COMMISSIONER OF INCOME TAX, NOW COMMISSIONER INLAND REVENUE, LAHORE VS AYESHA WOOLEN MILLS (PVT.) LIMITED, 2014 PTD-SUPREME-COURT 215 (2013)

(On appeal from the judgment dated 9-12-2011 passed by the Lahore High Court, Lahore in I.T.As. Nos. 45, 46, 47, 48 and 49 of 1998.)

Income Tax Ordinance (XXXI of 1979)---

----S. 62(1), proviso---Constitution of Pakistan, Art. 185(3)---Statutory notice, non-issuance of---Defect in books of accounts---Proof---Authorities were aggrieved of order passed by High Court, whereby trading accounts of assessee were accepted---Validity---No notice as specified under proviso to S.62(1) of Income Tax Ordinance, 1979, was issued and assessing officer without pointing out any defects in books of accounts rejected the same---No discussion had been made by assessing officer on alleged qualification of auditor's report and on the basis of such disqualifications no addition was made and question which was raised before High Court was not properly framed---Judgment passed by High Court was well written and was unexceptionable and no interference was called from Supreme Court---Petition was dismissed.

MuhammadIlyasKhan,AdvocateSupremeCourtand A.H. Masood, Advocate-on-Record for Petitioner (in all cases).

Mian Ashiq Hussain, Advocate Supreme Court for Respondent No.1 (in all cases).

Date of hearing: 18th June, 2013.

JUDGMENT

MUHAMMAD ATHER SAEED, J.---These Civil Petitions for Leave to Appeal have been filed against the common judgment of the learned Lahore High Court, Lahore dated 9-12-2011 in I.T.As. Nos.45 to 49 of 1998 whereby the petitioner had preferred following question of law for the opinion of the learned High Court:--

"Whether under the facts and circumstances of the case, learned ITAT was justified to direct acceptance of accounts despite a qualified certificate by the Chartered Accountants which stated that they had neither carried out valuation of stock and stores nor verification of markup payable, nor examined the bills payable for verification as stated in note 10(2) of the balance sheet?"

This question was answered by the learned Lahore High Court in affirmative in favour of the respondent and against the petitioner.

2.Brief facts of the case are that the respondent is a limited company engaged in the manufacture of woolen fabrics, acrylic and woolen yarn. Its assessments for the assessment years 1988-1989 to 1992-1993 were completed under section 62 of the Income Tax Ordinance, 1979 but the assessing officer had rejected the trading accounts and computed the total income by estimating sales and gross profit and making certain additions in the profit and loss accounts. Being aggrieved by the assessment orders, the respondent filed appeals before CIT (Appeals) and certain reliefs were allowed to him by first appellate authority by reducing its sales and gross profit. The respondent and the petitioner filed further appeals before the Income Tax Appellate Tribunal who dismissed the appeals filed by the department but accepted the appeals filed by the respondent to the extent that the declared trading result was directed to be accepted. Being aggrieved by the order of the Tribunal, the present petitioner filed Appeals before the learned Lahore High Court seeking its opinion on the question of law referred to as above, which were dismissed vide impugned judgment. Hence these petitions for leave to appeal.

3.We have heard Mr. Muhammad Ilyas Khan, Advocate Supreme Court learned counsel for the petitioner and Mian Ashiq Hussain, Advocate Supreme Court learned counsel for the respondent.

4.The learned Advocate Supreme Court for the petitioner referred to the report of Auditor and submitted that auditors have stated that they have not verified the stocks and spares and relied upon the certificate of management and they have also not obtained balance confirmation from the banks in respect of markup payable and bills payable were not made available for verification. He, therefore, submitted that even in accordance with the auditor report the accounts of the company were not properly audited as certain information was not provided to the auditor, therefore the accounts cannot be relied upon and were rightly rejected by the assessing officer and suitable additions were made in the light of the past history of the case. He, therefore, prayed that the impugned judgment and the orders of the fora below may be set aside and the assessment order may be restored.

5.The learned Advocate Supreme Court for the respondent opposed the arguments of the learned Advocate Supreme Court for the petitioner and supported the impugned judgment. He submitted that the accounts were fully verifiable, the account books were presented before the assessing officer but without issuing notice under proviso to section 62(1) of the Income Tax Ordinance, 1979 and pointing out the defects in the books of the accounts the same were rejected. He further submitted that procedure provided in this section is mandatory in nature and if it is not followed in letter and spirit the rejection of the accounts cannot be sustained. He further submitted that the question of law referred for the opinion of the learned Lahore High Court does not arise from the order of the Tribunal as the learned Tribunal has given a factual finding that no defect was found in the books of accounts; purchases were admittedly verifiable and no charges have been levelled regarding inflated debit side of the trading account. It has also been held that the department has not proceeded under section 32A of the Income Tax Ordinance. He, therefore, prayed that these petitions being meritless may be dismissed.

6.We have examined the case in the light of the arguments of the learned counsel for the parties and have carefully perused the records of the case.

7.A perusal of the impugned judgment reveals that it is very well written judgment in which all aspects of the audited accounts of the respondent have been discussed in detail and correct conclusion reached. We have also gone through the assessment order and seen that no notice as specified under the proviso to section 62(1) of the repealed Ordinance was issued and the assessing officer without pointing out any defects in the books of the accounts rejected the same. We have also seen that apparently no discussion has been made by the assessing officer on the alleged qualification of the auditor report and on the basis of these disqualifications no addition was made and the question which was raised before the learned Lahore High Court was not properly framed.

8.On the basis of above discussion, we are of the considered opinion that the impugned judgment is very well written and is unexceptionable and no interference is called from this Court. We, therefore, dismiss these petitions being merit-less and refuse to grant leave to appeal.

MH/C-12/SCPetitions dismissed.