P L D 1960 Dacca 298 (PLP)

CHAKRABORTI, J.‑This is an application under section 66 (2) of the Indian Income‑tax Act, as adapted in Pakistan, for directing the Income‑tax Tribunal to state the case and raise and refer four questions of law set out in the application for decision by the High Court. The tax was levied for the assessment year 1946‑47 for the income said to have been derived by the petitioner during the account year 1945. The business related to supply of bullocks and heifers to the Commonwealth Relations Department of the Government of India through Mr. E. A Steinherr, Livestock Agent Assam Relief Measures. Besides the assessee had also a small business in tobacco. We are not concerned at this stage with the tobacco business of the assessee. The business relating to the supply of bullocks and heifers was done from 29th January 1945 to 21st April 1945, under two contracts, dated 31st January 1945, and 27th March 1945.

2. Under the first contract dated 31st of January 1945, the assessee supplied 4,500 bullocks to the Director, Assam Relief Measures, through Mr. Steinherr, who was the agent for the supply of the livestock to the Government of Assam and the rate of contract price for the supply of bullocks was on the basis of height 38" to 42" at Rs. 230 each, 43" to 47" at Rs. 260 each, and height 48' and above at Rs. 300 each. The rate of contract price for the supply of each heifer was on the basis of height 34' to 36' at Rs. 125 each, and height 36" and above at Rs. 150 each. It was further agreed that the said bullocks and heifers were to be pro cured from the whole of Surma Valley, and were to be supplied at Silchar camp from where these animals were ultimately to be taken to Manipur. So far as the bullocks were concerned, the contract was that these animals must be of at least 4 teeth, trained and in good health, and regarding heifers it was contracted that these animals were to be young, strong and stout and were to be supplied within February, March and April 1945.

3. The applicant, in response to notices served on him by the Income‑tax Department, showed the purchase price of the said animals at Rs. 11,02,658, and, after deducting expenses and losses, showed a net profit of Rs. 17,

359. The Income‑tax Officer, how ever, found that the account books submitted by the applicant were unreliable and accordingly the purchase figure showed by the assessee was not accepted as correct. The Income‑tax Officer, however, made an assessment under section 23 (3) of the Income- tax Act on an income of Rs. 2,01,642, subject to rectification under section 35, on account of E. P. T. adjustment, if any. An appeal was preferred to the Appellant Assistant Commissioner, Mr. M. Ameen, who is now a member of the Tribunal which ultimately rejected the petitioner's application under section 66 (1). Mr. Ameen as Appellate Assistant Commissioner upheld the estimate of income arrived at by the Income‑tax Officer, but he allowed some increased expenses to the assessee to be deducted from his income. There was an appeal against that decision before the Income‑tax Tribunal which set aside the order of Mr. Ameen, and remanded the case for a fresh consideration by the Appellate Assistant Commissioner. The Tribunal held: "In view of the fact that the accounts on which the assessee relied were unworthy of reliance, we are in agreement with the Appellate Assistant Commissioner that the Income‑tax Officer was absolutely within his jurisdiction to resort to an estimate but we find it difficult to agree with him with regard to his con clusion about the rate of 20 per cent. gross which was determined by the Income‑tax Officer on the basis of two grounds which we have shown above to be untenable. The rate of 20 per cent. gross, therefore, cannot be sustained. The case is remanded to the Appellate Assistant Commissioner for determination of a fair and reasonable rate." The Tribunal further held: "In this view of the matter we think that the amount of Rs. 37,000 allowed against the expenses of Rs. 67,500 claimed by the assessee is insufficient." And they directed the Appellate Assistant Commissioner to reconsider the matter and allow such further sum as may be deemed fit in the circumstances of the case. The applicant also put forward certain claim for loss that accrued to him for the death of 110 animals. The Tribunal considered that the claim ought to have been considered by the Income‑tax authorities, and they opined that it would be fair to allow the average costs for those 110 animals. The appeal was then heard by Mr. S. A. Khondkar, the Appellate Assistant Commissioner, and by his judgment, dated 15th December 1954, he made further allowances by way of expenses to the assessee, and fixed the net profit per bullock at Rs. 45, and also a net profit of Rs. 45 per heifer, and assessed the income of applicant at Rs. 1,50,

725. There was an appeal to the Tribunal, and the Tribunal consisting of the President and Mr. M. Ameen, who first heard the appeal against the Income‑tax Officer, delivered their judgment on 17th March 1955, and they upheld the order of the Appellate Assistant Commissioner and dismissed the appeal.

4. There was then an application before the Tribunal under section 66 (1) for reference to the High Court. It was urged that certain questions of law arose out of the order made under section

33. The Tribunal, however, was of opinion that the case was concluded by the findings of fact, and no question of law arose out of the Tribunal's order, and, therefore, rejected that application.

5. An application was then made before this Court under section 66 (2) of the Income‑tax Act for directing the Tribunal to state a case and to refer certain questions of law which are said to arise out of the order of the Tribunal.

6. In the application, the assessee formulated four questions of law, which, according to him, arise out of the order of the learned Tribunal, as follows: "(1) Whether under the facts and circumstances of the case it was legal to apply provisions of section 13. "(2) Whether in view of the facts on record and in the circumstances of the case, the Tribunal was justified in holding that the gross profit rate for bullocks and heifers as has been applied is reasonable and fair, the contract price of one being Rs. 263 and the other Rs. 137 per animal. "(3) Whether the cost rate of the dead animals as has been determined is compatible with the findings on record. "(4) Whether an order which had the effect of increasing the admitted and accepted receipts of Rs. 11,85,722 by Rs. 67,300 maintainable in law and whether such increase could be effected without notice."

7. Mr. Asrarul Hossain, counsel, appearing on behalf of the petitioner, pressed points 1, 2 and 3 before this Court. His con tention is that the inferences drawn from the facts before the Tribunal were not justified and the evidence did not justify the findings arrived at. So far as the dead animals are concerned, the learned counsel submitted before the Court that the Commis sioner had no evidence to support his findings that the average rate per dead animal was Rs.

187. It was also contended by the learned counsel that on the admitted facts the conclusions of the Appellate Assistant Commissioner were not justified and these findings amounted to a wrong way of reading the law on the point. It was also contended by him that the manner of accounting adopted by the Commissioner was not correct, and, if it was driven to its logical conclusion, will lead to an absured result. According to the learned counsel, the method employed by the Tribunal violated the principles of natural justice and, as such, a reference to the Court was justified.

8. Mr. Khondkar, appearing on behalf of the Department, however, contended that all the questions raised by the petitioner are questions of fact, which could not be agitated before this Court under this application.

9. The learned advocates referred us to certain authorities in support of their respective contentions.

10. It is an admitted fact that the assessee supplied 4,500 bullocks and 500 heifers to the Commonwealth Relations Depart ment through Mr. Steinherr, and he was paid Rs. 11,84 540 as the price of the said bullocks and heifers‑the price of the bullocks being Rs. 11,17,240 and the heifers being Rs. 67,

300. The con tract price of the bullocks and the heifers varied according to different heights, and further there was the stipulation that these bullocks must be of 4 teeth, trained and in good health, and the heifers must also be young, strong and stout. The account papers of the assessee have been found to be unreliable and we do not exactly know the number of bullocks of specific heights supplied to the Department, a matter which was within the special knowledge of the assessee. In the circumstances, it cannot be doubted that the Department, in dealing with the matter under section 23 (3) of the Income‑tax Act, could adopt the principle of law embodied in section 13 of the Act which lays down: "Income, profits and gains shall be computed, for the pur poses 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 deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income‑tax Officer may determine". But this section does not authorise the income‑tax Officer to proceed arbitrarily or capriciously. He must give some cogent reasons for his own conclusions and the estimate of income made by the Income‑tax Officer must approximately be near the truth Gurmukh Singh v. Commissioner of Income‑tax, Lahore (A I R 1944 Lah.353) and Dhakeswari Cotton Mills, Ltd, v. Commissioner of Income‑tax, West Bengal (AIR 1955 S C 65). In the latter case, it has been held: "Though the Income‑tax Officer is not fettered by technical rules of evidence and pleadings and is entitled to act on materials which may not be accepted as evidence in a Court of law, it is equally clear that in making the assessment under subsection (3) of section 23 of the Act, the Income‑tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be some thing more than bare suspicion to support the assessment under section 23 (3)".

11. Having rejected the account papers of the assessee, the Income‑tax Officer assessed the average contract rate at Rs. 263 taking a mean of the three figures 230, 260 and

300. It is an admitted fact that the assessee obtained Rs. 11,17,000 and odd from Mr. Steinherr as the price of 4,500 bullocks and the average rate would be Rs. 248‑4‑0 and odd. The figure taken by the Income‑tax Officer is obviously wrong, because it is not known how many animals of different heights were supplied to the Department, and further there was the special circumstance that these animals must be of certain descriptions, namely, of 4 teeth, trained and of good health. These circumstances were altogether ignored by the Income‑taro Officer. If we adopt the figure of 263 as the average price of the animals, the price of 4,500 bullocks would far exceed 12 lakhs of rupees and would lead to an absurd result. No reason has been assigned why the average rata of Rs. 248‑4‑0 has beer, discarded in this case, and why the figure 263 was adopted without reference to the actual facts and circumstances of the case. This finding of the Income‑tax Officer leads to an absurd result, and the result does not approximate to the truth. Moreover, the Income‑tax Officer has taken Rs. 218 as the cost rate per bullock. He made certain enquiries from the bazar and arrived at that figure. The learned counsel appearing for the petitioner has made a grievance that he was not given an opportunity to rebut this figure. In this connection, he has referred to the decision in R. B. L. Panna Lal v. Commissioner of Income -tax, Punjab (A I R 1927 Lah. 691), where it has been laid down that an opportunity should be given to the assessee. The learned advocate appearing for the Department has, however, replied that an opportunity was really given by the Assistant Income‑tax Officer, and some receipts actually were produced by the assessee and were considered by him. It is a fact that the assessee produced certain receipts before the Assistant Commissioner in support of his contention, and these were considered by the said Officer ; but a simple bazar rate, as ` the Income‑tax Officer investigated, would not be enough. There is the circumstance in this case that the animals were to be of a certain particular description, and it is not clear from the Income- tax Officer's judgment whether the bazar rate, which was accepted, was found with a reference to particular class and description of animals.

12. In the case of heifers, the Department adopted Rs. 45 as net profit per animal. The cases of two kinds of animals must be considered separately. In the case of bullocks, the Income‑tax Officer adopted Rs. 45 as the net profit per animal, and in the case of heifers also he adopted the same rate although they were of different class and description, and evidently by accepting Rs. 45 as the net profit per heifer, the Appellate Assistant Commissioner ignored the direction of the Tribunal that the rate of 20 per cent. gross was too high, and could not be taken as a fair and reasonable rate. The average price per bullock would be Rs. 248, and per heifer is Rs. 134 and odd, and if we adopt Rs. 45 net profit as per animal, the gross profit would be 331/3 per cent. and this would go against the direction of the Tribunal itself. Accordingly, the average rate adopted in the case of heifers cannot be sustained. The learned counsel appearing for the Income‑tax Department has argued that if the assessee produced some evidence, and if the Income‑tax Officer considers that evidence as insufficient and un reliable, he may consider other evidence, which he may require on specified points, and he can proceed without giving an opportunity to rebut. The learned advocate has referred in this connection to the case of Commissioner of Income‑tax, United and Central Provinces v. Badridas Ramrai Shop, Akola, Owner Laxmi narayan Badridas Sharwagi (AIR 1937 P C 133), which approves of a decision of the Rangoon High Court in the case of Abdul Bari Chaudhri v. Commissioner of Income‑tax, Burma (A I R 1931 Rang. 194). But that case is dis tinguishable from the facts of the present case, for, there results of enquiry were placed on the record, and, secondly, that was a case under section 23 (4) which lays down: "If any person fails to make the return required by any notice given under subsection (2) of section 22 and has not made a return or a revised return under subsection (3) of the same section, or fails to comply with all the terms of a notice issued under subsection (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under subsection (2) of this section, the Income‑tax Officer shall make the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment". But here in the present case the assessee has submitted a return under section 22, and his accounts have not been believed. It is a case under section 23 (3) which is controlled by section 13 of the Act. The case of Messrs Ganga Ram Balmokand v. Commissioner of Income‑tax (A I R 193 7 Lah. 721), relied on by the learned advocate for the Income‑tax Department, also does not help him, for that case lays down that the proviso to section 13 of the Income‑tax Act is not excluded from section 33, and although no burden is imposed on the Income‑tax authority to prove by positive evidence that the accounts are unreliable or that the figures which they have assessed is a correct figure, but still he cannot proceed altogether capriciously and not in a judicial manner. The next case relied on by the learned advocate for the Income‑tax department is the case of Ishar Das v. Commissioner of Income‑tax (A I R 1931 Lah. 432), where it has been laid down that once it is established that no manner of accounting has been regularly employed in that the method employed is such that in the opinion of the Income‑tax Officer, the income, profits and gains cannot properly be deduced therefrom, the proviso to section 13, comes into operation and the Income‑tax Officer is the sole arbiter of the basis on which and the manner in which he can be the computer. In certain state of facts the law enjoins that the law of computation shall be made upon some other basis and in some other method, and both the factors being entirely within the jurisdiction of the Income‑tax Officer, the adoption of the particular basis and a certain method cannot give rise to a question of law. But the facts of that case are entirely different, for in that case a colliery proprietor invested his money in mortgages and loans, and he kept regular accounts of his income from the colliery, but did not keep any accounts regarding his income from investment in mortgages and loans. It is true that where the accounts kept by the assessee are keep in such a form that the income, gains and profits could not be deduced therefrom, the proviso to section 13, is applicable and the Income‑tax Officer is bound to make a computation on such basis and in such manner as he might determine, and the High Court has no authority over him, and is not, iii a sense of the word, a Court of appeal nor is it seized with the question whether the basis adopted applied the case of Prem Sagar v. Commissioner of Income‑tax (A I R 1932 Lah. 178). But it has been established by judicial decisions that the Income‑tax Officer must exercise his judgment, and that he must act justly. The question is whether the Income‑tax Officer committed any mistake in applying the standard and whether the standard adopted would lead to a fair justice is a question of law which justifies a reference to the High Court. We have seen in this case that the standard adopted by the Income‑tax Officer is arbitrary and capricious, and leads to an absurd result and is not consistent with the materials on record. The profit rate in case of heifers is against the direction of the Tribunal itself.

13. In the case of dead animals also, the figure adopted by the Income‑tax Officer is fictitious and absolutely no reason has been assigned for accepting that figure. It is true that the assessee bas withheld the number of dead animals of particular classes, but that does not absolve the Income‑tax Officer altogether from his duty to arrive at a figure which must be based on some reason at least.

14. The questions of law, therefore, that rally crop up are: Whether the circumstances of the case admit of the ordinary market rate as found at Rs. 218 per bullock is an acceptable standard under the law or under section 13 for the ascertainment of the purchase price of the bullocks, and whether the acceptance of the ordinary market rate overlooks the material circumstances having a bearing on the question of cost rate of the bullocks and heifers supplied. The next question of law which arises out of the order is whether the average selling rate adopted by the Income‑tax Officer at Rs. 263 violates the principles of natural justice increasing the admitted receipts of Rs. 11,84,540 by Rs. 67,300 leading to an absurd result, and, whether the adoption of that rate in preference to the average rate of Rs. 248 per animal leads approximately to an estimate of true income sustainable under the law. The third question is whether the rate of Rs. 187, the rate adopted per dead animal, is a fictitious figure based on no evidence and unaccom panied by any reason is sustainable in law.

15. The application is accordingly allowed and the Appellate Tribunal is directed to state a case and raise and refer the said questions of law to this Court for decision.

16. Petitioner will get his costs which will be determined by the Taxing Officer. IBRAHIM, J.‑I agree. K. B. A. Application accepted.