I.T.AS. NOS. 403 AND 493/LB OF 1989-90, DECIDED ON 11TH OCTOBER, 1995. VS I.T.AS. NOS. 403 AND 493/LB OF 1989-90, DECIDED ON 11TH OCTOBER, 1995.
1996 P T D(Trib.) 1104
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Muhammad Ishaq, Judicial Member and Ahsan Alam, Accountant Member
I.T.As. Nos. 403 and 493/LB of 1989-90, decided on 11/10/1995.
(a) Income-tax---
----Rejection of accounts---History of the case---Relevance---History of case is certainly something which does provide guidelines but it does not always make a basis for a clear cut rejection of accounts---Assessing Authority, for rejecting accounts, must establish a fool-proof case quoting full facts and figures of all unproved, unverifiable and inaccurate version in the declared trading accounts.
(b) Income tax--
----Rejection of accounts---Non-maintenance of Stock Register and Consumption Register is not sufficient to warrant rejection of accounts.
Muhammad Yousuf, I.T.P. for Appellant (in I.T.A. No. 403/LB of 1989-90).
Abdul Rauf, D.R. for Respondent (in I.T.A.No.403/LB of 1989-90).
Abdul Rauf, D.R. for Appellant (in I.T.A. No. 493/LB of 1989-90).
Muhammad Yousuf, I.T.P. for Respondent (in I.T.A. No.493/LB of 1989-90).
Date of hearing: 11th October, 1995.
ORDER
CH. MUHAMMAD ISHAQ (JUDICIAL MEMBER).---For the assessment year 1988-89 cross-appeals have been preferred one by the department and the other. by the assessee . The appeals call in question the order dated 21-8-1989 passed by the learned Commissioner of Income Tax (Appeals) Faisalabad on various grounds to be discussed hereinafter in this order.
2. The parties have been heard and the record examined.
3. In this case the appellant company is deriving income from processing of cloth involving printing and dyeing on behalf of other parties in addition to trading of sloth. For the year under appeal return of income was filed at Rs.69,647. However, assessment was finalised at an income of Rs. 8,04,339. The assessment framed on 24-6-1989 was challenged in appeal before the C.I.T. (Appeals) on various grounds. The first appellate authority partly allowed these appeals. The instant appeals are the outcome of this decision.
4. The assessee-appellant, in his appeal contests the rejection of book version and the estimate of processing receipts. It is stated that all items of trading account are fully vouched and verifiable. The assessing authority quoted no discrepancy in . the debit and credit side of the account. Therefore, the rejection of the account version was unjustified. It is further agitated that no defect in the purchase and processing charges as declared by the company, was found. Drawing the comparison between the trading result of the preceding year with those of the present it is asserted that in terms of volume of sales as well as the percentage of gross profit, the present results are better than the previous one. Therefore, merely on the basis of presumption the recorded version which is fully verifiable could not be rejected. Particularly so when no discrepancy of unexceptionable nature was ascertained. The learned A.R. representing the assessee also placed reliance on the case-law which is duly referred to by him in his grounds of appeal. Regarding the estimation of processing receipt at Rs.1,21,62,000 against the declared receipts at Rs.1,18,57,852 the company declared processing receipts at 3.90 times to the Sui gas consumed giving better results than in other parallel cases wherein 3.62 times and 3.51 times of the consumption of gas were accepted. In addition thereto the disallowances in the P&L Account are also contested as being unjustified. The learned A.R. also agitated the addition of Rs. 15,000 in the miscellaneous income. The G.P. rate at 4 % as directed in the impugned order was also contested as being unjustified because no defects in the books were pointed out.
5. The learned D.R. on the other hand, in his appeal contests the reduction made by the learned C.I.T. (Appeals) in the printing receipt dyeing receipt and the energy receipts as having been done without any basis. It is further asserted that receipts adopted by the assessing officer were quite in accordance with the facts of the case as these were not open to verification. The relief allowed by the learned first appellate authority in the P&L Accounts has also been contested as being unjustified and against the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) has recorded a very elaborate and detailed order. He has examined the details of the case and came to the impugned conclusions.
7. In order to appreciate the respective contention of the parties we notice that while rejecting the declared trading results the learned assessing authority as well as the learned first appellate authority has certainly found out no substantial and convincing discrepancies. Rather the assessment order discloses the following observation:---
"The above comparison indicates improvement in processing receipts but G.P rate has declined. The ratio of Sui-gas consumed in monetary terms with processing receipts has also shown improvement but is still low as compared with the past treatment in this case and other parallel cases. It was contended that for the period under review the assessee has invariably declared this ratio round about 3.5 to 4 times because of the fact that Sui gas rates have thrice increased during the income year under review. It was contended that this fact has been registered by the department and due consideration given in all the parallel cases. The argument put-forth by the assessee are not wholly without truth but it does not fair well if viewed in the context of the history of the instant case."
8. It is noticed that wherever the assessing authority desired it sought the explanation of the assessee which shows that full scrutiny of the case was duly made. The conclusion drawn by the assessing authority that the arguments put forth by the assessee are not consistent with the history of the case cannot be interpreted to mean that the declared trading results failed to inspire confidence. History is certainly something which does provide guidelines by it does not always make a basis for a clear-cut rejection of accounts. For doing so the assessing authority must establish a fool-proof case quoting full facts and figures of all unproved unverifiable and inaccurate version in the declared trading accounts. Despite lengthy exercise by both the forums below no such effort appears to have been made in the orders impugned before us. The stock phrases employed including the assertion that the assessee has a history of rejection of accounts in the circumstances of this case are not convincing to prompt extreme action such as the rejection of accounts.
9. Where in the normal course of business accounts are maintained fully audited and then presented the assessing authority should not especially react so I as to discourage the maintenance of accounts out-right. In the various authorities frequently referred to, it has invariably been held that non-maintenance of stock register and consumption register are not sufficient to warrant rejection of account.
10 We, therefore, are inclined, to set aside the impugned order and direct the assessing officer to accept the declared trading results. While we making this order we are quite aware that the objections raised by the learned D.R. in the context of the impugned order, wherein some relief was allowed by the learned first appellate authority are also to be attended to. We may in this respect mention here that the learned C.I.T. (Appeals) adopted the estimation of processing receipts at Rs.1,21,62,000 as against the declared receipts of Rs.1,18,57,825. It can be concluded that the estimate of processing receipts adopted by the learned first appellate authority also lacked basis as none has been indicated in the impugned order. Similarly the estimate by the assessing authority also had the same defect. We, therefore, direct that the declared receipts at Rs.1,18,57,825 be accepted.
11. As regards the G. P. rate we are convinced that the declared G. P. rate is better than the parallel cases on the record in this line of business. The applied G.P rate is directed to be applied for the year under appeal.
12. The learned Commissioner of Income Tax (Appeals) upheld an addition to the tune of Rs. 15,000 in the miscellaneous income of the assessee. Similarly addition in the sale of cloth and the G.P. rate was also upheld. We have already declared the trading results to be accepted. We, therefore, direct that the addition made in the said heads of account be deleted altogether. The declared account version and the declared G.P. is also ordered to be accepted.
13. The learned first appellate authority disallowed in the profit and loss account the following expenses. In the postage telephone and telegrams, a sum of Rs.12,900 has been disallowed. The entire amount of disallowance is deleted In the stationery and printing account, a sum of Rs. 11,000 has been disallowed. The entire amount of disallowance is deleted. In the entertainment accounts a sum of Rs. 25,000 is disallowed. The disallowance is restricted to Rs. 10,000. In the vehicle running expenses a sum of Rs.22,500 has been disallowed. The disallowance is reduced to Rs. 7,500. In the travelling expenses Rs. 600 have been disallowed the entire disallowance is deleted. In the head loss on fire, Rs.10,100 are disallowed. The entire amount of disallowance is deleted. In the depreciation account Rs. 26,415 are disallowed. The entire claim of depreciation is allowed and the disallowed depreciation is deleted.
14. In view of the afore-stated reasons, the appeal of the department fails and that of the assessee succeeds to the extent and in the manner indicated above.
M. B.A./191/TribOrder accordingly