MESSRS SHAHAB INDUSTRIES LTD: KARACHI VS THE COMMISSIONER OF INCOME-TAX, CENTRAL ZONE, KARACHI
1991 P T D 463
[Karachi High Court]
Before Saeeduzzaman Siddiqui and Imam Ali G. Kazi, JJ
Messrs SHAHAB INDUSTRIES LTD: Karachi
versus
THE COMMISSIONER OF INCOME-TAX, CENTRAL ZONE, Karachi
I.T.R. No. 91 of 1982, decided on 30/08/1990.
(a) Income-tax Act (XI of 1922)---
----S. 33(4)(e)---Appeal before Appellate Tribunal---Rejection of account books by Income-tax Officer---Assessed showing low gross profit in return ---Effect-- Reasoning given by the Income-tax Officer for rejection of account books of assessee was not accepted by the Tribunal---Tribunal had accepted the declared trading results in the previous years---Reasons given by assessee for fall of gross profit were not adversely commented upon by the Income-tax Officer---Tribunal, held, was not justified in sending the case back to the In6ome-tax officer, there being no point in the case on which any elucidation or determination afresh was required---Mere fact of lowness of gross profit alone was also not sufficient to remand the case in circumstances---Tribunal having reversed the reasoning of Income-tax Officer rejecting the account books of assessee should have decided the case itself in accordance with law on merits, instead of sending same back to the Income-tax Officer.
Indus Textile Mills Ltd. v. Commissioner of Income-tax 1989 PTD 567; Tanvir Textile Mills Ltd. v. Commissioner of Income-tax 1990 PTD 254; S.M. Yousuf and Brothers v. Commissioner of Income-tax 1974 PTD 45; Ch. Muhammad Siddiq v. Income-tax Officer and others 1988 PTD 1014 and Maharani Kanak Kumari Sahiba v. Commissioner of Income-tax 1955 ITR Vol. XXVIII, 462 ref.
(b) Income-tax Act (XI of 1922)---
----S. 33(4)(e)---Appeal before Income-tax Appellate Tribunal---Power of Tribunal to remand case for de novo decision---Scope and extent.
In a case where the Tribunal after setting aside the assessment order finds that certain facts required further elucidation or that some essential facts required for framing of assessment are not on the record of the case, it could certainly remand the case to Income-tax Officer for determining such facts and for passing of a fresh assessment order but this does not mean that in every case where the Tribunal sets aside the assessment order it will as a matter of course remand the case to Income-tax Officer for passing of a fresh assessment order.
Messrs New Qaiser Engineering Company v. The Commissioner of Income-tax 1987 JPTD 500; The Commissioner of Income-tax v. Messrs Electronic Industries Ltd., Karachi 1988 PTD 111 and Messrs Saifuddin Ghulam Ali & Sons v. The Commissioner of Income-tax 1989 PTD 1038 distinguished.
Iqbal Naeem Pasha for Applicant.
Shaikh Haider for Respondent.
Date of hearing: 22nd August, 1990:
JUDGMENT
SAEEDUZZAMAN SIDDIQUI, J.---The following question has been referred to us by the Income Tax Appellate Tribunal under Section 66(1) of the Income Tax Act for decision at the instance of the assessee/applicant:-
"Whether in the facts and circumstances of the case, the Appellate Tribunal acted legally in setting aside the assessment order instead of accepting the trading results of the assessee?"
From the facts as stated in the reference it appears that for the assessment year 1971-72, the appellant filed Income Tax Return declaring a gross profit of Rs.1,33,897 on the sale of Rs.19,88,580 which worked out to 11.7%. The Income Tax Officer did not accept the above trading results and rejected the books of accounts maintained by the assessee for the following reasons:--
"1. The defects in the books of accounts are more or less the same as in the earlier year i.e. cash purchases are mostly unverifiable and despite adequate opportunity provided by the assessee, party-wise break-up cash purchases have not been given.
2. Cash sales also are not subject to complete verification and have been noted to be made on lower rates.
In view of the above-noted defects the book version cannot be accepted and a G.P. rate of 30% is being applied on the total sales estimated at Rs. 20,00,000."
From the above observations it is clear that the books of accounts of the assessee/applicant were found to be defective for the reasons which weighed with the I.T.O. in the previous assessment years, namely assessment years 1969-70 and 1970-71. The I.T.O. accordingly assessed the Gross Profit at 30% on the estimated sales of Rs.20,00,000 as against the declared rate of 11.7%. The applicant challenged the above assessment order of I.T.O. before the Income Tax Appellate Tribunal which allowed the appeal but remanded the case to I.T.O. for fresh assessment.
It is not disputed before us that at the time the above assessment order was framed by the Income Tax Officer, the-appeal bf the assessee against the assessment order for the year 1969-70 and 1970-71 was pending before the Tribunal being Appeal No. ITA 1718/73-74, which was allowed by the Income Tax `Tribunal and the trading results declared by the assessee for the assessment years 1969-70 and 1970-71 were accepted. The Income Tax Appellate Tribunal while allowing the appeal of applicant against the order of I.T.O. for assessment year 1971-72 did not agree with the reasons assigned by the income Tax Officer for rejection of the account books and the trading results declared by the applicant and observed as follows:--
"Appellant vehemently protests against this stating. that the total addition made to accounts at ks.366,104 is uncalled for. He had submitted detailed explanation in regard to the alleged defects in accounts to the Income Tax Officer vide letters dated 23-11-1973 and 18-12-1973. Out of the total purchases of Rs.18,02,516 imports were Rs.15,56,840 which were fully proved. Out of the rest credit purchases were of Rs.212,259 which were also verifiable. Out of cash purchases pakka bills were available for Rs.24,892 and only purchases of Rs.8,526 were supported by debit vouchers in which also full names and addresses of casters are given-on revenue stamp. The percentage of these petty cash purchases was only 4.6% of the total purchase. Similarly out of the sales-of Rs.19,88,580 sales to Government were of Rs.14,93,655 which were fully proved. Out of the rest credit sales were of Rs.320,340 and cash sales of only Rs.174,585 out of which also sales to Agriculture Department etc., were of about Rs.45,000. In this way the Income Tax Officer could not have made addition to sales and Gross Profit of Rs.366,104 as shown by him."
From the above-quoted observations of the Income Tax Appellate Tribunal it is quite clear that the ground on which the trading results were rejected by the Income Tax Officer were not accepted by the Tribunal. The Income Tax Appellate Tribunal also found that most of the purchases were vouched and greater part of the sales was fully proved. The Appellate Tribunal was, however, of the view that the Gross profit declared by the applicant at 11.7% was ridiculously low and accordingly after setting aside the assessment order the case was remanded back to the Income Tax Officer for reconsideration of the case.
The grievance of the petitioner before us is that the Income Tax Appellate Tribunal having reversed the reasons on which the account books and trading results Were rejectedby the Income Tax Officer and the Tribunal having further found that the purchases and sales are fully verifiable there was hardly any ground for sending the case back to the Income Tax Officer for framing of a fresh assessment. In support of his above contention the learned Counsel for the petitioner -has referred to the cases of (i) Indus Textile Mills Ltd. v. Commissioner of Income Tax 1989 P T D 567, (ii) Tanvir Textile Mills Ltd. v. Commissioner of Income Tax 1990 P T D 254, (iii) S.M. Yousuf and Brothers v. Commissioner of Income Tax 1974 P T D 45, (iv) Ch. Muhammad Siddiq v. Income Tax Officer, and others 1988 P T D 1014 and (v) Maharani Kanak Kumari Sahiba v. Commissioner of Income Tax 1955 I T R Volume XXVIII page 462.
In the first cited case a Division Bench of this Court held that the r accounts of the assessee could not be rejected if maintained properly and in the similar manner as in the past, which were accepted. It was further held in that case that the accounts can only be rejected if there are substantial mistakes and discrepancies in the accounts due to which it is not possible for the Assessing Authority to clearly determine the income of the assessee. This case was quoted with approval by this Bench in the case of Tanvir Taxtile Mills Ltd. v. C.I.T. and it leas observed that where genuineness of the account books maintained by the assessee was not doubted and nothing wrong was pointed out in the manner of accounting maintained by the assessee, the department could not reject the accounts of the assessee on the ground of failure to maintain the record of wastage when-no such account was maintained in the past.
In the fourth cited case a learned Single Judge of Lahore High. Court held that where complete picture of the case was before the Tribunal and none of the aspects of the, case required any elucidation, the order of remand by the Appellate Tribunal could not be justified. In the last cited case while dealing with the power of Appellate Tribunal to remand a case to the I.T.O. the learned Judge of Patna High Court made the following observations:--
"In our opinion, the argument of Mr. Dutt is correct and the Appellate Tribunal had no justification for making the order of remand to the Income Tax Officer to bring on record further evidence on the same point.. It is true that section 33(4) has granted a very wide statutory discretion to the Income Tax Appellate Tribunal in disposing of an appeal bud the discretion given under this section to .the Income Tax Appellate Tribunal is a judicial discretion which must be exercised in accordance with legal principles, and not in an arbitrary or capricious manner. The principle to be applied in such a case is pointed out by Lord Halsbury in Susannah Sharp v. Wakefield: "An extensive power is confined to the justices in their capacity as justices to be exercised judicially; and `discretion' means when it is said that something is to be done within the discretion of the authorities that something is to be done according to the rules of reason and justice, not according to private opinion: Rooke's case, according to law and not humour: It is to be, not arbitrary, vague, and fanciful; but legal and regular. And. it must be exercised within the limit, to which an. honest man competent to the discharge of his office ought to confine himself: Wilson v. Rastall. "Applying this principle to this' case it is manifest that the order of remand made by the Appellate Tribunal is not a legally valid order, and the first question. referred to the .High Court should be answered in favour of the assessee and against the Income Tax Department."
In the case before us it is quite clear from the order of the Appellate Tribunal that the reasoning given by the Income Tax Officer for rejection of the account books of the, applicant/assessee was not accepted by the Tribunal. In Appeal No. 1718/1973-74 riled by the petitioner against the order of I.T.O. relating to assessment years 1969-70 and 1970-71 the Tribunal accepted the trading results disclosed by the applicant /assessee for these years. The reasons given by the assessee for fall of Gross Profit in the assessment year 1971-72 was not adversely commented upon by the I.T.O. as noted in the order of Tribunal. In these circumstances there was hardly any justification for sending the case back to the Income Tax Officer, as there was no point in case on which any elucidation or determination afresh was required. No doubt the Learned Tribunal took the view that the Gross Profit of 11.7% declared by the assessee for the assessment year 1971-72 was ridiculously low, but this factor alone was not sufficient in the circumstances of the case to justify the order of remand, as the Tribunal had accepted the trading results declared by the applicant for the assessment years 1969-70 and 1970-71 in I.T.A. No. 1718/73-74 and having reversed the reasoning of Income Tax Officer rejecting the account books of. applicant, it ought to have decided the case itself in accordance with law. on merits, instead of sending it back to the Income Tax Officer.
The learned Counsel for the department very vehemently argued that an order of remand could not be lightly interfered with as the Tribunal while deciding the appeal had full power to remand the case to Income Tax Officer if the circumstances so justified. There can be no civil with the proposition that in a case where the Tribunal after setting aside the assessment order finds that certain facts required further elucidation or that some essential facts required for framing of assessment are not on the record of the case, it could certainly remand the case to Income Tax Officer for determining such facts and for passing of a fresh assessment order it will as a matter of course remand the case to Income tax Officer for passing of afresh assessment order. The learned Counsel for the Department cited the cases of M/s. New Qaiser Engineering Company v. The Commissioner of Income Tax 1987 P T D 500, The Commissioner of Income Tax v. M/s. Electronic Industries Ltd., Karachi 1988 P T D 111 and M/s. Saifuddin Ghulam Ali & Sons v. The Commissioner of Income Tax 1989 P T D 01038 in support of his above contention but in our view the above cases are not of much relevance in the circumstances of the present case. We accordingly answer the above question in the negative. There will be no order as to the costs.
M.B.A./S-683/K Question answered in the negative.