Since identical questions of fact and law arise in Criminal Miscellaneous Applications Nos. 624 and 625 of 1977, both these cases are being disposed of by a common judgment.
2. The applicants Yacub, Muhammad Shall and Muhammad Hanif are partners of a registered firm known as Messrs Elphy Jewellers, who carry on business at Shahrah-e-Iraq, Karachi, for the purposes of their income-tax assessment the jurisdiction vests in the Income-tax Officer of Circle 'M', East Zone, Karachi. For the assessm ent year 1972-73 the return was filed by the registered firm of Elphy Jewellers. The complaint that had been filed in the case does not, however, indicate as to who had signed the return. After completion of assessment proceedings Syed Zafar Abbas, Assistant Income-tax Officer filled a complaint under sections 51 (2) and 52 of the Income-tax Act before the Special Judge (Customs and Taxation), Karachi. The allegations briefly are that for the relevant assessm ent year total sale declared were Rs. 16,309 but no proper books of account were maintained. However, the complaint goes on to state that the assesses had received advances to the extent of Rs. 1,250 from the customers but such amount has I not been shown in the books of account nor in the total sales. The complaint further states that the amounts were returned to the customers. The complaint does not state as to why such statement was disbelieved but for the purpose of computation of taxes the Income-tax Authorities disbelieved that statement.
Additionally the allegation is that on the expenditure side the amount shown in the return was lower than the amount disclosed by one Yacub in his statement before the Income-tax Officer. On such premises the Income-tax Officer filed a complaint which is the subject matter of Criminal Miscellaneous Application No. 624 of 1977.
3. The other case which is the subject-matter of Criminal Miscellaneous Application No. 625 of 1977 also a relates to the same assessee and the same accused persons are impleaded. The assessm ent year to which the case pertains is 1973-74. It is said in the complaint that the assessee did not produce the order book but the same was seized by the Department. Such book revealed that the assessee had booked orders amounting to Rs. 1,51,945 but the total sales amounted to Rs.
1,38,160. On such premises the Income-tax Officer came to the conclusion that the income has been suppressed and thereby the three applicants were liable to be convicted and punished under sections 51 (2) and 52 of the Income-tax Act.
4. I have heard Mr. Muzaffar Hussain Shah, Advocate for the applicants, Mr. Abdul Latif Khan, Advocate for Mr. Mansoor Ahmad Khan, Advocate for the Income-tax Officer and Mr. Murtaza Hussain, Advocate for the State. Mr. Murtaza Hussain has supported the application for quashment of proceedings arising out of these two cases. Mr. Abdul Latif has sought an adjournment on the ground that the Central Board of Revenue has not instructed Mr. Mansoor Ahmad Khan. I have rejected this motion for adjournment as these applications were filed more than sixteen months back and opportunities had earlier been granted to Mr. Mansoor Ahmad Khan to obtain instructions.
5. The main argument of Mr. Muzaffar Hussain Shah is that the assessment of income made by the Income-tax Officer has been set aside by the Income-tax Appellate Tribunal in both the cases. A copy of the order has been placed on the record of each case. On a reading of the order in the case relating to assessm ent year 1972-73 it is clear to me that the mode of accounting adopted by the income-tax Officer did not find favour with the Income-tax Appellate Tribunal. The Tribunal in its judgment has stated as follows :- "In regard to the estimate of sales income in 1973-74 it is not clear why the Income-tax Officer has taken sales made outside the order books at 1,50,000. As according to the appellant most of the sales are through order book, after due consideration, this year's sales will now be taken at Rs.
1,75,000 against Rs. 1,38,160 shown on which Gross Profit as disclosed will be applied."
6. Again in the other case relating to the assessment year 1973-74 the order of the Income-tax Officer has not been upheld by the Income-tax Appellate Tribunal on precisely same process of reasoning as was adopted in the other case-
7. On a reading of the, complaint in either case I have come to the conclusion that the assessment made by the Income-tax Officer was on the basis of estimates and by rejection of the account books. To that extent Income-tax Appellate Tribunal tied recorded a divergent finding. To say the, least the assessm ent has not been upheld. It is also open to serious doubt whether a person can be saddled with criminal liability on the basis o an assessment order proceeding on estimate of income in the background books. However, that is a broader question which need of concealment of b not be determined in the present case.
8. My attention has also been drawn to three decided cases of t Court reported as Ha/1 Suleman v.
The State (1975 P Cr. L J 67), Zafar Ahmad Khan v. The State (1975 P Cr. L J 1300) and Fazal Elahi v.
The Assistant Income-tax Officer (1975.P Cr. L J 538). In each one of these cases the basis for quashment was that the assessm ent order had been set aside. The learned Single Judges, who decided the three cases cited above, quashed the criminal proceedings for the reason that the same were unwarranted as the assessment itself had been quashed. I respectfully agree with the process of reasoning adopted in each one of these three decided cases.
9. In the result the applications in both the cases are allowed and the proceedings pending before the Special Judge (Customs and Taxation), Karachi, are quashed. Since the Income-tax Officer would have to recompute the income by fresh assessment it shall be open to him t prosecute the applicants again if the facts disclosed in the fresh proceedings warrant a fresh cause of action.