Income Tax Ordinance (XXXI of 1979)---

----S. 132---Appeal---Withdrawal of appeal---Enhancement of assessment in appeal---Appellate Assistant Commissioner/Commissioner of Income Tax (Appeals) is empowered to enhance the assessment and refuse to grant permission to withdraw the appeal---Conditions---Discretion to allow or refuse---Manner and criteria to exercise discretion---Where the Commissioner of Income Tax (Appeals) refused to accord permission for withdrawal of appeal for the simple reason that it was a case of enhancement of assessment and enhanced the assessment without evolving any basis for applying gross profit rate; no parallel case had been cited: the assessee was never confronted with any parallel case and the assessee had no history of its own in respect of application of gross profit rate; enhancement of income by applying gross profit rate, held, was not based on any reason whatsoever and could only be termed as arbitrary---Enhancement made was 'not sustainable in fact and law and consequently the discretion refusing permission to withdraw the appeal was exercised improperly and incorrectly---Order of Commissioner of Income -tax (Appeals) being not sustainable in law was vacated and it was further held that the first appeal ought to have been dismissed as withdrawn.

The AA.C./C3.T. (A) is empowered under the law to enhance the assessment and once an appeal is preferred then it is in the discretion of the Presiding Officer to allow the withdrawal or refuse the same. The discretion is to be exercised judiciously and for proper reasons. Likewise the discretion of enhancing the assessment is also to be exercised with due care, in ver3 exceptional cases and for the reasons to be recorded. The judicial discretion can never be exercised arbitrarily and without proper reasons. Any order nude of proper justification and reason can' never be termed as a judicial order. A judicial order should always be a speaking order. A Presiding Officer can refuse to allow the withdrawal of appeal for the reason that the case before him was of enhancement of assessment and if there after proper reasons are assigned for enhancement of income the order would be deemed to be proper and sustainable in law. The order of refusal to grant permission for withdrawal of appeal and enhancement are to be read together. If the order of enhancement is arbitrary and without any basis and justification, it would not be sustainable in law, and consequently the discretion of refusal to grant permission to withdraw the appeal would also be deemed to have been exercised improperly.

In the present case CIT(A) refused to accord permission' for withdrawal of appeal for the simple reason that it was a case of enhancement of assessment. CIT(A) enhanced the assessment by applying gross profit rate at 15% but without evolving any basis for applying gross profit rate at 15%. No parallel case was cited and the assessee was never confronted with any parcel case. No other basis whatsoever was evolved for application of gross profit rate at 15%.

The assessee had no history of its own in respect of the application of gross profit rate and no parallel case was cited by the CIT(A). In these circumstances the enhancement of income by applying gross profit rate at 15% by the CIT(A) was not based on any reason whatsoever and could only be termed as arbitrary. Thus, the enhancement made was not sustainable in fact and law and consequently the discretion refusing permission to withdraw the appeal was exercised improperly and incorrectly. The order of CIT(A) was not sustainable in law which was vacated, and it was held that the first appeal ought to have been dismissed as withdrawn.

The first appeal should be treated as dismissed as withdrawn with the result that the assessment order as framed by the assessing officer stood restored.

Amin Ansari for Appellant.

Muhammad Nawaz D.R. for Respondent.

Date of hearing: 13th April, 1993.

ORDER

Tins appeal is directed against the order, dated 30-12-1992 by the learned CIT(A) Zone-III, Karachi in ITA No.854/CIT(A)/III/1992.

2. The circumstances giving rise to this appeal are very peculiar. The appellant is a private limited company engaged in the business of providing services of container terminal operators and container handling equipments on hire. In the assessment year 1991-92 the appellant declared receipts at Rs.1,68,48,525, direct cost at Rs.1,60,22,402 and gross profit at Rs.8,26,123. The returned income was Rs.2,79,210. The appellant furnished details of receipts, equipment hire, wages and other direct expenses during the course of assessment proceedings. The assessing officer observed that the receipts were verifiable and expenses debited by way of equipment hire charges were also verifiable. However, some of the cost of services, i.e., wages to labour, expenses on petrol and lubricants and repairs and maintenance were not fully open to verification. The assessing officer in the above circumstances made ad hoc addition at Rs.1,50,000 in the trading account and made certain addbacks in the profit and loss account thereby determining the total income at Rs.4,96,468.

3. Feeling aggrieved with the above treatment the appellant preferred. first appeal before the learned CIT(A). The date of hearing was fixed before the learned CIT(A) on 6-12-1992. On 3-12-1992 a letter was received from the Authorised Representative of appellant stating that, "we do not intend to contest appeal. The same is accordingly withdrawn". The learned CIT(A) did not pass any order on 6-12-1992 and issued a letter, dated 10-12-1992 to the appellant stating that direct cost has been claimed at Rs.1,60,22,402 details of which are not on record and the same appeared to be inflated. The appellant was required to give full details of these expenses and also the details of fixed assets in the Balance Sheet. It was further intimated to the appellant that in case of failure to comply with-the requirements gross profit shall be applied at the rate of 15% on the declared receipts. The Authorised Representative of the appellant replied that no appeal was pending as the same already stands dismissed after the withdrawal of appeal. It was further stated that all the details and books of accounts were already examined by the ITO. The learned CIT(A) again addressed a letter, dated 20-12-1992 to the appellant pointing out that no appeal can be withdrawn without permission of the Presiding Officer. The appellant was informed that the appeal was still pending and the appellant was again called upon to make compliance of the letter, dated 10-12-1992 on 30-12-1992. The appellant was again informed that in the case of default the income will be enhanced by applying gross profit rate of 15% on the declared receipts and allowing expenses in the light of assessment- order. On 30-12-1992 the Authorised Representative of the appellant again sent a letter containing the plea that the appeal stood withdrawn and the assessee has waived of the right of appeal, therefore, jurisdiction to decide the appeal has ceased to exist. The learned CIT(A) did not accept the plea and observed that the powers of enhancing any assessment are available to AA.C./CIT(A) under section 132 of the Income Tax Ordinance, 1979. He was further of the view that the assessee cannot take away this right from the appellate authority by just withdrawing the appeal. The learned CIT(A) ultimately accepted the declared receipt as the same was more than three and half times of the preceding year. However, he applied gross profit rate at 15%. Ultimately the total income was assessed at Rs.20,47,623 as against Rs.4,96,468 determined by the assessing officer thereby enhancing the income by Rs.15,51,155. The appellant is aggrieved with the above treatment and has assailed the same in this second appeal.

4. We have heard Mr. Amin Ansari, learned counsel for the appellant and Mr. Muhammad Nawaz, learned representative for the Department. Mr. Amin Ansari has not denied that the AA.C./CIT(A) is empowered to enhance the assessment. He- is not able to show that an assessee can withdraw the A appeal without specific order by the Presiding Officer. It is, therefore, held that) the AA.C./C.I.T. (A) is empowered under the law to enhance the assessment and it is further held that once an appeal is preferred then it is in the discretion of the Presiding Officer to allow the withdrawal or refuse the same. However, we would like to add that the discretion. is to be exercised judiciously and for proper reasons. Likewise the discretion of enhancing the assessment is also to be exercised with due care, in very exceptional cases and for the reasons to be recorded. The judicial discretion can never be exercised arbitrarily and without proper reasons. Any order nude of proper justification and reason can never be termed as a judicial order. A judicial order should always be a speaking order. A Presiding Officer can refuse to allow the withdrawal of appeal for the reason that the case before him was of enhancement of assessment and if thereafter proper reasons are assigned for enhancement of income the order would be deemed to be proper and sustainable in law. The order of refusal to grant permission for withdrawal of appeal and enhancement are to be read together. If the order of enhancement is arbitrary and without any basis and justification, it would not be sustainable in law, and consequently the discretion of refusal to grant permission to withdraw the appeal would also be deemed to have been exercised improperly. Thus, after holding that an AA.C./CIT(A) is empowered to enhance the assessment and refuse the permission to withdraw the appeal we would proceed to examine the impugned order in this case. We find that the learned CIT(A) refused to accord permission for withdrawal of appeal for the simple reason that it was a case of enhancement of assessment. We further find that the learned CIT(A) has enhanced the assessment by applying gross profit rate at 15% but without evolving any basis for applying gross profit rate at 15%. No parallel case has been cited and the assessee was never confronted with any parallel case. No other basis whatsoever was evolved for application of gross profit rate at 15%. The learned representatives for the parties have pointed out that in the immediately preceding year which was the first year of business of the appellant receipts were declared at Rs.46,18,205, direct cost was claimed at Rs.43,77,665 and gross profit was declared at Rs.2,40,360. The assessing officer made ad hoc addition of Rs.1,10,000 and vide order dated 14-10-1992 in ITA No.782/KB of 1991-92 this Tribunal had reduced the ad hoc addition to Rs.60,000 with the consent of learned representatives for the parties for the sole reason that it was first year of business. It was observed in the above order that the gross profit rate emerging after the addition as reduced in second appeal should not be treated as history for the purpose of future assessment. It was further directed that in future the recourse should not be had to ad hoc additions and the proper gross profit rate should be applied on the receipts. However, the above order of Tribunal was made after the completion of assessment in the assessment year under consideration, which was already completed on 30-7-1992. Thus, the appellant had no history of its own in respect of the application of gross profit rate and no parallel case has been cited by the learned CIT(A). In these circumstances the enhancement of income by applying gross profit rate at 15% by the learned CIT(A) is not based on any reason whatsoever and can only be termed as arbitrary. Thus, the enhancement made is not sustainable in fact and law and consequently it is held that the discretion refusing permission to withdraw the appeal was exercised improperly and incorrectly. The impugned order of learned CIT(A) is not sustainable in law which is hereby vacated. It is held that the first appeal ought to have been dismissed as withdrawn.

5. For the foregoing reasons the appeal is allowed and it is held that the first appeal should be treated as dismissed as withdrawn with the result that the p assessment order as framed by the assessing officer stands restored.

M.B.A./46/T.T. Order accordingly.