Messrs INDEPENDENT NEWSPAPERS CORPORATION (PVT.) LTD., KARACHI VS COMMISSIONER OF INCOME TAX, COMPANIES-II, KARACHI, 2007 PTD-KARACHI-HIGH-COURT-SINDH 1720 (2007)

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 136(2) & 32---Reference to High Court---Scope---Question of fact---Questions proposed by the applicant were questions challenging the decision of the Appellate Tribunal which was made on the appreciation of facts, therefore such questions were questions of facts and did not challenge any finding of law by the Tribunal---Question of rejection of accounts not challenged on the basis of misreading of facts or distortion of evidence was not a question of law---Limited advisory jurisdiction under S.136(2), Income Tax Ordinance, 1979 did not empower the High Court to answer questions which were questions of fact and no allegation had been made in the questions that decision of the Tribunal was based on misreading of facts or distortion of evidence---High Court, in circumstances, declined to answer the questions.

Commissioner Income Tax Companies-III, Karachi v. Krudd Sons Ltd. 1994 SCMR 224 = 1994 PTD 174; Messrs Ghazi Tanneries v. CIT Central Zone, Circumstances No.3 of 1995; I.T.R. No.235 of 1990; Star Rolling Mills v. Commissioner of Income Tax 1974 PTD 2000; PIMPA (Pvt.) Ltd., Karachi v. Commissioner of Income Tax, Companies-I, Karachi 1994 PTD 123 and COCA COLA Export Corporation v. IAC of Income Tax (I&C), Range II, Companies Zone-1, Lahore 2002 PTD 1496 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 135 & 32---Disposal of appeal by Appellate Tribunal---Assessee, in the present case, had filed appeals against the order of Commissioner of Income Tax (Appeals) for all the assessment years in question, the department had filed appeal against the order of the Commissioner for the "assessment year 1988-89 (and not in 1989-90 to 1992-93) therefore, for the other four years against which the department had not filed any appeal, the maximum the Tribunal could do was to dismiss the appeals of the appellant and maintain the order of the Commissioner---Tribunal's decision of vacating the orders of the Commissioner on the point of the rejection of trading accounts and restoring the rejection of trading accounts and maintaining the estimates of sales and reducing the gross profit from 30% to 27% was in excess of Tribunal's power under S.135, Income Tax Ordinance, 1979, specially, as the Tribunal had not issued any mandatory notice for enhancement, which was necessary to disturb the orders of the Commissioner of Income Tax (Appeals)---Such orders, in circumstances, could not be sustained.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 135 & 32---Disposal of appeal by Appellate Tribunal---Rejection of accounts---Consent of parties---Effect---Appellate Tribunal had, with the consent of parties maintained the rejection of accounts for the assessment years 1989-90 to 1992-93 on the basis of the finding given for the year 1988-89---Validity---Such was an error committed by the Tribunal as for the purposes of the assessment of the Income Tax every assessment year was a separate year ,and therefore, basing the rejection of accounts for the assessment years 1989-90 to 1992-93 on the basis of findings given for the assessment year 1988-89, could not be sustained---Alleged consent given by the parties could not legalize the judgment of the Tribunal as there could be no consent/agreement against the law---Principles.

Iqbal Salman Pasha for Applicant.

Nasrullah Awan for Respondent.

ORDER

MUHAMMAD ATHAR SAEED, J.-These reference applications have been filed against the common order of the Income Tax Appellate Tribunal, dated 6-12-1995 in R.As. Nos. 15/KB of 1995-96 to 19/KB of 1995-96, whereby the' Tribunal had refused to refer the questions proposed under section 136(1) for the opinion of this Court. By these reference applications the applicant seeks the opinion of this Court on the following common questions:--

(i) Whether in the absence of any finding to the effect that the method of accounting employed by the applicant was not the same as was accepted by Income Tax Authorities in the past, the learned Tribunal was right in upholding rejection thereof under subsection (3) of section 32 of the Income Ordinance, 1979?

(ii) Whether in the absence of any finding to the effect that purchases or expenses debited to trading accounts or sales credited to trading accounts were unvouched or unverifiable and consumption of "News Print" in terms of quantities having been satisfactorily reconciled, the learned Appellate Tribunal misdirected itself in law by invoking provisions of subsection (3) of section 32 of Income Tax Ordinance, 1979 and confirming the order of the Deputy Commissioner of Income Tax whereby declared trading version was rejected?

(iii) Whether the learned Tribunal committed a mistake apparent from records by holding on page 16 of the appellate order that "the publication of Daily Jang, Lahore and Daily Jang Karachi were declared at Rs.1,75,000 per day and Rs.2,00,000 per day and 24,000 per day respectively" when as per month-wise statement as observed by the learned Tribunal on page 17 of the appellate order, the applicant had, in fact, declared "publication of 78,790,400 copies and 79,114,610 copies in respect of Daily Jang Karachi and Daily Jang Lahore which divided by 351 days worked out at 224,474 copies per day and 225,393 copies per day respectively?

(iv) Whether the learned Appellate Tribunal misdirected itself in law by drawing inferences from incorrect assumptions?

(v) Whether rejection of declared trading version by the learned Appellate Tribunal is based on conjectures, surmises and/or material which has no evidential value?

(vi) Whether there was any material or evidence or basis for confirming the order of the Income Tax Officer in respect of estimate or sales?

(vii) Whether the learned Tribunal acted arbitrarily and on conjectures and surmises by confirming the quantum of estimated sales inter alia on incorrect assumption of variance in the number of copies declared to have been published and actual publication?

(viii) Whether the learned Tribunal committed a mistake apparent from the records by observing that "no sale proceeds have been declared for the wastage at Quetta", when in fact sales of "print wastage" declared in the audited statements of accounts under the caption "miscellaneous income"?

(ix) Whether the fact that wastage at Karachi was sold at nominal rates to a verifiable party who happened to be the sister concern of the applicant company, warranted, rejection of the entire trading version?

(x) Whether the learned Tribunal misdirected itself in law by ignoring the contents of the letter issued by Audit Bureau of Circulation (Government of Pakistan) available on the assessment as well as the appellate records whereby wastage of News-print at 9% was considered to be normal, besides wastage due to "conversion of reams" and damaged newsprint" and holding that the declared wastage was excessive and exorbitant?

(xi) Whether there was any material or evidence or basis for applying gross profit rate of 27% on the estimated sales?"

2. Brief facts of the case are that the applicant is a private limited company carrying on business of printing and publication of the following newspaper:--

(1) Daily Jang, Karachi.

(2) Daily Jang, Rawalpindi.

(3) Daily Jang, Quetta.

(4) Daily Jang, Lahore.

(5) Daily News Karachi.

(6) Weekly Mag Karachi.

(7) Akhbar-e-Jehan, Karachi.

3. The Income Tax Officer had rejected the accounts of the applicant for the assessment years 1988-89 to 1992-93 and estimated the sales and applied gross profit rate at 30% for all the years.

4. Being aggrieved by the orders of the Income Tax Officer, the applicant filed appeals before the CIT(Appeals) who vide his Order Nos.1611/91, dated 1-8-1991, 438/92, dated 10-6-1992 for the assessment years 1988-89 and 1989-90 respectively and his common Order Nos. 1321, 1323 of 1993, dated 17-11-1993 for the assessment years 1991-92 and 1992-93, accepted the appeals and set aside the orders for de novo assessment with the directions for deciding the question of accepting or rejecting of trading accounts after providing necessary opportunity to the appellant and discussing the explanation by showing how or why the same was unacceptable.

5. Being aggrieved by the orders of CIT (Appeals) the applicant filed appeals before the income Tax Appellate Tribunal for accepting the trading accounts whereas, the Department only filed appeal for the assessment year 1988-89 challenging the setting aside of the order of the Income Tax Officer. The Income Tax Appellate Tribunal while hearing all the appeals together by the common order dated 2-2-1995 in I.T.A. No.1443/KB of 1991-92-7955/KB of 1992-0\93, 1944 to 1946/KB of 1993-94 vacated all the orders of CIT (Appeals) under consideration as far as setting aside the assessments in respect of rejection of trading accounts was concerned and maintained the rejection of trading accounts for all the assessment years in question, they also maintained the estimate of sales made by the Income Tax Officer but reduced the rate of gross profit to 27% for all the assessment years and on the basis of the alleged agreement with the representative of the parties held that the finding related to the method of accounting for the assessment year 1988-89 and the conclusion, if the true income, profits and gains can be properly deduced from the method of accounting employed deduced from the method of accounting employed by applicant shall apply to all the assessment years under appeal for the reason that the accounts have been maintained on similar method and in similar fashion.

6. Being aggrieved by the order of the Income Tax Appellate Tribunal the applicant filed reference applications for all the years requiring that the 11 questions proposed be referred for the opinion of this Court and the Tribunal vide the impugned order referred to above refused to refer the proposed questions as according to them the appeals had been decided on simple appreciation of, facts and all the proposed questions contained the issues of facts whereas, proposed question No.3 pertained to alleged mistake apparent from the record, which was subject-matter of rectification application, which was also allegedly dismissed by the Tribunal. Hence these reference applications.

7. We have heard Mr. Iqbal Salman Pasha learned counsel for the applicant and Mr.Nasrullah Awan learned counsel for the respondent.

8. The main contention of the learned counsel for applicant is that the Income Tax Officer has not given any cogent reason for rejecting the accounts and has not given details of defects of accounts on the basis of which the accounts were rejected and according to the learned counsel without giving finding to the effect that it is not possible to deduce the correct profit from the books of accounts, the accounts cannot be rejected. He further pointed out that the Income Tax Officer had not provided any instance of unverifability of the receipts or expenses, which is another mandatory requirement for rejection of accounts. The learned counsel further submitted that although in the previous years he was maintaining the accounts in the same manner but his accounts up to assessment years 1987-88 were always accepted and therefore, the onus shifted to the department to prove that correct profit cannot be deduced and according to the learned counsel this onus has not been discharged. The learned counsel then read out the proposed question of law which are required to be adjudicated by this Court. According to him the Tribunal was not justified in rejecting the reference applications by holding that the proposed questions were questions of facts as the appeals had been decided on simple appreciation of facts. He submitted that the Tribunal had misread the evidence and distorted the facts and it has been held by the Superior Courts that the rejection of accounts based on misreading of evidence and distortion of facts is a question of law, which can be adjudicated in a reference application.

9. We asked the learned counsel to show us as to in which question it has been alleged that rejection has been based on misreading of facts and distortion of evidence to which learned counsel referred to propose questions Nos.3 and 4. In support of his contention and arguments that there were no defects in the books of accounts and there was no basis on which the books of accounts could be rejected by the Income Tax Officer and such rejection could be maintained by the Income Tax Officer, the learned counsel relied on the following judgments.

(1) Commissioner of Income Tax Companies-III, Karachi v. Krudd Sons Ltd. 1994 SCMR 229 = 1994 PTD 174.

(2) Unreported judgment of this Court, dated 26-5-2006 in The 4Circumstances, No.3 of 1995 titled Messrs Ghazi Tanneries v. CIT Central Zone.

(3) Unreported judgment of this Court in ITR No.235 of 1990.

(4) Star Rolling Mills v. Commissioner of Income Tax (1974 PTD 2000).

(5) PIMPA (Pvt.) Ltd., Karachi v. Commissioner of Income Tax, Companies-I, Karachi 1994 PTD 123.

(6) COCA COLA Export Corporation v. IAC of Income Tax (I&C), Range II, Companies Zone-1, Lahore 2002 PTD 1496.

10. Mr. Nasrullah Awan the learned counsel for the respondent contended that the Tribunal has decided the appeals on simple appreciation of facts and the proposed questions are all questions of facts and therefore, this Court in exercise of its power under section 136(2) of the Income Tax Ordinance, 1979 cannot give its opinion on the questions of facts and therefore, the Tribunal has rightly refused to refer the questions for the opinion of this Court. He stated that both the Income Tax Officer and the Income Tax Appellate Tribunal have given exhaustive and cogent reasons for rejecting the books of accounts and estimating the sales and gross profit for, all the assessment years.

11. We have examined the above reference applications in the light of the proposed questions, the arguments of the learned counsel and have carefully perused the records of the case including the impugned judgment and the judgments relied on by the learned counsel.

12. On the above examination, we find that all the questions proposed by the applicant are questions challenging the decision of the Tribunal which was made on the appreciation of facts and therefore, all these questions are questions of facts since they pertain to the factual position of the case and do not challenge any finding of law by the Tribunal. We have also examined questions No.3 and 4, pointed out by the learned counsel in support of his contention that these are questions pertaining to misreading of facts and distortion of evidence. We are afraid that we are not able to accept this contention. of the learned counsel as in our view these questions do not challenge the rejection of accounts on the basis of misreading of facts or distortion of evidence. We are, therefore, of the opinion that under our limited advisory jurisdiction under section 136(2) of the Income Tax Ordinance, 1979, we are not empowered to answer these questions and we concur with the Tribunal that these questions are questions of fact and since no allegation has been made in this question that the decision of the Tribunal is based on misreading of facts or distortion of evidence, therefore, we refuse to answer these questions for all the assessment years.

13. However, the matter does not end here. On examining all the impugned orders we find that whereas the applicant had filed appeals against the order of the CIT (Appeals) for all the assessment years in question, the department had filed appeal against the order of the CIT (Appeals) for the assessment year 1988-89 and therefore, we are of the view that for the other four years against which the Department had not filed any appeal, the maximum the Tribunal could do was to dismiss the appeals of the applicant and maintain the order of the CIT (Appeals) and therefore, the Tribunal's decision of vacating the orders of the C.I.T. (appeals) on the point of the rejection of trading accounts and restoring the rejection of trading accounts and maintaining the estimate of sales and reducing the gross profit from 30% to 27%, is in excess of their powers under section 135 of the Income Tax Ordinance, 1979, specially, as they had not issued any mandatory notice for enhancement which, in our opinion, was necessary to disturb the orders of the CIT (Appeals) and therefore, these orders cannot be sustained. Another error committed by the Appellate Tribunal, in -our opinion, is that they had with the consent of the parties maintained the rejections of the accounts for the assessment years 1989-1990 to 1992-93 on the basis of finding given for the assessment year 1988-89. It is a settled law that for the purposes of the assessment of the income tax every assessment year is a separate year and therefore, basing the rejection of accounts for the assessment years 1989-1990 to 1992-1993 on the basis of findings given for the assessment year 1988-89, cannot be sustained. Even the alleged consent given by the parties cannot legalize this judgment because it is also a settled law that there can be no consent/agreement against the law.

14. Coming to the orders of the Tribunal for the assessment year 1988-89, we find that the reasons of rejection of accounts given by the Tribunal differ from the reasons for rejection of accounts given by the Income Tax Officer and the facts and figures highlighted in the order of the Tribunal of which the Tribunal has based its judgment have not been substantiated with any evidence and differ from facts and figures given by the Income Tax Officer and accounts. Prima facie it seems, although the same has not been alleged by the applicant, that the order of the tribunal for this year is also based on misreading of facts. We are also of the opinion that in the facts and circumstances of the case, the order of the CIT (Appeals) for the assessment year 1998-99 setting aside the order for de novo assessment after giving the applicant an opportunity of presenting his explanation, is a fair and just order and its modification by the Tribunal cannot be sustained.

15. We have, therefore, in the interest of justice refrained the common question for all the assessment years to read as under:--

Whether the Tribunal was justified in modifying the orders of CIT (Appeals)?

16. Foregoing are the reasons in support of our short order passed on 27-4-2007 by which we had answered the above common questions in all the income tax reference applications in negative.

17. A copy of this judgment be sent under the seal and signature of the Registrar of this Court to the Income Tax Appellate Tribunal for passing orders in consonance with the judgment of this Court.

M.B.A./I-10/KReference answered.