MESSRS DAWN SPORTS VS INCOME TAX OFFICER., 1992 PTD-LAHORE-HIGH-COURT-LAHORE 1285 (1992)

Income Tax Ordinance (XXXI of 1979)---

----Ss.61 & 62---Constitution of Pakistan (1973), Art.199---Notice issued to assessee under S. 62 of the Ordinance stating therein that his case had been selected for total audit on the ground that the others in the same line of business had declared gross profit and much higher rate as compared to the assessee---Suspicion entertained as to gross understatement of income being based not only on definite information but being well based also, assessee had to produce evidence to show that his accounts reflected the true trade position---Selection of the case of assessee for total audit thus could not be considered to be illegal, arbitrary or without lawful authority.

Dr. Ilyas Zafar for Petitioner.

Akhtar Hussain Awan for Respondent.

Date of hearing: 29^th June, 1992.

JUDGMENT

Messrs Dawn Sports, the petitioner, has filed this constitution petition to challenge the notice issued by the Income Tax Officer Circle XVI, Sialkot intimating that the petitioner's case has been selected for "total audit" under para. 4 (Il) of Circular No.5 of 1990, dated 25-6-1990 as well as the consequential proceedings initiated against the petitioner.

2. The relevant facts, briefly stated, are that the petitioner filed income- tax return for the assessment year 1990-1991 declaring net income of Rs.1.,83,896 under self-assessment scheme. The respondent officer issued notice under section 61 of the Income Tax Ordinance. The petitioner replied the said notice explaining that there was no gross understatement of income and that the return merited to be accepted under the self-assessment scheme. Thereafter the petitioner-assessee received another notice under section 62 saying that his case has been rightly selected for total audit with the approval of Regional Commissioner of Income Tax, Northern Region, Islamabad It may be noted that earlier the petitioner filed constitution petitions and in pursuance to the orders passed therein the respondent officer disclosed the material on the basis of which the return was selected for total audit. The reason on account of which the case of the petitioner has been selected for total audit is that the others in the same line of business have declared gross profit at much higher rate as compared to the petitioner and the said information available with the department justifies the issuance of, notice and scrutiny of return under total audit. The petitioner admittedly declared CIF export sales of Rs.53,60,583 and of earning the gross profit of Rs.6,78,400. The gross profit rate on CIF comes to 12.65 per cent. while on FOB comes to 9.22 per cent. As against the petitioner, Messrs Atlas Sports declared gross profit rate on CIF basis at 29.09 per cent and on FOB basis at 24.09 per cent. Another firm, namely, Messrs Shah declared the gross profit rate 29.02 per cent on CIF basis and at 25.07 per cent on FOB basis.

3. Learned counsel for the petitioner admitted that the declaration of gross profit rate on CIF and. FOB basis is on the low side but added that this low gross profit was due to reason beyond the control of the petitioner assessee. He explained that the petitioner had to export the goods at low rate in order to retain the business with the importers which was then being controlled by an Indian national but in later years due to exit of the said Indian, the petitioner assessee was able to make normal profits and these profits in the later years were correctly reflected in the returns fled for the said years.

4. This being the position, it is apparent that the suspicion entertained as to gross under-statement of income is based not only on definite information but is well based and it is now for the petitioner assessee to produce evidence E to show that their accounts reflected the true trade position. At this juncture, it is pertinent to note that the respondent department through its counsel undertook to examine on merits the explanation of the petitioner assessee and it was represented that if the said explanation is found to be factual and genuine then the necessary relief will be afforded as the department is interested only in securing the tax which is genuinely payable by the petitioner.

5. It will, therefore, be seen that the position taken by the department sufficiently secures the interest of the petitioner, which should now produce the evidence in its possession to substantiate the aforenoted plea. In the facts and circumstances noted above, selection of the case of the petitioner for, total audit cannot be considered to be illegal, arbitrary or without lawful authority.

For the reasons given above, this petition fails and is hereby dismissed. The parties are however, left to bear their own costs.

M.B.A./D-7/LPetition dismissed.