APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I, ISLAMABAD
ITA No.645/IB/2019
(Tax Year 2008)
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M/S NLC Developers (Pvt.) Ltd; HQ NLC, Gate No.7, GHQ, R.A Bazar, Rawalpindi. | Appellant | |
Vs | ||
The Commissioner Inland Revenue, Corporate Zone, RTO, Rawalpindi. | Respondent | |
Appellant by | Mr. Khalid Mahmood, FCA | |
Respondent by | Mr. Zaheer Qureshi, DR | |
Date of hearing | 05.08.2019 | |
Date of order | 05.08.2019 |
O R D E R
M. M. AKRAM (Judicial Member): The above titled appeal has been filed by the Appellant/taxpayer against an Order No.812/2019 dated 26.04.2019 passed by the learned Commissioner Inland Revenue (Appeals-III), Rawalpindi for the Tax Year 2008 on the grounds as set forth in the memos of appeal.
2. The back ground giving rise to the issue, now being assailed before us, is pivotal and hence is required to be taken into account of the purposes of the comprehension of the matter and the disposal of appeal. The appellant (NLCD) is a wholly owned subsidiary of National Logistics Cell (NLC) and engaged in investments and enter into joint ventures and partnerships for real estate, construction and infrastructure development project. The Appellant filed its income tax return for the tax year 2008 declaring loss of Rs.129 million. The income tax return so filed by fiction of law was treated as deemed assessment order under the provisions of section 120(1) of the Income Tax Ordinance, 2001 (the Ordinance). Subsequently it was observed that the deemed assessment order was erroneous as well as prejudicial to the interest of revenue on the ground that the appellant had not included inadmissible deductions of financial cost amounting to Rs.284,569,171/-, general & administrative expenses (provisions) amounting to Rs.68,951,039/- in the taxable income. It was further observed that a loan of Rs.899,281,889/- declared by the appellant from NLC attracted the provisions of section 39(3) of the Ordinance. Furthermore, interest income of Rs.83,252,357/- and credit entries amounting to Rs.54,776,954/- reflected in the bank statement were also found by the Assessing Officer as unexplained liable to be added in the income. The deemed assessment order was thus, held as erroneous as well as prejudicial to the interest of revenue in terms of section 122(5A) of the Ordinance and the taxable income was assessed at Rs.1,260,920,483/- vide DCR No.4/151 dated 25.04.2012. Against the said order, the appellant/taxpayer preferred an appeal before the learned Commissioner Inland Revenue (Appeals) which was decided vide order-in-appeal No.1749/2012 dated 28.08.2012 whereby the interest income amounting to Rs.83,252,357/- was deleted while rest of the additions were confirmed. The appellant went into second appeal before this Tribunal whereby the order passed by the CIR(A) was upheld except the issue of addition made on account of loan amount of Rs.899,281,889/- which was remanded back to the extent of Rs.126 million to the Assessing Officer vide ITA No.812/IB/2012 dated 22.05.2013. The appellant then filed reference application bearing ITR No.67 of 2013 under section 133 of the Ordinance before the Hon’ble Islamabad High Court. In the said reference application, the Hon’ble High Court considered four questions of law for the purposes of deciding the same. Out of these questions, three were relevant to the loan amounting to Rs.773 million and the other was with respect to disallowance of “financial cost” amounting to Rs.284,569,171/-Thus, the other additions relating to general & administrative expenses and unexplained bank credit entries were not taken into consideration by the Hon’ble High Court which has attained finality. However, while deciding the reference application, the Hon’ble High Court decided the questions in favour of the appellant vide order dated 22.04.2015 by holding that: -
“if a person who obtains a loan, instructs the creditor to make payment on its behalf to a third person then such transaction if completed would tantamount to receiving the loan by the debtor.”
The Hon’ble High Court decided the question regarding disallowance of “financial cost” amounting to Rs.284,569,171/- in favour of the appellant. However, the questions regarding loan were remanded to this Tribunal to decide the question of fact in the light of the following directions: -
“The appellant shall satisfy the learned Tribunal regarding the three ingredients essential for claiming a benefit under section 39(3) i.e demonstrating that the amount received is not liable to be treated as income for attracting the tax liability. The applicant shall, inter alia, show that firstly the amount was obtained as loan; secondly, the amount was paid by the creditor pursuant to an agreement of loan and on the instructions of the appellant to a third party either by crossed cheque drawn on a bank or through a banking channel.”
In compliance of the aforesaid order, this tribunal decided the case vide order dated 11.06.2015 against the appellant keeping in view the directions given by the Hon’ble High Court. However, subsequently the appellant filed a rectification application bearing MA(R) No.96/IB/2015 against the order of the ATIR dated 11.06.2015 which was disposed of by this tribunal vide order dated 10.12.2015 whereby the case only to the extent of loan amounting to Rs.899,281,889/- was remanded to the Assessing Officer with the direction to call for all the relevant and requisite bank accounts, financial statements of all the entities for verification of loan advanced to NLCD and third parties and probe the matter according to the directions given by the Hon’ble High Court. In compliance of the order of this Tribunal dated 10.12.2015, proceedings were initiated by the Assessing Officer. In response to the notice, the appellant submitted its reply alongwith documentary evidence which were found unsatisfactory by the assessing officer and resultantly the order dated 11.03.2019 was passed whereby income of the appellant for the tax year 2008 was assessed at Rs.1,177,668,126/- by adding the loan in question of Rs.899,281,889/-. Being aggrieved with this order, the appellant filed an appeal before the learned Commissioner Inland Revenue (Appeals) who upheld the order of the learned Additional Commissioner Inland Revenue vide order No.812/2019 dated 26.04.2019. Now the appellant has assailed the impugned appellate order before this forum on number of grounds.
3. The titled appeal came up for hearing before this Bench on 25.06.2019. On the said date, the learned AR of the appellant again submitted a detailed record with respect to the loan in question and vehemently contended that both the lower authorities did not properly scrutinize the record and the submissions made before them. Thus, the addition made on this count is arbitrary, uncalled for and far against the facts of the case. This record was confronted to the learned DR, it was mutually decided by the parties that a fresh verification/reconciliation report may be prepared before deciding the appeal. Accordingly, the record was handed over to the learned DR to examine the record and prepare a detailed report after due verification from the concerned parties in the presence of the AR of the appellant and thereafter the report be submitted to the Tribunal. Resultantly, the case was adjourned to 05-08-2019. On 05.08.2019 the learned DR submitted verification/reconciliation report duly signed by both the parties. In the said report it has been observed as under: -
“Rs.126 million received by NLCD from NLC
4. Rs.126 million comprises of Rs.85.75 million received dated January 17, 2008, Rs.37 million received dated May 23, 2008 and Rs.3.9 million received on May 9, 2008. Breakup of Rs.126 Mn alongwith copies of cheque and bank statements are attached at “Anx N”. This amount has been verified and reconciled by us which is received through proper banking channels of NLC and NLCD.
5. This office has observed that the loan amount aggregating to Rs.773 million was not credited directly in the bank accounts of NLCD and that the said amount was directly paid by NLC to third parties on behalf of NLCD.” (Emphasis supplied)
4. The perusal of the report reveals that an amount of Rs.126 million has been verified and reconciled which is received through proper banking channel by complying with the requirements as contemplated in section 39(3) of the Ordinance. As far as the remaining amount of loan of Rs.773 million is concerned, it has been observed that the appellant (NLCD) did not receive loan from its parent company NLC in its own bank accounts rather the said amount was directly paid by NLC to third parties on behalf of the appellant (NLCD) through cross cheque as admitted in para-3 of the reconciliation report dated 04.07.2019. Thus, according to the learned DR, the said amount of loan does not meet the requirements as contemplated in section 39(3) of the Ordinance, therefore, to this extent, the addition made by the assessing officer and confirmed by the learned CIR(A) is justified and the same is in accordance with law. We are not persuaded with the submission made on behalf of the Department for the reason that this specific contention had duly been dilated upon and repelled by the Hon’ble High Court while deciding the reference application of the appellant vide order dated 22.04.2015. The relevant extracts of the judgment are reproduced hereunder: -
“8. We are not impressed with the arguments made on behalf of the Department that if the actual payment has been received by a person other than the debtor, then in such an event the benefit under section 39(3) cannot be claimed by the latter. The Ordinance is a fiscal statute and, therefore, according to the settled principles of interpretation, the provisions are to be strictly construed. Moreover, there is no room for any intendment nor is there equity about a tax. Likewise, nothing can be presumed, read in or implied. One can only look fairly at the language used in a taxing statute.
9. Applying the principles and rules of interpretation of a taxing statute of Section 39(3) of the Ordinance, the interpretation thereof would be that if a person who obtains a loan instructs the creditor to make the payment on its behalf to a third person then such transaction if completed would tantamount to receiving the loan by the debtor. It is not essential that the amount should actually be transferred by the creditor to the debtor. It is enough for a contract of loan to become effective and in existence if the creditor and the debtor agree the terms and conditions and thereafter the amount is paid as instructed by the latter.
10. In the instant case, the applicant claims to have obtained a loan from the National Logistic Cell and the amount was paid to a third person on its instructions. In case the applicant is able to establish that the amount paid on its instructions to a third person was disbursed by means of a crossed cheque drawn on a bank or through a banking channel then under section 39(3) the amount shall not be treated as income chargeable to tax under the head “Income from Other sources” for the tax year in which it was received. This view finds support from the judgment of august Supreme Court in case of Commissioner of Income Tax and Wealth Tax Versus Messers Usman Ghee Industries (Pvt) Ltd and others (2007 PTD 1377) relied upon by the learned counsel of the applicant. Though in the said case, the august Supreme Court of Pakistan considered the provisions of Section 12(18) of the Income Tax Ordinance, 1979 but has held that loans/amounts received through crossed cheque or any other banking channel shall be considered a loan for the purposes of Section 12(18). As we have already noted that it is not essential for the amount to be handed over or paid to the debtor through crossed cheque or by depositing it in its bank account so as to be treated as having been received. As long as the amount of loan has been paid by the creditor in accordance with the instructions of the debtor, the loan, for all intents and purposes, would be treated as having been received by the latter.” (Emphasis supplied)
In the instant case, while preparing the verification/reconciliation report it has been determined that loan amounting to Rs.773 million was directly paid by NLC to third parties on the instruction/behalf of the appellant (NLCD) through cross cheque. The findings given by the Hon’ble High Court reproduced above has attained finality as the Department has not assailed this order before the august Supreme Court of Pakistan. Therefore, following the ratio decided by the Hon’ble High Court which is binding upon us, the addition made under section 39(3) of the Ordinance on account of loan amounting to Rs.899,281,889/- is hereby ordered to be deleted.
5. The learned AR of the Appellant also contested the additions made on account of financial cost of Rs.284,569,171/-, General and Admin expenses of Rs.68,951,039/- and unexplained bank entries amounting to Rs.54,776,954/- on the basis of the grounds as set forth in the memos of appeal. On the contrary, the learned DR opposed the grounds on the basis of the findings given by the lower authorities. We have considered the submissions of both the parties and perused the record. As we have already noted above, that at the time of hearing of the reference application, the appellant/taxpayer argued only two questions one related to the loan and the other was regarding addition made on account of financial cost of Rs.284,569,171/-. However, while deciding the reference application, the question with respect to financial cost was decided in favour of the appellant. The department did not assail the order of the hon’ble High Court before the august Supreme Court, therefore the findings on account of financial cost have attained finality. Thus, the addition made on account of financial cost of Rs.284,569,171/- by the assessing officer and confirmed by the learned CIR(A) is unsustainable in law and hence, the addition is deleted. As far as the other additions i.e General and Admin expenses of Rs.68,951,039/- and unexplained bank entries amounting to Rs.54,776,954/- are concerned, it appears that these additions have been confirmed by this Tribunal vide order dated 22.05.2013 in ITA No.812/IB/2012 and before the Hon’ble High Court while arguing the reference application these additions have not been agitated and thus, the same have attained finality. Therefore, the submissions of the learned AR are misconceived and the additions made under the aforesaid heads are in accordance with law and hence, the same are maintained.
6. For the foregoing reasons, the appeal of the appellant is disposed of in the manner as stated above. This order consists of (07) pages and each page bears my signature.
Sd/- (M. M. AKRAM) JUDICIAL MEMBER | |
Sd/- (NADIR MUMTAZ WARRAICH) ACCOUNTANT MEMBER |
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