1984 PLP 276 (PTD)

That during the assessment year 1965‑66, the applicant had disclosed gross profit of Rs. 2,66,374 on receipts amounting to Rs. 14,73,545 which was 18 %. That the learned Income‑tax Officer, Companies Circle XI, Karachi vide his order, dated 30‑4‑1971 estimated receipts at Rs. 14,73,600 and applied gross profit rate of 25 % thereon. That during the assessment year 1966‑67, the applicant had disclosed gross profit of Re. 3,47,996 on receipts amounting to Re. 18,33,923 which was 19 %. That the learned Income‑tax Officer, Companies Circle, XI, Karachi vide his order, dated 31‑5‑1971, estimated receipts at Rs. 18,34,000 and applied gross profit rate of 25 % thereon. That the applicant being aggrieved with the orders passed by the learned Income‑tax Officer, filed appeals against the said assessment orders which were heard and disposed off by the learned Income‑tax Appellate Tribunal (Karachi Bench) Karachi on 17‑7‑1972. That the learned Income‑tax Appellate Tribunal upheld the rejection of the "account version" on the solitary ground, that the applicant could not rebut the objection of the learned Income‑tax Officer. It was submitted before the learned Tribunal that as no discrepency was found in the financial records in regard to opening stock, purchases, production expenses, receipts, closing stock or quantitative records in regard to opening stock, purchases, consumption and closing stock of raw material, there was no justification for invoking the proviso to section 13 of the Income‑tax Act and rejecting the "account version". It was further submitted before the learned Tribunal, that the objection of the learned Income‑tax Officer that "it was not possible to co‑relate the expenses incurred with the orders secured" was vague and was not germane to the question of rejecting the method of amounting employed by the Applicant. The Tribunal after considering respective contentions of the parties, confirmed the assessments as made by the I T. O., but reduced the rate of profits from 25 % to 22 % and rejected the applicant's said appeals, in respect of applicant's objection. to the rejection of the account version, simply on the ground, that the applicant was unable to rebut the defect, pointed out by the I. T. O. The applicant, therefore, has filed the above petitions praying, that the following two legal questions, which arise out of the impugned order of the Income‑tax Appellate Tribunal (Karachi Bench), Karachi, be decided by this Court:‑ (1) Whether on the facts and in the circumstances of the case, the proviso to section 13 of the Income‑tax Act could be invoked? (2) Whether there was any material on record for the basis adopted by the learned Tribunal for computing the income of the applicant? Since both the above petitions arise out of common judgment of Appellate Tribunal, we propose to dispose off the same by this common judgment. Mr. Iqbal Naeem Pasha, the learned counsel for the Assessee submitted at hearing, that there were no basis under section 13 of the income‑tax Act, 1922 for rejection of assessees account books and invoking of proviso of section 13 of the Income‑tax Act, 1922 at all, but in spite of this on vague grounds, the assessee's accounts version were not accepted and the proviso of section 13 of t66e Income‑tax Act, 1922 was invoked, solely on the ground, that it was not possible to co‑relate the expenses incurred with the orders secured and consequently working out of correct G. P. rate was not possible, an 14 therefore assessee's trading accounts were rejected both by I .T. O. and Appellate Tribunal. In support of his contention, the learned cowl relied upon cases reported in (1980) 42 Tax. 119 and X1982) 45 Tax. 146 as well as on cases reported in (1974) 29 Tax. 120, (1974) 30 Tax. 27, (1973) 87 I T R

370. Mr. Shaikh Haider the learned counsel appearing for the respondent on the other hard= submitted, that it was not possible to arrive at pro fits, on the basis of trading accounts of the assessee, for the reasons mentioned in the I. T. O. and Appellate Tribunal orders and as such I. T. O. had absolute discretion in such circumstances to invoke the proviso of section 13 of the Income‑tax Act, 1922 and con sequently both the orders are legal and fully ‑Justified. The learned counsel further submitted, that the facts of the case reported in (1980) 42 Tax. 119 are quite different and as such the said decision is not at all applicable to the present case. The learned counsel in support of his contention also relied upon case reported in 1982 P T D 185 and P L D 1979 S C

949. We have carefully considered the above submissions made by the learned Advocates before us and have gone through both the impugned orders as well as cases cited by the learned Advocates before us. The main question involved in answering the above‑mentioned two questions referred in the above references, is the interpretation of pro viso 1 to section 13 of the Income‑tax Act, 1922, which reads as under: "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 pro perly by deducted therefrom, then the computation shall be made upon such basis and in such manner as the Income‑tax Officer may determine." The above‑mentioned proviso, no doubt gives a discretion to I. T. O. to reject the accounts books of assessee provided assessee does no adhere to method of accounting regularly employed or if the method em ployed by assessee is such, that in the opinion of the I. T. O. the income profit and gains cannot properly be worked out therefrom. In the present case we find, that neither I. T. O. in his impugned orders nor the Appellate Tribunal in its order, dated 17th July, 1912 have stated, that the method of accounting followed by the assesses was not regularly employed by him nor it is mentioned in the said orders, that the method employed/adopted by the assessee was such, that in the opinion of the I. T. O. the income, the profits and the gains cannot properly be worked out therefrom. On the ‑contrary, we find that I. T. O. in his impugned orders has mentioned thus "the circumstances of the case and the method of accounting of the assesses company remain the same, as that of the last year according to the admission of the assesses." The only ground mentioned in the impugned orders of the I. T. O. for rejection of the assessee trading accounts were, that the assesses company undertakes quality work and is very well‑established and consequently the G. P. rate shown is very low, and further it is mentioned in the said orders, that the scrutiny of accounts revealed, that it was not possible to co‑relate the expenses incurred with the orders secured. Similarly we find, that the Appellate Tribunal rejected the assessee's contentions regarding its trading accounts, only on the ground, that assessee was not able to rebut the above‑mentioned defect pointed out by the Income‑tax Officer. In our opinion in the facts and circumstances of the case the grounds mentioned in both the impugned orders for invoking proviso 1 of section 13 of income‑tax Act, 1922 do not fall within the ambit of said proviso. This view of ours is fully supported by cases reported in (1980) 42 Taxation 119, (1982) 45 Taxation 140 and (1974) 29 Taxation 120, as in our opinion rejection of assessee's account solely on the ground, that it was not possible to co -relate the expenses incurred with the orders secured, in the absence of any finding, that the orders secured as shown in the account books were highly inaccurate and/or suppressed. There is nothing in the impugned orders to show, that there was any evidence on record, that the account books maintained by the assessee were manipulated in respect of the orders secured by the assesses, during the years in question. In the absence of such finding of fact supported by material on record, proviso 1 of section 13 of the Income‑tax Act, 1922 could not be available to the I. T. O. for rejecting trading accounts of the assesses. The case reported in P L D 1979 S C 949 cited by the learned counsel for respondent in our opinion 'does not support the contention of the learned Advocate for the respondent, in the face of the above‑mentioned facts on record and consequently this Court can interfere with the findings arrived at by the I. T. O. and Appellate Tribunal, which are no supported by any material on record. In the present case we find, that) neither I. T. O. nor Appellate Tribunal found any irregularity in the method of accounting employed by the assesses, which were regular kept, were duly vouched and verifiable. The Income‑tax Officer could, not point out a single discrepancy in the said accounts nor he has mentioned any material on the basis of which .he could have come to the conclusion that the orders secured by the assessee during the years in question were far below the actual orders secured by them, during the yea in question. The additions thus made by the Income‑tax Officer and Tribunal over and above the income disclosed by the trading account of the assessee are without any basis and/or material on record and cannot be sub-stained, under the proviso (I) to section 13 of the loco tax Act, 1922, in our opinion. In view of our above conclusions and findings, we answer both the above questions in the‑negative. The references are answered accordingly, but there shall be no order as to costs, in the circumstances of the case. The references answered accordingly. M. Z. M. References answered accordingly.