Income Tax Ordinance (XXXI of 1979)---

----S. 32(3)---Application of G.P. rate---Rejection of accounts ---Principles-- Nature of business to be kept in view by the Assessing Officer---Assessing Officer rejected returned income and assessed at high altitude applying enhanced G. P. rate---First Appellate Authority set aside assessment-- Assessment Officer while re-assessing again applied the same G. P. rate which resulted in additions and add-backs ---A.A.C. confirmed same to grievance of assessee---Issue of G.P. rate could be resolved at level of Assessing Officer---Enhanced G.P. rate was set aside and case was remanded by Appellate Tribunal with direction that while applying the G.P. rate, nature of business be kept in view.

Ijaz Ali Bhatti for Appellant.

Javed Rehman, D.R. for Respondent.

Date of hearing: 23rd October, 1995.

ORDER

INAM ELLAHI SHEIKH (ACCOUNTANT MEMBER).---A registered firm, deriving income from contracting business, has filed this further appeal against an order, dated 20-2-1988 recorded by the learned A.A.C. of Income-tax, Range-F, Lahore to agitate the issue of G.P. rate whereas the add-backs in the P&L expenses were not agitated at the time of hearing of appeal.

2. The relevant facts in brief are that the assessee filed a return to declare income of Rs.74,125 which was assessed at Rs.2,40,598. This assessment was set aside by the first appellate authority. In the re-assessment proceedings, the assessing officer again applied a G. P. rate of 17.5% to the declared receipts which resulted in an addition of Rs.34,871 in the trading account. After making add-backs in the P&L expenses the income determined at Rs.1,20,598. The learned A.A.C. confirmed the G.P. rate and dismissed the assessee's appeal.

3. The learned counsel of the assessees has strongly agitated the application of G. P. rate of 17.1 % in this case with the argument that the assessee has history of application of 15 % G. P. rate. The learned A.R. of the assessee also referred to certain parallel cases where a G.P. rate of 15% was being applied. The learned counsel of the assessee further argued that the assessee was engaged in the earth work business only and that a G.P. rate of 17% has wrongly been applied. The learned D.R. on the other hand supported the order of the learned A.A.C. with the submission that the G.P. rate had been confirmed in view of another parallel case referred to in the impugned order.

4. Both the parties have been heard and relevant orders perused. The learned counsel of the assessee has filed a copy of the Tribunal's order, dated 15-3-1995 pertaining to the assessment year 1986-87 of the same assessee. In that case a G. P. rate of 15 % was confirmed and the Departmental appeal was rejected in the assessment year 1986-87. The learned counsel has also filed a copy of another decision, dated 31-5-1993 recorded in I.T.A. No.2980-A/LB of 1986-87 pertaining to the assessment year 1984-85 in the case of another assessee. In that case a G.P. rate of 15% was also confirmed. This second case is not strictly relevant to the facts of the case. In the present case, the Departmental appeal for the assessment year 1986-87 was decided on 10-3-1995 although the assessee's appeal for the assessment year 1985-86 was still pending. At that time the learned counsel of the assessee should have pointed out the existence of this appeal to the Bench. While making the appeal pertaining to the assessment year 1986-87, a plea was taken that up to the assessment year 1986-87 a G.P. rate of 15% had normally been applied whereas in the assessment year 1985-86 a G. P. rate of 17 % had been applied by the Department which is under dispute. The nature of the business is dispute. The assessing officer has held this assessee to be engaged in the business of construction on contract basis whereas the assessee had taken a plea that it was engaged in the earth work contracting. The rate to be applied in this case will depend on the nature of business. If the assessee is engaged the construction contracting business. then a G.P. rate of 17-1/2% is to be applied. If the nature of business is of earth work a G.P. rate of 15% could be applied. This issue can be resolved at the level of the assessing officer. Hence, the assessment on the issue of G.P. rate in this year is set aside and the case is remanded back to the assessing officer. The assessing officer is direct to ascertain the nature of business and apply a G.P. rate in accordance with the directions given above. The appeal succeeds to the extent indicated above.

M.B.A./243/Trib