IN THE SUPREME COURT OF BANGLADESH (HIGH COURT DIVISION)
Reference Application No. 477 of 2004
Decided On: 18.01.2016
Appellants: Cosmic Chemical Industries Ltd.
Vs.
Respondent: The Commissioner of Taxes, Taxes Zone 3, Dhaka
**Hon’ble Judges:**Syed Md. Ziaul Karim and Sheikh Md. Zakir Hossain, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Md. Osman Ghani, Advocate
For Respondents/Defendant: Abdus Salam Mandol, D.A.G., Mahfuza Begum and Sukumar Biswas, A.A.Gs.
Subject: Direct Taxation
Catch Words
Mentioned IN
Case Note:
Direct Taxation - Disallowance - Present application filed for challenging disallowance of few expenses included by assessee in his application - Whether expenses are rightly disallowed - Held, on going to the materials on record it transpires that section 35 of the Ordinance, 1984 has made it mandatory upon DCT to accept the audited account - Merely because a particular method of accounting was followed and was audited by a Chartered accountant from the same cannot be said to be sacrosanct when the expenditures were not verifiable - From the order of DCT it is clear that he has specified the heads of expenditure which were not verifiable and accordingly, he disallowed some expenses - Thus, defects in the account of assessee having been clearly pointed out in the assessment order of DCT, he as well as the Tribunal did not commit any illegality in not accepting the audited account as a whole - If the assessee follows a particular method of account regularly and unless any defect in the account is specifically pointed out by assessing authority he is to accept the accounting - Account maintained by assessee having not been totally verifiable, that is, supported by vouchers as pointed out by the DCT is definitely a defect and, therefore, no substance in the submission of applicant as to the mandate of law to accept an audited account even the expenditures are not verifiable - It is to be noted that though some of the expenses were not verifiable as specifically pointed out by DCT, yet the Commissioner of Taxes (Appeals) after considering the materials on record reduced the amount of disallowance and also deleted some of the disallowance altogether which were made by DCT - Taxes Appellate Tribunal on consideration of materials on record maintained the said disallowance - Thus, no reason on the part of the assessee to be aggrieved by impugned order - However, these are all questions of fact which cannot be re-opened exercising jurisdiction under section 160 of the Ordinance, 1984 - Thus the application having no merit fails. [14], [15]
JUDGMENT
Syed Md. Ziaul Karim, J.
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This Income Tax Reference Application under section 160 of the Income Tax Ordinance, 1984 (briefly as Ordinance 1984) at the instance of assessee applicant calls in question the legality and propriety of the judgment and order dated 13-06-2004 passed by Taxes Appellate Tribunal, Circuit Division Bench-2, Dhaka (briefly as Tribunal), in I.T.A. No. 4578 of 2003-2004 (assessment year, 2002-2003) analogously heard with I.T.A. No. 4576 of 2003-2004, I.T.A. No. 4577 of 2003-2004 and ITA No. 4648 of 2003-2004 (Assessment year 2002-2003) modifying the judgment and order dated 25-02-2004 passed by Commissioner of Taxes(Appeal), Taxes Appeal Zone-3, Dhaka, in Taxes Appeal No. 728/Co.-9/Taxes Zone-3/2003-2004 (Assessment year 2002-2003) partly allowing the appeal and modifying the assessment order dated 23-10-2003 passed by Deputy Commissioner of Taxes, LTU Circle-4, now Company Circle-9, Taxes Zone-3, Dhaka(briefly as DCT), in TIN No. 105-200-1915/Co.-9, assessing the gross Income for Tk. 1,42,71,143/- for the Assessment year 2002-2003.
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In Reference Application it has been stated that the applicant is an Income Tax Assessee having TIN No. 105-200-1915/Co.-9, and a Pharmaceutical Manufacturing Industry deriving his income from the Cosmic Chemical Industries Ltd. by producing and selling the medicine in the country.
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The Assessee filed return for the assessment year 2002-2003 from period of 01-07-2001 to 30-06-2002 showing gross income for +Tk. 90,66,581/- and net loss for Tk. 13,89,588/-. The DCT from aforesaid return assessed gross Income of Tk. 1,42,71,142/- under section 83(2) of the Ordinance 1984. The DCT also disallowed Tk. 9,75,000/- under different heads of expenses and estimated sales of Company Tk. 6 core and G.P. at 35% by rejecting books of Account of the Company.
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Being aggrieved by the assessment order dated 23-10-2003 of DCT, the assessee filed Taxes Appeal No. 728/Co-9/Taxes Zone-3/2003-2004 before the Commissioner of Taxes (Appeal), Tax Appeal Zone-3, Dhaka relating to the assessment year 2002-2003.
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The Commissioner of Taxes (Appeal), Taxes Appeal Zone-3, Dhaka after hearing the both sides partly allowing the appeal by his order dated 25-02-2004 and modifying the order of the Deputy Commissioner, the applicant has shown his sales Tk. 4,80,31,960/- but the DCT assessed the same Tk. 6,00,00,000/- but on appeal the same has been reduced to Tk. 5,00,00,000/- and also allowed some expenses by the Commissioner of Taxes (Appeal) by his order dated 25-02-2004.
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Against the aforesaid order of the appeal the applicant filed Income Tax Appeal No. 4578 of 2003-2004 (Assessment Year 2002-2003), before the Tribunal, DCT filed ITA No. 4648 of 2003-2004. Both the appeals were heard analogously and by the impugned judgment and order dated 13-06-2004 modified the order of Commissioner of Taxes (Appeal).
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Feeling aggrieved by the impugned judgment and order dated 13-06-2004 passed in ITA No. 4578 of 2003-2004 the applicant preferred the instant application.
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The learned Advocate appearing on behalf of the applicant seeks to impeach the impugned judgment and order on the six fold arguments:
Firstly: The applicant filed proper bills, vouchers, registers of all expenses which prove that the expenses shown by the company are correct and in support of that the applicant also filed Audit Report of the company which proves that the expenses shown by the Company are justified and based on proper bills, vouchers and registers, yet the DCT, the Commissioner of Appeal and the Tribunal failed to consider the same properly for which the Tribunal erred in maintaining the disallowances of business expenses total Tk. 3,70,000/- on different heads by rejecting books of Accounts, moreover the DCT, Commissioner of Appeal and the Tribunal shows no reasons or explanation about disallowing the said business expenses and as such the same caused miscarriage of justice maintaining the disallowances of business expenses Tk. 3,70,000/-.
Secondly: Sale for the assessment year 2002-2003 was shown at Tk. 4,80,31,360/- which is verifiable with sales Register, invoices, Challans, VAT Register and the sale is always audited by VAT authority and VAT is paid regularly and no sale can be made without paying VAT as per inspection of the VAT authority and as such there is no scope to adduce or reduce about total sales but the DCT estimated the books of Account against the disclosed sales of Tk. 6,00,00,000/- by rejecting the books of account against the disclosed sales of Tk. 4,80,31,360/-, on appeal the Commissioner of Appeal reduce the same to Tk. 5,00,00,000/- but the Tribunal increase the same to Tk. 5,16,00,000/- without any basis, moreover in Pharmaceutical business all production of pharmaceutical goods can only produced with prior approval of Drug Administration, so the Tribunal erred in increasing the estimate of sales at Tk. 5,16,00,000/- and G.P. thereon at 28% as against the disclosed sales of Tk. 4,80,31,960/- and G.P. thereon at 18,87%.
Thirdly: The DCT estimated the sales of Tk. 5,20,00,000/- against the disclosed sales of Tk. 5,16,83,522/- during the last year and the consumption of materials was Tk. 3,86,01,043/- and Tk. 3,70,24,793/- in assessment year 2001-2002 and 2002-2003 respectively considering opening and closing stock of the company, the closing stock of finished goods also gone up by Tk. 13,40,000/- in the assessment year 2002-2003 than 2001-2002 and as such the consumption of goods and chemicals calculated by the DCT was not correct, so estimate of sales specially of Pharmaceutical goods bears no logic and hence the disclosed sales of Tk. 4,80,31,960/- and G.P. thereon at Tk. 18.87% should be accepted but the DCT, the Commissioner of Appeal and the Tribunal failed to consider the said aspect and thereby caused miscarriage of justice to the applicant.
Fourthly: During the year the company made sales of Tk. 4,80,31,960/- and earned gross profit of Tk. 90,66,581/-, the gross profit ratio stood at 18.87% on sales, during last year this ratio was taken at 35% against disclosed G.P. at 18%, taking the instance of last year the DCT estimated gross profit at 35% by rejecting disclosed gross profit but failed to consider that gross profit can never be a constant factor, it varies from time to time from company to company, there are several factors which can affect gross profit ratio and as such estimate of gross profit by rejecting actual gross profit is illegal.
Fifthly : The DCT served a Demand Notice dated 08-08-2004 upon the applicant showing Tk. 30,000/- in advertisement account but there is no such expenses in the assessment year 2002-2003 and entertainment cost Tk. 1,85,590/- though accepted by the DCT yet the Demand Notice shown acceptance of Tk. 93,567/- only, moreover the applicant paid Advance Income Tax (AIT) total Tk. 16,54,606/- and the office of DCT maintained the Accounts of the same yet the DCT without deducting the same from the total Tax served the Demand Notice illegally stating that said amount of Tk. 16,54,606/- about payment of Tax is rejected for want of prove and as such the DCT caused serious miscarriage of justice to the applicant.
Sixth and lastly: Section 35 of the Ordinance 1984 has made it mandatory upon the DCT to accept the account if it is found that the assessee regularly maintains the account under a system either it be mercantile or other system. The assessing officer could ignore the audited account only when he could point out specific defect in it; but in the instant case no such defect having been pointed out, he was legally obliged to accept the audited account. The chartered Accountant having been appointed under Companies Act to examine the applicant’s books of account and also under the Provisions of the Ordinance, 1984, and if after examining the applicant’s books of account having certified that it reflects a clear picture of the state of affairs of the Company, both the DCT and the Appellate Tribunal acted illegally in not accepting the same as a whole. The Appellate Tribunal committed error of law in not allowing the entire amount of perquisites paid to the employees of the company, and, as such, the questions formulated in the reference applications be answered in the negative and in favour of the assessee.
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The learned Assistant Attorney General appearing on behalf of the respondent by filing affidavit-in-Reply opposes the reference application. She submits that although the DCT disallowed the expenditure on some heads of the account yet the Commissioner of Taxes (Appeals) as well as the Appellate Tribunal after considering the materials on record almost gave full relief to the assessee and the disallowance which have been affirmed by the Tribunal were done rightly as the assessee could not produce relevant vouchers in respect of its said heads of expenditures. She further submits that the questions formulated in the reference applications are purely questions of fact which cannot be re-opened by this Court in exercising jurisdiction under section 160 of the Ordinance, 1984 and, as such, the questions be answered in the affirmative.
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In order to appreciate their submissions we have gone through the records and given our anxious consideration to their submissions.
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The questions formulated for our opinion in reference application are as under:
(a) Whether the assessment of tax without considering the bills, vouchers, registers of all expenses and the audit report is justified or not?
(b) Whether the disallowances of business expenses Tk. 37,0000/- on different heads by rejecting Books of Account without giving any explanation or reasons is justified or not?
(c) Whether the increase of sales of Tk. 5,16,00,000/- assessed by the Tribunal without any explanation and without considering the Books of Account, Audit Report, VAT Register and permission of Drug Administration is justified or not?
(d) Whether the Tribunal is justified or not in maintaining the estimate of sales of Tk. 5,16,00,000/- and G.P. thereon at 28% as against the disclosed sales of Tk. 4,80,31960/- and G.P. thereon at 18.87% by rejecting the Book of Accounts of the Company.
(e) Whether disallowances of Tk. 30,000/- in Advertisement Account though no such expenses thereon and acceptance of entertainment cost Tk. 93,567/- out of Tk. 1,85,590/- though allowed full amount by DCT and rejection of paid advance income Tax (AIT) amount Tk. 16,54,606/- by the DCT vide Demand Notice dated 08-08-2004 after judgment and order of Tribunal is justified or not?
(f) Whether the applicant is entitled to get deduction of paid advance Income tax Tk. 16,54,606/- Accounts maintained in the office of the DCT?
- For the convenience of understanding section 35 of the Ordinance 1984 reads as hereunder:
Method of accounting-
(1) All income classifiable under the head “Agriculture income”, “income from business or profession” or “Income from other sources” shall be computed in accordance with the method of accounting regularly employed by the assessee.
(2) Notwithstanding anything contained in sub-section (1), the Board may, in case of any business or profession, or any class of business or profession, or any other source of income, or any class of persons or class of income, by a general or special order, direct that the accounts and other documents shall be maintained in such manner and form, and the mode of payments of commercial transactions recorded in such manner and form, as may be prescribed or as may be specified in such direction; and thereupon the income of the assessee shall be computed on the basis of the accounts maintained, payments made and transactions recorded accordingly.
(3) Without prejudice to the preceding sub-sections, every public or private company as defined in the Companies Act, 1913(VII of 1913) or
, 1994 (1994 p-el 18ew BCe), and every registered firm whose capital on the last day of any income year was not less than jive lakh taka, shall, with the return of income required to be filed under this Ordinance for any income year, furnish a copy of the trading-account, profit and loss account and the balance sheet in respect of that income year certified by a chartered accountant to the effect that the accounts are maintained according to the Bangladesh Accounting Standard (BAS) and reported in accordance with the Bangladesh Financial Reporting Standard (BFRS)].
4-Where -
a) no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Deputy Commissioner of Taxes, the income of the assessee cannot be properly deduced therefrom; or
(b) in any case to which sub-section (2) applies, the assessee fails to maintain accounts, make payments or record transactions in the manner directed under that sub-section; or
(c) a company or a registered firm has not computed with the requirement of sub-section (3),
the income of the assessee shall be computed on such basis and in such manner as the Deputy Commissioner of Taxes may think it.
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On going to the materials on record it transpires that section 35 of the Ordinance, 1984 has made it mandatory upon the DCT to accept the audited account if the same is found to have been maintained in a particular method is concerned, we are of the view that merely because a particular method of accounting was followed and was audited by a Chartered accountant from the same cannot be said to be sacrosanct when the expenditures were not verifiable. From the order of the DCT it is clear that he has specified the heads of expenditure which were not verifiable and accordingly, he disallowed some expenses. Thus, defects in the account of the assessee having been clearly pointed out in the assessment order of the DCT, he as well as the Tribunal did not commit any illegality in not accepting the audited account as a whole. If the assessee follows a particular method of account regularly and unless any defect in the account is specifically pointed out by the assessing authority he is to accept the accounting. The account maintained by the assessee having not been totally verifiable, that is, supported by vouchers as pointed out by the DCT is definitely a defect and, therefore, we do not find any substance in the submission of the learned Advocate for the applicant as to the mandate of law to accept an audited account even the expenditures are not verifiable. It is to be noted that though some of the expenses were not verifiable as specifically pointed out by the DCT, yet the Commissioner of Taxes (Appeals) after considering the materials on record reduced the amount of disallowance and also deleted some of the disallowance altogether which were made by the DCT. The Taxes Appellate Tribunal on consideration of the materials on record maintained the said disallowance. Thus, we do not see any reason on the part of the assessee to be aggrieved by the impugned order. However, these are all questions of fact which cannot be re-opened exercising jurisdiction under section 160 of the Ordinance, 1984.
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Moreover the impugned judgment and order in its entirety is well founded in the facts and circumstances of the case. So, the submissions advanced by the learned Counsel for the applicant are not the correct exposition of law and facts. Therefore, we are unable to accept his submissions. On the contrary the submissions advanced for the learned Assistant Attorney General prevails and appears to have a good deal of force. Thus the application having no merit fails.
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In the light of discussions made above, the impugned judgment and order passed by Tribunal is just and proper which calls for no interference by this Court, Accordingly the answer of the questions formulated by the Assessee applicant in reference application are affirmative in favour of the Respondent and negative in favour of the assessee applicant.
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In the result the reference application is dismissed without any order as to cost. The impugned judgment and order dated 13-06-2004 passed by Tribunal in Income Tax Appeal No. 4578 of 2003-2004 (Assessment Year 2002-2003) are hereby affirmed.
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The DCT is directed to make assessment in the light of observations made above and in accordance with law.
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The office is directed to communicate the order at once.