P L D 1973 Lahore 416 (PLP)

(2) Whether on the facts and in the circumstances of the case and the material before it the Appellate Tribunal was justified in holding sales amounting to Rs. 40,000 as fictitious sales, and holding the application of gross profit rate 33‑1/3 thereon ?

5. We have heard the learned counsel for the petitioner. In this case the Income‑tax Officer rejected the self‑assessment return and proceeded to make the assessment against the petitioner under the ordinary law. Any objection against this course adopted by him was eventually dropped by the assessee at the hearing in appeal before the Appellate Assistant Commis sioner. The Income‑tax Officer rejected the assessee's version of the accounts. He was of the opinion that the gross profit rate of Rs. 27.4 % disclosed by the assessee on the declared sales of Rs. 2,84,661 was very low as compared to the rate applied in parallel cases at 33‑1/3%. The petitioner did not maintain any day‑to‑day details of the consumption of raw materials and the output of the finished products. The opening stocks were found to be over‑valued. A part of the local purchases were unverifiable. The declared sales were considered to be very low as compared to the capital investment. In the opinion of the Income‑tax Officer the consumption of raw materials and the production of the finished goods were suppressed by the assessee. The petitioner utilized 8600 ball- bearing during the year. This according to the Income‑tax Officer should give an estimated output of 4300 manufactured fans. But out of these the petitioner did not account for 2083 fans manufactured by it. The assessee explained that the shortage in the ball‑bearings was on account of their losses and wastage in the manufacturing process of the fans. But the percentage of this loss claimed at about 23 % was found to be higher than that allowed in the preceding assessment year at 10 % only. In this connection the Tribunal was not impressed with the contention advanced by the assessee to the effect that these imported ball‑bearing were substantially poorer in quality. In the circumstances the Tribunal allowed the wastage of ball‑bearings to the petitioner at 10 % only and reduced the gross profit rate on the estimated sale of the fans to 30 instead of 33‑1/3 % applied by the authorities below on the basis of other parallel cases. All these conclusions were based on evidence.

6. After hearing the learned counsel for the petitioner we are satisfied that the order of the Tribunal is concluded by these findings of fact aid no question of law at all arises from it. The claim of the assessee for the excessive shortage and wastage of the ball‑bearings in the manufacturing process of the fans for this year was disallowed by the Tribunal. The Income‑tax authorities were justified in inferring from the proved facts before them that the assessee has suppressed the number of the fans manufactured by it. The Tribunal allowed 10 % shortage and wastage of the ball bearing as in the preceding year. Therefore it cannot be successfully argued that before the Tribunal there was no basis for the conclusions forming the basis of question No.1 or that its order is arbitrary, perverse and capricious and was based on conjectures.

7. On examination of the cash memos the Income‑tax Officer observed that most the sales were of unverifiable nature and he even cited instances to this effect in his order. In this connection on appeal the Appellate Assistant Commissioner held that the Income‑tax Officer was quite justified fn viewing with suspicion the large cash sales made by the assessee to untraceable parties. On scrutiny he doubted the genuineness of the cash memo for the alleged sale of goods worth Rs. 40,000 on 1‑7‑1968 and observed that :‑ "This sale has been made to a unknown party. It 1s surpris ing that it includes 1000 ball‑bearings, an item which was in very short supply and which the assessee in his book has valued at Rs. 4 per piece. This alleged sales of Rs. 40,000 is unquestionably fictitious." This inference was legitimately drawn by the Tribunal in the circumstances of the case from proved facts. We cannot, therefore, hold that under question No. 2 proposed above any issue of law at all arises out of the order passed by the Tribunal.

8. Nevertheless before us the learned counsel for the petitioner has ventured to argue that an inference drawn from facts is necessarily a question of law. In this connection he has relied on certain observations of their Lordships of the Supreme Court in N. M. Khan and another v. The Chief Settlement and Rehabilitation Commissioner, Pakistan, Lahore (119905 SCMR158). In that case on revision the Settlement and Rehabilitation Commissioner had transferred the two bungalows bearing Nos. 45 and 47 Empress Road, Lahore to Mr. N. M. Khan as a single indivisible unit. The order was affirmed in second revision by the Chief Settlement Commissioner. But the two orders were quashed by the High Court under Article 98 of the Constitution of 1962 and the decision was affirmed on appeal by the Supreme Court. In that connection their Lordships of the Supreme Court observed that :‑

"The circumstance that the houses' are situate close to each other and that they belong to the same owner, are the two facts which seem to have weighed with the Settlement and Rehabilitation Commissioner and the Chief Settlement Commissioner for the inference that one was an annexe to the other. This inference, by no means, follows from the established facts. It would indeed be surprising if house No. 47 which existed prior to the construction of house No. 45 could be annexe to it. If at all, house No. 45 might have been annexe to an older house but certainly not to house No. 45 from which it was separated by a nullah and a fencing. It would be flying in the face of facts, therefore, to treat the two houses as one unit, as the learned Settlement and Rehabilitation Commissioner and the Chief Settlement Commissioner appear to have done. They had no material before them for coming to this finding at all. Their conclusion was inferential from certain facts which cannot sustain that conclusion, in the circumstances of this case. The question whether an inference follows from certain facts or not is a question of law and on this question these two learned officers appear to have misdirected themselves, having regard to the ample material which led to the conclusion opposite to that which they adopted and which they seem to have by‑passed. They have failed to refer to that material which was pertinent and cogent enough to demolish the assumption of unity between houses 45 and 47." In conclusion the Supreme Court in that case held that the view that prevailed with the Settlement Authorities having been Influenced by an erroneous deduction from facts which manifestly could not support such an inference, reduced their decision to an arbitrary and illegal exercise of power and threw it open to review in writ jurisdiction by the High Court. In that case their Lordships of the Supreme Court were satisfied that the two Settlement authorities had no material for holding that the two bungalows in question constituted one indivisible house and held that it would be flying in the face of facts to hold the two houses as one unit. In the opinion of the Supreme Court manifestly the inference drawn by the Settle ment authorities could not be supported by any evidence. It was in these circumstances that the Supreme Court observed that :‑ "The question whether an inference follows from certain facts or not is a question of law." In our respectful opinion these remarks must be construed in the light of the facts found in that case. Otherwise they do not go to lay down any unqualified general statement of law.

9. On the other hand there is the case of Malik Muhammad Hayat Khan v. Subedas Yar Muhammad Khan (PLD1866SC612) in which their Lordships of the Supreme Court observed that when an inference is to be drawn as to a question of fact then whether the inference is drawn from oral evidence or from documents It is always a question of fact. These remarks must be construed as confined to the facts found in that case. In our respectful opinion the true test is that an inference of fact would be a question oil fact or law according as the point for determination is one of pure fact not dependent on the application of any principle of law or a mixed question of law and fact based on its application. Each case must be judged in the light of this test and the cases from the Supreme Court of Pakistan on the two extremes fully illustrate this proposition.

10. In this connection in Sree Meenakshi Mills Limited v. Commissioner of Income‑tax, Madras ((1957) 31 I T R 28), the Supreme Court of India observed that :‑-- "Where an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principles of law, there is a mixed question of law and fact, and the Inference from the facts found is in such a case. a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basic facts does not involve the application of any principle of law, an inference from the facts cannot be regarded as one of law. The proposition that an inference from the facts is one of law is therefore correct in its application to mixed questions of law and fact, but not to pure questions of fact. In the case of pure questions of fact an inference from the facts is as much a question of fact as the evidence of the facts." Similarly in another case in Oriental Investment Co. Ltd. v. Commissioner of Income‑tax, Bombay ((1957) 32 I T R 664), the Supreme Court of India again held that an inference from facts would be a question of fact or a question of law according as the point for determination is one of pure fact or a mixed question of law and fact. A finding of fact without evidence to support ft or based on relevant and irrelevant matter is not unassail able.

11. For the foregoing reasons, we find that the impugned order passed by the Tribunal is concluded by findings of fact and no question of law arises therefrom. This petition is, therefore, incompetent and is dismissed in limine. Petition dismissed.