Judgment SHEET
IN THE HIGH COURT OF SINDH, KARACHI
I.T.A. No.1004 of 1999
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DATE ORDER WITH SIGNATURE OF JUDGE
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Present: Mr. Justice Mohammad Ather Saeed,
Mr. Justice Salman Ansari.
Date of hearing : 30th March, 2009.
Applicant : M/s. Adnan Suger Mills Ltd. through
Mr. Siraj-ul-Haq Memon Advocate.
Respondent : Deputy Commissioner of Income Tax
through Mr. Muhammad Aqeel Qureshi
Advocate.
Mohammad Ather Saeed-J. This Income Tax Appeal has been filed against the order of the Income Tax Appellate Tribunal dated 29.06.1999 in I.T.A. No.644/KB of 1998-99, wherein the learned Tribunal has accepted the appeal filed by the respondent against the order of the learned CIT (Appeals) and had vacated the order of the CIT (Appeals) and restored the order of the Income Tax Officer. This appeal was admitted by this Court for regular hearing on 20.08.2003 to consider the following question:-
“Whether in the facts and circumstances of the case the ITAT has mis-directed in confirming the rejection of accounts”
2. The brief facts of the case are that the appellant is a public limited company carrying on the business of manufacture and sale of sugar and filed its returns of income for the assessment year in question declaring loss of Rs.96,692,272/-. The Income Tax Officer examined books of accounts, confronted the applicant on the various discrepancies in the accounts and after rejecting the applicant’s explanation rejected the declared trading accounts and estimated the sales at Rs.410,000,000/ against the declared sales of Rs.397,391,484/- and applied the declared gross profit rate at the rate of 20% against the gross profit rate declared at 12.24 and after making certain other additional charges of the capital gross accounts restricted the declared loss to Rs.3,30,20470/-.
3. Being aggrieved by the order of the Income Tax Officer the appellant filed an appeal before the CIT (Appeals) who vide his order in appeal No. CIT/A-2/212 dated 27.06.1998 allowed the appeal and deleted the additions of Rs.33,344,891/- made on account of rejection of trading accounts.
4. Being aggrieved by the order of the learned CIT (Appeals) the present respondent filed an appeal before the learned Tribunal who vide the impugned order allowed their appeal. Hence, this Income Tax Appeal.
5. We have heard Mr. Siraj-ul-Haq Memon learned counsel for the appellant and Mr. Muhammad Aqeel Qureshi learned counsel for the respondent.
6. The learned counsel for the appellant argued that the Tribunal fell in error when it vacated the order of the CIT (Appeals) and restored the order of the Income Tax Officer. He submitted that the CIT (Appeals) had passed a very detailed order rebutting the reasons given by the Income Tax Officer for rejecting the trading accounts and there was no material or basis before the Tribunal for vacating his order and restoring the order of the Income Tax Officer and the impugned order has been passed by the learned Tribunal just on its whims and fancies and without any basis whatsoever. The learned counsel submitted that the appellants were following a regular method of accounts and as held by the CIT (Appeals), he has a history of acceptance of trading accounts. The learned counsel further submitted that the appellant had provided an exhaustive explanation in response to the queries raised by the Income Tax Officer, the explanation was substantiated with cogent reasons. He further stated that the complete books of accounts were produced before the Income Tax Officer, who except making general allegations, could not point out any specific defect in the books of accounts to substantiate his contention that proper income could not be deduced on the basis of system of accounting being followed by the appellant and therefore, the rejection of accounts cannot be sustained. He further argued that although two parallel cases were relied on by the Income tax Officer to substantiate the estimate of G.P adopted by him but he had only provided the National Tax number of those two cases and did not provide the parties’ name so that the appellant could not trace and study those cases and point out the reasons for non comparison of the result of those cases with the result of his case. He also submitted that sugar was also liable to Excise duty and has to be cleared under the monitoring of the Excise Authority and the Excise registers were also presented for acceptance before the Income Tax Officer and in view of the inspection of results by the Excise Authorities there was no reason on the basis of which the Income Tax officer could have rejected the Trading Accounts.
7. In support of his contention he relied on the following judgments of this Court:-
1. STAR ROLLING MILLS VS. COMMISSIONER OF INCOME-TAX reported in 1974 PTD 200.
2. M/s. PARACHA TEXTILE MILLS LTD.VS. THE COMMISSIONER OF INCOME TAX reported in 1988 PTD 332.
3. PIMPA (PVT) LTD. VS. COMMISSIONER OF INCOME TAX, COMPANIES-I, KARACHI reported in 1993 68 TAX 193 (H.C. Karachi).
8. The learned counsel for the respondent Mr. Muhammad Aqeel Qureshi strongly refuted the arguments of learned counsel for the appellant and submitted that the Income Tax officer had given numerous opportunities to the appellant to answer the queries raised by him and to provide various details of documents and to satisfy the Income Tax Officer in respect of the following defects:
1. Unverifiablility of sales and the variation in sale rates.
2. Unverifiability of purchases of sugar cane.
3. Unverifiabiltiy of items charged in debit side i.e. procurement, development, handling, press mud removal expenses, stores consumed, repairs and maintenance, fuel and expenses, stores consumed, repairs and maintenance, fuel and power, baggasse feeding expenses flying ash removal expenses etc.
9. However, despite these numerous opportunities, although the appellant submitted breakup of various receipts and expenses but could not substantiate the same with vouchers, bills and other documents by which these details could be rendered verifiable.
10. He relied on the assessment order to point out that there was variation between the sales rate and the variance in the Sales rate was from Rs.1049 per bag to 1219 per bag. In fact the different rates were shown for sales made on the same date and no explanation was filed for such variation. He further submitted that the recovery percentage of sugar also declined slightly and no substantial reason was given for such decline, whereas sales and purchases were mainly on cash and through brokers and therefore, verifiability could not be attached to them. He further argued that the onus was on the appellant to give cogent reasons for the variation in rate and the sales could have been termed verifiable only if he could have proved that sales were made in cash or through cheques at the same rate. The learned counsel further submitted that the Commissioner of Income Tax has not properly understood the facts of the case and had on the wrong premises deleted the addition and the Tribunal has after properly considering the facts of the case vacated his order. He, therefore, prayed that the above appeal may be dismissed and the question admitted by this Court may be answered against the appellant and in favour of the respondent.
11. We have examined the question in the light of the arguments of the learned counsel and have carefully perused the records of the case and the judgments relied on by the learned counsel.
12. We observe that the Income Tax officer has given a finding that the appellant had a history of rejection of trading accounts whereas the CIT (Appeals) has given a finding that the appellant has a history of acceptance of accounts in appeal but both of them have not substantiated this finding with any fact or figure and both the learned counsel, the learned counsel for the respondent on the finding of the Income Tax Officer and the learned counsel for the appellant on the finding of the CIT (Appeals) have also not been able to place any documents on record to substantiate their findings. Therefore, we have to proceed to adjudicate this case without there being a definite finding substantiated by the evidence regarding the treatment of the appellant’s accounts in the previous years.
13. We also consider that it will be convenient to reproduce the finding of the three lower forums on the point of rejection of accounts by the Income Tax Officer and the Income Tax Appellate Tribunal and the point of acceptance of the trading accounts by the C.I.T. (Appeals):-
Finding of the Income Tax Officer:
The discussion relating to the defects warranting rejection of accounts and declared results, assessee’s reply and the conclusions drawn there from is outlined here below:-
SALE OF SUGAR:
Perusal of details of sales furnished by assessee shows that most of the sugar sales were made through brokers and complete addresses of the ultimate buyers have not been furnished. Few instances are quoted as under:-
|
Date |
Party Name & address |
No. of Bags: |
Rate per Bag. |
Amount. |
|
31.12.93 |
Irfan & Co. Chistian |
28,620 |
1,100 |
3,14,82,080 |
|
31.12.93 |
M.Abdullah Lucky Murwat, Ctn |
9,000 |
1,097 |
98,76,000 |
|
01.01.94 |
Masood Akhtar Bawalnagar |
1,000 |
1,079 |
10,79,000 |
|
28.02.94 |
M.Bilal & Co. Chn |
3,420 |
1,049 |
35,87,580 |
|
30.06.94 |
Al-Kuwait Enterprises |
2,160 |
1,146 |
24,75,840 |
|
30.09.94 |
Ahmed Traders, Lahore |
960 |
1,169 |
11,22,250 |
|
30.09.94 |
Ashraf Khan Lahore |
120 |
1,219 |
1,46,280 |
The above data shows fluctuation is selling rates of sugar which ranges between Rs.1,049 per bag to Rs.1,219 per p bag at various dates. The variations in rates and unverifaiblity of sales have been confronted to the assessee vide notice u/s 62, dated 12.01.98, relevant portion of which is reproduced below:-
“In the period under review, you have declared total sales of Rs.397,381,484/- and G.P. before Dep. Has been shown at Rs.48,655,109/- yielding a G.P. Rate before Dep. Of 12.24% as against last year G.P. Rate before Dep. was shown at 8034%. No doubt G.P. Rate has enhanced this year but perusal of details of sugar sales furnished by you reveal that most of sugar sals were made through brokers which are not fully verifiable. Further particulars of the parties are also not provided.
In response, the A.R. of assessee stated that it is normal practice in this business that the sales were made through brokers. The selling rate declared has almost same as per rate prevail in the market and sales are subjected to excise, hence fully verifiable. The A.R. further stated that the G.P. Rate as well as sale declared has also been accepted by the Commissioner of Income Tax (Appeals).
The reply of the asessee has been considered but found unconvincing for the reason that complete and contactable addresses of the ultimate buyers have not been produced by the assessee. Secondly fluetion in selling rate and variation in sales have not been justified by the assessee despite specific request. Hence, the plea of the assessee cannot be entertained.
PRODUCTION ACCOUNT:
In response of production, assessee has furnished a copy of Form RT-14, in respect of season 1993-94 data available is summarized as under:-
1995-96 1994-95
|
Commenced crushing on |
01.11.93 |
02.11.92 |
|
Stopped crushing on |
05.05.94 |
08.03.93 |
|
No. of season days |
186 days |
127 days. |
|
Cane crushed – M.T. |
459,142 |
268 days. |
|
Sugar produced – M.T. |
37,271 |
21,976 |
|
Average recovery of sugar |
8.12% |
8.18% |
It may be seen from above data that cane crushing as well as sugar produced have increased as compared to preceding year. However, recovery percentage of sugar has decline from 8.18 % to 8012%. The A.R. of the assessee stated that the sugar recovery was slightly lower than last year due to hot and dry summer. Since the adverse inference has already been drawn in the trading account hence no separate addition in this account is made and will be covered by the addition in the trading account.
FINDING OF THE INCOME TAX APPELLATE TRIBUNAL.
We have heard the arguments from both the parties and also applied our mind, facts of the case. It appears evident to us that respondent has not been able to explain the variation in sale rate, variation of purchase of sugar-cane, fall in recovery rate as well as cost of sales it was generally pleaded before learned CIT (A) that variation in sale rate depended on import and export policy and general trend prevailing in the market that may be true and does not explain the variation in rate on the date which has been cited in the assessment order such as under:-
|
Date |
Name & Addess |
No. of bags |
Rate per bags |
Amount. |
|
31.12.93 |
Irfan & Co. Chistian |
28,620 |
1,100 |
3,14,82,080 |
|
31.12.93 |
M.Abdullah Lucky Murwat, Ctn |
9,000 |
1,097 |
98,76,000 |
|
01.01.94 |
Masood Akhtar Bawalnagar |
1,000 |
1,079 |
10,79,000 |
|
28.02.94 |
M.Bilal & Co. Chn |
3,420 |
1,049 |
35,87,580 |
|
30.06.94 |
Al-Kuwait Enterprises |
2,160 |
1,146 |
24,75,840 |
|
30.09.94 |
Ahmed Traders, Lahore |
960 |
1,169 |
11,22,250 |
|
30.09.94 |
Ashraf Khan Lahore |
120 |
1,219 |
1,46,280 |
It has been explained either on the assessment stage or the appellate stage as to how the rates can very on the same date. Similarly, the valuation in purchase rate of sugar-cane is explained that a normal course of business. The respondent to pay higher price which was fixed by the government, that valuation from the fixed price may be justified by day to day valuation in the price paid to the Grucer needed to be explained. After the recovery rate of sugar had fallen from .18% to 8.12%, the reason for which was ascribed to the out dated D.C.D.S. process, this process was prevalent as compared to the immediately preceding year. Similarly, the respondent also failed to produce necessary supporting and verifiable documents in respect of other expenses debited to cost of sales. Further the Sugar Mill operating in the same area had declared G.P. between 18.99% to 21.07% and where assessed at 19.83 and 22.03%. The details of these parallel cases, operating under the same conditions, were provided to the respondent. No valid explanation was given for comparative boor performance. For these deficiency, therefore, we are inclined to hold that trading account was rightly rejected and accordingly, we vacate the order of learned CIT (A) and restore the order of the assessing officer.
FINDINGS OF THE CIT (APPEALS).
“ I have perused records in the case an also heard the learned A.R. I am of the view that the contentions of the learned A.R. carry a lot of force. The case of the assessing officer with regard to estimation of sales and application of G.P. rate respectively of Rs.410,000,000/- and of 20% is the following:
Addresses of certain parties to sales were incomplete and hence sales were partly unverifiable. In this regard the contentions of the appellant that the addresses as furnished by purchasers were dutifully recorded, and, it is not part of the assesse’s responsibility to verify the correctness or completeness of the addresses furnished, are found to be plausible.
The assessing officer has also no case on fluctuation of purchases rates of cane and these are much more than rates fixed by the govt. in this behalf the case of the appellant is that the government fixes minimum purchase rate of cane to protect the growers and that if market conditions of competition force the Mill owners to offer more than the minimum rate this factor alone would not be adversely viewed unless the assessing officer’s case also that it is established that the purchases of sugar cane were unverifiable or that purchase rates of unverifiable parties were more than the purchase rate from verifiable parties.
The assessee has no case of history of rejection of trading results as in the preceding several years the rejected trading accounts were directed to be accepted in appeal.
14. From a perusal of the above extracts we have seen that it is clear that the present appellant had not been able to properly reply to the queries raised by the Income Tax Officer and had taken the plea under the shelter of general excuses and could not give any one specific reason in support of his contention that his accounts could not be rejected for the reasons highlighted by the Income Tax Officer. We are also not impressed by the observations of the CIT (Appeals) by which he had deleted the additions made on account of rejection of accounts as such observations are without any force whatsoever.
15. We have also carefully perused the judgments relied on by the learned counsel for the appellant and we are of the considered opinion that such cases are distinguishable and are not identical to the facts of the case in the appellant’s case. Although the learned counsel for the appellant had argued that once the items are subject to excise duty and excise registers have been perused by the Income Tax Officer, such register cannot be rejected but he has not provided any judgment on this point.
16. We are, therefore, of the considered opinion that the Tribunal has given cogent reasons for vacating the order of the CIT (Appeals) and restoring the order of the Income Tax Officer and these reasons are unexceptionable and no interference is called from this Court.
17. For the above reasons we would answer the question admitted for regular hearing and stated above in negative in favour of the respondent and against the appellant.
18. This Income Tax Appeal is disposed off in the above manner.
JUDGE
JUDGE
Dated: .04.2009
Sajid