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Civil Reference No. 21 of 1960, decided on 5th January 1963.
(a) Income‑tax Act (XI of 1922)------
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S. 13, proviso‑Wool dealer‑‑Shortage of wool revealed by account books‑Excessiveness of shortage figure and absence of day‑to‑day cleaning and packing record ‑ Sufficient material for Tribunal to order reduction in amount of shortage allowed by Appellate Assistant Commissioner.
Held, that the fact that there was absence of day‑to‑day record of cleaning and packing done by the assessee and the entire shortage could not be verified and was excessive was sufficient material to support the Appellate Tribunal's action in reducing shortage allowed by the Appellate Assistant Commis sioner.
(b) Income‑tax Act (XI of 1922), S. 13‑Accounts produced Income‑tax Officer may accept account in toto or reject any unvouched item.
(c) Income‑tax Act (XI of 1922), S. 66‑Statement of case by Appellate Tribunal‑Facts of statement binding on assessee.
Noorul Arifin for Applicant.
Ali Athar for Opponent.
Dates of hearing : 7th and 13th November 1962.
.‑This is a reference by the Income‑tax Appel late Tribunal, Karachi Bench, Karachi, under section 66(1) of the Income‑tax Act. The following question of law has been referred to this Court.
"Whether there was any material to support the Tribunal's action in reducing the shortage in wool from 12 % to 10% "
2. The material facts giving rise to the reference as disclosed in the statement of the case by the Tribunal are these :‑
The applicant is a registered firm dealing in cotton, wool and oil. The assessment year is 1951‑52 ; the accounting period for the oil and wool business ends on the 31st August 1950 and for the cotton ginning business on the 31st August 1951. The assessee disclosed from its wool account during the year in question total sales of 1198 bales of wool and a shortage of 88 maunds. The quantity of wool packed in this period came to 700 maunds and the deficiency worked out to 12 %. The Income‑tax' Officer on an examination of the accounts book found that they were not detailed enough for a verification of the loss claimed. There was no day‑to‑day record of the cleaning and packing done. He allowed a shortage of only 4%. On appeal the Appellate Assistant Commissioner allowed the appeal and accepted the loss claimed by the assessee. He accepted the shortage claimed by the assessee on the basis of a certificate produced by the applicant from the Special Officer, Wool Grading Scheme, Government of Pakistan. The Income‑tax Commissioner filed an appeal before the Tribunal. The relevant portion of the order of the Tribunal runs as under:‑
"The grievance of the Department is in our opinion correct that the entire shortage claimed cannot be verified and is excessive. However, in view of the above facts we think that the shortage may be allowed at 10% of the goods handled and the value of the excess shown may be added back to the profit."
The Tribunal in the statement of the case has amplified its finding as under :‑
"We found that the entire shortage claimed could not be verified as no day‑to‑day cleaning record was kept and that the full shortage claimed was excessive."
3. Mr. Ali Athar, the learned Advocate for the assessee, raised two‑fold contentions before us. In the first place, he contended that it is a wrong statement of fact by the Tribunal that no day‑to‑day cleaning record was kept by the assessee. It is alleged that such a record was kept day‑to‑day and that the Tribunal had never asked for such a record to be produced before it. In the second place, it was contended that the account book of the assessee having not been rejected, the wastage shown in the account book should have been accepted. We propose to con sider these contentions in order.
4. So far as the first contention is concerned, we pointed out to the learned Advocate for the assessee that the statement of case drawn up by the Appellate Tribunal is binding on the assessee and he is not entitled to go behind the facts found by the Tribunal in the statement of case. We however allowed the assessee in the interest of justice to file an affidavit in support of the allegations made by the assessee and we propose then to consider the effect of the facts deposed to in the affidavit. Mr. Noorul Arfin, the learned Advocate for the Income‑tax Commissioner, strenuously opposed any such order allowing the assessee to file an affidavit. He contended that the statement of the case was drawn up on the 19th November 1959. It is now almost three years, that for the first time the statement of fact made by the Tribunal is being challenged before this Court, We concluded the arguments on the 7th November 1962 and ordered the learned Advocate for the assessee to file an affidavit and fixed the matter for 13th November 1962. The affidavit was filed on 13th November 1962 and we ordered that as the affidavit is a very belated one it should be entertained only on payment of Rs. 250 as costs. We considered that the Income‑tax Department should be compensated for further hearing that the matter may require because of the admission of the affidavit filed by the assessee. We ordered the consideration of the affidavit subject to the payment of the cost. The cost has not been paid within the time allowed. We 'would therefore, ignore the contents of the affidavit and take it that the statement of the case made by the Tribunal is correct.
5. There is not much force in the contention of the learned Advocate for the assessee that as the account book has not been rejected the wastage shown in the account book should have been accepted. In the first place this is beside the point as the reference is whether there was any material to support the Tribunal's action in reducing the shortage in wool from 12 % to 10%. In the second place, a clear distinction exists in rejecting the account book in to and rejecting a particular item in the account book. It is open to the Income‑tax Authorities to reject a particular item on the ground that it is not supported by a voucher.
6. We think on consideration of the facts stated by the Tribunal that there was material to support the Tribunal's conclusion in respect of the shortage in wool. It was open to the Tribunal to reject the wastage claimed by the assessee on the ground that as no day‑to‑day cleaning record was kept the shortage claimed could not be verified. We think that the fact that there was absence of day‑to‑day cleaning record was sufficient material before the Tribunal to support the conclusion it had arrived at. In order to lend authenticity to the account book it is necessary that day‑to‑day record should be maintained. It is not sufficient to say at the end of the year that there had been so much wastage. In the case of Allahabad Glass Works v. Commissioner of Income‑tax (I T R 1961 V. 42 p. 439), it was held that there was material before the Appellate Tribunal on which the assessee's books of account could be rejected where the Income‑tax Officer found that the cash book produced was not written from day‑to day but appeared to be prepared subsequently and on certain dates the English year was written therein as 1947 instead of 1946. The stock register also looked quite fresh and appeared to have been written in a few sittings. The learned Judges of the Allahabad High Court on these grounds came to the conclusion that there was material to support the conclusion of the Tribunal rejecting the account book. In this case, as we have already mentioned, the account book as a whole has not been rejected by the Tribunal. All that has been found was that the entry in respect of the shortage of wool could not be accepted as no day‑to‑day record was kept.
7. The learned Advocate for the assessee relied on the case of The Pioneer Sports Ltd., Sialkot v. Commissioner of Income‑tax, Punjab etc. ((1934) 2 I T R 305), in support of his contention that there was no material to support the conclusion of the Tribunal. In that case the assessee's trading account was not supported by a stock book. That case has no application to the present case as in that case the account book was rejected not on the ground that the account could not be verified because of the absence of a stock book, but on the ground of lowness of profit. It has been held in a number of cases that lowness of profit by itself is no ground for rejecting the account book. The learned Advocate also relied on the case of Pandit Bros. v. Commissioner of Income‑tax, Delhi ((1954) 26 I T R 159). In this case also the account book was rejected on the ground that the profit was too low. Lastly reliance was placed upon a case of this Court Commissioner of Income‑tax v. M/s. Rashid Textile Mills Ltd. Civil Reference No. 28 of 1960. In that case also the account book of the assessee was rejected on the ground of lowness of profit.
8. We have come to the conclusion that the absence of day‑to‑day cleaning record in respect of shortage of wool was sufficient material to support the Tribunal's action in not accepting the wastage mentioned in the account book of the assessee. We would, for the reasons given above, answer the reference in the affirmative. The assessee to pay the costs of this reference to the Commissioner of Income‑tax.
Reference answered in affirmative.
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