KARACHI: An income tax liability case came to end after 21 years with decision in favor of Pakistan Petroleum Limited (PPL).
The two ITCs (Income Tax Cases were finally heard on 13.01.2022 while judgment was passed on 25.01.2022 by Income Tax Appellate bench of High Court of Sindh.
These two (ITC) filed by the department were admitted to regular hearing on 26.1.2005 to consider a number of questions of law, the primary question being that “Whether on the facts and in the circumstances of the case, and assessee’s failure to provide employee-wise details of various benefits and perquisites given to its employees, the learned ITAT has erred in holding that the law does not permit making of an adhoc addition under section 24(i) of the Income Tax Ordinance, 1979? and that “Whether the learned Tribunal was legally justified in deleting the addition under section 24(1) by accepting the assessee’s contention that no addition in respect of benefits and perquisites like Medical, Vehicle and Tiffen Room was made in the succeeding assessment year when every year being an independent assessment relating to each assessment year is an absolutely different and independent proceedings?”
As per details the Respondent is a public limited company which filed its return of total income for the assessment year 1999-2000 on 31.12.1999 by showing an income of Rs.769,480,870/-. The assessment thereafter was completed on 16.6.2001 by assessing the income for the tax year 1999-2000 at Rs.1,224,140,556/-. The Assessing Authority (AA) while making the assessment made an addition of Rs.2,66,98,126/- under the provision of Section 24(i) of the Repealed Income Tax Ordinance 1979, (hereinafter referred to as the Repealed Ordinance) by finding that excess perquisites have been given by the company to its employees, which are not allowable under the law, as no proper employee wise details were furnished. Similarly for the assessment year 2000-2001 the return of Income Tax was filed on 15.1.2001 by declaring an income of Rs.1,747,999,096/- and the assessment for the said year was completed on 16.6.2001 by assessing the income at Rs.2,352,939,859/-. An addition under Section 24(i) of the Repealed Ordinance was made to the tune of Rs.5 million being excess perquisites to the employees of the company on the ground that no proper employee wise details were furnished and supporting evidence not furnished.
The appellant/ tax payer being aggrieved with both these assessment orders, preferred appeals before the Commissioner of Income Tax Appeals, who vide order dated 30.5.2002, upheld the additions in respect of both the assessment years by observing that employee wise record of perquisites given to them was not maintained by the assessee.
Being aggrieved with the order of the Commissioner Appeals, appeals were preferred before the Tribunal bearing Appeals 3 No.1227/KB of 2002 & 1228/KB of 2002 and the Tribunal vide order dated 03.11.2003 deleted the said additions by holding that the law does not permit making of ad-hoc addition under Section 24(i) of the Repealed Ordinance. Reference Applications bearing R.A No.88/KB of 2004 & R.A No.89/KB of 2004 were filed then before the Tribunal by raising certain questions of law for opinion of this Court. However the Tribunal vide order dated 06.8.2004 declined to refer the questions raised by the department to this Court on the ground that no question of law arises out of the order passed by it. It was then the present ITCs have been filed which, as stated above, were admitted for regular hearing vide the above referred order.
Mr. Muhammad Aqeel Qureshi, Advocate has appeared on behalf of the Department and stated that since the Respondent has failed to furnish supporting evidence regarding payment of excess perquisites to the employees hence the department was justified in making additions under Section 24(i) of the Repealed Ordinance. He stated that the Tribunal erred in allowing the claim of the Respondent/Company which was not backed by documentary evidences. He stated that during the assessment proceedings the Respondent/company has shown his inability to provide the required documents/details to the department, which amply proves that the Respondent/company does not possess any document, evidence / detail to substantiate its claim. The bench after hearing all the learned counsel at length and perusing the record held that “ The determination and the computation of the income must be made on a basis evolved by the Income tax Officer. His judgment must be based on reason. He cannot just take a leap in dark and indulge in a pure guess by making arbitrary, capricious and an ad hoc addition without laying down the basis for it. He should endeavour to the best of his ability to ascertain the income, profits and gains of the assessee nearest to his true income, profits and gains as far as possible under the circumstances of the case.” (Underline ours for emphasis).
We, therefore, under the circumstances are of the view that the income tax department does not have the authority or jurisdiction to make ad hoc additions to the income of an assessee though they do possess the authority under the law to make additions to the income of the appellant/assessee which in their opinion either not in accordance with law or after giving valid and cogent reasons for the same, the bench ordered deciding the ITCs in favor of PPL.