1981 PTD 125 (PLP)

AAMER RAZA A. KHAN, J.‑‑This is a reference by the Commissioner of Income‑tax under section 66 (1) of the Income‑tax Act, 1922.

2. The assessee M/s. Badar Ice Factory is a registered firm and in respect of the assessment year 1967‑68 filed a return of income declaring net income at Rs. 7,'‑

62. The Income‑tax Officer by his order dated 30‑6‑73 rejected the book version of the assessee and the tank: capacity formula on the basis of which the income had been computed, and proceeded to evolve a new formula and determined the taxable income at Rs. 1,50,

478. The Income‑tax Officer also imposed additional amount of Rs. 36,506 under section 18‑A (6) of the Income‑tax Act.

3. Being aggrieved with the order passed by the Income Tax Officer, the assessee went in appeal before the Income‑tax Appellate Tribunal, challenging the legality of the assessment proper and levy of the additional tax. The learned Appellate Tribunal by its order dated 9‑5‑1973 accepted the plea taken by the assessee and directed the Income‑tax Office to work-out the income on tank capacity basis after taking into consideration, all admissible allowances and to determine the sale price per block in the light of like cases. The Income‑tax Officer was further directed to adjudge the amount of interest (additional amount of tax) which accused under section 18‑A (8) (6) of the income‑tax Act.

4. The Commissioner of Income‑tax has now approached this Court and has formulated the following question for our determination: (1) Whether on the facts and circumstances of the case, the Tribunal was ,justified in ignoring the basis of assessment adopted by the income‑tax Officer merely because the experts did not agree between themselves without giving the finding that the expert opinion relied upon by the Income‑tax Officer was defective and faulty? (1) Whether on the facts and circumstances of the case, the Tribunal was justified in depending upon the opinion of experts who had betrayed complete lack of knowledge of the basic design of the machinery and based their calculation on inaccurate data without holding them to be qualified and conversant with issue? (3) Whether on the facts and circumstances of the case, the Tribunal was justified in holding that the principle of "stare decasis" was applic?able in this case when they had rot given any specific finding on issues involved in the cases for preceding assessment years despite the well-?known dictum of law that there is no `res judicata' in income‑tax assessments"?

5. An examination of the order of the Income‑tax Officer, shows that it was the case of the assessee that his entire sales were in cash. The Income‑tax Officer visited the premises of the assessee and took into possession the assessee's sales record? for 13‑10‑71 and 6‑5‑72, and sum?moned two of the dealers to whom ice was purported to have been sold and come to the conclusion that the transactions deposed by the dealers had not been recorded in the books in the manner discovered as a result of his visit, and further was of the view that no reliance could be placed on the accounts of the assessee. He also took note of the fact that in the assessee's appeal in respect of the Assessment Years 1960‑61 to 1966‑67, the Income‑tax Appellate Tribunal had held that the assessee's account version could not be accepted. Being of the view that there was no change in the assessee's method of accounting for the assessment year 1967‑68, he refused to accept the account version of the assessee, and accordingly proceeding to assess the capacity of the assessee's ice factory for the purpose of computing its income. The Income‑tax Officer refused to follow the formula adopted by the Department till then for determining the yield of an ice factory, as in his view it was outdated, and without any basis what?soever, and proceeded to determine the output of the assessee's factory on the basis of his own new formula. He took note of the fact that the assessee's factory had two compressors, that the size of the tank and the number of cans were irrelevant factors, that the assessee had been using both compressors simultaneously, and confidential enquiries revealed that he was producing and narrating about 400 blocks per day. . He also relied on the record of sale of the assessee's factory for 13‑10‑1971, which showed that the assessee bad produced and sold 280 blocks of ice on an off‑season day. He was of the view that the assessee's own record showed that both the compressors had been used simultaneously which was apparent from the electricity consumption figures for the months of March to September, 1966, during which period 4,43.000 units of electricity were consumed and which indicated that both the compres?sors were used. He also sought the expert advice of the Senior Instructor of Polytechnic Institute, Lahore, which was to the effect that the production depended on refrigeration capacity of the compressors and not on the size of the tank, and that by installing to compressors on a single tank it was possible to achieve greater production. He refused to rely on technical data concerning the installed machinery obtained by the assessee from M/s, Frick Co., manufacturer of one of the compressors, and issued notice to the assessee under section 23 (3) of tire Income‑tax Act, 1922, calling upon the assessee to explain why his production capacity be not assessed at 400 blocks of ice per day.

6. In reply the assessee sought the appointment of an expert for the purpose of checking the actual production of the ice factory which request was not acceded to by the learned Commissioner of Income‑tax. The assessee's similar request before the Income‑tax Officer was also rejected. The assessee sought and tendered before the Income‑tax Officer, opinion of 2 Professors of the Engineering University which was not relied upon by the Income‑tax Officer, as in his view it was given on the basis of presumptions which had been belied. 1n these circumstances the Income‑tax Officer formed the view that the assessee had no satisfactory answer to the notice under section 23 aforereferred, served upon him. Relying on the technical advice given by the Polytechnic Institute, Lahore his own investigations, electricity consumption record and the sale note of 13‑10‑1971 aforereferred, held that average daily production of blocks from the assessee's factory would be 350 blocks of tax on which basis he computes the income of the assessee.

7. The Income‑tax Appellate Tribunal after carefully noting the formula adopted by the Income‑tax Officer came to the conclusion that the method adopted by him was neither lucid nor certain as it depended upon varied and uncertain factors which could be manipulated by unscru?pulous persons, and would encourage arbitrariness. If noted that even experts on refrigeration had failed to agree to the present case; and was of the view that the formula suggested by the Income‑tax Officer was not better than the rough and ready, method., which had been applied for so many years in such cases. The' Tribunal was of the view that the evidence of the sale of' 280 blocks on 13‑10‑1971 did not lead to the only conclusion that the production capacity of the assessee's plaint was not less thin 280 blocks, per day, unless that ‑was proved by reference to the daily production of the previous arid latter dates, nor could this produc?tion data be used as evidence for the assessment year 1967‑68, Further it was of the view that the figures for the consumption of electricity showed progressive consumption from July to August which would not lend to the conclusion that both the compressors were being consistently used, and that further on the basis that 16 units of electricity were con?sumed in the production of one block of ice, the production of 25000 blocks asserted by the assessee would consume the quantum of electricity found to have been utilized by the Income‑tax Officer. The Tribunal was of the further view that the tank capacity formula hithertofore followed and consistently applied since a very long time had by uniformity of applica?tion gained acceptability and could not be allowed to by displaced by a vague and uncertain method based on refrigeration capacity and that arbitrary change should be avoided. The Tribunal agreed with the departmental representative's assertion that each assessment is final and' conclusive and should not be allowed to operate as estoppel or res judicata on the other assessments, but it was of the view that as a general rule it would not be permissible to abandon a consistently applied formula. It accordingly directed the Income‑tax Officer to work out the assessee's income on the tank capacity basis, after taking into consideration admissible allowance.

8. It will be noted that the Income‑tax Officer had in this particular case rejected the prevailing 1/3rd tank capacity formula and applied his own formula which according to him was a better one. The Tribunal was not satisfied with the formula suggested by the Income‑tax Officer, as it was of the view that it was incapable of being uniformally applied, and 'further, it found on an examination of the record, that the production capacity worked out by the Income‑tax Officer on the basis of his own formula was incorrect. The Tribunal was not satisfied that the formula of the Income‑tax Officer was more accurate than the 'formula that had been consistently followed by the Department till then. It cannot be disputed that any formula that leads to a more accurate result can b adopted, particularly is a case like the present one where the accounts were not found to be very accurate, nor can any assessee claim any vested right in any particular formula. It is also evident from the order of the Tribunal, that it accepted the contention of the Departmental Represen?tative that the principle of estoppel and res judicata could not be allowed to effect latter assessment. However, even learned counsel for the referring authority had not contested the proposition that it was within the competency of the Tribunal, if satisfied that the order of the Income‑tax Officer did not evolve a proper formula for assessment of production capacity, to reject the formula adopted by the Income‑tax Officer. The formula suggested by the Income‑tax Officer did not find favour with the Tribunal, and we have no doubt that a more accurate formula could have found favour with the Tribunal, as it itself rejected the department's plea of stare decisis. Having found that the formula suggested by the Income‑tax Officer was neither lucid nor certain and that it was dependent upon varied and uncertain factors, which in turn were capable of manipulation, and adoption of such a formula could result to arbitrariness, it was within the competence of the Tribunal to reject the same.

9. In this view of the matter, regarding the first question we are of the view that the formula of the Income‑tax Officer was not disregarded by the Tribunal merely because the expert disagreed between themselves and we answer it in the affirmative and against the Department. Regarding the second question we were of the view that the findings of the Tribunal was not solely based upon the opinion of the experts and as such the question is answered in the affirmative and against the Department. Regarding the third question we were of the view that the Tribunal did not rely upon the principle of `stare decisis' and as such the answer, to this question is against the Department.

10. There will be no orders as to costs. Questions answered accordingly.