These two appeals have been filed against two separate impugned orders of the learned CIR(A) dated 25-10-2010 and 30-11-2010 for the tax years 2008 and 2009 respectively. Both the appeals are decided through this consolidated order.
2. The appellant has objected the above referred impugned orders on the following grounds:- Grounds as framed for the Tax Year 2008 "(1) That the order passed by the Commissioner Inland Revenue (Appeals) is bad in law and on facts.
(2) That the order passed by Commissioner Inland Revenue (Appeals) is not only based on biased approach but also on incorrect insinuations whereby he had intentionally ignored the contentions that Appellant had filed complete details of all the items and expenses claimed during the year and had produced books of Accounts with relevant bills and vouchers. The request to summoned the record was rejected with an incorrect observation that it relates to decline in G.P. Rate only which is totally incorrect. The 'confirmation of expenses is not sustainable in law.
(3) That the Commissioner, Inland Revenue (Appeals) was not justified in confirming the disallowance of financial charges of Rs,144,955 on account of alleged investment in shares without disclosing the basis thereof. The disallowance confirmed in appeal besides being unjustified is also without any basis, hence, liable to be deleted.
(4) That the disallowances of following expenses confirmed in appeal without pointing out any specific unverifiable expenses which were neither confronted through any notice being in clear violation to "Principle of Audit Procedure" the quantum of additions made speaks volumes of illegality and violation, the Commissioner Inland Revenue (Appeals) has placed his seals to an illegal action of Taxation Officer whereby the additions have wrongly been confirmed in appeal.
(i) Out of Motor Vehicle expenses. Rs. 847,683
(ii) Out of Advertisement and Publicity expenses. Rs. 1,239,782 (iii)Out of Telephone expenses. Rs. 84,538 (iv)Out of Travelling expenses. Rs. 1,403,678
(v) Out of other expenses. Rs. 7,175,945 (vi)Out of Repairs and Maintenance. Rs. 9,283,466 (vii)Out of China, Glass, Silverware, Linen and Uniform.Rs. 1,561,628 Rs, 1,561,628 nice made and confirmed in re not only excessive and sis and in clear violation to out and confronting with any hence the disallowances are be deleted.
And Revenue (Appeals) has cited himself in law and on F. Amounting to Rs,547,697 and in appeal besides being not on to add, amend, alter or eel at the time of hearing of..
The quantum of additions/disallow appeal besides being unjustified exorbitant, but also without any b provision of law, without pointing specific defect or unverifiable claim not sustainable in law and liable to.
(5) That the learned Commissioner In not only erred but has also misdial facts by confirming the levy of W. To the case of the appellant.
The quantum of W.W.F. Confirm unjustified is excessive and exorcist
(6) That the appellant craves premises substitute any further grounds of an appeal."
Grounds as gamed or the ax Year 2009 "(1) That the order passed by the Commissioner. Inland Revenue Appeals is bad in law and on facts.
(2) That the Commissioner Inland Re confirming the application of pro Income Tax Ordinance, 2001 to although prior to delegation, the has to consider and prove that the in so far it is prejudice to the ins passed under section 122(5A) jurisdiction is liable to be Annul (Appeals) has erred in vision of section 122(5A) of the -case of the appellant commissioner Inland Revenue order passed was erroneous rest of revenue. The order being illegal and without police.
(3) That fishing inquiry does not fall within the ambit of section 122(5A), the order passed and confirmed by. Commissioner Inland Revenue (Appeals) is not sustainable in law and is liable to be cancelled. Additions made are liable to be deleted.
(4) That the Commissioner Inland Revenue (Appeals) has erred in confirming the addition of Rs,197,709 on account of Bad Debts in the case of the appellant although the claim is fully determined and irrecoverable and of petty amounts as per details produced before the Assessing Officer.
The quantum of addition of Rs,197,709 confirmed in appeal besides being unjustified is without any basis and is liable to be deleted.
(5) That the Commissioner Inland Revenue (Appeals) has erred in confirming the addition of Rs,629,035 on account of provision for slow moving inventory items to the case of the appellant without appreciating that these items had crossed their date of expiry and were not fit for human consumption.
The quantum of -addition of Rs, 629,035 confirmed in appeal besides being unjustified is without any basis and is liable to be deleted.
(6) That the disallowances of following expenses confirmed in appeal without pointing out any specific unverifiable expenses which were neither confronted through any notice, although the appellant had produced complete details and evidences, bills etc., the quantum of additions made speaks volumes of illegality and violation, the Commissioner Inland Revenue (Appeals) has placed his seals to an illegal action of Taxation Officer whereby the additions have wrongly been confirmed in appeal.
(i)Out of Repairs and Maintenance. Rs,7,834(M)
(ii)Out of Telephone expenses. Rs, 0. 761 (M)
(iii)Out of Traveling expenses. Rs, 1,525(M)
(iv)Out of Advertisement & Publicity expenses.Rs,1,235 (M)
(v)Out of Other expenses. Rs, 6, 567 (M)
(vi)Out of China, Glass, Silverware, Linen and Uniform.Rs,0,923 (M)
The quantum of additions/disallowance made and confirmed in appeal besides being unjustified are not only beyond the scope and in clear violation and jurisdiction of section 122(5A), but also without any basis and in clear violation to provision of law, without pointing out and confronting with any specific defect or unverifiable claim, hence the disallowances are not sustainable in law and liable to be deleted.
(2) That the Commissioner Inland Revenue (Appeals) has not only erred but also misdirected himself in law by confirming the addition of interest of Rs,100,577 calculated @ 14% although neither the provision of section 12(2)(b) nor section 13(14) are applicable, nor loans to employees were out of bank borrowings nor the case bf Hong Kong Shanghai Bank is applicable which has been reversed by High Court.
(8) That the Commissioner Inland Revenue (Appeals) has not only erred but has also misdirected himself in law and on facts by confirming the levy, charge and calculation of W.W.F. Amounting to Rs,1,529,857 to the case of the appellant.
The quantum of W.W.F. Confirmed in appeal besides being unjustified is excessive and exorbitant is liable to be deleted. That the appellant craves permission fo add, amend, alter or substitute any further grounds of appeal at the time of hearing of appeal.1'
3. We have heard the learned representatives from both the sides and have perused both the impugned orders of the learned CIR(A) and both the orders passed by the Taxation Officer under section 122(1)(a) of the Ordinance, 2001.
Brief facts of the case as explained by the learned counsel are, that the appellant is a Private Limited Company deriving income from hotel business at Karachi and Lahore. Appellant is also managing a hotels in Dubai and in Toronto on the basis of management agreement. Income Tax Return for the tax year 2008 was selected for audit by the Commissioner of Income Tax under section 177(4) of Income Tax Ordinance, 2001, whereas for the tax year 2009 the deemed order under section 120 has been amended. As per notices issued under section 122(9) and as well as PNR for the tax years under review respectively, the appellant had produced books of accounts, various details, entire supporting bills and vouchers, documents and evidences which were examined during audit proceedings along with explanation letters etc. The Taxation Officer had- disallowed various expenses and had made additions in the amended orders passed under section 122(1) and as well as 122(5A) respectively on the basis of alleged past history and treatment accorded in preceding years without appreciating and considering the appellate decisions and without pointing out any specific instances of unverifiable expenses, although appellant had produced all the bills and evidences. The appellant has agitated against the orders of the Taxation Officer before the learned CIR(A) but being dissatisfied with relief allowed, these appeals have been filed before this Tribunal.
4. The learned counsel representing the appellant has contended that the basis of additions made are not sustainable in law and on facts of the case which is obvious from the details, and evidences filed during both the proceedings through various letters.
The first issue contested by the Learned A.R. Is that in the tax year 2008, the Taxation Officer was not justified in disallowing financial charges of Rs,144,955 which was incorrectly assumed and wrongly attributed to capital gain on sale of shares. He has contended that the appellant had declared exempt income at Rs,1.278 (M) on Sale of Investment of shares of Messrs Arif Habib Securities Limited. The Taxation Officer has disallowed the claim for the reason that the appellant had paid Financial Charges, but in this respect has failed to mention any details. According to the learned A.R., the observation of the Taxation Officer is totally incorrect as the appellant had filed complete details along with their explanation through letters dated 25-7-2009; 1-8-2009 and 10-4-2010.
Photostat copies of these letters have been produced before this Bench. It has been argued that the appellant had produced Books of Accounts along with complete details and relevant record, bills and vouchers which were examined and has been admitted by the Taxation Officer on Page 3 of the amended order passed under section 122. He has further contented that, neither any basis has been disclosed by the Taxation Officer, nor the observations made while disallowing Financial Charges of Rs,144,955 is correct, as the appellant had explained through their letters and working incorporated therein that the investment in shares was out of appellant's own funds and not through finance obtained from bank which remained block and were subsequently invested in hotel business. He has also asserted that the Taxation Officer could not dispel the evidences admittedly produced by the appellant through their letters which are on record. Placing reliance on a recent decision of the Honourable High Court of Sindh, Karachi in ITRA No,104 of 2010 dated 3-9- 2010 in a case titled CIR, Legal Division, LTU, Karachi v. Habib Bank A.G. Zurich, has explained that the provisions of section 61 of the Ordinance, 2001 and Rule 13 cannot be invoked with an arbitrary and prejudice approach, without proving inadmissibility of expenses, especially when the appellant had explained and proved with specific working that the investment in shares he not been made out of bank borrowing. He has pleaded that in view of the above arguments the addition made by the Taxation Officer out of Financial charges may kindly be deleted.
5. On the other hand, the learned D.R. Is supporting the impugned orders of the officers below.
According to him the addition in respect of Financial charges is fully justified as both the officers below 'after considering the above arguments, the relevant laws and the facts of the case has made the addition. He has therefore requested that the addition of Rs,144,955 may please be maintained:
6. The next objection is regarding additions and disallowances made out of profit and loss expenses for both the years under review. The learned representative of the appellant in this respect has argued that during the audit proceedings under section 122(1) for the tax year 2008 and as well as during proceedings under section 122(5A) for tax year 2009, appellant had filed complete details and evidences and had also produced books of account, bills and vouchers etc. As admitted by the Taxation Officer in the amended orders passed under sections 122(1) and 122(5A). According to learned A.R., the additions and disallowances made in the order passed under section 122(5A) are illegal and in excess of jurisdiction and are liable to be deleted. Besides legal objection, the learned A.R. Has contended that the Taxation Officer in both the orders have not pointed out any specific unverifiable claim, nor any defect, except for estimated figures on assumed and vague working, although, in their reply filed by the appellant during the hearing, it was again clarified that entire expenses are fully vouched and verifiable and supported by external evidences. He has contended that before the learned CIR(A) these were again produced and examined, hence, there is no justification for disallowing the expenses. He has argued that the contention of appellant was rejected by both the officers without any justification. He has argued that under the Ordinance 2001, the Taxation Officer cannot disallow the expenses without pointing out specific instances and in support he had placed reliance on the decision of the Hon'ble Lahore High Court reported as 2002 PTD 1496. He has further argued that similar disallowances made up to tax year 2007 have already been deleted by this Tribunal as per order passed in I.T.A. No,245/KB of 2009 vide order dated 12-3-2011 for the Tax Year 2007 and as well as on earlier decision in appellants own case reported as 2010 PTD (Trib.)
37. In respect of slow moving inventory items, the learned A.R. Has explained that a detailed scrutiny of entire eatable items useable in preparation of foods items and available in stock was carried out. The old stocks which has crossed the expiry date and were not fit for human consumption or had been damaged as stale items were examined in both the hotels at Karachi and Lahore and were destroyed. He has further argued that the claim is based on actual working and is not a simple provision. With these submissions, he has pleaded that in view of the facts of the case and as the appellant had produced all the possible evidences the disallowances made in both the years are not maintainable and may be deleted.
7. The learned D.R. Is supporting the impugned orders of the officers below. He has referred to PNR and the notice under section 122(9) on the basis of which, the Taxation Officers had shown the intention to disallow the expenses being unverifiable. He has contended that for these reasons the learned CIR(A) had correctly confirmed the disallowances. Exercising his right of rebuttal, the learned counsel for the appellant has referred to the notices issued by both the officers which clearly show lump sum additions only out of various expenses without pointing out any specific instance of unverifiable claim from the details provided by the appellant during the proceedings for both the years. However, after going through both the appellate decisions and the details of expenses, the learned D.R. Could not give any satisfactory reply, nor could rebut the legal objection nor could justify the disallowances made as per orders passed under sections 122(1) and 122(5A).
He has however supported the impugned orders of the officers below.
8. The next issue contested by the learned A.R. Is in respect of levy of workerswelfare fund in both the years under appeal. According to the learned A.R., brought forward assessed losses including depreciation loss have not been considered before levy of workerswelfare fund. Reliance in this respect has been placed on the decision of the Honourable Sindh High Court reported as 2002 PTD 14 (KHC) in the case titled CIT. v. Kamran Model Factory. He has also referred the decision of this Tribunal reported as 2007 PTD (Trib.) 1860. Besides the above contention, he has argued that the Workers Welfare Funds Ordinance, 1971 was introduced after amendment in labor laws and after amendment of Ordinance, an amount in excess of 2% of assessable income was to be levied.
According to him as this levy was a charge against income, it was to be deducted from assessable income as an admissible expenditure. As the amendment introduce through Finance Act, 2006 is through money bill, whereas, there is no amendment in the labor laws, hence, according to learned A.R. Workerswelfare fund is not leviable in both the tax years in appeal. On the other hand, the learned D.R. Is supporting the impugned orders has argued that the levy of W.W.F is fully justified in both the years and the Learned CIR (Appeals- I) has correctly confirmed the levy which may be maintained.
9. We have considered the arguments advance by both the sides. The learned Counsel of the appellant has not pressed the ground No, 2 of the appeal for Tax Year 2008 and grounds Nos.2 and 8 of the tax year 2009. Likewise the grounds of appeal regarding disallowances out of telephone expenses in both the years and bad debt in the tax year 2009 have also not been passed. The appeals on these grounds are therefore dismissed being not pressed.
10. Regarding the Financial charges disallowed by the officers blow for the Tax Year 2008 we have found that the Taxation Officer had made the addition for the reason that the appellant has not filed any details etc. Which is contrary to the facts and evidence produced by the appellant. We have thoroughly examined the evidence placed by the learned A.R in this respect and have also considered the provision of law. After considering the contentions from both the sides, evidence produced before us which could not be denied by the learned D.R., we are of the view that the Taxation Officer was not justified in invoking the provisions of section 67 and disallowing financial charges especially when the appellant had provided details and has also established the source of investment in shares which are from appellant's own funds. We are of the view that the observation made while disallowing of the claim is not correct. The learned CIR(A) has also failed to appreciate the evidence and explanations filed by the appellant. The impugned order of the learned CIR(A) in this respect is therefore vacated and the addition made by the Taxation Officer at Rs,144,955 is deleted. The appeal on this ground for the Tax Year 2008 is allowed.
11. Next issue is regarding disallowances out of Plait and Loss expenses for both the years under review. We have found that the admitted facts are that during the audit proceedings, as well as in compliance to the notice issued under section 122(5A) by the Taxation Officer the appellant had filed complete details of all the expenses including the disputed expenses in both the years under appeals. The Books of accounts and bills and vouchers etc., were produced and examined by both the officers before passing the amended orders under sections 122(1) and 122(5A). We have also examined PNR and notice issued prior to order under section 122(5A). In both the notices the Taxation Officers had proposed to disallowed expenses on lump sum basis and in none of the notices specific instances of specific unverifiable expense has been detected nor confronted to the appellant at any stage. The learned A.R. Has referred the decisions of honourable Lahore High Court reported as 2002 PTD 1496 and decisions of the Tribunal in the case of appellant for the tax year 2007. In our earlier decisions in the case of the appellant we have already deleted the disallowances for the reason that these were made on stock phrases basis which are not only against the spirit of law but also against various rulings of the honourable High Court and honourable Supreme Court of Pakistan. We are of the view that the Taxation Officer cannot disallow the expenses on the basis of past history or un-verifiability while amending the order under section 122(5A) without pointing out specific instances of un-verifiability. For the reasons discussed above and as the disallowances made in both the years under appeal are on the same pattern and basis adopted by the Taxation Officers as were in the preceding years which was not approved by this Tribunal and have been deleted in the above referred orders. As the Taxation Officers could neither point out nor confront the appellant with specific instances, we are of the view that the disallowances made in both the years are neither justified nor in strict compliance to the provision of law. The disallowances made are C therefore deleted. Similarly, we do not find any justification for disallowing the claim out of items which were neither useable nor were fit for human consumption. The disallowance in this respect is also deleted. In respect of disallowances made in both the years out of telephone expenses and bad debts in tax year 2009 as the ground in this respect has not been pressed by the learned A.R. Therefore the disallowances made in this respect are confirmed.
12. Now coming to the last issue which is regarding WWF for both the years under review, we have found that the brought forward assessed losses including depreciation loss have not been considered before levy of WorkersWelfare Fund as has been held by the honourable High Court in the decision reported as 2002 PTD 14 (Karachi High Court). Even otherwise the WWF is not chargeable up to tax year 2008 as has already been held in many decisions of this Tribunal and through Circular No,13 of 2008 of F.B.R. It has been directed that in PTR cases and demand of WWF for the Tax Year 2007 and 2008 may not be created. Therefore the levy of WWF for the Tax year 2008 is deleted, however the levy of WWF for the Tax Year 2009 is remanded back to the Taxation Officer with direction to consider the same in accordance with the provisions of law in this respect and the cases decided by the honourable High Court referred above.
Both the appeals filed by the Taxpayer are decided in the manner referred supra.