F.M.Y. INDUSTRIES LTD. VS DEPUTY COMMISSIONER INCOME TAX, 2014 PTD-SUPREME-COURT 1511 (2014)

(Against the order dated 3-5-2013 of the High Court of Sindh, Karachi passed in I.T.A. No.161 of 1998)

(a) Income Tax Ordinance (XXXI of 1979) [since repealed]---

----Ss. 136 & 137---Reference to High Court against judgment of Income Tax Appellate Tribunal---Appeal to Supreme Court---Questions of fact---High Court and Supreme Court cannot entertain any question on a finding of fact given by the Income Tax (Appellate) Tribunal.

(b) Income Tax Ordinance (XXXI of 1979) [since repealed]---

----S. 136---Reference to High Court against judgment of Income Tax Appellate Tribunal---Scope---Questions of law---High Court only had to give opinion on questions of law raised before it---Only those questions could be raised before the High Court which were questions of law and arose from the order of the (Appellate) Tribunal---Questions of law included questions argued before the Tribunal on which finding had either been given or not given by the Tribunal, and also those questions which were never argued but had been adjudicated upon by the Tribunal.

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

(c) Income Tax Ordinance (XXXI of 1979) [since repealed]---

----Ss. 136 & 137---Reference to High Court against judgment of Income Tax Appellate Tribunal---Scope---Appeal to Supreme Court---Scope---Questions of law neither agitated before the Appellate Tribunal nor adjudicated upon by the Tribunal---Such questions could not be raised before the High Court or Supreme Court.

Collector of Customs E&ST and Sales Tax v. Pakistan State Oil Company Ltd. 2005 SCMR 1636 ref.

Syed Shahanshah Hussain, Advocate Supreme Court for Petitioner.

Muhammad Saleem Mangrio, Advocate Supreme Court for Respondents.

Date of hearing: 27th February, 2014.

ORDER

MUHAMMAD ATHER SAEED, J.---This civil petition for leave to appeal has been filed against the judgment of the learned High Court of Sindh, Karachi dated 3-5-2013 whereby the learned High Court had dismissed the appeal filed by the present petitioner against the order of the Income Tax Appellate Tribunal (Headquarters) Karachi dated 2-4-1998 in I.T.A. No.502/KB of 1997-98.

2.Brief facts of the case are that petitioner, a company which carries on the business of manufacturing of yarn, processing of cloth and bleaching/printing services filed its return of income along with audited accounts declaring net loss of 33,385,950. The Deputy Commissioner of Income Tax issued a number of notices under sections 61 and 62 of the Income Tax, Ordinance, 1979 (hereinafter referred to as 'the Ordinance') directing the petitioner to produce the books of accounts for examination and to submit details of various accounts of receipts and expenditure and also the reasons for the decrease in the sales and considerable drop in the gross profit. According to the Deputy Commissioner of Income Tax the petitioner failed to produce the books of accounts and only furnished few details asked for. He, therefore, rejected declared income, estimated sales and gross profit and assessed the total income at Rs.32,960,053. Being aggrieved by the assessment order, the petitioner filed an appeal before Commissioner of Income Tax (Appeals-I), Karachi who vide his order dated 20-12-1997 in Income Tax Appeal No.124 allowed the appeal and deleted the additions made in the trading accounts and accepted the declared sales and gross profit. Being aggrieved by the order of the Commissioner of Income Tax (Appeals) the present respondent filed an appeal before the Income Tax Appellate Tribunal (Headquarters) Karachi who vide their order dated 2-4-1998 in I.T.A. No.502/KB of 1997-98 allowed the appeal and vacated the order of the Commissioner of Income Tax (Appeals) and restored the additions made by the Deputy Commissioner of Income Tax in the trading accounts. Being aggrieved by the order of the Income Tax Appellate Tribunal an appeal was preferred by the present petitioner before the learned High Court of Sindh. The appeal was not filed on the proper prescribed pro forma and no questions of law stated to arise out of the order of the Tribunal were stated for the opinion of the learned High Court. However on the directions of the learned High Court, the following questions were referred through a statement filed on 5-4-2006:--

(i)Whether the learned Tribunal erred in law in finding that respondent No.1 could have taken adverse action against the appellant without first issuing a notice under section 62 of the Income Tax Ordinance, 1979?

(ii)Whether the learned Tribunal erred in law in finding that respondent No.1 could depart from its own established past practice of accepting the book results without presenting cogent reasons or material on record in support of such a departure?

(iii)Whether the findings of the learned Tribunal were adequately supported by the evidence, as required by law?

3.The learned High Court vide impugned judgment held that the first question was a question of fact and need not be answered whereas they answered the second question in negative in favour of the present respondent and against the petitioner and as a consequence thereof they dismissed the appeal filed by the present petitioner.

4.We have heard Syed Shahanshah Hussain, learned Advocate Supreme Court for the petitioner and Mr. Muhammad Saleem Mangrio, learned Advocate Supreme Court for the respondent.

5.The learned Advocate Supreme Court for the petitioner initially submitted that the Income Tax Tribunal had erred in vacating the well reasoned order of the Commissioner (Appeals) and restoring the addition in the trading accounts made by the Deputy Commissioner of Income Tax and has given no cogent reasons for its action. He further submitted without conceding that even if it is assumed that the books of the accounts were not produced then the Deputy Commissioner of Income Tax could not pass an assessment order under section 62 of the Ordinance but the same should have been a best judgment assessment under section 63 of the Ordinance and while making assessment under section 63 of the Ordinance he could not draw adverse inference against the petitioner for not producing the books of accounts and could only pass a reasonable order based on his best judgment, which should not be capricious or arbitrarily but has to be based on reasons and logic. He drew our attention to the letter of the counsel for the petitioner No.M-10/T/0881/97 dated 30th May, 1997 and submitted that the books of accounts were produced through this letter and various details were filed. He submitted that while finalizing the assessment under section 62 of the Ordinance, the assessing officer was bound to issue a notice under the provisions of section 62 of the Ordinance and this was not done, therefore, the assessment as framed stands invalidated. He once again stressed his arguments that if the books of accounts were not produced, the assessing officer can only frame the assessment under section 63 of the Ordinance on the basis of the best judgment and not under section 62 of the Ordinance. When we pointed out to him that he had not referred this question for the opinion of the learned High Court, he stated that he has filed an appeal and not a reference and on the direction of the learned High Court the questions of law were submitted through a statement but in the grounds of appeal this point was agitated and the learned High Court should have considered it and given its opinion on this ground. He further argued that the reasons for the fall in the sales and decrease in the gross profit were mentioned in the Chairman's report which was a part of the annual audited accounts which were filed along with return of income and the assessing officer has not been able to give plausible reasons for rejecting this explanation. In support of his arguments he relied on the following judgment:--

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

(2)Unreported judgment of the High Court of Sindh dated 6-6-1999 in Income Tax Appeals Nos.95 and 96 of 1998.

On the basis of the above arguments, he prayed that since the order of the Tribunal is based on mis-application of the relevant law, therefore, this order and the impugned judgment upholding the same be set aside and order of the Commissioner (Appeals) restored.

6.The learned Advocate Supreme Court for the respondent strongly opposed the arguments of the learned Advocate Supreme Court for the petitioner and supported the impugned judgment. He submitted that the books of accounts were never produced before the assessing officer and the learned Tribunal has given a finding of fact that the books were not produced and in view of this factual finding there was no need for issuance of notice under section 62 of the Ordinance. He further submitted that along with notices under section 61 of the Ordinance for the production of books of accounts and submission of details a number of notices under section 62 of the Ordinance which have been reproduced in the assessment order had been served on the petitioner but remained un-complied with and therefore the assessing officer had no other option but to finalize the assessment under section 62 of the Ordinance on the basis of the available details and information. He, therefore, prayed that the petition being devoid of merit may be dismissed.

7.We have examined the case in the light of the arguments of the learned counsel for the parties and have also perused the records of the case including the assessment order, the orders of the Commissioner of Appeals, and the Income Tax Appellate Tribunal and the impugned judgment and the judgments relied on by the learned counsel for the petitioner.

8.We have also perused the letter of the assesse's counsel dated 30th May, 1997 in which it has been mentioned that the books of accounts are being produced. On this point the assessing officer in the assessment order has observed that on 30th May, 1997 no one attended nor books were produced. However, this letter was acknowledged to the following extent:--

(i)Sufficient time was not allowed by this office. According to them details asked for by this office require at least 20 days to comply with.

(ii)Preparation of details of sales and purchases was just not possible in just 7 days which according to them was provided by this office.

(iii)Reasons for fall in GP are given in Director's report annexed with audited accounts.

(iv)Certain other details were claimed to have been enclosed with tax advisors letter. However, factually there were non and Mr. Saleem of Messrs Ebrahim & Co. was informed about this on telephone on the same day.

(v)The Tax Advisor promised to furnish remaining details in due course.

9.Even otherwise as mentioned above, it is a question of fact that the books of accounts were never produced before the assessing officer and this factual finding of fact has been given by the Income Tax Tribunal and the learned High Court and this Court cannot entertain any question on a finding of fact. As already pointed out earlier the learned counsel for the petitioner argued at considerable length, that if books of accounts were not produced then the assessing officer should have finalized the assessment under section 63 of Ordinance and not under section 62 of the Ordinance. On our pointing out that this question was not raised before the learned High Court, he argued that he had filed an appeal and not a reference and mentioned this ground in the grounds of appeal but in the question of law filed on the direction of the learned High Court it was not mentioned, but he should have been allowed to argue on the basis of its mention in the grounds of appeal. We may in this connection refer to the judgment of the learned Lahore High Court in the case of Iram Ghee Mills (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore (1998 PTD 3835) in which the learned High Court held as under:--

"From the aforesaid juxta-positional study of the old and new provision, we are quite clear to hold that amended section has not altered fundamentals of jurisdiction of this Court. The statutory mechanism of moving the Income Tax Tribunal in the first instance, had been totally eliminated and the Assessee/Tax Payer/Commissioner had been blessed with a right to claim answers on question of law from this Court straightway. On this view of the matter, it is thus clear that the change brought in the nomenclature of this provision is cosmetic in nature and is designed to obligerate procedural pre-conditionalities. Manifestly, neither the nature of jurisdiction of this Court nor its ambit has been changed. This amendment has been made in deference to observation of Supreme Court made in Pakistan v. Majistic Cinema (PLD 1965 SC 379). On this analysis of old and new provision, we have thus, reached the conclusion that the expression 'appeal' employed in the new provisions is simply cosmetic in nature and powers of this Court under the old section."

10.A perusal of the above extract reveals that the learned High Court only has to give opinion on questions of law raised before, it and not on the grounds mentioned in the appeal. It is now a settled law that only those questions can be raised before the learned High Court which are questions of law and are arising from the order of the Tribunal. Questions of law have been held to include questions argued before the Tribunal on which finding has been given by the Tribunal or questions argued before the Tribunal but no finding has been given by the Tribunal on such questions and questions which were never argued but had been adjudicated by the Tribunal. The question whether assessment should have been finalized under section 62 or 63 of the Ordinance does not fall under any of these categories. It was not argued before the Tribunal nor adjucated by the Tribunal. We, therefore, regret that this question do not merit consideration by us at this stage. In this connection we would also refer to the judgment of this Court in the case of Collector of Customs E&ST and Sales Tax v. Pakistan State Oil Company Ltd. (2005 SCMR 1636) where this Court held as under:--

"Perusal of section 196 of the Act reveals that High Court can exercise its jurisdiction only in respect of questions of law arising out of order under section 194-B of the Act. It is significant to note that before the Customs hierarchy plea of limitation was not raised. It being so, the High Court was not competent to consider said plea, as it was neither raised, before the Collector Customs, nor before the Tribunal. There is no discussion on the point of limitation in the orders passed by the Collector Customs and the Tribunal. Question of limitation is a mixed question of law and fact and unless it was raised before the forum below, it could not straightway be agitated before the High Court. It can be concluded that such question never arose from the order passed by the Tribunal. Factual controversy is sorted out up to the level of the Tribunal. Remedy under section 196 is restricted to legal points only, which was not available to the respondent-Company before the High Court."

From a perusal of this extract it is clear that a new question of law that has not been agitated before the Tribunal cannot be raised before the High Court or this Court.

11.We have also examined the judgments relied on by the learned Advocate Supreme Court for the petitioner. These judgments are distinguishable. In the case of Krudd Son quoted (supra), the books of accounts were produced before the assessing officer and therefore the mandate of provisions of proviso to section 62(1) of the Ordinance was applicable. Whereas in the unreported judgment, it was held that the assessment under section 63 of the Ordinance was capricious whereas in the case before us the Tribunal has held that the assessment order was fair and reasonable.

12.From a perusal of the order of the Tribunal it is seen that the Tribunal has very ably discussed all aspects of the case and has given cogent reasons for vacating the order of the Commissioner of Appeals and restoring the additions made by the assessing officer. We are also of the view that the learned High Court has effectively dealt with the questions referred before it and adjudicated upon the same in accordance with the provision of section 136 of the Ordinance. We are, therefore, of the considered opinion that the impugned judgment and the order of the Tribunal are unexceptionable and the order of the Commissioner of Appeals is full of discrepancies and assumptions and has, therefore, rightly been vacated by the Tribunal and the learned High Court.

13.Resultantly, this petition being devoid of merit is dismissed and leave to appeal refused.

MWA/F-1/SCPetition dismissed.