Find a Lawyer

Civil Petition No. 611 of 1976, decided on 4th March, 1980.

(On appeal from the judgment of the Lahore High Court, dated 23‑2‑1976 in Tax Reference No. 4 of 1968) .

‑‑S. 13‑‑Rejection of account books‑‑Assessee dealing in machine‑tools and workshop equipments on wholesale and retail basis‑‑Stock register though not maintained, but profit rate disclosed was not ridiculously low‑‑Book version, held, was not liable to rejection and addition made to declare income was not justified.

St.. Abdul Haque and Riazul Haq Sh. Advocate, Supreme Court and Iftakharuddin Ahmad, Advocate‑on‑Record, for the Petitioner.

Nemo for Respondent.

Date of hearing: 4th March, 1980.

The respondent Messrs Choudhri Brothers is a registered firm dealing in machine‑tools and workshop equipments and is also involved in wholesale as well as retail trade business. For the assessment year 1962‑65, it filed a return of income showing sales of Rs.13,81,326 and declared a profit of Rs.1,49,526 which worked out a profit rate of 10.8 per cent on the sales. The Income‑tax Officer rejected the book version of the respondent on the ground that the list covering the sales were not exhaustive and not verifiable. He also found that the firm had not maintained a stock register. Consequently, he estimated the total sales at Rs.14,15,000 and calculated the profit rate as 12.5 per cent. The respondent filed an appeal before the Appellate Assistant Commissioner who scaled down the addition of Rs.27,349 made by the Income‑tax Officer to the returned income of the respondent to Rs.10,000. Not feeling satisfied the respondent preferred the second appeal before the Income‑tax Appellate Tribunal which was rejected. The respondent then moved the Tribunal for reference of the following question of law to, the High Court:‑‑

"Whether on the facts and circumstances of the case there was evidence or material before the Appellate Tribunal to come to the conclusion that the account books were liable to be rejected under the proviso of section 13 of the Income‑tax Act "

The Tribunal refused to make the reference whereupon the respondent made application to the High Court under subsection (2) of section 66 of the Income‑tax Act for a direction to the Tribunal to refer the aforesaid question. The Division Bench of the Lahore High Court before which the application came up for decision, being of the view that the question posed by the respondent did arise, proceeded to decide it itself because of the change in the law in the meantime, without asking for reference from the Tribunal and by order, dated 23‑2‑1976 answered the question in the negative. Hence this petition for leave to appeal.

It is submitted on behalf of the Commissioner of Income‑tax that the learned Judges of the High Court having ruled that some important facts found by the Income‑tax Officer which were later confirmed by the Appellate Assistant Commissioner and the Tribunal, namely, that no stock register had been maintained and the lists of sales supplied were got verifiable it was evident that the plea of the petitioner that the respondent has not followed any proper method of accounting was correct, hence it should not have answered the question in the negative. It is further submitted that be as it may the method employed was such that income, profits and gains could not be properly deduced there from. It was also submitted that the basic rule that it was the subjective opinion of the Income‑tax Officer that was to be the deciding factor and if there were any circumstances in support of his opinion it was not permissible to differ with him has been overlooked.

After hearing the learned counsel and going through the order of the learned Judges, we are of the view that this is not a fit case for grant of leave to appeal. The learned Judges have noticed that perusal of the order of the Appellate Assistant Commissioner showed that the Income‑tax Officer was not justified to reject the version with regard to the profit margin. It also observed that the said learned Officer had. found that with the presentation of a further list of as many as 250 items comprising various types of goods, the number of items had become so exhaustive that the list could not be, ignored. So far as the lack of full particulars about the retail sales were concerned, the Appellate Assistant Commissioner found that it was not the practice amongst the dealers to maintain the sort of record that the Income‑tax Officer expected. He was convinced of the bona fides of the assessee also because he found that the rate of profits had been varying properly from year to year. Despite having held all this, the learned Appellate Commissioner was not justified in making addition of Rs.1G,000 as against a sum of Rs.32,200. The Income‑tax Tribunal had further held that the defect in the accounts was the non‑maintenance of a stock register which was not sufficient ground for the Income‑tax Officer in rejecting the assessee's accounts on this ground alone, unless the profit rate disclosed was ridiculously low but had, however, maintained the order of the Appellate Assistant Commissioner only on the ground that it had not been proved that the unverifiable cash sales in the current year comprised only the retail sales and not the wholesales although in the previous years it had been so established. The High Court in these circumstances observed that the above finding of the Tribunal was not consistent with the other finding recorded by it. We are inclined to agree with this view of the High Court.

In these circumstances we think that the High Court has rightly answered the question in the negative after considering all the relevant circumstances and as no question of public importance is involved in the matter, we do not think that this is a fit case for grant of leave to appeal.

This petition is, therefore, dismissed hereby.

M.I. Petition dismissed.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.