Income-tax Ordinance (XXXI of 1979)---

----S. 32(3)---Rejection of accounts ---Assessee doing business as contractor on different projects---Accounts of assessee were rejected by the Income-tax Officer who applied his own G.P. rate on contracts and in supplies account besides making certain add-backs in profit and loss account---The order was maintained in appeal before A.C.C.---Appeal before Tribunal ---Held, since no wage register was maintained by assessee, his accounts were rightly discarded and G.P. rate applied by the I.T.O. was reasonable---Tribunal, however in view of the huge amount involved in contracts and supplies, deleted the add' -backs in respect of salaries and welfare amounts.

Nazir Ahmad Chaudhry, FCA for Appellant.

Naseer Ahmad, DA for Respondent.

Date of hearing: 6th August, 1989.

ORDER

These two further appeals are directed against the impugned order dated 22-5-1985 passed by the learned Appellate Assistant Commissioner of Income-tax, Range E, Lahore pertaining to the assessment years 1981-82 and 1982-83 respectively on common grounds that the learned Appellate Assistant Commissioner was not justified to maintain the rejection of account application of G.P. rate at 17-1/2% being excessive and against the history of the case. He was also not justified in rejecting the accounts version and maintained 15% G.P. rate on supplies being excessive and unjustified. The appellant also objected to the add backs made and confirmed in the profit and loss account in both the assessment years.

2. Briefly recounted the facts leading to the instant appeals are that the appellant/assessee being individual in his capacity as Contractor carried out the assignment of laying down underground cables, construed disposal units for the drainage of dirty water and electrification during the assessment years under reference. The assessee declared income at Rs.41,540. In accordance with the evidence placed on record tax was deducted at source at Rs.42,994 for the charge year 1981-82 and similarly for the assessment year 1982-83 net profit was declared at Rs.42,520. According to the trading results disclosed by the appellant/assessee following position is ascertained: --

(1)Assessment year 1981-82

Supply account:

(ii)Assessment year 1982-83:

It was ascertained by the Income-tax Officer that wages claimed were at Rs.44,180 in the trading account for the charge year 1981-82 which were not supported by wages register or muster roll as only wages-sheets had been maintained. Similarly, it was found that the assessee did not maintain any stock register to support, the work in process shown at Rs.3,30,000 and these facts were admitted by the assessee. In the same manner the claims regarding wages of Rs.51,119 could not be verified for the charge year 1982-83. In this perspective the Income-tax Officer applied 17-1/2 % rate on contracts and in supplies account 15% G.P. rate was applied. Besides, the Income-tax Officer made certain add backs in profit and loss account in both the years and finally assessed total income at Rs.89,146 for the charge year 1981-82 and Rs.95,947 for the assessment year 1982-83 and finalised the impugned assessments.

3. The appellant/assessee got seriously aggrieved and went up in appeal before the learned Appellate Assistant Commissioner of Income-tax and challenged the impugned assessments on the grounds of application of G.P. rate both on contracts as well as on supplies and also questioned the additions made in profit and loss account. Due to the fact that appellant/assessee did not maintain any wage register and muster roll the Income-tax Officer was justified to assess and apply G.P. rate as mentioned in the assessment order. The First Appellate Authority also observed that the appellant/assessee was not able to put forth any convincing argument or evidence to refute the Income-tax Officer's assertion, therefore, he upheld the impugned assessments. He also restricted the disallowance to 15% of the claim on account of telephone i.e. amounted to Rs.4,749.50. All other disallowances were considered reasonable and fair, and therefore, maintained.

4. The appellant got further aggrieved- from the final order dated 22-5-1985 passed by the learned Appellate Assistant Commissioner of Income tax, Range D, Lahore and assailed in these further appeals on the ground referred to above. Mr. Nazir Ahmed Chaudhary, FCA, counsel for the appellant contended that the learned First Appellate Authority was not justified in maintaining the rejection of accounts and. application of 17-1/2% G.P. rate on contracts and 15% on supplies. He also challenged the add backs made in profit and loss account and urged that the same might graciously be vacated as both the authorities below have not applied their minds to judge the veracity of the claim lodged by the assessee. Mr. Naseer Ahmed, Departmental Representative, on the other hands, represented the Department and urged that nothing was done specially or strikingly with the assessee and both the authorities below have decided the issues in accordance with the facts and circumstances of the case.

5. I have gone through the present available record and heard both the parties at considerable length. I observed that the Income-tax Officer found serious defects in accounts. No wage register was maintained by the assessee. The assessee had himself admitted these facts before the Income-tax Officer. The Income-tax Officer rightly discarded the version of the assessee. The application of 17-1/2% G.P. rate and 15% on contracts and supplies respectively is reasonable and according to the facts. I failed to understand that the assessee carried out work in the Government Department and employed some labour, which is also evident from the contracts. List of purchases and details thereto was furnished to the Income-tax Officer. The appellant/assessee claimed expenses on salaries Rs.44,180 in trading accounts for the year, i.e. 1981-82 and .Rs.40,320 in the year 1982-83. The assessee also claimed expenses on staff welfare at Rs.3.195. The Income-tax Officer mainly rejected this version on the score that these were not supported by wage register and muster roll but he confirmed the fact that the assessee maintained wages-sheets and was produced to him. It was sufficient evidence that necessary salaries were paid to the employees. In view of the huge amount involved in contracts and supplies account also the salaries claimed and amount spent on staff welfare seems to be quite reasonable. Both the authorities below had grossly failed to apply their minds while adding backs in profit and loss account. They were required to examine each item separately and it is also quite surprising that the First Appellate Authority had not specifically dealt with these items in his impugned order.

6. For the foregoing reasons, the application of G.P. rate both contracts as well as on supplies is. maintained accordingly but the claim on account of salaries and welfare as preferred by the assessee is accepted. The instant appeals are decided to the extent and manner as narrated above.

M.BA./1738/T Order accordingly.