This appeal has been filed by the Income Tax Department for Tax Year 2004 against the impugned order passed by the learned Commissioner Inland Revenue (Appeals) vide order No. 1 dated 2-12- 2010.
The department has raised the following grounds:-- GROUNDS OF APPEALS
(1) That the order of the learned Commissioner Inland Revenue (Appeals-I), Lahore vide No.1, dated 2-12-2010 is bad in law and against the facts of the case.
(2) That the learned CIR(Appeals) was not justified to entertain fresh evidence in violation of section 128(5).
(3) Without prejudice to ground No. 2, Supra, the learned CIR (Appeals) was not justified in deleting the addition made on account of taxable gain on disposal of assets at Rs.12,642,762.
(4) That the learned CIR(Appeals) was not justified in directing that minimum tax under section 113 be charged on aggregate of turnover from all sources and credit of the tax be given to the taxpayer.
(5) That the appellant may be allowed to add, alter and amend any one or more grounds of appeal, at the time of hearing.
2. Briefly stated facts of the case as explained by the learned representatives of both the sides are that the taxpayer in this case is a private limited Company derives income from manufacturing and sales of embroidered cloth and dying services. Proceedings under section 122(5A) of Income Tax Ordinance, 2001 were completed vide order dated December 23, 2009 against which the taxpayer filed appeal before the learned CIR(Appeals) who decided the case vide impugned order No 1 dated 2-12-2010 and deleted the addition made by the Taxation Officer on account of disposal of assets and also decided that minimum tax under section 113 be charged on aggregate of turnover from all sources of the taxpayer. The department being aggrieved filed this appeal before this forum against the impugned order of the learned CIR(Appeals).
3. The learned DR representing the Department argued that the learned CIT (Appeal) wrongly deleted the addition made on account of taxable gain on disposal of assets and levy of minimum tax under section 113 on aggregate of turnover from all sources as the Taxation Officer has made the addition which should have to be upheld.
4. On the other hand the learned AR of the taxpayer argued that no accumulated depreciation has been claimed by the taxpayer as machinery was imported during the year and leased back and the learned B Commissioner Inland Revenue (Appeals) rightly decided the appeal in favour of the taxpayer. He has submitted that the time was given to the learned DR to produce the documents in this regard and case was adjourned for the production of the record but on the due date and even today at the final hearing, the learned DR could not produce any documents regarding his contention. According to the learned counsel for the taxpayer, the learned CIR(A) has rightly deleted the addition made on account of taxable gain on disposal of assets as no accumulated depreciation has been claimed by the Taxpayer.
Alternatively the learned AR of the taxpayer referred the decision of the Tribunal reported as 2003 PTD (Trib.) 1135 wherein it has been held that gain on lease back arrangement is not taxable. The relevant portion is reproduced below:-- "Therefore, in the interest of justice this issue is remanded to the assessing officer to re-examine the issue and if deferred income has resulted from lease back arrangements then he is directed to allow exemption in the light of above two judgment on the issue and it is out of any other source the taxability of the same should be decided on the basis of facts and in accordance with the law after affording an opportunity to the assessee of being heard."
The learned AR of the taxpayer also referred the decision of the Tribunal in I.T.A. No.6249/LB/2004.
The relevant portion is reproduced below:-- "The difference of written down value and amount shown in sale and buyback agreement was reflected in the balance sheet as deferred gain and not offered for taxation. The Taxation Officer has modified the assessment under section 122(5A) of the Income Tax Ordinance, 2001 by treating the deferred gain as Income for the Tax Year 2003, which has rightly been cancelled by the learned CIT(A)."
The learned AR of the taxpayer stated that issue of charging of minimum tax under section 113 of Income Tax Ordinance, 2001 have not been confronted to the taxpayer, hence there is no justification to charge minimum tax and the learned CIR(A) has rightly decided the issue in the light of Judgment of Honorable Lahore High Court.
5. We have heard the learned representatives of both the sides and also perused the impugned order of the learned CIR(A), the order of the Taxation Officer, the available record and the case-law referred by the Learned AR of the taxpayer. We are of the view that the Commissioner Inland Revenue (Appeals) has rightly decided the appeal in favour of the taxpayer. The relevant portion of the impugned order is reproduced hereunder: "I have gone through the facts of the case. The appellant has submitted copies of bills of entries according to which machinery had been imported from 2-9-2003 to 26-3-2004. As per lease agreement machinery was leased out on dates 25-10-2003 to 23-4-2004 to leasing company (Albaraka Islamic Bank). I have examined the audited accounts and could not find any figure of depreciation of Rs.15,268,905 as given by Cie Addl. CIR/Taxation officer in the body of order. As per schedule of fixed assets in the audited accounts, there is addition in machinery at of Rs.61,391,072 and subsequently this addition has been reduced by Rs.44,443,740. Accumulated depreciation as on July 1, 2003 on machinery having value of Rs.54,342,547 stands at Rs.18,587,775 and it has no concern with the machinery imported during the year. Depreciation claimed during the year in only at Rs.5,270,210. In the schedule of assets machinery worth Rs.41,884,597 has been leased out to the leasing company. The addition made at Rs.12,642,762 on account of taxable gain is without examination of record, it stands deleted. So far as claim of loss of Rs.2,559,143 in the computation of income statement is concerned, it is without merit. If machinery has been leased out at lesser price it does not mean that taxpayer becomes eligible for the claim of loss. It is a notional loss and not liable to be claimed against the taxable income. It is directed that this loss shall not be allowed while giving appeal effect."
The appellant requested for adjournment for one week to produce the record relevant to his convention and to entertain fresh evidence in violation of section 128(5) of the Income Tax Ordinance, 2001."
After perusal of the above observations of the learned CIR(A), we found that he has given full justification keeping in view the legal and factual position of the case, hence no inference is being made and the impugned order of the learned Commissioner Inland Revenue is upheld.
6. The departmental appeal is dismissed as indicated above.