1985 PLP 770 (PTD)

NAIMUDDTN, J.--‑By this application under section 66(2) of the Income -tax Act, 1922, the following question said to be a question of law arising out of the order, dated 31‑5‑1974, passed by Income‑tax Appellate Tribunal has been referred for answer: "Whether on the facts and in the circumstances of the case, the Income‑tax Appellate Tribunal was justified in reducing the disallowance of loss to the extent of Rs. 50,000 while holding that the accounts were rightly rejected by the Income‑tax Officer ?"

2. In I. T. R. No. 49 of 1975, the question referred is as follows : "Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in reducing the addition made by the Income‑tax Officer from Rs. 79,707 to Rs. 40,000 while holding that the accounts were rightly rejected by the Income‑tax Officer?"

3. In I. T. R. No. 50 of 1975, the question is similar as in I. T. R. No. 49 of 1975, with this difference that in this case the addition of Rs. 33,480 was reduced to Rs. 20,000.

4. In I. T. R. No. 52 of 1.975, the following question is referred. "Whether on the facts and in the circumstances of the case, the Tribunal was justified in reducing the addition, made by the Income‑tax Officer while holding that the accounts were rightly rejected ?"

5. The respondents in all the four references are same, I. T. R. No. 4f of 1975 relates to the assessment year 1968‑69, I. T. R. No. 49 of 1975 relates to assessment year 1969‑70, I. T. R. No. 50 of 1975 relates to assessment year 1970‑71 and I. T. R. No. 52 of 1975, relates to assessment yea; 1967‑68.

6. It is agreed on all hands that in the aforesaid cases the question; referred in effect are same. We therefore, proposed to dispose of all then references by this common order.

7. The facts giving rise to the question referred in I. T. R. No. 48 01 1975, are as follows : The respondent is a private limited company which carries on business o crushing seeds and manufacturing of oil. In the relevant assessment yeas on the scrutiny of accounts it was found that the production was in excess o: the seeds consumed. Further cottonseed oil did not tally with‑ vacuum oil In view of the aforesaid defects the books result was rejected by the Income tax Officer Companies Circle XII, Karachi, and the gross loss shown by the respondent at Rs. 3,84,934 on the total sales of Rs. 72,78,666 was disallowed.

8. Aggrieved by the aforesaid order the respondent filed an appeal with the Income‑tax Appellate Tribunal. The Tribunal although found that the respondent's accounts were rightly rejected by the Income‑tax Officer, it reduced the disallowance of loss from Rs. 3,84,934 to Rs. 50,000.

9. The Commissioner of Income‑tax, the applicant, filed an application under section 66(1) of the Act with the Income‑tax Appellate Tribunal praying that the question mentioned hereinbefore being question of law be referred to this Court for answer. The Tribunal by the order, dated 28‑3‑1975, rejected the application holding that no question of law arose out of its order, giving rise to the present application. 10. (i) It may be stated that the material facts in all the references are similar except that I. T. R. No. 49 of 1975, the Income‑tax Officer had rejected the books result and addition of Rs. 79,707 was made for the reason that the daily production register was not maintained by the respondent end that day to day consumption of raw material and production of finished ;cods was not verifiable The Income‑tax Appellate Tribunal however, on appeal reduced the amount of Rs.J9,707 to Rs. 40,000. (ii) In I. T. R. No. 50 of 1975, the books result was rejected and addition )f Rs. 33,480 was made by the Income‑tax Officer for the same reason as riven in I. T. R. No. 49 of 1975. However, the amount in this case was educed by the Income‑tax Appellate Tribunal to Rs. 20,000. (iii) In I. T R. No. 52 of 1979, the Income‑tax Officer rejected the books of accounts of the respondent and made an addition of Rs. 67,429 on the sale of Rs. 85,00,

000. Applied gross profits of 5 % for the reason that the respondent had not maintained regularly daily production register and day to day consumption of raw material, and production of finished goods was tot verifiable.

11. The Income‑tax Appellate Tribunal while upholding the rejection if books results reduced the amounts added by the Income‑tax Officer keeping n view the past history of the assessee.

12. In rejecting the applications for referring the questions, the Income-tax Appellate Tribunal by a common order, dated 28‑3‑1975 in three cases observed that they had reduced the amount to bring the three cases in line with the earlier order as it was found that the additions made by the Depart ment in the three years under, appeal were excessive as some of the defects in the accounts had been explained and the Income‑tax Appeilate Tribunal had rationalised them by suitably reducing the additions, It, therefore, held that no question of law could be said to arise out of its order for the reason that it had factually found that the additions were in excess of what could justifiably he made and the Income‑tax Appellate Tribunal was duly empowered to do so under section 33 of the Act. It further observed that "if the question of law framed by the action of the Tribunal in reducing the additions while maintaining the rejection of the accounts, the logical conclusion would be that the Tribunal would be under duress to accept whatever fantastic and exorbitant estimates of income are made by the Income‑tax Officer while rejecting the accounts."

13. We have heard Mr. Sheikh Haider learned, counsel for the applicant and Mr. Naimur Rehman learned counsel for the respondent.

14. Mr. Shaikh Haider submitted that the Tribunal was wrong in declin ing to refer the question which according to him was question of law. He therefore, submitted that we should answer the question being the question of law. We are not inclined to accept the submission as correct. The Tribunal has rightly declined to refer the question by rightly holding that no question of law arose. The question as framed in our view is a question of fact. The Tribunal on appreciation of facts and past history of the assessee has reduced the amount for cogent reasons and not by interpreting any provisions of law. If the question would have been framed whether on rejection of the book result by the Income‑tax Officer and consequent addition of any amount by the Officer, the Tribunal while upholding the order to A the extent of rejection of account was empowered under the law to reduce the amount of addition then it could be said that a question of law has arisen. Obviously, no such question could be raised in these cases in view of the powers conferred on the Tribunal under section 33(4) of the Act particularly, clauses (e) and (f) thereof. We may here quote the aforesaid provisions of section 33 of the Act which are as follows :‑ "33(4)(a) , (a)

(c)

(d)

(e) If the Appellate Tribunal is satisfied that an assessment, which is the subject of appeal, ought to be set aside, it shall set aside the assessment and direct the Income‑tax Officer to make a fresh assessment. (f) As respects any other matter, if the Appellate Tribunal is satisfied that an order which is the subject of appeal ought to be interfered with, it shall cancel or vary the order accordingly and shall issue such consequential directions as the case may require. In the case of an order imposing a penalty the power to vary the order shall include the power to enhance the penalty."

15. A perusal of the above‑quoted provisions shows that being satisfied that the assessment, which is subject of appeal, ought to be cancelled or refused it could do so. The Tribunal reduced the assessment on being B satisfied on the basis of the past history of the assessee. It is not the case of the Department that the satisfaction of the Tribunal was not based on objective consideration or the order is based on irrelevant or extraneous' considerations. After rejecting the books result and in the absence of other evidence it was open to the Tribunal under section 33 of the Act to take into account the previous assessment orders or past history of the assessee. It is well‑established that in cases where no better evidence is available, order on the basis of past assessments could be passed and we may here quote a passage from the opinion of Suleman, C. J., of Allahabad High Court delivered by him on a difference of opinion between Niamatullah and Bajpai, JJ., in the case of Gopinath Naik v. Commissioner of Income‑tax, United Provinces (1936) 4 I T R 1), which appear at page 23 of the report. It reads as follows : "On the other hand, I see no objection in the Income‑tax Officer or the Assistant Commissioner acting upon the assessment for the previous year if no better evidence is forthcoming. An Income‑tax Officer, and for the matter of that, an Assistant Commissioner is not bound to accept either the correctness of the return of the genuineness and completeness of the account‑books produced before him or the truth of the evidence produced by the assessee. If he has ground for believing that such evidence is untrustworthy, he can certainly reject it. Having rejected such evidence it .is open to him to pursue the enquiry further and take more evidence which he considers necessary; but he is not bound to do so. In the absent of any better evidence he is certainly entitled to fall back on the assessment of income made during the previous year even though that assessment might have been the best judgment estimate. The fact that during the previous year the income was assessed on a certain figure is certainly some evidence on which he can proceed, even independently of any pre-sump ion of continuity. If the assessee fails to produce satisfactory evidence, he fails to displace the previous year's estimate, which is certainly admissible against him."

16. The above observation of Suleman, C. J., has been quoted with approval by Din Muhammad, J., in a case of Lahore High Court in Ganga Ram Balmokand v. Commissioner of Income‑tax, Punjab (1937) 5 I T R 464).

17. The question whether on the facts and in the circumstances of a case a stated question is a question of law or fact was considered in the case of The Commissioner of Income‑tax (Investigation) v. Messrs Jan Muhammad & Bros. (1982 P T D 287.), by a Division Bench to which one of us namely, Mr. Justice Naimuddin was a party and reference was made to some precedents to illustrate whether a question raised in a given case is a question of law or fact. We may again refer to those cases. (i) In the Commissioner of Income‑tax v. Messrs Pakistan Refrigeration Ltd., Peshawar (P L D 1966 Lah. 513), the question raised was "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the businesses of refrigeration and that of supply of vegetables and fresh fruits to the Army were the same within the meaning of section 24(2) of the Income‑tax Act." The learned Judges opined that on the findings of the Tribunal that the question of law as contemplated in section 66(1) of the Income‑tax Act, 1922, did not arise. In this case they reasoned "The question whether the activities of the assessee constitute the same business is, thus, one of fact and there was evidence on which the Tribunal had come to their decision. It was said that as a matter of law the two activities of the assessee were separate business, but such a conclusion will depend on the facts of the case. There is no provision in law according to which the two activities may be held to be separate business." (ii) In the Commissioner of Income‑tax, Rawalpindi v. Messrs Zamindara Flour Mills, Lyallpur (1), the question raised was :‑ "Whether on the facts and circumstances of the case, the Income‑tax Appellate Tribunal was justified in allowing registration to the firm for assessment year 1964‑65 on the basis of partnership deed dated 1‑3‑1963." In this case the High Court of West Pakistan, Lahore had dismissed the application on the ground that the question whether the partnership existed before 1‑3‑1963 i.e. prior to the date of execution of the partnership was the question of fact and had ‑been decided by the Income‑tax Appellate Tribunal on consideration of all the relevant circumstances in favour of the respondent firm. On appeal the Supreme Court held :‑ "The view of the Tribunal that the partnership was created by the, deed itself and the firm was, therefore, entitled to registration under section 26‑A of the Income‑tax Act for the charge year in question, there being no pre‑existing partnership as a matter of fact, did, not present any legal question 'to be brought in the High Court for examination and decision under subsection (2) of section 66 of the Income‑tax Act."

18. We may also here refer to a decision of the Supreme Court of Bangladesh in The Commissioner of Income‑tax, A‑Range, Chitagong v. Harendra Kumar Sil (2), wherein the Income‑tax Authorities had rejected the accounts and determined the rate of gross profits for a particular year. The following question was referred to the High Court. "Whether on the facts and circumstances of the case the Tribunal was justified in confirming the rate of gross profit at 10 per cent. Applied by the authorities below on a wrong appraisal of the fact that due to restriction in import the rate of gross profit applicable to the dealings of applicant increased during the previous year." The High Court answered the question treating it to be a question of law but the Supreme Court of Bangladesh held that the High Court erred in allowing the application and answering the question. We may here quote the relevant observations, which appear at page 91 of the report. They read as follows "The orders of the Income‑tax authorities show that there were grounds for rejecting the trading accounts of tire assessee and resorting to the power conferred under section 13 of the Income‑tax Act. Determina tion of rate of gross profit for the particular year in respect of the particular business or trade, is purely a question of fact, and that being so it could not be made a ground for making reference under section 66(1) of the Income‑tax Act."

19. Reference may also be made to a judgment of the Supreme Court of. Pakistan in the case of Miss Assia v. Income‑tax Appellate Tribunal, etc. (P L D 1979 S C 949), wherein the contentions and conclusion as taken from pages 776 and 777 of the report were as follows "We have carefully considered the contentions raised before us. The petitioner‑assessee had filed certain certificates allegedly issued by the producer showing the receipts for her performances as an artist in some of the films. Admittedly, she did not produce the certificates in respect of all the films in which she had appeared as an artist nor were they backed by contemporaneous binding on the parties in the matter of due performance of these contracts. In the absence of any independent corroborative evidence produced by the assessee the Assessing Officer in his own judgment was not fully satisfied with their authenticity. Going by the prevailing practice in the film industry, he observed that a few suppressions had been made in respect of similar other assessees in the comparable income of other equally successful artists. After a scrutiny of her wealth statements and account of expenses the Assessing Officer exercised his best judgment and enhanced the receipts for the two assessment years as stated above. On appeal the Appellate Assistant Commissioner and likewise the Appellate Tribunal had examined at great length each and every submission advanced before them by the assessee and had based their own conclusion on the material brought on the record. In these circumstances the Appellate Tribunal was justified in holding that their appellate order did not give rise to any question of law worth reference under-section 66(1) of the Act and the order was upheld by the High Court rejecting the application of the petitioner moved before it under section 66(2) of the Act. The Assessing Officer was not bound to rely on all the evidence produced by the assessee in case he was not satisfied about it. He was entitled to reject the account believed by him to be a false and unreliable, although there may be no direct and definite evidence with him to prove their incorrectness. There is no rule of law compelling a Judge to accept evidence, even though it is uncontradicted, which he believes to be a pack of lies In re: Bagha Halwai 3 I T C

48. In this connection in Ganga Ram Balamokand v. Commissioner of Income‑tax Punjab 1937 I L R 464 it was held that the law does not impose any burden on the income‑tax authority to prove by positive evidence that the accounts are unreliable or that the figure at which they assess is the correct figure. On the other hand, the question of the 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 in judicial. In matters like these a very wide discretion vests to the Income‑tax authorities in view of the exigencies of the case, and the control exercisable on them is very meagre. 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. In this connection their Lordships of the privy Council in Commissioner of Income‑tax, United and Central Provinces v. Badridas Ramrai Shop, Akola A I R 1937 P C 133 has held that the Assessing Officer must make what he honestly believes to be a honest estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him and in arriving at a fair and proper estimate ; and though there must necessarily be guesswork of the matter, it must be honest guesswork. In that sense too the assessment must necessarily be arbitrary. From the above discussion we are convinced that the Income‑tax Authorities in exercise of their judicious discretion have concurred in finding for very valid reasons assigned by them that the certificates in dispute produced by the assessee did not inspire confidence and could not be relied upon in determining the receipts of the assessee made during the two assessment years in question, the Assessing Officer had made the assessment to the best of his judgment in the light of the material before him. The appellate order passed by the Appellate Tribunal is concluded by the finding of facts and not give rise to any question of law worth reference to the High Court."

20. We therefore, hold that no question of law arises out of the order of the Tribunal in all the aforesaid cases and we accordingly, dismiss these applications, leaving the parties to bear their own costs. M. B. A. Applications dismissed.