Income Tax Ordinance (XXXI of 1979)---

----Ss.62 & 32(3)---Assessment---Assessment on production of accounts evidence etc. ---Rejection of account---Estimation of income ---Principles-- Case was proceeded under normal law---Assessing Officer, however, rejecting assessee version enhanced sales on the basis of Inspector's report which was upheld by the First Appellate Authority as reasonable---No inventory was made nor any other details of the business of the assessee was brought home---Assessing Officer was required to support his estimation and substitution of the returned version by some tangible evidence---No such exercise was undertaken---Mere observation that estimation of sales as made by Assessing Officer was reasonable hardly meant anything---Estimation of sales was, therefore, reduced by Income-tax Appellate Tribunal, in circumstances.

Daud Corporation v. C.I.T. 1988 PTD 177 and Mangna Industries v. R.C.I.T., Rawalpindi 1980 PTD 35 ref.

Muhammad Ajmal Khan for Appellant.

Mrs. Riffat Shaheen Qazi, D.R. for Respondent.

Date of hearing: 23rd September, 1998.

ORDER

The assessee, an individual, deriving income from sale of cloth in Ichhra Bazar, Lahore returned an income of Rs.45,000. The sales were disclosed at Rs.950,000 and a rate of 14.95%. The return so filed was processed under normal law on account of short payment of tax. After plucking the return the Assessing Officer for various reasons detailed in the body of the assessment order, dated 24-4-1997, proceeded to estimate sales at Rs.24 lac and subjected them to a rate of 15%. Some profit and loss account disallowances were also made to frame an assessment for the year at Rs.272,000.

2. Learned First Appellate Authority. A.A.C., appeal range, Lahore by way of its order, dated 30-4-1998 maintained the estimation of sales after finding it to be reasonable in the circumstances of the case. This has brought the assessee in further appeal before us.

3. Parties have been heard. Learned counsel for the assessee, contends that estimation of sales is not only excessive it is also against the history of the case. He states that in the year 1994-95 the assessee disclosed sales at Rs.8 lac, which were enhanced to Rs.13 lac. The assessment in that year is claimed to have been framed under section 62 of the Ordinance. Also informs that in the immediate preceding year namely 1995-96 disclosed sales of Rs.850,000 were enhanced to Rs.18 lac. However, the assessee is in appeal before the First Appellate Authority. The report of the Circle Inspector, which evidently made basis of the estimation of sales in the year under review is challenged on the ground that no inventory was made nor any other detail of the business of the assessee brought home. Lastly states that the assessee is extremely old man and suffering from various diseases. Therefore, he could not give his best to the business. The estimation of sales made in the year under review is described as excessive and unjustified.

4.Learned D.R., however, supports the orders of the authorities below for the reasons stated therein.

5. Having considered the submissions made at the Bar we will agree that the Assessing Officer failed to support his own estimation of the turnover allegedly achieved by the assessee. It is by now well-settled that even after rejection of returned version an Assessing Officer is required to support his estimation of substitution of the returned version. In 1989 PTD 177 re: Daud Corporation v. C.I.T. their Lordships found that an Assessing Officer had vast powers to make an assessment. However, his estimate in assessment, in view of their Lordships, must be based upon the facts and circumstances of the case as borne out from the record and not on his personal whims and desires. In another case re: Magna Industries v. R.C.I.T. Rawalpindi cited as 1980 PTD 35 it was found that after rejection of returned version the Assessing Officer should evolve reasonable basis for making the estimate. Also that these basis should be disclosed to the assessee.

6. No such kind of exercise appears to have been under taken in the case of the present assessee. Also we have noted that during the preceding two years the assessee showed improvement in disclosed sales. Even if the alleged ailment and old age of the assessee is not taken as a consideration we find the estimation to be necessarily on the higher side. Learned First Appellate Authority refused to interfere without assigning any reason. Mere observation that estimation of sales as made by the Assessing Officer was reasonable hardly means anything. All the more so when a number of contentions with regard to the business of the assessee and its history were put forth before it. It has further been noted that in the immediate preceding year even in ex parte-proceedings, the Assessing Officer pitched the sales at Rs.18 lac while in the year under review these have been enhanced to Rs.24 lac without an iota of evidence having been brought on record.

7. Therefore, keeping in view various factors including history of the case, we will hold it proper to direct that the estimation of sales in the year under view shall be restricted to Rs.16 lac.

8. No other issue having been pressed at the Bar the assessee succeeds to the extent and in the manner stated above.

C.M.A./572/Trib.Order accordingly.