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Civil Petition for Special Leave to Appeal No. 95‑D of 1968, decided on 23rd August 1968.

(On appeal from the judgment and order of the High Court of East Pakistan, Dacca, dated the 1st May 1968, in Income‑tax Reference Case No. 14 of 1968). ,

S. 13‑Substantial question of law relating to interpretation of S. 13‑Special Leave to Appeal granted by Supreme Court.

Afzalul Huque, Advocate Supreme Court instructed by A. M. Khan, Senior Attorney for Petitioner.

Nemo for Respondents.

Date of hearing : 23rd August 1968.

‑‑This Petition has been filed by the Commissioner of Income‑tax, Dacca, for special leave to appeal from a judgment of a Division Bench of the High Court of East Pakistan in a reference section 66(1) of the Income‑tax Act.

In this case the Income‑tax Officer had, while assessing the return of the respondent‑Company for the assessment years 1956‑57, to 1958‑59, disallowed certain amounts claimed by the assesses‑Company as loans and then assessed its gross profits at 43'6 % 44'7 % and 44 / for each of the above mentioned years, respectively. The further reasons given were that the assessee had failed to furnish any quantitative reconciliation of raw materials purchased anti consumed in manufacturing different types of containers etc., and finished products manufactured and sold as also failed to produce its stock book showing day‑to‑day consumption of raw materials for manufacturing goods in respect of all these years.

This assessment was upheld by the Appellate Assistant Commissioner but the Income‑tax Appellate Tribunal took a contrary view with regard to the scope of the powers of the Income‑tax Officer under section 13, but, nevertheless, went on to hold that although the Income‑tax Officer had considered the accounts to be unverifiable his action actually showed that the accounts did provide a sufficient foundation for his determination of the profits of the business. In fact he had, it was found, added to the structure of profits certain amounts which the Company claimed to have received by way of loans from the mother of Ata Hussain Khan.

Although at one stage the Tribunal itself was inclined to the view that "taking all facts into consideration it would be a reasonable conclusion that the story of the lady having brought so much from India as would enable her to lend to the Company Rs. 1,55,000 in all has not been satisfactorily proved" yet towards the end it curiously found itself unable to subscribe to the view that "these so‑called loans represented sales kept out of the books" and, therefore, did not express any final opinion "as to the real nature of the so‑called loans,"

The appeal was, however, allowed to the extent that the rate of profits was reduced to 40 % as that was the figure shown fog the Income‑tax year 1955-56 by the assessee himself.

Subsequently, the following question of law was referred to the High Court :‑

"Whether on the findings of fact made by the Tribunal it was justified to take recourse to section 13 of the Act and raise the rate of gross profit to 40 % for the assessment year 1956‑57, 1957‑58 and 1958‑59"

The High Court answered the question in the negative.

Learned counsel appearing on behalf of the Commissions contends that the High Court was wrong in its interpretation of the provisions of section 13, for, under this section apart from all other considerations, it is contended, that the Income‑tax Officer could treat an unaccounted for item as really suppressed income kept out of the books of the accounts and the Income‑tax Officer could rightly add the same back to the total income for the assessment of Income‑tax.

This petition, in our view, raises a substantial question of law relating to the interpretation of section 13 of the Income‑tax Act which is likely to arise in a large numb.‑r of cases. Leave is accordingly granted to consider whether the High Court has correctly interpreted the provisions of the said section 13 of the Income‑tax Act.

Leave granted.

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