The titled appeal pertaining to the tax year 2012 has been preferred by the Taxpayer (Appellant) calling in the question the impugned order No.5 dated June 11, 2014, passed by the Commissioner Inland Revenue Appeal-II Lahore. The Appellant contested the order of the Commissioner Inland Revenue Appeals-II Lahore on the following grounds:--
(1) That the orders of the learned Inland Revenue Officer Audit Unit-02, Zone-IV RTO Lahore and the learned Commissioner Inland Revenue Appeals-II Lahore are bad in law and against the facts of the case.
(2) That the learned Commissioner Inland Revenue Appeals-II Lahore is not justified in confirming the additions made under the head Suppression of Sales v. Bank Deposits under section 111(1)(d)(i) of the Income Tax Ordinance, 2001 without considering the facts and the evidences produced on the record.
(3) That the learned Commissioner Inland Revenue Appeals-II Lahore has given premium to the taxation authorities for their negligence by set aside the addition made under the head Suppressed/Concealed Local Purchases under section 111(1)(b) of the Income Tax Ordinance, 2001 despite of the fact determined by the Commissioner Inland Revenue Appeal-II Lahore that the learned Officer Inland Revenue have acted in a very hasty manner without analyzing the facts of the case.
(4) That the learned Commissioner Inland Revenue Appeals-II Lahore has given premium to the taxation authorities for their negligence by set aside the addition made under the head Non Declaration of GDs-Serial No. 14 under section 111(1)(b) of the Income Tax Ordinance, 2001 despite of the fact determined by the Commissioner Inland Revenue Appeal-II Lahore that the learned Officer Inland Revenue have acted in a very hasty manner without analyzing the facts of the case.
(5) That the learned Inland Revenue Officer had made the additions under section 174(2) of the Income Tax Ordinance, 2001 duly confirmed by the learned Commissioner Inland Revenue Appeals-II Lahore under the head of Profit and Loss Expenses without considering the fact that the same has not been confronted to the Taxpayer, without bringing any counter evidence on the record and without considering the evidences placed on the record.
(6) That the learned Inland Revenue Officer did not apply his own independent mind to the facts of the case and his order was purely based on the presumptions.
2. Brief facts of the case are that the Appellant is a Private Limited Company declared income from manufacturing of steel pipes and tubes. The case of the Appellant was selected for audit under section 214(c) of the Income Tax Ordinance, 2001 by the FBR through computer random ballot. Audit proceedings were conducted by the Inland Revenue Officer, and after examining the detail/ documents and reconciliations filed by the Appellant the income was amended at Rs.105,412,924/- against the declared income at Rs. 5,232,355/-. The Appellant filed the appeal before the Commissioner Inland Revenue Appeals-H Lahore who confirmed the additions made under the head of Suppression of Sales v. Bank Deposits and the Profit and loss expenses and set aside the additions made under the head Suppression of Local Purchase and Suppression of Import Purchase. Hence the Appellant has filed this appeal before this Tribunal.
3. The DR supported the view of Commissioner Inland Revenue Appeals-II Lahore and the Inland Revenue Officer. In respect of the matter regarding the set aside of the partial order the DR confirmed that no cross appeal has been filed by the Department.
The A.R of the Appellant had vehemently argued the case and gives his arguments which are discussed as under along with our opinion thereof: -- Suppression of Sales v. Bank Deposits: Refund of L C Margin:
4. The AR of the Appellant argued that the Inland Revenue Officer had made the addition duly confirmed by the Commissioner Inland Revenue Appeals-II Lahore in the income of the Taxpayer amounting to Rs. 1,004,193/- under section 111(1)(d)(i) read with section 39 of the Income Tax Ordinance, 2001 without confronting the Taxpayer on the proposed addition required under section 122(9) of the Ordinance and without bringing any evidence on the record to prove his instance. The Appellant submitted before the Inland Revenue Officer and the Commissioner Inland Revenue Appeal-II Lahore certificate from the United Bank Limited Al Saeed Chowk Branch Lahore that the credit amounting to Rs. 1,004,193/- pertain to the refund of LC margin but the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore have failed to determine the true spirit and made the addition in the income of the Appellant without bringing any evidence on the record to substantiate their claim. The addition made under this head is illegal, unjustified, unsupported and without providing the opportunity of being heard to the Appellant on this score and liable to be deleted. We have reviewed the documents submitted by the Appellant before the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore and of the view that the Inland Revenue Officer and the Commissioner Inland Revenue has failed to appreciate the true spirit of the case on this score. The addition made by the Inland Revenue Officer duly confirmed by the Commissioner Inland Revenue is therefore deleted being illegal, unjustified and unsupported.
Bank to Bank Transfer:
5. The AR of the Appellant argued that the Inland Revenue Officer had made the addition duly confirmed by the Commissioner Inland Revenue Appeals-II Lahore in the Income of the Taxpayer amounting to Rs.1,600,000 under section 111(1)(d)(i) read with section 39 of the Income Tax Ordinance, 2001 without confronting the Taxpayer on the proposed addition required under section 122(9) of the Ordinance and without bringing any evidence on the record to prove his instance. The Appellant submitted the copy of the Bank Statement depicting the Bank to Bank transfer before the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore but they have failed to determine the true spirit of the fact and made the addition in the income of the Appellant without bringing any counter evidence on the record. The addition made under this head is illegal, unjustified, unsupported and without providing the opportunity of being heard to the Appellant on this score and liable to be deleted.
We have reviewed the documents submitted by the Appellant before the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore and of the view that the Inland Revenue Officer and the Commissioner Inland Revenue has failed to appreciate the true spirit of the case on this score. The addition made by the Inland Revenue Officer duly confirmed by the Commissioner Inland Revenue is therefore deleted being illegal, unjustified and unsupported.
Advance from Customer:
6. The AR of the Appellant argued that Inland Revenue Officer had made the addition duly confirmed by the Commissioner Inland Revenue Appeals-II Lahore in the income of the Taxpayer amounting to Rs.19,000,000 under section 111(1)(d)(i) read with section 39 of the Income Tax Ordinance, 2001 without confronting the Taxpayer on the proposed addition required under section 122(9) of the Ordinance and without bringing any evidence on the record to prove his instance. The Taxpayer has received the advance from Messrs Jilani Enterprises having NTN: 1346821-9 for the supply of specialized pipe, the same has been refunded to the customer since the Taxpayer failed to deliver the required size pipe. The Appellant had submitted the copy of the Ledger Account along with the proof of refund of deposit before the Inland Revenue officer and the Commissioner Inland Revenue Appeals-II Lahore but they have failed to determine the true spirit of the fact and made the addition in the income of the Appellant without bringing any counter evidence on the record. The addition made under this head is illegal, unjustified, unsupported and without providing the opportunity of being heard to the Taxpayer on this score and liable to be deleted. We have reviewed the documents submitted by the Appellant before the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore and of the view that the Inland Revenue Officer and the Commissioner Inland Revenue has failed to appreciate the true spirit of the case on this score. The addition made by the Inland Revenue Officer duly confirmed by the Commissioner Inland Revenue is therefore deleted being illegal, unjustified and unsupported. Advance from Directors:
7. The AR of the Appellant argued that the Inland Revenue Officer had made the addition duly confirmed by the Commissioner Inland Revenue Appeals-II Lahore in the income of the Taxpayer amounting to Rs.5,750,000 under section 111(1)(d)(i) read with section 39 of the Income Tax Ordinance, 2001 without confronting the Taxpayer on the proposed addition required under section 122(9) of the Ordinance and without bringing any evidence on the record to prove his instance. The Taxpayer had refunded the advance from Directors amounting to Rs.5,750,000 but the Inland Revenue Officer had made the addition in the income of the Taxpayer without bringing any supportive on the record to prove his instance and without confronting the Taxpayer required under section 122(9) of the Ordinance. The addition made under this head is illegal, unjustified, unsupported and without providing the opportunity of being heard to the Appellant on this score and liable to be deleted.
We have reviewed the documents submitted by the Appellant before the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore and of the view that the Inland Revenue Officer and the Commissioner Inland Revenue has failed to appreciate the true spirit of the case on this score. The addition made by the Inland Revenue Officer duly confirmed by the Commissioner Inland Revenue is therefore deleted being illegal, unjustified and unsupported.
Suppression of Import Purchase: Non Declaration of GDs - Serial Nos.12 and 13.
8. The AR of the Appellant argued that the Inland Revenue Officer had made the additions in the Income of the Taxpayer by giving the reason that the G.D. Nos mentioned at serial Nos.12 and 13 have not been declared. The learned Officer Inland Revenue had made the additions in the income of the Taxpayer without considering the evidences and the copies of the GDs placed on the record.
The GD No.CRN: 1-FS-1999960-221111 dated 28/11/2011 against LC No.10373FLC1790811 has been duly taken in purchases but the Inland Revenue Officer just to achieve the revenue targets first mentioned it in his order by using the LC and concluded that the same has been declared and then by using the GD number concluded that the same has not been declared. Non Declaration of GDs - Serial No. 14.
9. The AR of the Appellant argued that the Appellant had provided the copy of the GD before the Inland Revenue Officer and the Commissioner Inland Revenue Appeals-II Lahore which is itself speaking that the Appellant import the Forged Roll being the consume able stores is not the part of the Direct Purchases. The Appellant account for the same in the factory over heads but the Officer Inland Revenue ignoring the basic principles of accounting insisted that the same should be shown in direct purchases and made the additions in the income of the Taxpayer on his own self designed accounting principles. Nan-Declaration of GDs - Serial No.14.
10. The AR of the Appellant argued that the Inland Revenue officer had made the addition in the income of the Appellant against the in bond GD No.KAPR-IB-7805-26/06/2012 by giving the self words that such import should be shown in the Balance Sheet as L/C in Transit or Material Kept in Bond. We have submitted before the Inland Revenue Officer and the Commissioner Inland Revenue Officer Appeals-II Lahore copy of the loan agreement loan sanction letter where in the Appellant has obtained the FIM limit from the Alfalah Bank Limited Shahdara Branch Lahore. The taxpayer has paid only the LC margin plus the 1% duty on the assessed value and the goods imported becomes the property of the Bank and the goods will be released on the payment to the Bank. Since the ownership and the possession of the goods imported has not been transferred to the Taxpayer on the date of the Balance Sheet the LC Margin paid plus the duties recognized as the Advances deposits and prepayment and not the stock in trade. The learned Officer Inland Revenue had ignored the supporting documents and taxed the Taxpayer on the self interpretations. The AR of the Appellant argued that the Commissioner Inland Revenue Appeals-II Lahore has directed the Inland Revenue Officer to revisit the issue. The AR of the Appellant emphasized the wording of the Commissioner Inland Revenue Appeals-II Lahore:- "I am of the view that the OIR has not properly appreciated the facts of the case on this issue and appears to have acted in a hasty manner without having properly assessed and analyzed the details presented before him."
The AR of the Appellant argued that in the presence of above said view of the Commissioner Inland Revenue Appeals-II Lahore the addition made by the Inland Revenue Officer is liable to be deleted instead of directing the Inland Revenue Officer to revisit the issue just to give premium to the Taxation Authorities premium for their negligence. The addition made by the Officer Inland Revenue is illegal and void liable to be deleted.
12(sic) We have reviewed the arguments submitted by the AR of the Appellant and persuaded the record submitted before the Inland Revenue Officer. We are of the opinion that the in the presence of the arguments of the Commissioner Inland Revenue Appeals-II Lahore mentioned in the above para there is no need to revisit the case on this score. The addition made by the Inland Revenue Officer is therefore deleted being void, illegal, unjustified and unsupported.
Suppression of Local Purchase:
13. The AR of the Appellant argued that the Appellant had submitted before the Officer Inland Revenue the monthly statements under section 165 of the Ordinance, copy of the purchase register and the reconciliation statements of the purchase register v. Statement under section 165, but the Inland Revenue Officer had ignored all these documents at the time of framing of the order, since the Officer was in haste to achieve the revenue targets and taxed the Taxpayer without pointing out the party wise purchases which has been concealed. The AR of the Appellant argued that the Commissioner. Inland Revenue Appeals-II Lahore has directed the Inland Revenue Officer to revisit the issue. The AR of the Appellant emphasized the wording of the Commissioner Inland Revenue Appeals-II Lahore:-- "I am of the view that the OIR has not properly appreciated the facts of the case on this issue and appears to have acted in a hasty manner without having properly assessed and analyzed the details presented before him."
The AR of the Appellant argued that in the presence of above said view of the Commissioner Inland Revenue Appeals-II Lahore the addition made by the Inland Revenue Officer is liable to be deleted instead of directing the Inland Revenue Officer to revisit the issue just to give premium to the Taxation Authorities premium for their negligence. The addition made by the Officer Inland Revenue is illegal and void liable to be deleted.
14. We have reviewed the arguments submitted by the AR of the Appellant and persuaded the record submitted before the Inland Revenue Officer. We are of the opinion that the in the presence of the arguments of the Commissioner Inland Revenue Appeals-II, Lahore mentioned in the above para there is no need to revisit the case on this score. The addition made by the Inland Revenue Officer is therefore deleted being void, illegal, unjustified and unsupported.
Dis allowance of Expenditure under section 174(2):
15. The AR of the Appellant argued that the Inland Revenue Officer had made the additions duly confirmed by the Commissioner Inland Revenue Appeals-II Lahore in the income of the Taxpayer by disallowing the expenditures under section 174(2) of the Ordinance without confronting the Taxpayer and without bringing any evidence on the record to prove his instance. The AR of the Appellant argued that the Inland Revenue Officer without properly following the procedure laid down in Part-VIII of Chapter X of the Ordinance, 2001 disallowed/curtailed the expenses under section 174(2) claimed by the Appellant under various heads. In fact spirit of changes with regard to audit proceedings brought about through new Income Tax Ordinance, 2001 was altogether overlooked by the Inland Revenue Officer and also by Commissioner Inland Revenue Appeals-II Lahore. No taxpayer can now state that account books are not maintained by him because in the verification part of tax return form he testifies that account books are properly maintained. While parrying out audit, it is essential that these books are produced for examination of the Taxation Officer. He has to examine these books and give a clear finding about admissibility as well as verifiability of every Real of expenditure. Expenses have to be allowed only to the extent of admissibility and verifiability. Those expenses, which fail to stand the test of admissibility and verifiability can be straightway disallowed. Fixation of certain percentage of expenses by both the authorities below is against the sprit of law and such fixation cannot be approved. Reliance is placed on 2009 PTD (Trib.) 927 to supported the opinion.
16. We have reviewed the arguments submitted by the AR of the Appellant and persuaded the record submitted before the Inland Revenue Officer. We are of the opinion that the case law mentioned above equally applies on the case of the Appellant. The addition made by the Inland Revenue Officer is therefore deleted being void, illegal, unjustified and unsupported.
17. In view of these facts as well as legal position the impugned order of the Commissioner Inland Revenue Appeals-II Lahore is vacated and the order passed by the Inland Revenue Officer is cancelled. The appeal filed by the Taxpayer is allowed.