Background of the Appeal:
The appeal arises from an order dated 6-12-1999 passed by the Taxes Appellate Tribunal, Division Bench No. 3, Dhaka in Income Tax Appeal No. 558 of 1998-99 (assessment year 1993-94), allowing the appeal in part. Eskayef Bangladesh Ltd., a private limited company, filed an income tax return for the assessment year 1993-94. The Deputy Commissioner of Taxes (DCT) assessed the total income of the company at Tk. 1,04,13,331, which was significantly higher than the company’s disclosed profit of Tk. 23,27,338. The DCT disallowed various expenses claimed by the company, citing lack of verifiability and supporting documents.
Issue:
Whether the tax authorities should have accepted the company’s audited accounts, which were certified by a Chartered Accountant, in full? Or were they right to reject some expenses because they couldn’t verify them?
Judgments:
The High Court Division observed that the DCT had clearly pointed out specific defects in the company’s accounts, such as certain expenses being unverifiable. Therefore, the DCT and the Tribunal did not commit any illegality by not accepting the audited accounts. The court held that merely because a particular method of accounting was followed and audited by a Chartered Accountant firm, the accounts could not be considered sacrosanct when the expenditures were not verifiable.
However, the court noted that the company had paid Tk. 7,36,007.94 as VAT under the head of expenses for distribution of free samples, which was not considered by the authorities. The court directed the DCT to add this amount as expenditure on account of sample expenses and revise the assessment of income accordingly.
Regarding the disallowance of excess perquisites paid to employees, the court upheld the Tribunal’s order, which had reduced the disallowance to Tk. 3,49,539 based on detailed statements of salary and allowances.
Comments:
The High Court Division agreed with the tax authorities’ decision to reject certain expenses claimed by the company because they couldn’t be verified. However, the court instructed to include the VAT paid on free samples when re-assessing. It emphasized that audited accounts can’t be relied upon if expenses are unverified, even with certification from a Chartered Accountant.