Income Tax Ordinance (XXXI of 1979)---

----S. 136---Income-tax Act (XI of 1922), S. 66---Reference---Scope---Question of fact---Questions whether Income-tax Appellate Tribunal wag justified in accepting the findings of the Income-tax Officer in respect of assessment or whether the additions to the trading results of the assessee were in any manner justifiable, were not questions of law as contemplated by S. 136, Income-tax Ordinance, 1979 or S. 66, Income Tax Act, 1922 for which High Court was called upon to answer---Even when findings arrived at by the Income-tax Appellate Tribunal were erroneous, High Court was not empowered to exercise appellate or revisional powers in respect of the order passed by the Income-tax Appellate Tribunal.

(1979) 40 Tax 32; The Commissioner of Income-tax (West Zone), Karachi v. Messrs Fateh Textile Mills Ltd., Hyderabad 1984 PTD 218; Messrs Zafar Saleem Bros. Ltd., Karachi v. The Commissioner of Income-tax, Karachi 1984 PTD 225. and Commissioner of Income-tax, Lahore v. Choudhry Brothers 1986 SCMR 443 ref..

Iqbal Naeem Pasha for Applicant.

Nasrullah Awan for Respondent.

Date of hearing: 26th September, 1991.

JUDGMENT

MAMOON KAZI, J: --During the assessment year 1976-78 the applicant declared a gross profit of Rs.3,05,764 on sales of Rs.10,56,648 yielding a gross profit rate of 24.30% as against gross profits rates of 26% and 27.3% declared on more or less similar sales during the assessment years 1975-76 and 1976-77 respectively. The Income-tax Officer did not accept the declared trading results because the applicant had failed to justify the fall in the rate of the gross profit. Because the cash sales aggregating to about 40% were not open to verification and there were variations in the rates of sales made on the same date, the Income-tax Officer adopted a gross profit rate of 27-1/2% on estimated sales of Rs.13,15,000. When the first appeal was filed by the applicant, the learned Appellate Assistant Commissioner accepted the declared trading results for the year under consideration alongwith the preceding two years. Aggrieved by the order of the learned Assistant Commissioner, the department preferred appeals before the learned Appellate Tribunal for all the three years viz. 1975-76, 1976-77 and 1977-78. The Tribunal although accepted the trading results declared by the applicant for the assessment years 1975-76 and 1976-77 but it rejected such results in regard to the assessment year 1977-78 for the simple reason that the applicant was unable to satisfactorily explain the fall in the rate of gross profit. The Tribunal, however, restricted the addition of Rs.49,286 to Rs.16,000 in the declared trading results as would appear from its following observations:--

"In the assessment year 1977-78, since, no satisfactory explanation could be given before this Tribunal to justify the fall in the rate of profit to the extent mentioned above, we acre of the opinion that the declared trading results could not be accepted as such. We think that it will be fair if keeping in view the decision reported as (1979) 40 Tax 32 and also the percentage of cash sales being about 30%0, the addition made at Rs.49,286 is reduced to Rs.16,000."

2. Aggrieved by the said order, the applicant filed an application under section 136(1) of the Income-tax Ordinance, 1979 requiring the learned Tribunal to refer the following questions of law to this Court for its opinion:

"(1) Whether the learned Income-tax Appellate Tribunal was right in applying the first proviso to section 13 of the Repealed Act to the case of the applicant.

(2) Whether there was no material or basis for ad hoc addition of Rs.16,000 to the trading results of the appellant."

3.The learned Tribunal, however, found that its order dated 19-2-1981 whereby the department's appeals had been dismissed was purely passed on consideration of facts and since no question of law arose out of the said order it declined to refer the questions to this Court under the aforesaid provisions of law, and hence the present application under section 136(2).

4. We have heard Mr. Iqbal Naeem Pasha, learned counsel for the applicant and Mr. Nasrullah Awan, learned counsel for the respondent. Mr. Iqbal Naeem Pasha while referring to the proviso to section 13 of the repealed Income-tax Act has argued that the Income-tax Officer has failed to appreciate the said provisions properly while rejecting the trading results submitted by the applicant and by arbitrarily adding Rs.16,000 to the said results. Consequently, according to the learned counsel, the two questions referred to by the applicant in the present application have clearly arisen for determination from the Tribunal's order. Reliance has been placed on the Commissioner of Income tax (West Zone), Karachi v. Messrs Fateh Textile Mills Ltd., Hyderabad (1984 PTD 218) and Messrs Zafar Saleem Bros. Ltd., Karachi v. The Commissioner of Income-tax, Karachi (1984 PTD 225). Reliance was also placed by Mr. Iqbal Naeem Pasha on the case of Commissioner of Income-tax, Lahore v. Chaudhry Brothers (1986 SCMR 443). In the first case referrer. to by the learned counsel it was held by a Division Bench of this Court that even in a case where the level of gross profit had fallen from the previous level, if method of accounting maintained by the assessee was the same as in previous years which had been accepted earlier, the results of the assessee's accounts should be accepted. In the next case cited by the learned counsel, the Income-tax Officer by his order dated 22-6-1970 had rejected the book results as disclosed by the assessee and estimated the sale at Rs.54,00,000 and employed gross profit rate of 15% of thereon as was done by him during the immediately preceding three assessment years. This order of the Income-tax Officer was finally challenged by the assessee in appeal before the learned Appellate Tribunal. The learned Tribunal, however, accepted the findings of the Income-tax Officer and dismissed the appeal. On a direct reference being filed before this Court a Division Bench of this Court which disposed of the reference while relying upon the case of Roshan Cloth House v. Commissioner of Income-tax (East), Karachi (1983 PTD 63) held that in view of the fact that the assessee was employing regular method of accounting the gross profit rate of 15% employed by the Income-tax Authorities was arbitrary and unjustifiable. In the third case referred to by the learned counsel, the Supreme Court declined to interfere with the order passed by the Lahore High Court which had proceeded to decide the question referred to it by the assessee under section 66(2) of the repealed Income-tax Act viz. whether the Appellate Tribunal was justified in coming to the conclusion that the account books kept by the assessee were liable to be assessed under proviso to section 13 of the Income-tax Act. Earlier, the Tribunal had declined to make a reference to the High Court holding that there was no question of law arising from this order which called for making a reference to the High Court.

5. We would like to point out that none of the cases referred to by the learned counsel appears to be attracted to the facts of the present case. The order passed by the learned Tribunal dated 9-2-1981 whereby the appeals filed by the applicant were dismissed nowhere indicates that at any time the method of accounting employed by the applicant as contemplated by section 13 of the repealed income-tax Act was in question. As is evident from the order passed by the Tribunal, the Tribunal accepted the trading results for the years 1975-76 and 1976-77 as declared by the applicant. However, the trading results in regard to the assessment year 1977-78 were rejected because the learned Tribunal found that the applicant had failed to satisfactorily explain the fall in the rate of the gross profit. The Tribunal, however, restricted the addition of Rs. 49,286 to the declared trading results only up to Rs.16,000 It may further be pointed out that so far as the gross profit rates declared by the applicant during the first two years were concerned, the same were found by the learned Tribunal in line with the preceding years. However, the gross profit rate of 24.3% shown in the assessment year 1977-78 was found by the Tribunal to be low. The Tribunal observed that costlier imported items are generally sold at higher prices with a view to earn more profit, therefore, unless there were some extraordinary circumstances resulting in fall in the profits, the gross profit rate declared by the assessee could not be accepted. However, according to-the Tribunal, no such facts or figures had been supplied by the applicant, consequently, the appeal filed by the applicant was disposed of by the Tribunal as pointed out earlier.

6. From the above findings of the Tribunal it is clear that neither any interpretation of the provisions of section 13 of the repealed Act was in question nor any other question of law was in issue before the Tribunal. The findings of the Tribunal clearly appear to be based on facts. The question whether the learned Income-tax Tribunal was justified in accepting the findings of the Income-tax Officer in respect of assessment year 1977-78 or whether the addition of Rs.16,000 to reading results of the applicant was in any manner justifiable, in our opinion are not questions of law as contemplated by section 66 of the repealed Act or section 136 of the Income-tax Ordinance, 1979, which we are called upon to answer. Even assuming that the findings arrived at by the learned Tribunal are erroneous, this Court is not empowered to exercise appellate or revisional powers in respect of the orders passed by the Income- tax Appellate Tribunal. Consequently, in our opinion, the reference made before us is completely misconceived.

7. In the result, we hold that this reference is not maintainable. We further direct that the costs of this reference shall be borne by the applicant.

M.B.A./K-266/KReference not maintainable.