. 13(1 )2. The relevant facts are that in the year 1999- 2000, assessm ent was completed at net loss of Rs. t 7,07,26,451/- by making an addition u/S. 13(1 )(c) at Rs.
70,0, 746/-, on account of under statement in valuation of- stock declared in the accounts and as per reports furnished to the banks. According to the Assessing Officer, every addition u/S. 13 except addition u/S. 13(1 )(a), tantamount to concealment, therefore, taking into consideration, Allegedly, established concealment on the part of the assessee accordingly added the difference in value of stock of. Raw material/finished goods to the extent of Rs. 1,03,65,945/-, was added into the income of the assessee u/S. 13(1)(c) of the repealed Ordinance.
3. Being aggrieved, the q$|i8flap.Went in appeal before the learned CIT(A) and chatn*jatfsf the treatment accorded by the assessing authority/ SWdre the learned CIT(A), it was argued by the A.R. That the quantity of stock both as per bank's certificate obtained by the Assessing Officer and declared by the assessee is the same. The difference between the value adopted by the bank and declared by the assessee is prevalent for obtaining loans in this line of business, It was submitted by the A.R. That it is a common practice in business circle that the banks usually examine the total worth of the company in the shape of investment in fixed assets and working capacity of the enterprise. The submissions of statements showing availability of stocks was only a matter of routine just to fill in the blanks in the banking records otherwise- there was no reality.
4. The learned CIT(A) after hearing the arguments of the learned A.R., has observed that it is a settled issue at the appellate stage that addition in stocks made due to the difference in the hypothecated value is not sustainable because it is a common practice in the field of finance.To show the inflated value of the stocks to obtain higher limits of finance. Consequently, the' learned CIT(A) held that the addition cannot be made in respect of . Hypothecated value of stocks u/S. 13(1 )(c).
5. We have -heard both sides and have perused the orders passed by the authorities below. The learned D.R, has opposed the treatment as accorded by the first appellate authority while the A;R.
Of the assessee supported the findings as recorded by the learned CIT(A).
6. We have considered the rival arguments' and have also perused the impugned orders. For assessm ent year 1999-2000, we find that it is a cardinal principle of interpretation, of charging and penal provisions of a fiscal statute that the same are to be interpreted very strictly and in favour of taxpayer. When provisions of Sections 13 and 111 of the repealed Ordinance, are compared it.
Becomes obvious that the same are based on different principles. Addition in the declared income or loss can be made u/S. 13, irrespective of the fact whether assessee has declared loss or income; or whether income has been determined or loss. However, while imposing penalty u/S. 111 on account of addition u/S. 13, a different yardstick is to be applied. This yardstick is that of actual tax sought to be evaded and not of any notional or deemed tax; in other words, it is the tax which an assessee is required to pay as a result of assessment which contains an addition u/S. 13, Even otherwise, imposition of penalty on the basis of notional or deemed evasion of tax cuts at the very roots of income tax jurisprudence.
7. In view of the above observation, we are inclined to maintain the deletion of penalty u/S. 111, as made by the CIT(A) Which is under the given facts and circumstances of the case is fair and reasonable and calls for no interference by the Tribunal.
Order of the CIT(A) is accordingly maintained.
8. As far as departmental appeal for 2000-01, wherein deletion of addition u/S. 13(1)(c) has-been contested as unjustified, we find that addition in. This case was made only on account of difference in value of hypothecated stock. This fact could have promoted the Assessing Officer to analyze the value of hypothecated stock as declaj-ed in the books and should have tried to find out whether the correct value was declared in the books or the same was suppressed and the actual value was the one declared to the bank. If the value declared in the books was the correct fine then obviously there was no room for any addition u/S. 13. However, if it is contained some element of suppression then the addition could have been made, In such a situation the addition, if any, would have been made on the basis of independent evidence and not merely on the basis of monthly statements of hypothecated stock furnished to the bank. We are of the considered view that mere difference between the values of hypothecated stock declared to the bank and disclosed in the bopks is too week a basis for any addition u/S. 13 and this view has constantly been held by this Hon'ble Tribunal. The learned D.R. Has failed to persuade us to take a contrary view in the light of some distinguishable facts of this case, in view of which, we are inclined to maintain the impugned order passed by the CIT(A) for assessment year 2000-01.
Assessee's Appeal for 1998-99
9. It is the assessee's contention for the assessment year 1998-99 that the learned CIT(A) was not justified in ignoring the facts that the reply of the assessee in response to the show-cause notice of Assessing Officer which was filed on February 25, 2005, while the compliance date of show-cause notice was February 26, 2005. It is the A.R.'s contention that the learned CIT(A) was not justified to maintain the order of additional tax u/S. 205, as the refund ot Rs. 4,39,823/- was due to the assessee.
1- 2. Briefly stated, the relevant facts are that the assessee in this case is a public limited company, deriving income from manufacturing and sale of yarn. The Assessing Officer of perusal of assessm ent record for 1998-99, found that tax u/S. 80-D was not fully paid by the assessee alongwith the return of income filed. The Assessing Officer issued show-cause notice to explain his position" regarding the payment of tax^i/S. 80-D, but the assessee had failed to make compliance on the due date. Consequently/ the assessing authority imposed additional tax u/S.. 205 amounting to Rs. 73,748/-.
13 Being aggrieved the assessee went in appeal before the learned CIT(A)-and challenged the treatment accorded by the assessing authority, It was the A.R's contention before the GIT(A) that the assessee had duly complied the show-cause notice but the Assessing Officer has unjustifiably ignored the same, It was contended by the A.R. That the assessee was entitled for refund, so the short payment of tax, if any, should have been adjusted against the said refund. The learned CIT(A) after hearing the arguments of the learned A.R. Has observed that admittedly in the instant case there was short payment of turnover tax u/S. 80-D and the same was paid on 29.6.1999, hence the default of late payment was established and additional tax was to be charged under the provisions of law, so the Assessing Officer was fully justified to charge additional tax. It is also observed by the learned C1T(A) that there was no created refund on the material dates.
14. We have'looked into the matter and we find it expedient to remand the matter back to the/Assessing Officer for de novo consideration, especially when it is the appellant's contention that its refund amounting to Rs. 4,39,823/-, was available to the assessee and the Assessing Officer was not justified to impose additional tax. We have also noted that the CIT(A) has given a categorical finding that there was no 'created refund' on the material dates. Order of the CIT(A) is accordingly vacated and Assessing Officer is directed to decide the matter afresh, after giving proper opportunity of being heard to the assessee.
15. Resultantly, appeal of the Revenue and assessee are djsposed of in the manner as dilated supra. :