FINDINGS/DECISIONSALEEM AKHTAR, J.- This is a complaint against the selection of the complainant's income tax return for the Assessment Year 2002-2003 under para 9(a)(ii) of the Self-Assessm ent Scheme for 2002-03.
2. The facts are that the complainant statedly derives professional income as a consuItant for an AIDS awareness program. Return of income was filed to declare income of Rs.616,948/- for the year 2002-03. The RCIT issued a show-cause notice expressing his intention to select the complainant's return for total audit on the following grounds:- "(i) Claim of expenses to the tune of Rs.408,004/- against declared receipt of Rs.958,976/- are highly excessive keeping in view the nature of business.
(ii) Receipt as well as expenses is totally unverifiable.
(i.e) . House No. 116, St. No. 20, F-10/2, Islamabad has been purchased for US$ 112000/-. The declared price is on the lower side keeping in view the prevailing rates of residential properties."
3. In reply the complainant pointed out that the expenses claimed at Rs.338476/- against receipts declared at Rs.958,976/- were absolutely genuine and verifiable. With regard to the receipts it was stated that these were 100% verifiable having been received through normal banking channel from Nataline Services (Pvt.) Itd. In connection with the project of the Ministry of HeaIth. Complete details of each payment received along with details of tax deducted at resource were also provided. With regard to the purchase of the house, the complainant in his reply to the RCIT stated as under:- "Whereas the question of purchase of house is concerned, it is stated that the plot size of . House is 500 Sq. Yd. And the assessee had purchased it at US$ 112,000/- on September 11, 200I. At that time the rate of per US$ was rounding Rs.66/- to Rs.67/-. The then market value of that house was aroundRs.6,500,000/- to Rs.7,000,000/-. However in view of the scheme of the house which was solving purpose of the assessee for establish in the personal office as well as residence, the value of the house was agreed upon as US$ 112,000 (around Rs.7500,0000). The amount was paid in US$ on the demand of seller. The said amount was arranged from conversion of US$ Bonds already declared in the Wealth . Statement as on 30.6.2001."
4. The case was later selected for total audit by the RCIT and in the complaint the contentions in the reply to the RCIT have been reiterated. With regard to the' purchase of the house it is again stated in the complaint that the necessary documents were submitted and that the price declared represented the actual price paid for the property.
5. In the respondent's reply it is stated that the point relating to P&L expenses was valid as the expenses claimed came to 35.20% of the declared receipts while these were shown at 33.74% in the Assessm ent Year 2000-01. It was also stated that in the Assessment Year 2002-03 salaries of office assistant and office cleaner were claimed at Rs.48,000/- and Rs.7,800/- respectively, whereas no such expenses were claimed in the Assessment Year 2000-01. It was also stated that the gross receipts were . Lower as compared to the receipts of Rs.1,109,641/- declared for the Assessment Year 2002-03. With regard to the purchase of house, the respondent's reply reads as under:- "During the period relevant to the Assessment Year 2002-2003 the complainant also purchased house No. 116, St. No. 20, F-11/2, Islamabad whose declared price has been found understated in comparison with prevailing market rates. The house has been purchased for Rs.7,392,000 (declared equivalent of $ 112,000) in September, 2001. The area of the plot on which house has been constructed is 500 Sq. Yds. Cost of the house ' work out at Rs. 14,780/- per Sq. Yd. House No. 121, St.
23, F-10/2, Islamabad measuring 1125 Sq. Yds has been purchased back in August, 1998 for a consideration of Rs. 18,600,00/- or Rs. 16,580/- per Sq. Yds. AI though the complainant purchased property after a lapse of about 3 years in view of which price declared has been found all the more suppressed in comparison with above-referred property."
6. During the hearing both sides reiterated their contentions regarding the RCIT's grounds for selection. With regard to the purchase price of the house it was stated by the complainant's A.R. That this was as per the attested agreement to sell and the price was also duly shown in the CDA records. A list of i.e houses with similar plot sizes located in Sector F10/2, Islamabad was also provided by the A.R. Showing the stated .Sale prices as under:- "(1) House-121, St. No. 20, F-10/2, Sold in 2002, Price 69 Lacs.
(2) House 134, St. 20, F-10/2, Dr. Iftikhar Chaudhary Arshad Sold in 2002. Price 71 Lacs.
(3) House 89, St. 23, P-10/2, Sold in 2001. Price 72 Lacs.
(4) House 84, St. 23, F-10/2, Sold in 2001. Price 74 Lacs. s ..^,ifQi6m
(5) House 110, St. p22hcomplainant represented the actual market value of the house. The representative, of the respondent however, reiterated that the declared purchase price was very also particularly in the light of the price of the property- mentioned in the respondent's reply. The other grounds of selection were also defended by the respondent's representative.
7. The contentions of the two sides have been considered and as regards the RCIT's ground No. 1 relating to excessive claim of expenses it has been found to be without substance as there is no valid criterion with the department for show that the expenses were inflated, In this' context it is also noted that there was no justifiable reason to make a comparison with the year of 2000-01 [i.e. The year before last) in this regard. Same is the case with salary of office assistant and office cleaner which are absolutely valid expenses and the comparison with the year 2000-01 in this connection is again quite unjustified. As regards the receipts, the complainant had given details of each payment (together with tax deduction) from M/s. Nataline which was the only source of the complainant's receipts. Nothing has been stated in the respondent's reply or during the hearing to rebut the obvious verifiability of the receipts.
8. As regards to the purchase price of the house as declared by the complainant it can be seen that according to the RCITs show-cause notice the declared price was "on the lower side keeping in view the prevailing rates of residential properties", It is evident that this was a subjective view for which no specific reason was given, In fact the words "lower side" seem to reflect the opinion that the price could have been marginally higher but do not express a definite view that the price had actually been understated. As for the single instance of a property quoted in the respondent's reply the reference is hardly valid because dividing the price of a house with the size of the plot ignores various factors such as built-up area and the actual Ghulam Khan Bhittani V. Govt, of Pakistan C.L. 927 (Fazalur Rehman's Khan, J.) location etc. Thus if the respondent's view regarding understatement of purchase price is based on such an example it can hardly be considered as reasonable. As already noted the complainant's A.R. Has also given particulars of statedly comparable properties with similar prices. Of course, the actual details of these properties are also not known but as far as the respondent's view is concerned neither in the show- cause notice nor in the respondent's reply nor even during the hearing was any valid basis given for considering that the price of the house had been understated. Needless to say, as far as the declared price is concerned the department has no doubts regarding the genuineness of the source of investment. There was thus no information or valid reason for the RCIT to believe that the purchase price of the house (and consequently the income) had been suppressed.
6. In the light of the above, the selection of the case for audit has not been found to be justified and it is, therefore, recommended that:-
(i) The complainant's return for Assessment Year 2002-2003 be excluded from total audit and the return be accepted under the Self Assessment Scheme.
(ii) Compliance be reported within 30 days.