' Titled appeals pertain to Tax Year 2011 (departmental appeal) and Tax Year 2012 (cross appeals).
Appeals are disposed off I the following manner.
Departmental appeals Distributors Rebate (Tax Years 2011 and 2012)
2. Briefly stated facts of the case are that the taxpayer company is the distributor of electrical home appliances manufactured by the HNR Company (Pvt.) Ltd., Taxpayer, by applying provisions of clause (8) of Part-III of Second Schedule to Income Tax Ordinance, 2001 claimed rebate of 80% towards minimum tax which was refused by the department for both the years under reference.
Learned Commissioner Inland Revenue (Appeals-II) after detailed discussion held that the taxpayer being distributor of consumer's goods was entitled for 80% rebate towards minimum tax.
Department has preferred appeal against the relief granted by the Commissioner Inland Revenue (Appeals).
3. Learned DR argued the case on same lines as was taken by the Additional Commissioner for amendment made under section 122(5A) of the Ordinance. Salient features of defence taken by the department are as under:--
(i) Electrical home appliances are not consumer goods.
(ii) The facility of rebate of 80% was available to the distributors enjoying low margin of gross profit whereas taxpayer's gross profit was upto 12%.
(iii) The judgment reported as 2013 PTD (Trib) 1413 was not applicable as learned Tribunal granted relief for distributors enjoying low gross profit margin.
' On the other hand learned AR extended same defence as taken before the learned Commissioner Inland Revenue (Appeals) especially for Tax Year 2012 to defend the issue of margin of gross profit.
' Before this court learned A.R. Argued that from the judgment reported as 2013 PTD (Trib.) 1413, one thing is established that Electrical Home Appliances fall within the scope of consumers goods. It has been argued that learned Tribunal while holding the tyres as "Consumer's goods" also included the electrical home appliances in the same category.
It has been argued that the distributor in this case as per agreement with the manufacturing company has to bear entire distributor costs which include "Advertisement", "Sale Promotion", "FOC brand promotion" "Product business expense" etc. It has been stated that after bearing these expenses net margin of profit was too low to bear the 1% minimum tax.
' Learned A.R. Argued that in the whole Income Tax Ordinance nowhere word "Gross Profit" has been written, rather Ordinance revolves around income/profits. It has been stated that rationale of insertion of clause (8) I Part III of Second Schedule is to be seen with reference of income/profit and not with reference to "Gross Profit". According to him legislature while granting rebate never linked it with "Gross Profit". He argued that as held by Islamabad High Court in the Judgment reported as 2013 PTD. 697, fiscal statutes are to be constructed strictly and new words, by way of interpretation could not be added. He further added that according to judgment of Hon'ble Apex Court of Pakistan reported as PLD 1990 SC 332, in the interpretation of statute levying taxes, it is established rule not to extend the provision by implication beyond the clear import of language.
' It has been stated by the A.R. That advertisement expenses, FOC brand promotion expenses, product manager expenses, after sale service expenses etc are evident not only from the audit accounts but also from the order amended by the Additional Commissioner Inland Revenue.
4. We have considered the rival arguments of learned DR as well as learned A.R. We agree with the learned A.R. That no one can go beyond the express words given by the legislature. When legislature has not linked the consumer's rebate with the gross profit or net profit, there is no reason / justification to allow the rebate only to the consumers enjoying low margin of gross profit. We agree that intention of legislature was to grant relief to distributors as they have heavy turnover but lesser income so as to pay 1% of turnover as minimum tax. Judgments reported as PLD 1990 (SC)
332 and 2013 PTD (Islamabad HC) 697 are fully applicable and we cannot deviate from the judgments that fiscal statutes are to be constructed strictly, new words cannot be added to the statute. Hon'ble apex court of Pakistan in the para P of judgment reported as PLD 1990 SC 332 has held:-- "In the interpretation of statute levying taxes, it is established rule not to extend the provision by implication beyond the clear impart of the language used or to enlarge their operation so as to embrace matters not specifically pointed out."
5. The issue that electrical home appliances fall within the category of consumer goods has already been settled by this Tribunal in judgment reported as 2013 PTD 1413. Moreover, A.R's arguments in respect of word "Consumer" and "Consumable" with reference to Black's Law Dictionary are also part of order of learned CIR(A).
6. In view of discussion made above we hold that 80% distributor's rebate is available to the taxpayer company, departmental appeal for both D the years is rejected on this issue.
Depreciation - (Tax Year 2011).
7. Taxpayer claimed depreciation on Isuzu Trucks with value of each truck at Rs,28,43,085.
Additional CIR restricted the value of truck at Rs,15,00,000 for the allowance of depreciation which resulted into addition of Rs,60,4839 towards income Learned CIR(A) deleted the addition on the ground that as per Section 22(13)(a) the restriction of value of vehicles was for passenger transport vehicles not plying for hire. We find no reason for interference, the order of CIR(A) on this issue is upheld.
Advertisement Expenses - (Tax year - 2012).
8. Taxpayer claimed advertisement and sale promotion expense at Rs,245,121,888. Additional CIR observed that sales for tax year 2012 increased by 50% whereas expense under the head Advertisement increased by 151%. He reached to the conclusion that claim of expense was not in accordance with the increase in turnover. He, on the basis of his own opinion made addition of Rs,98734967 under section 21(n) of the Ordinance. Learned CIR(A) held this addition as unlawful and deleted the same in toto.
' Although learned DR supported the order of Addl. CIR but he could not convince us that how amendment under section 122(5A) can be made on the basis of guesswork, opinion, conjectures and surmises. There is digest of judgments of this tribunal that amendment under section 122(5A) cannot be made on the basis of assumptions and guesswork, we fully agree with the question raised by the CIR (A) that if OIR considered this method as correct, then why did not he apply this formula for additions under other heads of P&L account expenses, Departmental appeal being devoid of merit is rejected.
FOC Brand Promotion Expenses (Tax year 2012).
9. Taxpayer claimed FOC brand promotion expense at Rs,460533868 which has been amortized by the Additional Commissioner Inland Revenue over a period of ten years which resulted into addition of Rs,414,480,481 towards declared income. Learned CIR(A) after considering the written arguments of the taxpayer and also discussing the case-laws referred by the department, deleted the addition.
' Learned DR, before this Tribunal argued the case with reference to judgment reported as 2011 PTD (Trib.) 1950 and 2013 PTD (Trib.) 1083. He tried to convince that on the basis of these judgments Additional Commissioner Inland Revenue had rightly amortized the expense.
' On the other hand learned A.R. Stated that FOC brand promotion is the expense which is incurred every year, he explained that this is infact free of cost delivery of products to the dealers which is given on the achievement of certain targets of sales. He explained that such kind of incentives are given by every manufacturer to the dealers and is also given the name "Performance based further' discount" .
' Learned A.R. Before CIR(A) and also before this Tribunal explained that in the tax year 2010 Additional CIR disallowed the claim of FOC promotion expense under Section 21(c) and made addition of Rs,462817016 which was deleted by Zonal Commission in review vide order dated 19-3- 2014. In the tax year 2011 department neither made addition under section 21(c) nor amortized the expense but made addition of payable under this head which too was deleted by the learned Tribunal. He stated that for the first time department entered into futile exercise on the basis of assumption, conjectures and guesswork which has not been allowed by the Superior courts.
Learned A.R. In his support relied upon the judgments of this Tribunal reported as 1999 PTD 2851, 2009 PTD 121, 2010 PTD 111, 2013 PTD 900.
10. We have considered the rival arguments and find no reason for the amortization of expense which has regularly been incurred by the taxpayer in preceding and succeeding taxpayers.
Additional Commissioner while doing so ignored, that nature of expense was a kind of bonus given to dealers who achieved target of sales, he also ignored that it was not one time expense which could be amortized. We have gone through the case-laws given by the Additional CIR and agree with the rebuttal discussed in the order of CIR(A). We find no reason to interfere in the treatment given by learned CIR(A), his action is upheld resulting into rejection of departmental appeal. ' taxpayer's Appeal (2012). Proration of Other Income.
11. Additional CIR allocated the other income of Rs,87,126,584 to local sales only which treatment has been upheld by the CIR(A).
' Similar treatment was granted by CIR(A) in tax year 2011, facts and circumstances of case are same hence no interference.
' Gain on sale of assets and excess depreciation (Tax Year-2012).
12. Additional Commissioner on the basis of data available in the return confronted the taxpayer for addition of Rs,1,22,77,587 towards gain on sale of assets. Taxpayer submitted details which included initial cost accumulated depreciation, written down value and sale proceeds to establish that there was no gain on sale of vehicles. Additional Commissioner calculated residual value of leased vehicles, he also calculated depreciation on the basis of unsold vehicles which resulted into addition of Rs,7600529 and Rs,1719055 towards gain on sale of vehicles and depreciation respectively. The additions made have been upheld by the CIR(A).
' It has been argued by the A.R. That the addition which need further enquiry from the taxpayer does not fall within the scope of section 122(5A). It has been argued that Additional Commissioner confronted for addition of Rs,1,22,77,587 but after obtaining explanation from the taxpayer made addition of Rs,7,600,529 towards income from the gain on sale of assets. It has also been stated that as held by the learned Tribunal in the judgments reported as 2009 PTD 111, 2009 PTD 121, 2012 PTD 1593 and 2013 PTD 900, no addition can be made under section 122(5A) on the basis of suspicious, assumption and that provision of Section 122(5A) do not empower the holding of enquires.
' It has further been stated that the Additional Commissioner did not confront in respect of addition of Rs,1719055 on account of depreciation and addition of Rs,7600529 on account of gain from sale of assets.
' Learned DR supported the orders of Additional CIR as well as CIR (Appeals).
13. We have gone through to facts of the case. We do not agree that the issue of gain on sale of vehicles needed investigation and enquires. Additional Commissioner noticed the erroneousness from the audited accounts and confronted for the addition of Rs,12277587 towards income on account of gain from sale of assets. On receipt of taxpayers reply he recalculated the figure of gain and made addition Of Rs,7600529. Learned DR could not submit any plausible explanation to establish his case. The addition of Rs,7600529 is confirmed however the addition of Rs,1719055 made without confronting the taxpayer is deleted.
' Product Business Expense - (Tax Year-2012)
14. Tax payer claimed expense of Rs,11823354 under the head "Product Manager Business Expense".
Learned Additional Commissioner disallowed the claim under section 21(h) with the argument that no product was being manufactured by the company, he also stated that taxpayer was distributor of electric goods manufactured by the HNR (Pvt.) Ltd but spending on promotion of products of associated company as well as chines delegations.
' Learned CIR (Appeals) upheld the addition in summary manner that the addition under section 21(h) was also upheld in the tax year K .
2011.
' Learned AR stated that Additional CIR completely ignored the reply that sale promotion incurred through product manager is charged under the head "Product Manager Business Expense". He stated that there is separate manager of each product and he makes expense on small level in respect of promotion of product assigned to him. AR further stated that no element of personal nature expense was involved which could attract the provision of Section 21(b).
15. Matter has been considered, we are convinced that addition under section 21(h) has been made on the basis of assumption, conjectures and without appreciating the facts of the case. We do not find any reason for the invocation of provision of Section 21(h) in respect of claim. This Tribunal has already deleted the addition made under section 21(h) for tax year 2011. In view of facts of case, the addition of Rs,11823354 under section 21(h) is deleted.