CH. ANWAAR UL HAQ (JUDICIAL MEMBER).---The titled appeal pertaining to tax year 2008, has been preferred at the instance of taxpayer calling in question the impugned order dated 2-8-2012, passed by the learned CIR (A), Faisalabad.
2. Relevant facts in brief are that the taxpayer in the case is an Association of Persons (AOP), derives income from running a textile mill. Return for the tax year 2008, was filed declaring loss of Rs,22,80,789 which was deemed to be treated as an assessment in terms of section 120 (1) of the Income Tax Ordinance, 2001. On perusal of record, it was noted by the concerned Adl, Commissioner, Audit Zone-III, RTO. Faisalabad, that the taxpayer declared sales in the sales tax returns at Rs,17,56,64,173 as against declared Rs,14,01,64,173 in the return of income, hence, there was a suppression of sales amounting to Rs,3,55,00,000. As per Adl. Commissioner, due to suppression of sales the assessm ent already made under section 120 on the basis of return of income for the tax year 2008 was found to be erroneous and prejudicial to the interest of revenue. Accordingly, statutory notices were issued for amendment of assessment and after obtaining explanation of the taxpayer, the deemed assessm ent for the tax year 2008 was amended under section 122(5A) of the Ordinance, and sales of Rs,3,55,00,000 not declared in the income tax return were treated as unexplained money under section 111(1)(b) of the Ordinance. On appeal filed, the learned CIR(A) has maintained the amended order of the assessing authority.
3. The learned AR of the taxpayer agitated the orders of the authorities below as contrary to law and facts of the case, The learned AR submitted that the assessing officer was not justified to invoke the provisions of section 122(5A) and amend the deemed assessment which action was illegally upheld by the learned CIR(A). It is contended by the learned AR that the taxpayer has neither concealed nor suppressed any sales and the difference of sales declared in the income tax return and sales tax returns as alleged was in fact the sale price of machinery which was sold in the year 2008 to the extent of Rs,3,55,00,000. In this regard, it is asserted by the learned AR that sale receipt of machinery was duly produced before the authorities below which was unjustifiably discarded. It is submitted by the learned AR that rejection of documentary evidences by the assessing authority in connection with sale of fixed assets and receipt of sale of machinery through normal banking channel without brining any evidence on record is illegal, hence, not tenable in the eye of law. It is contended by the learned AR that the first appellate authority has unjustifiably and illegally rejected the appeal on the alleged ground of non-declaration of gain on sale of fixed assets in the return of total income whereas the gain is properly accounted for and declared in the notes to the accounts. On the contrary, the learned DR supported the orders passed by the authorities below and contended that the taxpayer has failed to declare the alleged gain on sale of machinery in the relevant column of return of income; therefore, the stance of the taxpayer has rightly been rejected by the authorities below.
4. We have heard the arguments put-forth by the learned representatives of both the sides and have carefully gone through the available record. After due consideration, we are convinced with the submissions made by the learned AR which are duly supported by the documentary evidences produced before us. The learned AR duly produced before us the sale receipt of machinery sold for a consideration of Rs, 35,500,000. The said amount is also duly reflected in the bank account maintained by the taxpayer in Messrs Faysal Bank Ltd., Faisalabad. Copy of the bank statement along with copy of cheque, deposit slip, sales tax invoices and sales register were also duly produced before us by the learned AR to substantiate the taxpayer's claim.
5. As regards departmental contention that the taxpayer has not declared the gain on sale of machinery in the relevant column of return of income, we find that the column for declaration of capital gain as per form of return of total income i,e, 26 and 36 pertain to gain on sale of capital assets as provided in section 37 of the Income Tax Ordinance, 2001. Capital assets as defined in section 37(5) of the Ordinance means property of any kind held by a person, whether or not connected with a business, but does not include:-- (a)...........................
(b) Any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortization under section 24; or ...........................
(c)...........................
In the instant case under appeal, the taxpayer has sold machinery for a total consideration of Rs,35,500,000 to Messrs Bombal Textile Mills, Karachi. It is pertinent to note that' the machinery does not fall in the ambit of capital asset, hence, gain on disposal of the same as provide in section 37(5)(b) of the Ordinance, is not required to be declared in the return income as per column 26 or 27 as referred to hereinabove, whereas gain on sale of the machinery falls in normal income as per section 18 of the Income Tax Ordinance, 2001.
6. So far as addition under section 111(1)(b) on account of alleged suppressed sales is concerned, we are of the firm opinion that the addition on account of suppressed sales falls in section 111(1)(d)
(i) and that is too from tax year 2012 as the amendment inserted in the section ibid vide Finance Act, 2011, whereas the case under appeal pertains to tax year 2008, hence, addition is not tenable in the eyes of law. This Tribunal in the case of Messrs Brother Enterprises Karachi, reported as 2013 PTD (Trib.) 1557, on the same issue regarding retrospective application of amendment in section 111(1)(b) through Finance Act,. 2011, held as under:-- "9. Regarding addition of Rs,26,621,004 under section 111(1) (d) on account pf suppressed purchases it has been contended by the AR that provisions of clause (d) of subsection (1) or section 111 of the Income Tax Ordinance, 2001, treating suppression of any amount chargeable to tax production, sales or receipts as an item covered under Section 111 were inserted by the Finance Act, 2011 and being detrimental to the interest of tax payer were applicable w,e,f, tax year 2012.
Therefore, addition of Rs,26,621,424 under section 111(1) (d) is without lawful authority...."
10.Contention of the AR found to have considerable weight. It has rightly been pointed out that the provision of clause (d) of subsection (1) of section 111 of the Income Tax Ordinance, 2001 has been introduced by the Finance Act, 2011 and being detrimental to the interest of taxpayer does not have retrospective application....... "
7. Looking at the matter at its entirety, it is a case of incorrect application of law on account or retrospective application of charging section when no provision has been provided by the legislator on this score. Inter alia, it is also wrong application of law i,e, if the addition is to be made on account of suppressed sale, it is covered under section 111(1)(d)(i) instead of section 111(1)(b) as exercised in the case under appeal.
8. Under the circumstances; we find that the impugned order of the assessing authority is not maintainable in the eye of law as well as facts of the case, hence, the same is hereby annulled.
Order of the learned CIR (A) is accordingly vacated.
9. Appeal of the taxpayer succeeds in the above manner.