1985 PLP 655 (PTD)

ABDUL QADEER CHAUDHRY, J.‑By this Judgment we propose to dispose of two Income‑tax References moved by the Commissioner of Income‑tax under section 66(2) of the Income‑tax Act, which arise from the consolidated order of the Income‑tax Appellate Tribunal, dated 28‑3‑1974. I T. R. No. 41 of 1975 The facts in brief are that the respondent‑Company filed their return for the assessment year 1972‑

73. The respondent disclosed lodging and boarding account receipt at Rs. 7,65,081 on which gross profit at 60% was disclosed. In cigarettes on sales of Rs. 13,854 gross profit of about 3 % was disclosed. The Income‑tax Officer processed the return and came to the conclusion that though receipts had increased in lodging and boarding account the gross profit had declined due to 1971 War. It was noted that the respondent did not maintain accurate accounts for purchase of provisions and its quantitative and qualitative consumption. In cigarettes account there was a decrease of 10 % of gross profit against last year's 13 % to 3 in the year under reference. The Icome‑tax Officer applying the proviso to section 13 of the Income‑tax Act made an addition of Rs. 10,000 to the Income‑tax return. He disallowed out of the claim of the assessee in respect of hotel maintenance, car expenses, sanitary expenses and telephones expenses etc. for want of verification. The respondent filed an appeal before the Income‑tax Appellate Tribunal which was allowed by the Tribunal. A direction was made to the Income‑tax Officer to accept the book version of the assessee. The applicant made application under section 66(1) of the Income‑tax Act before the Tribunal and requested the following questions of law be referred to this Court. "(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in directing that the accounts version should be accepted? (2) Whether on the facts and in the circumstances of the case the Tribunal was justified in reducing or deleting the additions made by the Income‑tax Officer instead of setting aside the assessment for further examination and fresh adjudication according to law?". The application was however rejected. I. T. R. 44 of 1975 . In the return filed for the assessment year 1973‑74 the respondent showed receipts from lodging and boarding at Rs. 7,45, 803 on which gross profit at 64 % was disclosed. The Income‑tax Officer applied gross profit rate of 72% on the basis of history of the case and estimated the sale at Rs. 8,00,

000. In the bar account on sales of Rs. 6,91,843, gross profit of 63 % was disclosed. The Income‑tax Officer rejected the book results due to defective nature of accounts and rate of 72 % was applied on the sales of Rs.7,00,

000. Similarly unverifiable nature of the accounts sales and gross profit in the cigarettes account was estimated at Rs. 18,000 and 13 Y. against sales of Rs. 16, ‑73 and gross profit of 4 %, respectively declared by the respondent. The Income‑tax Officer further disallowed the following claims of the assessee:‑ Rs. (i) Out of car expenses. 11,000 (ii) Out of sanitation expenses, 3,700 (iii) Out of telephone expenses. 10,000 The respondent filed appeal before the Tribunal which was allowed by the Tribunal as per order, dated 28‑3‑1914. The Tribunal knocked of the disallowances made out of the sanitation expenses and reduce the disallowances in other cases as under:‑ Rs. (a) Car expenses reduced to 6,500 (b) Telephone expenses reduced to: 1,000 The applicant made an application under section 66(1) of the Income‑tax Act before the Tribunal and requested that following question of law may be referred to this Court. "Whether on the facts and in the circumstances of the case, the Tribunal was justified in reducing or deleting the additions made by the Income- tax Officer instead of setting aside the assessment for further examina tion and fresh adjudication according to law?" The Tribunal, however, rejected the said application by order, dated 16‑I‑1975. Hence the present application under section 66(2) of the Income‑tax Act.

2. With regard to the assessment year 1972‑73 observed that the respondents receipts in lodging and boarding account have been gone up this year compared to the earlier year but an explanation has been given for lower grass profit in lodging and boarding, as well as in cigarettes account as compared to the earlier year. 1n view of these facts and the decisions quoted before the Tribunal it was held that the rejection of book version this year to be incorrect which will now be accepted. As regards the assessment year 1973‑74 the Tribunal considered the explanation submitted by the respondent that though sale had increased slightly this year the effect of higher purchase rates of provisions and reduced it in comparison to the earlier year. As regards the bar accounts all sales were fully vouched and sales are regularly checked by the excise people and there can be no question of addition to this account. The lower gross profit in this account is due to the fact that the price of all the liquors have gone up case in order to show that the Income‑ tax Officer cannot evolve new basis of assessment every year. The tribunal considered the submission made by the respondents and it was observed that explanation of the respondent was not properly considered by the Income‑tax Officer. The defect in bar account sales was also not made clear in the order impugned before the Tribunal. It was, therefore considered that the assessment is improperly made which was set aside; and to be made de novo in accordance with law and the facts of the case.

3. Learned counsel for the applicant has submitted that there was sufficient material on record which supports the order of the Income‑tax Officer. The Tribunal should not have accepted the books of accounts supplied by the respondent. We have given consideration to the facts of the case and have come to the conclusion that no questions of law arise in these cases. The facts have been appreciated by the Tribunal and the inherent defects in the orders of the Income‑tax Officer have been pointed out by the Tribunal. The orders are supported by reasons and there is no contrary version which may be considered a legal ground for answering the questions as proposed in the affirmative. In the instant cases the Income‑tax. Officer has relied upon proviso to section 13 of the Income‑tax Act which contemplates that income, profits and gains shall be computed for the purposes of sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee. Provided that if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income‑tax Officer, the income, profits and gains cannot properly be deducted therefrom, then the computation shall be made upon such basis and in such manner as the Income‑tax Officer may determine. The wide powers given to the Income‑tax Officer under the proviso to section 13 would be exercised judiciously not in arbitrary manner. Cogent reasons have to be advanced if the account books furnished by a party are not accepted, The account books have been filed by the respondent and the reason in fall of profit has also been given, wnich was given due considera tion by the Appellate Tribunal. As the orders of the Income‑tax Officer and that of the Appellate Tribunal relate to the farts of the case, we do not think that this is a question of law which requires determination by this Court. If a finding of fact arrived‑at by the Tribunal is perverse on the face of the record then it may be converted into a question of law otherwise it is a pure question of fact. In Star Rolling Mills v. Commissioner of Income‑tax (P L D. 1974 Note 129 at p. 189), it was held that Proviso to section 1.3 does not give arbitrary, unguided, uncontrolled and naked power to the Assessing Officer. An opinion on the basis whereof a statutory authority is entitled or empowered to take any action or initiate any legal proceeding may be accurate or erroneous but it must be an honest opinion or conviction based on tangible material capable of sustaining such opinion and not mala fide opinion or colourable exercise of statutory power. It has been further observed that although the rate of gross profit shown by the assessee in its statement ‑for the charge year in question was much lower than the rate of its grass profit for the previous year, the circumstances by itself was not a sufficient ground for the rejection of either of the said rate or of the method of accounting adopted by it, in view of the statement furnished by the assessed before the Appellate Assistant Commis sioner which was based on account books and supported by vouchers. In the case of Messrs Haider Ali Rajah Ali & Co. v. Commissioner of Income‑tax (1980 P T D 1), it has been held that it is for the Income‑tax Authorities consider all the materials which are placed before them and after taking in account in any case the absence of a stock register and other materials they are of the opinion that correct profits and gains cannot be deduced from the accounts kept by the assessee then they would be justified in applying the proviso to section

13. It is further held that all questions of facts and of degree are for the Commissioner of income‑tax and it is never proper for the High Court to interfere, unless it is prepared to say that there was no evidence upon which the finding of the Income‑tax Commissioner could be made. There is also a case from the Supreme Court of Bangladesh, Commissioner of Income‑tax, A‑Range, Chittagong v. Harendra Kumar Sil (1983PTD87), which lays down that mere low profit by itself and defects in books of account cannot bell grounds for rejecting account. In the case of Miss Assia v. Income‑tax Appellate Tribunal, etc. (PLD1979SC949), it has been held that the question of unreliability of accounts is a question of fact and primarily falls for the determination of the Income‑tax authorities alone. If, therefore, it is once decided by them that the accounts are fictitious or unreliable, their finding cannot be disturbed unless it is altogether capricious and injudicial. What alone has to be seen in such cases is whether the discretion has been judicially exercised and if it is once found to be so exercised, no Court can interfere with the order.

4. Taking into consideration the facts of the case, we are of the opinion that no question of law is involved in these cases and, therefore, the questions proposed in the applications are replied in the negative and consequently the applications are rejected. References answered in negative.