Law: Income Tax Ordinance, 1979

Section: 13(1)(a)&SecondSched.,PartI,Cl.(119)

Income Tax Ordinance (XXXI of 1979)-----S. 13(1)(a) & Second Sched., Part I, Cl. (119)---Industrial undertaking--¬Exemption from tax---Company---Deemed income---Allegation of unexplained credits---Addition ---Validity ---Assessee-company was in a formative stage and the factory was under construction---Company had never been assessed to tax in the past and its future income from the present source was exempt from tax---Persons who had-advanced loans and contributions towards equity participation were the members of one family and were Directors and major shareholders of the company---All such persons were tax-payers whose record was available with the department in the same city and their identity was well-established---Such persons never disowned the fact of making advances to the company ---Assessee was a private company maintaining proper books of account which was subject to audit---Entries in account books regarding the receipt of loans and advances from its Directors/shareholders thus could not be considered as fictitious and a cooked up arrangement in order to hoodwink the department---Held, in presence of such detailed particulars of the Directors/shareholders, it could not be said that the assessee-company failed to offer satisfactory explanation regarding the "nature" and "source" of the credits appearing in its books---would, thus, be a very unreasonable assumption that the assessee-company was trying to introduce its untaxed income on its books through a subterfuge---Assessing Officer, therefore, was not justified to draw an adverse inference against the assessee-company and to tax the alleged unexplained credits in its hands---In case the Income Tax Officer was not satisfied with the sources from where the Directors/shareholders made investments in the company it was against the Directors/shareholders concerned that the Income Tax Officer should have proceeded under S.13(1)(a) of the Income Tax Ordinance, 1979 and not against the company. Marayandas Kedardath v. CIT Central (1952) 22 ITR 18: CIT v. Daulat Ram Rawalmall (1973) 87 ITR 349; M/s. Dhanrajmal Manumal & Sons v. CIT (West), Karachi; 1985 PTD 433 and M/s. Orient Trading Co: Ltd. v.…

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