(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 63, 61 & 62---Best judgment assessment---Income-tax Officer had allowed number of opportunities under Ss. 61 &- 62 Income Tax Ordinance, 1979 to the assessee but no compliance was made by the assessee --- Income-lax Officer, held, was justified in completing assessment under S.63, Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 63 & 13---Best judgment assessment---Computation of income-- Method---Income-tax Officer issued a specific notice on the point of accretion in wealth and the assessee did not furnish any reply---Issuance of said notice by I.T.O. under S.62, Income Tax Ordinance, 1979 instead of under S.13 of the Ordinance---Effect.

In the present case the I.T.O. issued a specific notice on the point of accretion in wealth and the assessee did not furnish any reply but this notice was issued under section 62 and not under section 13 of the Income Tax Ordinance, 1979. While computing the income, the I.T.O. could not adopt two methods for arriving at income. The I.T.O. had to compute the income either on the basis of estimate of sales and application of G.P. rate or he had to compute the income on the basis accretion in wealth and household expenses of personal nature other than capital expenditure. The two methods adopted by the I.T.O. for computing the income were not complementary to each other. Because of these reasons the addition made by the I.T.O. on the basis of accretion in wealth and household under section 13 of Income Tax Ordinance, 1979 was deleted. The estimate of sales and G.P. rate applied were held to be proper and reasonable on the basis of facts and in the circumstances of the case,

M.R. Farooqi, ITP for Appellant

Javed-ur-Rehman, D.R. for Respondent

Date of hearing: 20th December, 1993.

ORDER

This appeal has been filed on behalf of M/s. A. Abid Industries, Hafizabad Road, Gujranwala (hereinafter also referred to as the assessee challenging the order of AA.C. Gujranwala, Vide A.O. No. 83 dated 27-8-1986.

2. The brief facts leading to this appeal are that the assessee in this case is an individual who earned his income from manufacture and sale of Roller Pins and Ball Mill. The assessee filed his income-tax return under S.A.S. declaring net income. at Rs.21,000. Income Tax Return filed by the assessee was not accepted by the ITO under SAS, as this case was selected for audit. The assessee furnished trading results as under:--

The ITO issued notices under section 61 a number of times but assessee did not comply with these notices. Notice under section 62 was also issued by the ITO on the pint of accretion in wealth but assessee did not furnish any explanation. As a result of non-compliance of various notices issued by the ITO the ITO got spot enquiries conducted in this case through his Inspector. During enquiries the assessee admitted that he manufactures two ball mills each month and each Ball Mill was sold for Rs.14,000. Thus the assessee manufactured goods worth Rs.28,000 each month and Production on this basis was Rs.3,36,000. The ITO confronted the assessee regarding the above production but assessee failed to furnish any reply. Ultimately the ITO completed the assessment order section 63 as under:--

3. Aggrieved by this treatment the assessee preferred first appeal and contended before the learned AAC that ITO was not justified in completing ex parte assessment as service of various notices was defective. The assessee also contended before the AAC that addition on account of accretion to the wealth was also not justified because no show-cause notice was issued by the ITO to the assessee under section 13 of the Income Tax Ordinance. Besides estimate of sales was contested to be excessive.

4. The learned AAC rejected the appeal of the assessee on all points except addition on account of accretion in wealth. The learned AAC set aside the assessment order on the point of addition on account of accretion in wealth to be examined afresh and to be decided keeping in view the observations of the learned AAC in the appeal order.

5. The assessee still feels dissatisfied. As per grounds of appeal the contentions of the assessee are as under:

(1) "That there is no default under sections 61 and 62 of the Ordinance.The notices served upon the appellant were duly complied with.

(2) That the learned Appellate Assistant Commissioner has grossly erred in confirming the estimates of sales and G.P. rate of 25% which is based on an enquiry not relevant to the year under assessment.

(3) That the statement of the appellant has been misconstrued. The appellant never admitted his sale at Rs. 3,36,000.

(4) That there is no material or basis to justify the estimates of sales & G.P. rates applied. No reasonable opportunity was given to the appellant to represent his case.

(5) That there is no material or basis to justify the addition of Rs. 57,493, under section 13(1)(d).

(6) That no reasonable opportunity was given to the appellant and the requirement of sections 13(1)(d) and 13(1)(2) were not complied with.

(7) That the directions issued by the learned Appellate Assistant Commissioner are against prejudicial and beyond the jurisdiction of the appellate Court.

(8) That in any case the estimate of sales, G.P. rate applied and the addition under section 13(1)(d) are highly excessive, harsh and arbitrary. No. credit of the Income assessed for the year under consideration was allowed.

6. Mr. M.R. Farooqi, the learned AR of the assessee repeated his assertions made by him before the learned AAC and contended that service of notices under sections 61 and 62 was defective and there was no cause for completion of assessment. As far as addition under section 13(1)(d) was concerned, the learned AR of the assessee contends that no show cause notice was issued by the ITO under section 13 before making addition under section 13(1)(d) of the Income Tax Ordinance, 1979, hence all additions under section 13 of the said Ordinance could not be made by the ITO. The learned AR of the assessee has also contended that in this case the ITO has computed the Income by estimating sales, applying of G.P. rate and allowing P&L expenses. Over and above this, the ITO also made addition on account of accretion in wealth. According to the learned AR of the assessee these two modes of computing the income cannot be adopted by the ITO simultaneously. He has to either compute the income by estimating sales and applying G.P. rate or else he should compute the income by adopting accretion in wealth and household expenses. The learned AR of the assessee also contended that estimated sales and G.P. rate adopted by the ITO was also excessive as assessee never admitted monthly sales at Rs.28,000 as indicated by the ITO as well as learned AA.C. in their orders.

7. The learned DR on the other hand supported the orders of the authorities below and contended that in this case in spite of a number of opportunities being allowed to the assessee, no cooperation was shown by the assessee in the matter of finalization of assessment, hence the ITO was justified in completing the assessment under section 63 of the Income Tax Ordinance. As far as contention of learned AR of the assessee that no show cause notice under section 13 was given to the assessee is concerned, the learned DR pointed out that in the assessment order it is quite evident that a specific notice was issued to the assessee on the point of accretion in wealth but assessee failed to furnish any explanation. Hence addition made by the ITO under section 13(1) was in order. As far as estimate of sales and G.P. rate was concerned, learned DR pointed out that estimate of sales is based on the admission of the assessee and since it was case of manufacturing, G.P. rate applied at 25% by the ITO was justified.

8. We have carefully considered the facts of the case and arguments advanced from both the sides. As far as completion of ex parte assessment is concerned, the ITO allowed a large number of opportunities under section 61 as well as under section 62 to the assessee but no compliance was made by the assessee, hence ITO was justified in completing assessment under section 63 of Income Tax Ordinance. So far as issue of show cause under section 13 is concerned, a perusal of the assessment order indicate that the ITO issued a specific notice on the point of accretion in wealth and the assessee did not furnish any reply but this notice was issued under section 62 and not under section 13 of the Income Tax Ordinance, 1979. We agree with the contention of learned AR of the assessee that Ailed computing the income, the ITO could not adopt the, methods for arriving at income. The ITO has to compute the income either on the basis of estimate of sales and application of G.P. rate or he has to compute the income on the basis of accretion in wealth and household expenses of personal nature other than capital expenditure. The. two methods accepted by the ITO for computing the income are not complementary to each other. Because of these reasons the addition made by the ITO on the basis of accretion in wealth and household under section 13 of Income Tax Ordinance, 1979 at Rs.59,493 is deleted. The estimate of sales and G.P. rate applied are held to be proper and reasonable on the basis of facts and in the circumstances of the case.

9. The appeal succeeds as above.

M.BA/62/T.TOrder accordingly.