1. MASOOD AKHTAR SHAHEEDI, (ACCOUNTANT MEMBER).---By this single order we shall dispose of the titled five appeals which relate to a private limited company engaged in business of manufacturing of labels and exports thereof out of which three filed by the taxpayer against the impugned appellate orders No,7304, No,8748 and No,8749 dated 06.04.2015 and 01.11.2016 for the Tax years 2013, 2014 and 2015 respectively. Whereas the remaining two appeals were filed by the department against the appellate orders Nos,7792 and 7304 dated 17.11.2015 and 06.04.2015 for the Tax years 2012 and 2013 respectively. All the impugned Orders of the learned Commissioner Inland Revenue (Appeals) arising out of orders passed by the Additional Commissioner Inland Revenue
(IAC) under section 122(5A) of the Income Tax Ordinance, 2001 (here-in-after referred to as "Ordinance"). Both the parties have agitated the grounds as set forth in the memo. of grounds of appeal.
2. We have heard the rival parties, perused the available record, given earnest consideration to the submission made at the bar by the standing counsels and gone through the various decisions relied upon in their support by the representatives of the taxpayer and revenue. The subject appeals are disposed of in the ensuing paragraphs.
2. TAXPAYER'S APPEALS INVOCATION OF SECTION 122(5A) OF THE ORDINANCE, 2001 IN RESPECT OF TAX YEAR 2013
3. At the very outset, the learned counsel of the appellant that the respondent department is taken up proceedings under section 122(5A) of the Ordinance on the order deemed to have been passed under section 120 of the Ordinance i,e,, soon after the receipt of return of Income filed under section 114 of the Ordinance. The learned counsel stated that on the issue of finishing and roving enquiries the legal superior for a has decided the issue in favour of the taxpayer while taking up proceedings under section 66A of the repealed Income Tax Ordnance, 1979 (here-in-after referred to as 'Ordinance') which is para materia to section 122(5A) of the Income Tax Ordinance, 2001. It was further pointed that respondent department is asking for information in the notice under section 122(5A) and thereafter proceedings to create tax demands. He vehemently argued that two mandatory conditions to invoke section 122(5A) were missing in the notices issued. He stated that in order to invoke section 122(5A) there should be legal infirmity in the finalized order along with apparent loss of revenue. The respondent department is issuing notices under section 122(5A) without meeting the requirements as envisaged in relevant section. He further relied upon plethora of citations on the two prescribed mandatory conditions for invoking the section 122(5A). He further added that enquiry does not mean to ask for information from taxpayer and thereafter pass order under section 12(5A). The two mandatory requirements i,e,, there should be some illegality in the existing order and there should be apparent loss of revenue must be before the tax official to proceed further under section 122(5A). The enquiry should be on the apparent two conditions and sense of enquiry should not be in respect of calling of information. The learned counsel stated that section 122(5A) and section 177 are two entirely different sections with distinct purposes. He stated that section 122(5A) is curative in nature and is to be invoked when there is some illegality or error of law in the existing order and there is some loss of revenue. Whereas section 177 is for selection of few taxpayers who have filed their returns under Universal Self-Assessment Scheme in order to create deterrence of audit. The purpose is to inform the taxpayers to declare correct particulars of income voluntarily in their returns and there is a check mechanism in the form of audit under section 177 available with the respondent department. Reliance was placed in reported as [(2016)
3. 113 Tax 53 (Trib.)]; wherein the larger bench of the honourable ATIR, Karachi Bench, Karachi have held that: "Validity---(1) Whether perusal of section 122(5A) of Ordinance, 2001 and section 66A of Ordinance, 1979 show that both are paras materia to each other and there is hardly much difference between two sections---Held yes.
4. (2)Whether tax officer can proceed on order passed under section 120 or 122 of Income Tax Ordinance, 2001 under section 122(5A), if two mandatory conditions, i,e, error of law (illegality) or some loss of revenue are present for invoking this provision---Held yes.
5. (3)Whether it cannot be agreed with the view of authorized representatives that there has to be an order passed under section 122 before proceedings can be taken up under section 122(5A)--- Held yes.
6. (4)Whether matter of inquiries and fishing and roving inquiries is to be seen in context of two mandatory prescribed conditions referred in the provision---Held yes.
7. (5)Whether on issue of definite information, it is noted that this issue was decided in orders passed under section 65 of repealed Ordinance, 1979 as well as in orders passed under section 122(5) of Income Tax Ordinance 2001 by superior appellate fora, therefore, it cannot be agreed that there has to be definite information for invoking section 122(5A) as it has no relevance to section 122(5A)---Held yes.
(7) Whether calling of information's and thereafter finalizing order under section 122(5A) without presence of twin mandatory conditions is not permissible---Held yes.
(11) Whether with regard to other condition i,e, loss of revenue, difference in amounts appearing in notices makes notices vague and unclear, therefore, such type of notices do not come under ambit of section 122(5A) and are not sustainable---Held yes.
8. 19.The next issue pointed out was of fishing and roving inquiry. On this issue, we agree to the contention raised by learned authorized representatives that superior legal fora have already decided this in the proceeding under section 66A of the repealed Income Tax Ordinance, 1979 and also in proceedings taken up under section 122(5A) as well. In this regard, we strongly believe that the issue is connected to the two mandatory conditions for invoking section 122(5A) discussed in above paras. We also agree that section 122(5A) is para materia to the section 66A of the repealed Income Tax Ordinance, 1979 and matter of enquiries and fishing and roving inquiries is to be seen in the context of two mandatory prescribed conditions referred in the provision. What we are trying to highlight is that inquiry is to be in conformity with the twin conditions and should not be outside the scope of the prescribed conditions.
9. 20.The issue of definite information was taken up by the learned authorized representatives.
10. We are of the view that matter of definite information is related to section 122(5) of the Income Tax Ordinance, 2001 which is para materia to section 65 of the repealed Income Tax Ordinance, 1979. It does not have any nexus to section 122(5A). On the issue of definite information, we have noted that this issue was decided in orders passed under section 65 of the repealed Income Tax Ordinance, 1979 as well in the orders passed under section 122(5) of the Income Tax Ordinance, 2001 by superior appellate fora. Probably learned authorized representatives have mixed up the twin mandatory conditions for invoking of section 122(5A) with definite information issue. We therefore do not agree with the view of the learned authorized representatives that there has to be definite information for invoking section 122(5A) as it has no relevance to section 122(5A).
11. 21.We now come to the main issue taken up the learned authorized representatives in paras supra. The portion of show-cause notices referred by authorized representatives show that these are just observations of the tax officer. In some portions, there is no substance and basis to invoke section 122(5A)."
4. In the light of above referred case law it is held that the first show-notice issued was defective as the same had no definite material to establish the co-existence of erroneousness and prejudice rather it needed further enquiries, no such information was available on record. The learned IAC had asked for documents/record and showed his intention or the estimation of bifurcate or apportion NTR or FTR expenditure disallowed the expenses on its sweet will. Action was based on assumptions which as not allowable in proceedings under section 122(5A) of the Income Tax Ordinance, 2001. This action of the Assessing Officer was ab initio illegal as there was no proper basis for invoking provisions of Section 122(5A) of the Income Tax Ordinance, 2001. Thus the amended assessm ent order as well as the order of the learned CIR(A) was cancelled.
TAXATION OF ASSETS SIDE WHEN LIABILITY SIDE IS EXPLAINABLE
5. He further pointed out that in the financial for the year under consideration the taxpayer declares the following entry as under: (2013) (2012)
12. TRADE AND OTHER RECEIVABLES Trade Debtors Un-secured-considered goods Local 67,196,812 57,946,281 Foreign 23,188,096 16,133,592
6. The taxpayer use double-entry accounting system. This system is based on the accounting equation and requires that every business transaction be recorded in at least two accounts. In addition, it requires that the total debits recorded for each transaction equal the total credits recorded. The double-entry accounting system also has specific rules of debit and credit for recording transactions in the accounts. The foreign trade debts are advance receipts of the future revenues and are rightly recorded as receivables in the financial. Receivables are usually a significant portion of the total current assets. The receivable is recorded as a debt to Accounts Receivable. All receivables that are expected to be realized in cash within a year or more are reported in the Current Assets section of the balance sheet. Current assets are normally reported in the order of their liquidity, beginning with cash and cash equivalents. The approach of the Revenue was not only against the basic principles of accountancy but also those of the Income Tax Law, equity and justice. Thus, taxing the assets side of the financial when the taxpayer already explained the liability side is against the norm of justice. It will only possible when the liability side of the financial is unexplainable. It is a cordial principle of law, "technical subtleties could not be allowed to strangulate justice". Thus, the whole of the queries made pertained to FTR portion. The taxpayer explains in detail all the foreign trade debtors in addition to that the sampling has not been accounted for in Sales Tax Returns for the relevant financial year, the samples made by the taxpayer for foreign buyers send through DHL (because no GDs have been generated against these shipments by DHL; that-is-why it was not accounted for in the Sales Tax returns). He further draws our kind intention towards Chapter XV of Customs Act, 1969 titled as "Special Provisions regarding baggage and goods Imported or Exported by Post", For facility section 139 of the Customs Act, 1969 is reproduced as under: "139. Declaration by passenger or crew of baggage.---The owner of any baggage whether a passenger or a member of the crew shall, for the purpose of clearing it, make a verbal or written declaration of its contents in such manner as may be prescribed by rules to the appropriate officer and shall answer such questions as the said officer may put to him with respect to his baggage and any article contained therein or carried with him and shall produce such baggage and any such article for examination: Produced that where the Customs Computerized system is operational, all declarations and communications shall be electronic."
7. It is pertinent to mentioned here that the samples send through post was legal export of the appellant and duly offer for determination of custom duties and realized amount of said exported received through banking channel subject to 1% withholding tax as full and final discharge on gross amount received as export proceeds. It is trite law to say that entries in the books of account are not conclusive about determination of the income and if a liability has been incurred but not entered in the books of account, the same has to be allowed where the assessee is following mercantile system of accounting. Recording transactions must follow some rules e.g., increase in assets are recorded on the debt (left side) of an account. Likewise, decrease in assets is recorded on the credit (right side) of an account. The excess of the debits of an asset of an asset account over its credits is the balance of the account. In simple words, the balance in the instant case is zero thus, the account made by the learned amending authority is illegal and not maintained in the eye of law and facts hence, orders of the authorities below are vacated.
13. INVOCATION OF SECTION 111(1)(B) INSTEAD OF 111(1)(A). OF THE ORDINANCE, 2001
8. The taxpayer company has been maintained proper books of accounts. The said entries are depicted from the financial e-filed by the taxpayer. The addition of unexplained income or assets if any be made falls in within the purview of section 111(1)(a) not in section 111(1)(b) of the Income Tax Ordinance, 2001. Reliance was placed in a case reported as 2007 PTD (Trib.) 2319; wherein it has been held that: "11. We have given due consideration to arguments of both the parties and we have found that section 111 of the Income Tax Ordinance, 2001 provided that where any amount is credited in a person's books of accounts or person has made any investment or is the owner of any money or valuable article or a position has incurred any expenditure and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made or the explanation offered by the person is not, in the Commissioner's opinion satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person's income chargeable to tax under head "income from other sources" to the extent it is not adequately explained. There are three clear situations wherein sources of investment are required to be explained by a taxpayer and if he is not able to furnish evidence to the satisfaction of the Assessing Officer, about sources of investment, the investment of part thereof which remained unexplained, is liable for addition. At the same time we are of the opinion that it is legal right of a taxpayer to know as under what law he is being proceeded against. It is legal obligation of the assessing authorities to communicate to the taxpayer as under what clause of subsection (1) of section 111, he is being required to furnish his explanation. The higher appellate forums have conclusively held that where an assessee is deprived of his right to know about the law being applied to him, the proceedings taken against him will be of no legal consequence. In this case the additional commissioner completed proceedings under section 111 but he did not indicate to the assessee as to what clause of subsection (1) of section 111 was being applied to him. In this manner the taxpayer was deprived of his legal right. Hence all the actions taken by the assessing authority and the consequential orders passed by them are legally not maintainable.
14. In view of this legal position of the matter action of the Additional Commissioner and CIT(A)
15. BEING LEGALLY DEFECTIVE IS HEREBY VACATED."
16. Thus, the orders of the authorities below are vacated. Taxation as a Small Company
9. The learned counsel for the appellant contented that the taxpayer fall under the definition of Small Company as defined in section 2(59A) of the Income Tax Ordinance, 2001. For sake of facility, it is reproduced as under: "1[(59A) "Small Company" means a company registered on or after the first day of July, 2005, under the Companies Ordinance, 1984 (XLVH) of 1984, which, (i)has paid up capital plus undistributed reserves not exceeding twenty-five million rupees; [(fa) has employees not exceeding two hundred and fifty any time during the year;] (ii)has annual turnover not exceeding two hundred [and fifty] million rupees; and (iii)is not formed by the splitting up or the reconstitution of business already in existence.]
10. In Clause (ii) of the above referred section the word used is "turnover" is defined in subsection
(3) of section 113 of the Income Tax Ordinance, 2001. For sake of facility, it is subsections (2)(a) and
(3) of Section 113 reproduce as under: "(2) Where this section applies:
(a) the aggregate of the person's turnover as defined in subsection (3) for the tax year shall be treated as the income of the person for the year chargeable to tax;
(3) "turnover" means,--
(a) the ?gross sales or] gross receipts, exclusive of Sales Tax and Federal Excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods, and also excluding any amount taken as deemed income and is assessed as final discharge of the tax liability for which tax is already paid or payable; (b)the gross fees for the rendering of services for giving benefits including commissions; except covered by final discharge of tax liability for which tax is separately paid or payable; (c)the gross receipts from the execution of contracts; except covered by final discharge of tax liability for which tax is separately paid or payable; and (d)the company's share of the amounts stated above of any association of persons of which the company is a member.] Reliance was placed in a case reported as 2015 PTD 630 (Peshawar High Court)]; wherein their Lordships have held that: "14. Relevant to the present tax reference is clause (c) of subsection (3) of section 113, "ibid", as it relates to execution of contract. The reading thereof, clearly provides that all the gross receipts from execution of contracts would come within the purview of the terms "turnover" except those which were covered by final discharge paid or payable by the taxpayer." "16. This Court is of the view that the above anomaly in the law prompted the Revenue to introduce the Amendment vide Finance Act, 2011 whereby special provisions were introduced defining "turnover" in relation to a "prescribed person" in section 153 of the Ordinance."
10. In this research, the Court is not confined to literal meaning of the words used in the statue or notification but it has to adopt a rational attitude by attempting to align its vision to the draftsman while drafting the statute or notification in question. It is a well settled principle that "Where law had provided a thing to be done in a particular manner then it ought to be done in that manner and all other modes of doing it would stand excluded". It is crucial rule of interpretation of statute or notification that the words should be given sensible meanings so as to make them effective. The provisions in a taxing statute or notification dealing with machinery for assessment have to be construed according to the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature which is to make a charge levied effectively. The taxpayer in IT-1 for the year under consideration reflects the following results as under: Item Amount 7 Net Sales 262.138.498 8 Gross Domestic Sales subject to Final Tax66,660,656 9 Other Domestic Sales 195 477,842 12.The above results clear by indicated that the turnover taken as Small Company is Rs,195,477.842/- instead of Rs,262,138,498/- confronted by you in the show-cause notice. The taxpayer rightly charged tax @ 25% on the income other than sales/services under FTR. It is a well settled principle that "the golden principle of interpretation of statutes comes into picture that where the languages of any statute or legal document is clear, it has to be acted upon accordingly".
17. Thus, the Orders of the CIR(A) as well as the learned IAC is vacated.
18. INVOCATION OF SECTION 122(5A) OF THE ORDINANCE, 2001 IN RESPECT OF TAX YEAR 2014 As per para (3) mentioned supra.
19. Non-proration of apportionment of common expenditure to the Income charged to `Tax under section 67 of the Ordinance 13.It has been observed by the IAC that the domestic as well as export sales have been declared but proration of combined expenses has not been made in the light of Section 67 of the Ordinance and accordingly tax the taxpayer with the following self-estimated formula as under: Head of Income Exports Local Total Turnover adopted 53,642,284 220,507,358 274,149,642 Net Income for the year (12,328,402) 15,536,540 3,208,138 14.The taxpayer declared export sales at Rs,87,416,000/- in the statement under section 115(4) of the Ordinance. The learned IAC curtail the exports to the tune of Rs,53,642,284/- without any basis.
20. The learned counsel relied the following citations as under:
(i) 2009 PTD (Trib.) 869 "we form a considered opinion that no attempt from either side has been made in the directions of allocating of expenses in a proper manner. So on this issue, we vacate the order passed by both the authorities below in a manner that the assessee is directed to precisely submit the claim of expenses in a manner that its incurrence should be co-related to the natureof income so it could be allocated to each specific head of income. Since it is composite business case, where inevitably certain expenditure has relation to various sources of income despite it that there are certain expenditure which are directly relatable to any one source of income. Such expenditure which are general in nature or could not be assigned to any one source these shall be prorated after proper scrutiny. The expenditure should be allocated to each Head of income with the supporting evidence. The assessing officer is directed to objectively analyze the claim and proceea property by confronting the assessee. Anyhow, a speaking order shall be passed explicitly evaluating/ analyzing the contention with the basis for differing with the same."
21. (ii)2010 PTD (Trib.) 25 "Validity---Alleged apportionment was found to have been made on imagination only-- Taxation Officer had failed to prove "relative nature" and size of the activities to which the amount related which was an essential requirement as per provision of section 67 of the Income Tax Ordinance, 2001---Said apportionment made by the Taxation Officer, had rightly been deleted by the Commissioner Inland Revenue (Appeals)---No interference in this regard was required--Taxation Officer has misinterpreted Rule 231(1)(b) of the Income Tax Rules, 2002 by bringing export rebate within the ambit of total profit which was contrary to the provisions of Section 154(4) of the Income Tax Ordinance, 2001."
22. (iii)2012 PTD (Trib.) 1385 "Validity---First Appellate Authority upheld the proration of financial expenses and curtailed the proration of other expenses only to extent of expenses claimed under the head "salary" in administrative expenses---No exercise had been taken by Taxation Officer to allocate the expenditure specifically, whereas a general proportion was made on the basis of turnover---No income could be earned without incurring any expenses under the head "salaries" by the First Appellate Authority was excessive since all the employees were not working towards earning."
23. (iv)2012 PTD (Trib.) 1268 "Validity--Apportionment of deductions---Profit and Loss expenses were prorated by the Taxation Officer between manufacturing business, trading of goods business, and revenue from non-core activities such as earing from dividend from the associated companies since all the expenses were debited against the normal income therefore the amendment order of Taxation Officer was erroneous to the extent that proportionate financial and administrative expenses were not allocated--Taxpayer contended that basic requirements of section 67 of the Income Tax Ordinance, 2001 and Rule 13 of the Income Tax Rules, 2001 were that the "the expenditure shall be apportioned on any reasonable basis taking into account the relative nature and size of the activities to which the amount relates" while the department has apportioned the expenses merely on the basis of turnover of different streams of revenue, which was not reasonable in view of the nature and size of the activities---Revenue contended that since there was no bifurcation of expenses under the income from different sources the only reasonable way left with the Department was to apportion the expenses on turnover basis --- Validity --- Balance of reasonableness and regard to the nature and size of the activities, apportionment of administrative expenses on the basis of turnover would be harsh and unrealistic."
24. (v)2014 PTD (Trib.) 935 "Validity---In the present case, a favourable position of tax payment was dependent upon the fundamental variables i,e,, (i) Import price of Crude Oil (Price in the International market) (ii)
25. Local Sale Price of Products (Percentage share products with or without price ceiling) (iii) Export Sale Price of "Neptha" (iv) Yearly Tax rates applicable on FTR and NTR and (v) Volume of activity---All variables had a complete dependence on amount/currency---Any one of the variables will alter the tax burden on yearly basis/on periodical basis and in that scenario, there could be no permanent basis to apportion the expenses to work out the profits assessable under Presumptive Tax Regime and Normal Tax Regime because due to change in the said variables, one favourable basis would turn into adverse basis and every year a now basis could not be adopted to benefit the taxpayer."
26. (vi)2015 PTD (Trib.) 2241 "Validity---Assessing Officer after perusal of the audited accounts and return of income had observed that taxpayer had earned income from local sales/supplied and export sales, but income between the NTR and FIR having apportioned properly, Assessing Authority proportioned the same, and made the addition under Section 67 of the Income Tax Ordinance, 2001 at Rs,51,169.311---Taxpayer having satisfactorily explained position, there was no reason to maintain the addition made under Section 67 of the Income Tax Ordinance, 2001, which was deleted."
27. 15.As per discussion mentioned supra the treatment meted out by the learned IAC has unjustifiably made the addition as he did not fully understand the ...omputation of income made vis-a-viz tax liability. He failed to properly apportion the income between NTR and FTR. Order of the authorities below are vacated on this score.
28. Set off losses 16.The learned counsel for the appellant argued that if the alleged working of proration of the IAC found correct then the business loss of FTR may please be adjusted against the business profit of NTR. It is envisages that every taxpayer should pay a tax towards the cost of the Government. The taxpayer earn profits but on account of various tax concessions, depreciation allowance etc., and deduction allowed under various provisions of the Ordinance, show loss instead of any net profit, with the results that they do not contribute any income tax towards the public exchequer. The Apex Court of Pakistan in a case reported as 1997 PTD 1555 have held that: "Non-obstcnte clause. in section 80D of the Income Tax Ordinance, 1979 is for the purposes of liability to pay minimum tax of half per cent on the annual turnover. This will exclude any provision of Ordinance which may be inconsistent with it. But same does not exclude the other provisions of the Ordinance which are not inconsistent with section 80D. There seems to be no conflict between above section 80D and section 35 of the Ordinance, and hence the same remain available to the assessees. To claim business loss or to carry forward the same under section 35 of the Ordinance from year to year, is not affected by the above levy of half percent on annual turnover under section 80D."
29. In another 'citation, the honourable Supreme Court of Pakistan in a case reported as 2010 SCMR 1236 have held that: "Set off of losses covered by Section 34 of the Income Tax Ordinance, 1979 were not restricted to any particular head of income, rather same were adjustable against income of company under any other head."
30. 17.Taking guidance from the citation mentioned supra the business loss of the FTR income is adjustable with the NTR income. Thus, the Orders of the authorities below are vacated in this score.
31. Bad debts
18. The amending authority has disallowed an amount of Rs,3,257,374i- claimed by the taxpayer company as bad debts written off in terms of section 29 of the Ordinance. The learned CIR(A) upheld the addition. The law requires that a bad debt should be written off in the accounts. Where the amount available was not sufficient to recover debts of secured creditors with company as irrecoverable in the accounts of the taxpayer. In the instant case the shipment exported by the taxpayer has rejected by the buyer for lack of quality. To remove this the taxpayer again send another shipment of the same cost to the buyer as the buyer being good client of the taxpayer. The rejected shipment was not irrecoverable thus, under the present situation the taxpayer rightly claimed the value of shipment as bad debt. The taxpayer already offered the said amount to tax.
32. The honourable ATIR, Lahore Bench, Lahore vide ITA No,109/LB/2016 dated 24-02-2016 has held that: "The criteria laid down by this Tribunal in the case reported as 2014 PTD 1092, is duly fulfilled by the company while writing off the bad debts. Furthermore, probe regarding their recoverability or otherwise is outside the scope of section 122(5A). Accordingly, the impugned addition is deleted."
33. 19.The second shipment made by the taxpayer is to enable to continue to have a licence without which the business cannot be carried out. The said expenses connote like a punishment incidental to trade. This merely a payment without which the taxpayer could not be able to continue the business with his foreign buyers and the nature of said expenses purely on business consideration made for the sole object of maintaining business and profit earning apparatus. Thus, the addition is deleted.
34. Addition of Rs,1,342,969/- under section 21(a) of the Ordinance 20.The learned CIR(A) has confirmed the addition that evidence furnished before him was not produced. The learned counsel filed the copy of the ledger the said expense and stated the monthly expense of Rs,42,500/- includes rent, electricity expense, salary of sweeper and miscellaneous were send to three station where the taxpayer maintained office. The entire expense incurred in connection with carrying on the business that the taxpayer was required to in-cure certain charges like rent, salary of staff, office maintenances, etc. Therefore, the said expense is allowable as business expenditure irrespective of the fact that they are standing charges which had to be incurred by the taxpayer, hence the said addition is deleted.
35. Addition of Rs,1,063,052/- under section 21(c) of the Ordinance, 2001 21.The learned CIR(A) has confirmed the addition that evidence furnished before him was not produced. The learned counsel stated that he duly filed the said evidence and again filed before us, hence the said addition is deleted.
36. INVOCATION OF SECTION 122(5A) OF THE ORDINANCE, 2001 IN RESPECT OF TAX YEAR 2015 22.As per para (3) mentioned supra.
37. Non-proration of apportionment of common expenditure to the Income charged to Tax under section er section 67 of the Ordinance 23.As per para (13) mentioned supra.
38. Application of Clause (45)(b) of Part IV to the 2nd Schedule read with Section 153(2) of the Ordinance 24.The learned counsel of the taxpayer contended that the taxpayer declared export turnover at Rs,224,411,075/- including local sale @ 20% being manufacturer-cum-exporter. The FBR vide its Circular letter C. No,1(14)WHT/92 dated 19.08.1992 explains as under: "I am directed to refer to your letter No,3(32)SS(CR)/79 dated 26.07.1992 on the subject and to say that for manufacturers the import of raw material is subject to deduction under section 50(5) of the Income Tax Ordinance, 1979, but no to section 80C. In case the same manufacturer is an exporter he allowed to get adjustment of the deduction under section 50(5). Assessees whose income 100% from exports can be exempt from deduction under section 50(5) on imports of raw material for self-use. This will also include cases of exporters with local sales of goods (manufactured for export) as well as waste material, not constituting more than 20% of such production provided the taxpayer opts for applicability of section 80CC in respect of such sales.
39. (2)In the case of those assessees who have local as well as foreign sales exemption certificate cannot be issued. The taxpayer in such cases, however, may, get his tax/paid/adjusted in demand of other sales, and get refund, if any.
40. (3)Tour request regarding backward extension of provisions of section 80CC is under consideration of the Board and a decision will be taken in due course of time." Placing reliance of the said circular letter it is crystal clear that the return/statement filed by the taxpayer is accepted as such. Thus, the Order of the authorities below are vacated.
41. Bad debts 25.As per Para (18) mentioned supra.
42. Addition of Rs,1426,104/- under section 21(a) of the Ordinance 26.As per Para (20) mentioned supra.
43. Addition of Rs,1,128,859/- under section 21(c) of the Ordinance 27.As per Para (21) mentioned supra.
44. REVENUE's APPEAL TAX YEAR 2013 28.The ground taken by the appellant department was discussed in Para (4) mentioned supra.
45. Further, the appeal filed by the taxpayer has been accepted hence, departmental appeal dismissed being devoid of any merits.
46. TAX YEAR 2012 Section 128(5) of the Ordinance 29.The learned counsel for the respondent refers an unreported case of the Honourable ATIR, Islamabad Bench, Islamabad vide I.T.As. No,725/IB/2011 to No,727/IB/2011 dated 04.06.2013 wherein it has been held that: "......it seems that following such directions if Appeal Commissioner perused some documents which had earlier not been produced the restriction laid down by section 128(5) of the Income Tax Ordinance is not strictly applicable. The technicalities in such a situation should not hamper the course of justice."
47. Taxation of Assets side when liability side is explainable 30.As per Para (5) mentioned supra.
48. Invocation of Section 111(1)(b) instead of 111(1)(a) of the Ordinance 31.As per Para (8) mentioned supra.
49. Applicability of Section 39(3) of the Ordinance 32.The learned counsel of the respondent contended that the order of the CIR(A) on ground Nos, 10 and 11 are self-explanatory same is reproduced as under: "Brief facts regarding disposal of the these grounds of appeal are that the assessing officer found that the taxpayer received loan from directors at Rs,57,191,096 - whereas record of directors is silent on this issue. The receipt of loan through bank channel is not verified. Hence, the above said amount warrant the provision under section 39(3) ibid. The explanation of the taxpayer was found correct to the extent of Rs,37,191,096/- and balance amount of Rs,20(M) remained unexplained warranted under section 39(3) ibid., therefore, addition was made. The appellant contended that the business was taken over by the company from proprietorship concern. He further contended that the loan amounting to Rs,57,191,096/- is the business capital of the firm under the name and style of M/s. TOWN CRIER PRINTER (National Tax No,1157634-7).
50. The said running business (including plant and machinery, banks balances, receivables and payables) of the firm was taken over by the Company as "ASSETS" in the books of account and liability was created as loan in the name of Mr. Sarfraz Ahmad Bajwa CEO of the Company. The entire transaction pertains to a book entry in the account books of the company. To verify his contention he produced "Vendors Agreement" dated 01-07-2011. The contents of the agreement are as under: "AND WHEREAS the First Part has converted the status of the individual into a Private Limited and handover its assets and liabilities to the said company (Purchaser) as per Book Value of the Vendors as on 30-06-2011 as under: Plant and machinery Rs. 20,631,657/- Cash and cash equivalence Rs. 36,559,439/- Total Rs. 57,191,096/- AND WHEREAS the said running business (including plant and machinery, banks balances, receivables and payables) of M/s. TOWN CRIER PRINTERS was taken over by the Company as "ASSETS" in the books of account and liability was created as loan in the name of Chaudhary Sarfraz Ahmad Bajwa by using the rules of debit and credit, transaction pertains to a book entry in the account books of the company.
51. AND WHEREAS the said company is taking over the assets and liabilities of the Vendors as per book value mentioned as supra, therefore, if any other liability/payment occurred other than mentioned above, the same shall be paid by the proprietor i,e, the First Part." Reliance was placed in case un-reported vide I.T.A. No,2014/LB/2012 dated 22.04.2013; the honourable ATIR have held that: "5. As regard the advance of Rs,4,433,166/- ($71,500) received against sale of machinery, the only reason recorded by the Taxation Officer to treat it as income of the appellant company is that the same had not been routed through banking channel either at the time of receipt or repayment.
52. This observation of the Taxation Officer has also been successfully countered by the learned AR of the company on the strength of the provisions of section 39(4) of the Income Tax Ordinance, 2001 which oust trading advance from the ambit of section 39(3) of the Income Tax Ordinance, 2001 and judgment of this Tribunal reported as [(2007) 95 Tax 417 (Trib.)] also supports the contention of the learned AR. For these reasons we feel that addition of Rs,4,433,164/- is also not sustainable and accordingly directed to be deleted."
33. The learned counsel of the respondent further contended that the main objection was that proceedings under section 122(5A) cannot be initiated on fishing enquiry or on assumption without proving that the deemed order was erroneous and as well as prejudicial to the interest of revenue.
53. Thus, both the conditions have to be fulfilled simultaneously and of either of the conditions is not fulfilled provision of section 122(5A) which is in pari materia. Reliance was place in a case reported as 2014 PTD (Trib.) 1101; it has been held that: "Hence, from revenue point of view, there was no loss of revenue as Taxpayer/Appellant was not required to pay any income tax in any of the year. This Tribunal in its earlier decision reported as 1969 PTD (Trib.) 144, which although was decided keeping in view the provision of section 34A of Repealed Income Tax Act, 1922 but as the said provision and the provisions of section 66A of repealed Ordinance, 1979 and also section 122(5A) of present Ordinance are in pari materia but while dilating on powers and the basis of review by Additional Commissioner, it was held that precedent condition was that, the order should be erroneous and as well as prejudicial to interest of revenue. Thus, both the conditions were required to be fulfilled simultaneously and if either of the conditions is not fulfilled, the order cannot be reviewed or amended."
54. Thus, the plea taken by the learned counsel carry much weight hence the amended assessment as well as the order of the learned CIR(A) is cancelled.
34. Accordingly, the captioned five appeals are decided to the extent and in the manner as discussed above.