COMMISSIONER OF INCOME TAX, CENTRAL ZONE-A, KARACHI VS Messrs CASH & CARRY SUPER MARKET LTD., KARACHI, 2008 PTD-KARACHI-HIGH-COURT-SINDH 808 (2007)

Income Tax Ordinance (XXXI of 1979)---

----S.136(1)---Reference---Gross rate of profit---Applicability---Principle of consistency---Assessee was a retail departmental store dealing in innumerable goods---Income Tax Appellate Tribunal had accepted declared gross profit of assessee although it was not maintaining quantitative analysis, on the ground that it was not possible to maintain record of quantities bought and sold by a retail stores dealing in innumerable goods---In previous two assessments of the assessee, gross profit was accepted and authorities did not file any reference before High Court---Validity---Reasons assigned by Income Tax Appellate Tribunal were unexceptionable and in view of non-filing of reference applications against the order for previous years, the department had accepted order of the Tribunal---High Court keeping in view the previous history of the case of assessee, answered the question referred in affirmative---Reference was accepted in circumstances.

Nasrullah Awan for Applicant.

Munawar Hassan, holding brief on behalf of Faroagh Naseem for Respondent.

ORDER

Through this reference application under section 136(1) of the Income Tax Ordinance, 1979, the Income Tax Appellate Tribunal, Karachi has referred following question of law for the opinion of this Court, which relates to the case of the respondent for the assessment year 1986-87:---

Whether on the facts and circumstances of the case the ITAT was justified in accepting declared gross profit when quantitative record of buying and selling transactions was admittedly not maintained by the assessee and sales were made through an NCR machine which did not have sealed memory system.

Relevant facts reproduced from the order of the Tribunal dated 8-2-1990, read as under:--

The assessee is running a self-service market at Clifton dealing in a variety of goods like grocery, medicines, crockery, ice cream, etc. Gross Profit @ 12.5% was declared on sales amounting to Rs.54.96,320 for the accounting year relevant to assessment year 1986-87. The I.T.O. rejected the declared gross profit by holding that quantitative analysis of buying and selling transaction has not been maintained and the NCR cash registered through which cash memos are issued to the customers, does not have sealed memory system. Due to this defect there was no proof which could be examined by the I.T.O. to see if the selling rates are recorded properly or otherwise. As far as purchases are concerned, he was not able to point out any defect. After noting that super store is situated in a posh locality of Karachi and it is well stocked he estimated sales at Rs.70,00,000 and calculated gross profit thereon by applying 20% gross profit rate. On an appeal made by the assessee the learned C.I.T.(A) confirmed the G.P. rate but directed the I.T.O. to accept the declared gross profit because the I.T.O. had rejected books of accounts without mentioning specific defects in books of accounts and by making general observations about NCR cash registers. It was further observed that the assessee cannot be penalized for non-maintenance of quantitative analysis because it is not possible to maintain record of quantities bought and sold by a retail store which deals in innumerable goods.

Perusal of case record further reveals that same controversy as regards the applicability of the gross rate of profit was involved 'in the case of the respondent for the past two assessment years viz. 1980-81 and 1981-82 and was decided favour of the assessee vide common order dated 24-9-1988 which was later on challenged before the Tribunal.

Mr. Nasrullah Awan learned counsel for the department has candidly conceded that against the earlier order of the Tribunal for the previous years, no reference applications were filed by the department thereby accepting the view taken by the Tribunal wherein it was held that the applicable gross profit rate was at 12.5 per cent.

We have considered the submissions of the learned counsel and perused the record which goes to show that the Tribunal in its order dated 24-9-1988 had decided the case in favour of the assessee as regards the applicability of gross profit rate for the following reasons:---

Maintenance or non-maintenance of one register or another is not as much material as is the examination of books of accounts produced by the assessee and the defects detected therefrom. It is the duty of the Income Tax Officer, when he is not satisfied with the book result, to find out the real income either through local inquiries or cross verification. What we painfully observe is the growing reluctance of the Assessing Officer to examine the books of account of even the details filed by taxpayers. They should be in mind that books means to ascertain the real income of a taxpayer. They are not an end themselves .The duty of the I.T.O. starts with the examination of these documents. If their production or non-production is simply mentioned in the assessment order the purpose is not served and the true income is never determined. This dereliction of duty can cause considerable loss to the Government revenue.

8. In view of above discussion and the fact that no specific defects have been pointed out and the remarks made in the assessment orders being of general nature we do not agree with the rejection of the trading results and, therefore, direct that the books version of the appellant should be accepted for all the three years under appeal.

In our view such reasons are unexceptionable and further in view of the non-filing of reference applications against the order- for the previous years the department has accepted such order of the Tribunal. This being the position and keeping in view the past history of the case A of the respondent, we answer the question referred in the affirmative and dispose of this reference application accordingly.

M.H./C-1/KReference accepted.