NARAYANGONJ DOCK LIMITED VS COMMISSIONER OF TAXES, INTELLIGENCE AND INVESTIGATION ZONE, DHAKA
1997 P T D 2274
[Dhaka High Court]
Before Muhammad Ismailuddin Sarker and Muhammad Hamidul Haque, JJ
NARAYANGONJ DOCK LIMITED
Versus
COMMISSIONER OF TAXES, INTELLIGENCE AND INVESTIGATION ZONE, DHAKA
Reference Application No.2 of 1982, decided on 12/05/1994.
Bangladesh Income Tax Act (XI of 1922)---
----S. 66(1)---Assessee, engaged in construction and repairing of vessels, submitted accounts showing gross profit at four categories of income-- Trading profits had not been separately accounted for and were also lower than normal---Assessing Officer resorting to proviso to S.13 of the Bangladesh Income Tax Act, 1922 assessed gross profit at high altitude-- Appellate forums upheld treatment given by Assessing Officer---Reason for raising gross profit seemed that since costing to individual vessels had not been shown, Assessing Officer raised gross profit and, thus, resorted to proviso td S.13 of the Act on presumption that there was any change of method of accounting---Nothing was available to show from which Assessing Officer could deduce income, profit and gain in accordance with method of accounting ---Assessee furnished all details of receipts from all categories of trading---In absence of any costing for individual vessels, gross profit was not ascertainable and disallowed consumption of material for manufacture of vessels and, thus, raised gross profit---Nothing available to show that estimated gross profit was low, raising of gross profit was, thus, arbitrary and illegal.
Ata Hossain Khan v. Commissioner of Taxes PLD 1968 Dacca 971; Commissioner of Income-tax v. Rathna Tea Estate 19 DLR (SC) 538 and Friends Corporation v. Commissioner of Income-tax (1975) BTD 221 ref.
Syed Ishtiaque Ahmad with Rokanuddin Mahmud and Muhammad Delawar Hossain for Petitioner.
A. Y. Salehuzzaman, Deputy Attorney-General for Respondent.
Date of hearing: 12th May,. 1994.
JUDGMENT
MUHAMMAD ISMAILUDDIN SARKER, J.---This is a reference under section 66(1) of the Income Tax Act, 1922 by the Income-tax Appellate Tribunal in R.A. No.2911969-70 (assessment year 1963-64) in which the following question of law has been referred to:- Whether on the facts and in the circumstances of the case the Income-tax Officer was justified in resorting to the first proviso to section 13 of the Income Tax Act and adding Taka 53,200 in the Trading Account of the assessee for the assessment year 1963-64.
2. The facts of the case are, in short, that assessee is a company and its business was construction and sale of speed boats, launch, pontoon, free boat, etc. and general repairing works: that the assessee submitted his accounts for the year in question and showed gross profit at Taka 2,87,235, that the sales of the company included receipts from repair works of Taka 15,425, sales of materials of Taka 3,113, labour charges of Taka 10,782 and sales of manufactured vessels of Taka 10,98,150 in all Taka 11,27,470. Trading profit has not been separately accounted for in respect of the above stated four categories of receipts and the Income-tax Officer estimated gross profit for the first 3 items on the basis of the earlier year at Taka 10,948 and the balance gross profit for manufactured vessels remained at Taka 2,76,287 which the Income-tax Officer worked out to be about 25 % which, according to him, was lower than normal. In the previous year the assessee was assessed 30% of the gross profit. The Income-tax Officer for that reason did not accept the accounts and assessed the company presumably under the first proviso to section 13 of the Income-tax Act on the plea that although the amount realised for the individual vessels have not been shown by a statement but costing of the individual vessels have not been shown and accordingly, the Income-tax, Officer ~disallowed from total debit of consumption of memorials an amount of Taka 53,200.00 on estimate which would raise the gross profit to 30%.
3. This order of the Income-tax Officer was challenged in appeal before the Appellate Assistant Commissioner of Taxes in Income-tax Appeal No.35._ Circle III of 1967-68 and the Appellate Assistant Commissioner by his order dated 20-8-1986 held that the gross profit of 30% has been rightly assessed by the Income-tax Officer for the assessment year in question.
4. On appeal the Income-tax Appellate Tribunal, Dhaka Bench, being I.T.A. No.803 of 1968-69, the Appellate Tribunal by its judgment dated 30-4-1969 dismissed the appeal upholding the addition to Taka 53,200 raising the gross profit @ 30 % .
5. Thereafter, the assessee-applicant filed an application under section 66(1) of the Income-tax Act to refer the question of law to the High Court but the Tribunal refused to state the case whereupon the assessee filed an application under section 66(2) of the Income-tax Act being Application No. 11 of 1971 and a Division Bench of this Court by the judgment dated 20-5-1975 allowed the application holding that a question of law has arisen in the above reference case and directed the Tribunal to frame the question of law and refer to this Court and accordingly, the Income-tax Appellate Tribunal referred the question of law to this Court as stated above.
6. We have heard Mr. Syed Ishtiaque Ahmad, the learned Advocate appearing on behalf of the assessee applicant and Mr. A.Y. Salehuzzaman, the learned Deputy Attorney-General appearing on behalf of the respondents.
7. As has been stated earlier the Income-tax Officer determined the gross profit of manufactured vessels by adding an amount of Taka 53,200 raising the gross profit to 30 % as the rate of gross profit was fixed at 30 % for the previous year by the Income-tax Appellate Tribunal. The reasons for doing this seems to be that costing of the individual vessels have not been shown and in the absence of any analysis of consumption and utilisation of material, the gross profit of manufactured vessels was rendered unverifiable. In other words, since the costing to the individual vessels have not been shown the Income-tax Officer raised the gross profit by adding an amount of Taka 53,200 invoking the first proviso to section 13 of the Income-tax Act.
8. It is submitted by Mr. Syed Ishtiaque Ahmed, the learned Advocate, that in the absence of any change made by the assessee in the method of accounting which is 'mercantile' the Income-tax, Officer illegally invoked the proviso to section 13 of Income-tax Act. In support of his contention that when the assessee is uniformly following the same method of accounting the Income-tax Officer cannot reject the assessee's methods of accounting and invoke the first proviso to section 13 of the Act. The learned Advocate has referred to a large number of decisions of which reference may be made to the case of Ata Hossain Khan v. Commissioner of Taxes reported in PLD 1968 Dacca 971, the case of Commissioner of Income-tax v. Rathna Tea Estate reported in 19 DLR (SC) 538 and the case of Friends Corporation v. Commissioner of Income-tax reported in 1975 BTD Vol.3 page 221.
9. In the case of Ata Hossain Khan v. Commissioner of Income-tax Dhaka it has been held that absence of stock register could not be a ground for rejecting the account submitted by the assessee, and for taking recourse to the proviso to section 13 of the Income-tax Act. In that case the assessee estate, a Private Ltd. Co., derived income from dealing in goods like paper board, glass, etc. and also from running photo off-set and printing press, the Income-tax Officer rejecting the account on the ground that the gross profit declared were low and the stock registers were not maintained raised the gross profit from 35 % to 40 % , which rate was adopted for the previous year. A Division Bench of the Dhaka High Court after relying on a number of decisions relevant to point held that rejection of the account was not justified as absence of stock register was not a valid reason for not accepting the accounts; and that there was no basis for holding that the profit shown were low. Similar view was also taken in the two other cases referred to above.
10. In the instant case before us the Income-tax Officer in the absence of 11 costing of the individual vessels invoked the first proviso to section 13 on the 6 assumption that there was any change of the methods of accounting the gross profit was low. In this case there was nothing to show that for which the Income-tax Officer could not deduce the income, profit and gain in accordance with the methods of accounting of the assessee. The assessee has furnished detailed account of receipts from 4 categories of trading and the income-tax Officer estimated gross profit for the first 3 items but held that in the absence of any costing for the individual vessels the gross profit on that account was not ascertainable and accordingly disallowed consumption materials for manufacture of vessels for an amount of Taka 53,200 which would raise the gross profit to 30 % .
11- There was nothing to show that the gross profit. on account of sales of manufactured vessels which was estimated to be 25% was low and, as such, raising the gross profit to 30% was arbitrary and illegal.
12. In this case the order of the assessment suffers from infirmities as noticed above and, as such, the same cannot be sustained in law, and therefore, the Tribunal was not justified in upholding the action of the Income-tax Officer. In that view of the matter the question is answered in the negative.
In the facts and circumstances of the case there will be no order as to cost.
C.M.S./1/Dhaka Order accordingly.