ORDER IFTEKHAR AHMAD BAJWA, ACCOUNTANT MEMBER.- Appellant, a wholly owned subsidiary of Federal Chemical & Ceramics Corporation-a Government Organization, is contesting the order of the first appellate authority relating to Assessment Year 1993-94. Appellant's objections relate to:
(i) application of Section 80C(5) read with Section 13(1) (aa) resulting in addition of Rs. 2,60,19,511/-,
(ii) disallowance of pension expenditure to the extent of Rs. 1,75,70,000/-, (iii) computation of extra shift depreciation allowance, and (iv) levy of additional tax under Section 88.
2. The accounting statements accompanying the return disclosed income of Rs. 10,47,59,628/- on total turnover of Rs. 86,60,88,216/-. The turnover comprised of supplies falling in the ambit of Section 80C amounting to Rs. 31,87,33,840/- and other sales totalling Rs. 52,42,87,573/-. Pro-rata income in respect of sales which did not fall under the presumptive tax regime of Section 80C had been shown by the appellant as Rs. 6,34,16,392/-. The Assessing Officer, on the other hand, worked out such income at Rs. 8,57,87,397/-. The difference (i.E. Rs. 8,57,87,397 Rs. 6,34,16,392= Rs.
2,23,71,005) was deemed as income under Section 13(l)(aa) of the Income Tax Ordinance and charged to tax accordingly. The addition of Rs. 2,23,71,005/- which was confirmed in first appeal, is the first point of contention before us.
3. Appellant had worked out the income, taxable under normal law in accordance with CBR's Circular No. 12 of 1991, dated 30.6.1991 which contained detailed instructions with relevant examples for computation of income and tax for composite businesses representing income taxable under normal law as well as presumptive tax regime of Section 80C. Appellant had followed the method illustrated in example 1 in the said Circular to work out the income taxable under normal law. The Assessing Officer, however, adopted a different method. Relying on example (vi) of Circular No. 12 of 1991 the Assessing Officer worked back the income relating to supplies at Rs. 1,89,72,231/- and the balance income chargeable under normal law was determined at Rs. 8,57,87,397/- as against declared amount of Rs. 6,34,16,392/-. To figure out the income taxable under normal law, both parties took different routes and came up with different results.
4. The Assessing Officer had relied upon Section 80C(5) and Section 13(1) (aa) of Income Tax Ordinance in support of his action. The D.P. Justified the action to be in accordance with the provisions of law while appellant's AR vehemently disputed the treatment meted out by the Assessing Officer. It was argued on behalf of the appellant that sub-section (5) of Section 80C can be invoked only if any of the items mentioned in Section 13 (unexplained cash credits, instruments, expenditures etc.) is in question. According to die A.R., no investment or ownership of any money or valuable article as provided in section 13(l)(aa) had been specified by the Assessing Officer, therefore, there was no occasion for invoking the provisions of Section 80C(5) in this case. In support of this contention, appellant's A.R. Relied on a recent judgment of the High Court of Sindh, Karachi, reported as (1995) 71-Tax-2,27 (H.C. Karachi) Re: Prince Cloth Works Limited and others.
5. It was held in the afore-mentioned judgment that subsection (5) of Section 80C cannot be invoked without reference t the provisions of Section 13 of the Ordinance. In the case before us the Assessing Officer had worked back the income relating to supplies falling under Section 80C and the surplus was charged to tax under Section 13 of the Income Tax Ordinance. This was contrary to the relevant provisions of law i.E. Sub-section (5) of Section 80C which is reproduced below:- "Where an assessee, while explaining the nature and source of any sum, investment, money, valuable article, excess amount or expenditure, referred to in Section 13, takes into account any source of income which is subject to tax in accordance with the provisions of this section, he shall not be entitled to take credit of any sum as is in excess of an amount which if taxed at a rate or rates, other than the rate applicable to income chargeable to tax under this section, would have resulted in tax liability equal to the tax payable resulted in respect of income under this section."
The opening words where an assessee. Which explaining the nature and source of any sum,...." leave no doubt in the matter that the provisions comes into play only when any credit, investment, expenditure etc. Has been identified and the assessee is required to explain the same within the meaning of Section 13 but in this case Section 80C(5) has been made a function of calculation which was certainly not consonant with the letter and spirit of law.
6. The Assessing Officer did not detect or specify any unexplained investment as per Section 13(l)
(aa) of the Ordinance while taking recourse to Section 80C(5). He merely worked back the income imputable to supplies taxable under Section 80C and charged to tax the surplus under Section 13.
This was tantamount to putting the cart before the horse. The action was clearly beyond the scope of Section 80C(5) of the Ordinance as delineated in the judgment of the Karachi High Court.
7. It may be 'pointed out that the declared sales and purchases for the period under appeal had been accepted. Neither any inflation in expenses nor suppression of any item of income had been suspected by the Assessing Officer. There was not even a hint of any unexplained investment.
Section 13 had been invoked in a round about manner. Instead of pressing it into service after specifying the unexplained investment or expenditure etc which is pre-requisite ordained by the statute, the Assessing Officer applied Section 80C(5) on the basis of notional figures. There can be no cavil to the contention that Section 80C(5) can be invoked only with reference to any unexplained investments of expenditure mentioned in Section 13. Appellant's objection on this issue must therefore be upheld. The addition under Section 80C(5) read with Section 13 is accordingly deleted.
8. The next objection is against addition of Rs. 1.75,70,000/- on account of provision for pension in anticipation of privatization. The provision for this extraordinary expenditure had rightly been made as the company had been selected for dis-investment under Government's privatization Scheme.
It was contended by appellant's A.R., as had been done before the lower authorities, that the provision was based on an actuarial valuation for meeting the pension obligations on the impending privatization. This, according to the appellant's A.R., was an ascertained liability admissible against the profits for the year.
9. Appellant's arguments are apparently without any force. The provision for meeting an obligation, which may or may not arise, was rightly held to be inadmissible. The amount in question would indeed be admissible as and when privatization takes place. The objection on this point fails.
10. The objection in respect of depreciation allowance is also without any merit. The Assessing Officer allowed extraordinary shift depreciation allowance with reference to the number of days during which the machinery had been in operation. This was in accordance with the Rule 3(2) of the Third Schedule. No interference on this account is called for. [1]