COMMODITY AND EQUIPMENT INTERNATION (PVT.) LTD., KYC VS COMMISSIONER OF INCOME-TAX
2000 P T D 334
[Karachi High Court]
Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ
Messrs COMMODITY AND EQUIPMENT INTERNATION (PVT.) LTD., KYC
versus
COMMISSIONER OF INCOME-TAX
I.T.R. No.207 of 1991, decided on 02/12/1998.
Income Tax Ordinance (XXXI of 1979)---
----Ss.62 & 136---Assessment on production of accounts, evidence etc.-- Reference---Assessee declared gross profit rate of 0.67 % as compared to the gross profit rate of 21.46 % in the previous assessment year---Assessing Officer applied gross profit rate of 21.46% on the declared sale---First Appellate Authority reduced the gross profit rate from 21.46 % to 12.5 % on the basis of past history of the assessee as well as the gross profit rate declared by the assessees carrying on parallel business---Appellate Tribunal confirmed the order of the First Appellate Authority ---Reference---Assessee contended that he was not bound to declare high profit as he had advanced reasonable explanation which led to earning less profit and thus, it was not open to the Assessing Officer to reject the declared gross profit rate and on the basis of past history of the assessee as well as on the basis of gross profit rate declared by the assessees carrying on parallel business---Department contended that question referred was not a question of law but a purely question of fact and Appellate Tribunal had taken into consideration the facts and circumstances of the case and examined the evidence on record in a proper manner and finding arrived at did not suffer from any misreading. misconstruing or in discarding the evidence on record or on placing reliance on any extraneous material with the result that finding of fact arrived by the Tribunal on the basis of evidence on record could not be considered to be a question of law---Validity---Declared gross profit rate was ridiculously low which could not be conceived of in the line of trade or business carried on by the assessee and was also to great contrast to the gross profit rate of 21.46 % declared by the assessee in previous assessment year and 15.3 % in the next previous year as well as gross profit rates of 12.62 % and 15.7.3 % declared by two comparable concerns in the assessment year in question, for which no plausible and cogent explanation was advanced by the assessee---Assessing Officer was justified to reject the ridiculously low gross profit rate declared by the assessee and apply a higher rate in accordance with the past history of the assessee and gross profit rates declared by comparable concerns- Appellate Tribunal had arrived at the finding in confirming the gross profit rate applied by the First Appellate Authority on a proper and just appreciation of the evidence on record and the finding being finding of fact, High Court could not in exercise of its power under S.136 of the Income Tax Ordinance, 1979 go behind a finding of fact based on just and proper appreciation of the evidence on record ---Question referred was refused to be answered---Order of the Appellate Tribunal was confirmed.
Commissioner of Income-tax, Calcutta Discount. Ltd. (1973) 91 ITR 8 and Commissioner of income-tax Krudd Sons Ltd. 1994 SCMR 229 = 1994 PTD 174 distinguished.
Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Harmones Laboratories v. Commissioner of Income-tax 1988 PTD 84 rel.
Iqbal. Naeem Pasha for Appellant.
Shaikh Haider for Respondent.
Date of hearing: 2nd December, 1998.
JUDGMENT
SAIYED SAEED ASHHAD, J.---The Income-tax Appellate Tribunal vide its order dated 4-8-1990 in R.A. No. 172/HQB/88-89 referred a question of law for seeking opinion of this Court. The question of law I referred to is as under:---
Whether provisions of section 32(30 of the Income Tax Ordinance, 1979 could be invoked in the facts and circumstances of this case for the reason of declaredgross profit rate being ridiculously low as compared to the previous history of appellant and parallel cases, when the purchases and sales were found to be verifiable and were accepted'?"
The brief facts leading to this Income Tax Reference are that the applicant/assessee, a Private Limited Company deriving income from supply of X-rays, films; Sprayers, Boilers, Regulators, Bush Cutters and Air Compressors filed its return of income for the assessment year 1986-87 showing an income of Rs.26.414. The case was selected for total audit by computer balloting. Notice under section 61 of the Income Tax Ordinance was issued in response to which Mr. Haleem Khan; Income-tax Practitioner alongwith Mr. Barkat Siddiqui, Accountant of the applicant appeared before the Income-tax Officer. The applicant/assessee in the assessment year in question declared gross profit rate of 0.67 % as compared to the gross profit rate of 21.46% in the assessment year 1985-86 and the gross profit rate of 12.62 % and 15.73 % declared by comparable concerns M/s. Wasti Enterprises Ltd. and M/s. Agfa Gavert Ltd., respectively in the aforesaid assessment year. The Income-tax Officer, therefore, did not accept the gross profit rate 0.67% and applied gross profit 21.46% on the declared sales of Rs.1,33,21,957 making an addition of Rs.27,69,105 in the trading account of the assessee. By the aforesaid action the declared income of Rs.26.414 was enhanced to Rs.27,95,519. In the first appeal filet' by the applicant/respondent the Commissioner of the Income-tax (Appeals) reduced the gross profit from 21.46 % to 12.5 % on the basis of the past history of the applicant/assessee as well as the gross profit declared by the assessee carrying on parallel business. The applicant preferred a second appeal before the Appellate Tribunal but the Appellate Tribunal by its order dated 4-7-1988 confirmed the order' of the Commissioner of Income-tax (Appeals) in applying gross profit rate 12.5 % . Hence the above Income Tax Reference
We have heard the argument of M/s. Iqbal Nadeem Pasha and Shaikh Haider, learned counsel for the parties and have also perused the material on record as well as the cases-law referred to us by the learned counsel for the parties.
The contention of Mr. Iqbal Naeem Pasha, is that the applicant/assessee was not bound to declare high profit or maximum profit from the business carried on by him and, if the applicant/assessee had advanced reasonable explanation or the cause which led to earning lesser profit then it was not open to the assessing officer to reject the declared gross profit rate and to apply the gross profit on the basis of past history of the assessee as well as on the basis of the gross profit rate declared by the assessee carrying on parallel business. In support of his above contention he placed reliance on the cases of: (i) Commissioner of Income-tax v. Calcutta Discount Co. Ltd. reported in (1973) 91 ITR 8, and (ii), Commissioner of Income-tax v. Krudd Sons Ltd. reported in 1994 SCMR 229 = 1994 PTD 174.
Mr. Shaikh Haider, learned counsel for the respondent on the other hand objected to the maintainability of this Income Tax Reference on the ground that the question referred to this Court purporting to be a question of law is purely a question of fact wherein the issue involved is whether the two tax officers as well as the Appellate Tribunal were on the basis of the fact; and the circumstances of the case justified in discarding the declared gross profit rate arid estimating applying the same at a higher rate. He further submitted that the two officers below as well as the Appellate Tribunal in rejecting the declared gross profit rate had taken into consideration the facts and circumstances of the case and had examined the evidence on record in a proper manner and finding arrived by them did not suffer from any mis reading, misconstruing or in discarding the evidence on record or on placing reliance or any extraneous material with the result that the finding of fact arrived by them on the basis of evidence on record could not be considered to be a question of law- He supported the order of the Appellate Tribunal and submitted that the question referred may be refused to be answered.
We have considered the arguments advanced by the learned counsel for the parties. The Income-tax Officer had rejected the declared gross profit rate and applied gross profit rate of 21.46% on the ground that in spite of being confronted the respondent/assessee was unable to give a plausible and cogent explanation for the drastic low gross profit rate of 0.67 % as compared to the gross profit rate of 0.46% declared by the applicant/assessee in the assessment year 1985-86, The Income-tax Officer had also confronted the applicant/assessee with the two comparable cases wherein gross profit rates of 12.62 and 15.75% were declared in the concerned assessment year. The income-tax Commissioner had reduced the gross profit rate to 12.5 % and for doing so he had given satisfactory reasons. The first reason given by him was that the sale had increased enormously. The second ground given by him was that two comparable concerns had declared gross profit rates of 12.62% anti 15.73 % in the assessment year in question. The Appellate Tribunal found the reasons given by the Commissioner of Income-tax (Appeals) for applying gross profit rate of 14.5 % to be proper and sound and confirmed the same. A perusal of the facts and the material on record reflects that both the officers as well as the Appellate Tribunal had examined the factual aspects of the case and had concluded that the applicant failed to give a satisfactory and plausible explanation for the rediculously low gross profit of 0.67% and same was not acceptable in view of the past history of the applicant/assessee for the assessment year 1985-86 wherein gross profit rate of 21.46 % was declared and the treatment given to the applicant/respondent by the Income-tax Officer in the assessment year 1984-85 applying gross profit rate of 15.3 % as well as on consideration of the gross profit rates declared by comparable concerns. In the circumstances they were justified in rejecting the declared gross profit rate of 0.67 % and applying gross profit rate of 1.2.5% . Both the officers and the Appellate Tribunal did not commit any error or its legality in examining the facts and evidence on record and the finding arrived at by them could not be considered to be on the basis of misreading or misconstruing the evidence on record. Their findings could not also be considered to be based either on discarding the evidence on record, or by taking into consideration extraneous evidence or material. In the circumstances the question referred to could not be considered to be a question of law. If any authority is required in respect of the above the same is available in the case of Commissioner of Income-tax v. Saeeda Nasreen reported in 1994 PTD 949 and the case of Harmonies Laboratories v: Commissioner of Income-tax, reported in 1988 PTD 84."
Taking up the cases of (i) Commissioner of Income-tax v. Calcutta Discount Co. Ltd. (1973) 91 ITR 8, and (ii) Commissioner of Income-tax v. Krudd Sons Ltd. 1994 SCMR 229 = 1994 PTD 174, we find that the facts in both the cited cases were absolutely. different and have no application to the facts of this case. In the first case the assessee-Company transferred certain shares held by it to its subsidiary company at less than their book Officer did not accept the value and applying the market price of the share held that the company must be deemed to have made a profit of Rs.1,02,40.546. On appeal it was held that where a trader sells his goods to another trader at a price less than the market price, and the transaction is a bona fide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched, to ascertain the profit from the transaction. We are unable to find out as to how this pronouncement could be of any help to the applicant/assessee. In this case the Assessing Officers and the Appellate Tribunal were not at all concerned and did not question the prices on which the applicant/assessee sold the various commodities but had only rejected the declared gross profits rate as it way ridiculously low and not in conformity with the past history of the applicant/assessee relating to the declared gross profit rate as well as with the gross profit rate declared by comparable concerns. In the second cited case the Hon'ble Supreme Court confirmed the observation made by this Court that without any substantial material or cogent reason the method of accounting cannot be rejected. This pronouncement of the Supreme Court would provide no assistance to the applicant/assessee as the same is not absolute and is conditional authorising the Assessing Officer to reject the accounts if he comes to the conclusion that tune income or profit cannot be. deduced. In the present case the declared gross profit rate was ridiculously low which could not be conceived of in the line of trade or business carried on by the applicant/assessee and was also in great contrast to the gross profit rate of 21.46% by the applicant/assessee in assessment year 1985-86 and the gross' profit rate of 15.3 % applied in the case of the applicant/assessee in the assessment year 1984-85 as welt as the gross profit rates of 12.62% and 15.73% declared by two comparable concerns in the assessments year in question, for which no plausible and cogent explanation was advanced by the applicant/assessee. In the circumstances, the Assessing Officer was justified to reject the ridiculously low gross profit rate declared by the applicant/assessee and apply a higher rate in accordance with the past history of the applicant/assessee and the gross profit rates declared by comparable concerns.
Upon the above discussion, we hold that the Appellate Tribunal had arrived at the finding in confirming the gross profit rate applied by the Commissioner of Income-tax (Appeals) on a proper and just appreciation of the evidence on record and the finding being a finding of fact this Court could not in exercise of its power under section 136 of the Income Tax Ordinance go behind a finding of fact based on just and proper appreciation of the evidence on record. Accordingly, the question referred to this Court not involving a point of law does not require to be answered. The impugned order of the Appellate Tribunal dated 4-7-1988 is confirmed-
C.M.A./.101/K(Tax)Order accordingly.