Imdadally H. Agha, J.-This is a Reference dated 22-8-1966, made to this Court by the President of the Income Tax Appellate Tribunal Karachi under Section 66(1) of the Income Tax Act, 1922. The question referred for the opinion of the Court is as follows:- "Whether in the facts and circumstances of this case there was any material before the Tribunal to confirm the rejection of book results and upholding the application of the proviso to Section 13 of the Income Tax Act."
2. This matter arises out of the assessment by the concerned Income Tax Officer of the firm named and styled as Messrs Haider Ali Rajab Ali & Co., Hyderabad. This assessee firm carries on business in purchase and sale of tobacco and import and sale of Biri leaves. The firm has its Head Office at Hyderabad and a branch at Dacca and has adopted the calendar year as their accounting year.
For the calendar year 1960 assessable in the assessment year 1961-62 the assessee firm filed their returns of income showing a net taxable profit of Rs. 1,18,670. The particulars of the statement of their account is shown in the statement of facts by this firm which they filed alongwith their application under Section 66(1) of the Income Tax Act, 1922 before the Income Tax Appellate Tribunal for referring the present question of law mentioned already above to this Court and this statement of account is at page 16 of the paper book. In this statement of account the firm has disclosed over all sales of the tobacco and the Biri leaves to the turns of Rs. 29,58,737. However, the above figures of overall sales of the said two commodities and profit shown thereon by the firm was not accepted by the Income Tax Officer and he estimated the overall sales of the said two commodities and profit shown thereon by the firm was not accepted by the Income Tax Officer and he estimated the overall sales of the said two commodities at Rs. 30,00,000 and applied a flat rate of gross profit at 12 per cent. The Income Tax Officer in his assessment order dated 12- 7-1964, inter alia, observed for coming to the above conclusion of estimate by him as under:- "The assessee has not maintained the blending or processing Register. At least it has not produced them before me. Similarly the assessee has not produced before me the slotwise sales account of its Dacca branch, on account of which quantitative tally is impossible. In the absence of this I cannot accept his accounts or the declared G. P. And adopt a G. P. of 12% since its turnover quite substantial.
Similarly the G. Pi declared in imported Indian Beedi leaves business is ridiculously low. This commodity is not available in this country. It has to be imported from Bharat. This has always been in shot supply, on account of which this was being smuggled and sold at exorbitant rates. After the advent of Martial Law when smuggling was completely stopped and when import licences of this commodity were slashed the demand for this was even greater because the entire Beedi industry depended on this and they were prepared to purchase it at any cost. It was being sold in black market and 'on money' was being charged ft is an open secret and everybody knows it. In view of these conditions I refuse to believe that the assessee made only that much of the profit as it declared. Many of the Beedi manufacturers and retail Beedi leaves dealers have admitted the payment of this 'on money'.
Even last year in view of similar conditions the assessee had agreed to a substantial addition of Rs.
57,070 out of which a sum of Rs. 30,000 had been in respect of Beedi leaves. This year after discussion other Beedi leaves importers have agreed to an addition of Rs. 125 per bag apart from the income already shown as in G. I. R. Nos. 2303/C. The same is being added in this case also. The assessee imported 244 bags of Indian Biri leaves I, therefore, add a sum of Rs. 28,000 as additional income from this unaccounted for in the book of account as in the case of all other Beedi leaves importers to which they have agreed in writing."
3. The assessee firm being aggrieved by the said order of assessment by the Income Tax Officer preferred an appeal to the Income Tax Appellate Tribunal, Karachi Bench, Karachi. This appeal was also dismissed with some slight modification by the Tribunal on 19-1-1966. In their order of dismissal the Tribunal, inter alia, has made the following observations for dismissing the appeal:- "After giving our due consideration to the fact of the case we are of the opinion that so far as the rejection of the account version in the tobacco and Biri leaves accounts is concerned, it was fully justified on the basis of the facts on record. The appellant had not produced the Excise registers before the Income Tax Officer obviously for proper scrutiny of the quantitative details. The profits disclosed were also low for which no satisfactory explanations were forthcoming even before us. In keeping with the past history, therefore, the application of 12% on the estimated turnover of Rs.
30,00,010 was fully justified. However, rectification is called for in respect of the profit disclosed by the appellant as from the assessm ent order omission is patent.
So far as the Biri leaves are concerned we again find that the appellant was not an exception to the prevalent on money practice at Hyderabad and as such the Income Tax Officer was justified in making the addition of Rs. 125 per bag which was charged by similar other importers. We, therefore, refuse to interfere with this addition also. However, we direct that in case the addition is based on 244 bags, the Income Tax Officer should rectify this addition also and scrutinise the appellant's claim that only 214 bags were imported.
In the resuit therefore, the appeal would succeed to the extent of rectification directed above. The Income Tax Officer is also authorised to revise the assessments of partners as this is the case of a registered firm."
4. The assessee firm thereafter made an application to the said Appellate Tribunal for referring to this Court several questions of law mentioned in this application under Section 66(1) of the Income Tax Act, 1922, but the Tribunal has referred only one question of law for the opinion of this Court which has already been reproduced above in the first paragraph of this judgment and need hot be repeated.
5. From the observations in the assessment order by the Income Tax Officer reproduced above it will be seen that the Income Tax Officer held that the assessee firm had not maintained the blending or processing register or it had not been produced before him and also that the assessee firm had not also produced before him the slotwise sales account of its Dacca branch on account of which quantitative tally was impossible. He further observed that in the absence of this he could not accept the accounts of the assessee firm or the declared Gross Profit and adopted a gross profit of 12% since the turnover of the assessee firm was quite substantial. It will, therefore, be seen that the Income Tax Officer has not accepted the accounts of the assessee firm and proceeded to compute the income, profits and gains of the assessee firm under the second part of the first proviso to Section 13 of the Income Tax Act, 1922 which section with the said proviso is as follows:- "13. Income, profits and gains shall be computed for the purposes of Sections 10 and 12 in accordance with the method of accounting regularly employed by the assessee: Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income Tax Officer, the income, profits and gains cannot properly be deducted therefrom, then the computation shall be made upon such basis and in such manner as the Income Tax Officer may determine."
However, in the appeal preferred by the assessee firm to the Income Tax Appellate Tribunal this question of law whether in the facts and circumstances of this case there was any material before the Tribunal to confirm the rejection of the back results and upholding the application of the provision to Section 13 of the Income Tax Act has been referred to us, ae already mentioned above.
This question it will be seen is a very narrow one as all it requires is an opinion by this Court w.hether in the facts and circumstances of this case there was "any material" before the Tribunal to confirm the assessm ent of the assessee firm under the said proviso of the aforesaid Section 13. All that this Court consequently has to see is whether there was "any material" before the Income Tax Appellate Tribunal to confirm the assessment of the assessee firm by the Income Tax Officer. In the arguments by the learned counsel for the assessee firm, a contention was raised by him that the Income Tax Officer had required the assessee firm to produce the blending register E. B.-III and slotwise account Of Dacca by 27th of June, 1964 by his letter dated 23rd June, 1964, but on 27th June, 1964 a request for adjournment upto 30th June, 1964 was made on behalf of the assessee firm on the ground that the Accountant did not know anything about the blending register and the Managing Partner Rajab Ali had gone out of station and was expected back by the 30th June, 1964.
It is also alleged that the assessee firm's representative phoned the Managing Partner at Mardan where the latter had gone to make purchases of tobacco, but the Managing Partner, however, informed them that some transactions were in progress and in such a short notice he would not be able to return by 30th June, 1964. He was, however, returning on lst July, 1964 by Lahore Express. On 30th June, 1964 the assessee firm's Accountant and the Income Tax practitioner attended the office of the Income Tax Officer with account books and requested him to allow them to present the register by 2nd July, 1964 but the Income Tax Officer rejected their application. On these facts it is argued by the firm's counsel that the Income Tax Officer had wrongly refused to grant adjournment for the production of the necessary documents above mentioned by the firm and that the assessee firm in the appeal before the Income Tax Appellate Tribunal had also made a request to the Tribunal to take on record these account books but it had not done so, therefore, he argued that these documents should now be considered by this Court in deciding the present question. In fact, the learned counsel also filed true copies of the two affidavits sworn by Shakir Hussain, Income Tax Practitioner of the assessee firm and that of Fazal Ali, a partner in the assessee firm, showing that the request was made to the Appellate Tribunal for receiving the above documents but obviously this point raised by the learned counsel of non-acceptance of the documents in question and the reference to the two affidavits just mentioned above cannot be upheld nor these documents can be looked into for the simple reason that the question that arises for our decision is whether there was "any material" before the Tribunal to confirm the assessment of the firm by the Income Tax Officer, therefore, what we have to see is whether on the material before the Tribunal where the assessm ent of the firm made ny the Income Tax Officer was right and proper as confirmed by the Appellate Tribunal or not? No further material can be brought on record or the Appellate Tribunal can be asked to send it to us as the question to be decided, as already, said is to be determined on the material that was available before the Appellate Tribunal. We cannot, therefore, look into any additional material which might be more than any material that was present before the Income Tax Appellate Tribunal for the purpose of decision of the present question of law referred to us. This contention of the learned counsel for the assessee firm, therefore, fails.
6. Next the learned counsel for the assessee firm has contended that this Court for the purpose of decision in this case can look at all the documents as contained in the paper book of this case before us which consists of the order of reference, the order of assessment by the Income Tax Officer, the order of the Income Tax Appellate Tribunal, the application by the assessee firm for reference of the present question of law to this Court under Section 66(1) of the Income Tax Act, 1922 and the statement of facts attached to this application by the assessee firm, In support of this contention of his the learned counsel has relied upon the case of Messrs G I. M. Gregory & Co. (1937)
5 I T R 12, wherein at page 41 of this report it has been observed as under:- "Counsel for the assessee argues that we are not entitled to look beyond the Commissioner's specific findings of fact, and that, if they are not sufficient to justify his opinion, we must either refer the case back or decide in favour of the assessees. In my opinion this is an unnecessarily narrow interpretation of our powers under Section 66(5). The point of law to be decided is not a hypothetical point, but a specific point raised by the facts of the particular case. The documents and proceedings annexed to the statement of the case are annexed for our consideration, and we are entitled to look at them."
By this authority it will be seen that we can look at all the documents which are contained in the paper book before us for the decision of this case and no law or reported case to the contrary has been cited by the learned counsel for the Income Tax Appellate Tribunal. It is, therefore, permissible for us to look into all the documents as contained in the paper book which position in law appears to be quite sound and correct.
7. Before I take up the contentions of the learned counsel for the assessee firm I would like to remark that the question referred to us in essence boils down to this "whether there was any material before the Income Tax Officer for the rejection of book results of the assessee firm and application of the second part of first proviso to Section 13 of the Income Tax Act on which the firm was assessed." In this regard it will be seen from the assessment order of the Income Tax Officer that this officer employed his computation of the income, profits and gains of the firm upon the basis and in the manner he did which he was permitted to do as the method employed by the firm of accounting was such that, in his opinion, the income, profits and gains could not properly be deducted therefrom for which he assigned the following reasons:-
(1) That the assessee firm had not maintained the blending or processing Register which admittedly had to be maintained by it or at least it was not produced before him;
(2) That the assessee firm had not produced before him the lot-wise sales account of its Dacca Branch, on account of which quantitative tally was impossible.
(3) That the gross profit declared by the assessee firm in imported Indian Biri leaves business, was ridiculously low as this article was in short supply during the period in question and was being smuggled and sold at exorbitant rates and further that many of the Beedi manufacturers and retail Beedi leaves dealers had admitted the payment of "on money" on the sale of Biri leaves.
8. The question is whether on these grounds the Income Tax Officer could invoke the provision of the second part of the first proviso to Section 13 of the Income Tax Act, 1922, and therefore acted rightly? According to learned counsel for the assessee firm the Income Tax Officer could not so act under the said provision of the Income Tax Act. His contention for saying so would be clear from the reported case- law he has relied upon to which I shall presently refer.
9. The first case cited by him was of the Pioneer Sports Ltd., Sialkot v. Commissioner of Income Tax, Punjab & N.-W.F.P. (1934) 2 ITR 305. In this case, inter alia, it has been observed as under: "In connection with the assessm ent for 1931-32 the assessee-Company filed a return accompanied by copies of its balance-sheet and trading and profit and loss accounts. The Income Tax Officer refused to accept the profits shown by the company on the ground that a trading account based on an inventory not supported by a stock book can only be accepted if it discloses a reasonable rate of profit', and estimated the profit under the proviso to Section 13 of the Income Tax Act at 30 per cent. On the miscellaneous sales and assessed the company on a profit thus computed. It appeared that the company never used to keep the stock register and the refusal of the Income Tax Officer to accept their accounts was not due to any error in the method of accounting but because he considered the rate cf profits shown to be unreasonably low.
Held, on a reference by the Commissioner, that under these circumstances the Income Tax Officer was not justified in making an assessment under the proviso to Section 13 of the Income Tax Act.
The assessm ent should have been made under the first part of Section 13.
Held also, that though it has been held that the Income Tax Officer is the sole arbitrator for determining under the proviso to Section 13 how the profits are to be computed, whether there is any evidence on which the Income Tax Officer could have come to the decision that the method of accounting is such that the gains could not be computed except by the arbitrary method contemplated by the proviso to Section 13, is a question of law into which the High Court is entitled to inquire "
It will be seen from the observations reproduced above that in the above case the assessee- Company never used to keep a stock register, therefore, the Income Tax Officer refused to accept its accounts and he considered the rate of profits shown to be unreasonably low. But in the instant case the similar facts do not exist as the Income Tax Officer has not relied upon the accounts of the assessee firm for three reasons at least, i.e. because the blending or processing register was not produced before him nor the lot-wise sales account of the Dacca Branch of the assessee firm on account of which quantitative tally was impossible and thirdly, that he had compared the profits of figures shown by the similar businessmen in the same business, therefore, it cannot be said that the above reported case is of any help to the assessee firm's case, it is clearly distinguishable.
10. The second case quoted was Pandit Bros. v. Commissioner of Income Tax, Delhi (1954) 26 I T R
159. In this reported case the following observations were relied upon:- "In all cases which fall under Section 13 of the Indian Income Tax Act 1922, there must be material before the Income Tax Officer to land him to the conclusion that the method employed is defective or that the case requires reconsideration and a new computation must be made.
The assessee carrying on a business returned an income and filed a statement of profit and loss.
The Income Tax Officer however, added a certain sum to the profit as given by the assessee on the ground that the profit disclosed by him was low and there was no stock register. The assessee maintained regular accounts of his purchases and sales and the Income Tax Officer did not say that the method employed by the assessee was such that in his opinion 'the income, profits and gains could not properly be deduced therefrom'.
Held that there was no definite finding by the Income Tax Officer that the case fell within the proviso to Section 13. Even if such finding were to be implied from his order it could not be said that there was material before him which would enable him to come to such a finding. The fact that the profits appeared to him to be insufficient and the fact that no stock register was maintained by the assessee were not materials upon which such a finding could be given but they were circumstances which might provoke an enquiry. The Income Tax Officer must discover evidence or material aliunde before he could give such a finding. In increasing the taxable income the Income Tax Officer did not adopt any method or basis and he was not acting according to the provisions of the statute."
Again, it will be seen that the above-reported case is not on all fours with the instant matter as in the present case there was sufficient material before the Income Tax Officer, as is mentioned already above, to resort to the second part of the first proviso to Section 13 of the Income Tax Act.
Aithough as held in the reported case just mentioned a definite finding by the Income Tax Officer that the case falls within the provisions of Section 13 was required and has not been specifically stated in the instant matter in the assessment order of the Income Tax Officer but this finding can be implied from the general reading of this assessment order. That an implied finding to this effect was sufficient appears also to be held in the just quoted reported case as such this case is also of no avail to the firm's case What is more is that in this reported case the assessee firm did maintain regular accounts of its purchases and sales and such accounts in the instant matter have not been produced before the Income Tax Officer as already mentioned above.
11. The third case relied upon was that of S. Veerish Beddiar v. Commissioner of Income Tax.
Travancore-Cochin, Bangalore {1960) 38 ITR 152. From this reported case observations in para. 7 at page 167 of it are relied upon which are as follows:- "7.-Section 13 of the Income Tax Act the proviso to which, according to the Tribunal, is clearly attracted in the absence of a variety-wise stock tally, reads as follows:- 13.-Income, profits and gains shall be computed, for the purposes of Sections 10 and 12, in accordance with the method of accounting regularly employed by the assessee: Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Income Tax Officer, the income, profits and gains cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Income Tax Officer may determine.
Upon the language of the section it is clear that if the assessee has been regularly employing a method of accounting and his income, profits and gains can properly be computed therefrom the assessm ent has to be made in accordance with that method of accounting and that an assessm ent under the proviso can be made only if either no method of accounting has been regularly employed by him or the method of accounting employed is such that in the opinion of the Income Tax Officer the assessee's income, profits and gains cannot properly be deduced therefrom. Commenting upon this section Kanga says at page 457 of the 4th Edition of his book on the Law and Practice of Income tax: 'The Income Tax Officer must give a definite finding that the case falls within one or the other of the two categories covered by this proviso.'
In Pandit Bros. v. Commissioner of Income Tax the Punjab High Court has said:- 'The wording of this proviso makes it quite clear that before the Income Tax Officer can reject the final statement of profit and loss given by the assessee he must either hold that there is no method of accounting or that the method employed is such that it does not disclose the true profits and losses of the firm.... in this case there is no definite finding by the Income Tax Officer that the case falls within the proviso to Section 13, for he does not say that the method of accounting employed by the assessee was such that in his opinion 'the income, profits and gains, could not properly be deducted therefor. In the second place, even if such a finding were to be implied from his order it cannot be said that there was material before him which would enable him to come to this finding.
The fact that the profits appeared to him to be insufficient and the fact that there wes no stock register maintained by the assessee and not in my view material upon which such a finding can be given, but these are circumstances which may provoke an inquiry. The Income Tax Officer must discover evidence or material aliunde before he can give such a finding'.
If the assessee has regularly employed the method of accounting even is the profit as entered in his accounts is not the true profits the Income Tax Officer will not, in the opinion of the Privy Council, be justified in rejecting his method of accounting. Their Lordships in Commissioner of Income tax v.
Sarangpur Cotton Manufacturing Co. Ltd. (1938) 6 I T R 36 observed............. the section relates to a method of accounting regularly employed by the assessee for his own purposes-in this case for the purposes of the company's business,-and does not relate to a method of making up the statutory return for assessm ent to income tax.
Secondly, the section clearly makes such a method of accounting a compulsory basis of computation unless in the opinion of the Income Tax Officer the income, profits and gains cannot properly be deduced therefrom. It may well be that though the profits brought out in the accounts is not the true figure for the income tax purposes The true figure can accurately be deduced therefrom. The simplest case would be where it appears on the face of the accounts that a stated deduction has been made for the purpose of rosery. But there may well be more complicated cases in which, nevertheless, it is possible to deduce the true profit from the accounts, and the judgment of the Income Tax Officer under the proviso must be properly exercised. It is misleading to describe the duty of the Income Tax Officer as a discretionary power.
Despite some statements is the reference which will be referred to later their Lordships agree with the High Court that the facts stated make clear that here the Income Tax Officer has never exercised his Judgment under the proviso.........................................................................
The Supreme Court had occasion to consider this proviso in Commissioner of Income Tax v.
McMillan & Co. (1953) 33 ITR 182. There was difference of opinion in that case as to whether the decision to reject the assessee's method and make the assessment under the proviso can be taken by the Income tax Officer alone or whether it may be taken by the appellate authorities also in the appeals filed against the Income Tax Officer's order. The majority view taken by their Lordships S. K. Das and Kapur, JJ., was that the decision in this behalf can be taken not only by the Income Tax Officer but also by the appellate authorities, while "the dissenting Judge, Bhagwati, J. held that it can be taken only by the Income Tax Officer. As regards the requisites for making an assessm ent under the proviso there was no difference of opinion at all. Their Lordships S. K Das and Kapur, JJ., have said in that case: The section enacts that for the purposes of Section in (profits of business, profession or Vocation) income, profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. The choice of the method of accounting lies with the assessee; but the assessee must show that he has followed the method regularly for his own purposes. This section and the proviso read together clearly make such a method of accounting regularly employed by the assessee a compulsory basis of computation unless, in the opinion of the Income Tax Officer, the income, profits and gains cannot properly be deduced therefrom, if the true income, profits and gains cannot be ascertained on the basis of the assessee's method, or where no method of accounting has been regularly employed, the income must be computed upon such basis and in such manner as the Income Tax Officer may determine'. "The word 'in the opinion of the Income Tax Officer' are not to be construed in the sense of a mere discretionary power; but in the context of the words used in the proviso to Section 13 they impose a statutory duty on the Income Tax Officer to examine in every case the method of accounting and to see (i) whether or not it is regularly employed and (ii) to determine whether the income, profits and gains can properly be deduced therefrom". The Lordships held further that the decision in regard to the method of accounting is to be arrived at first by the Income Tax Officer after a careful scrutiny of the accounts, whether they be simple or complicated, and the power is to be reasonably and judicially exercised which excludes any subjective or arbitrary decision by the Income Tax Officer; but the power so exercised is not clothed with finality and is not excluded from review by the Appellate Assistant Commissioner; and in reviewing the order the appellate authorities can exercise the same powers which the Income Tax Officer could exercise. In Support of his contention that the Income Tax Officer has an absolute discretion to decide as to whether the assessm ent should be made under the proviso to Section 13 and that his decision in this matter cannot be questioned by the High Court, the Department's learned counsel upon Ganga Ram Balmokand v. Commissioner of Income Tax (1937) 5 I T R 464, wherein it was held that: '.... under the terms of the proviso the Income Tax Officer is the only proper person to decide whether the accounts are such as reflect the true income of the assessee, and if he holds the contrary, he is at liberty to compute the taxable income of the assessee upon such basis and in such manner as he may determine ;...... the proceedings before the Income Tax Officer are not judicial proceedings in the sense in which this term is ordinarily used, and that all that is required of him is to proceed without bias and give sufficient opportunity to the assessee to place his case before him, or, in other words, to conduct himself in accordance with the rules of justice, equity and good conscience; and that the control exercisable by the High Court on the Income Tax Officer in these circumstances is slight.
"It is needless to say that after the law on the subject has been clarified by the Supreme Court in Commissioner of Income Tax v. McMillan & Co. (1958) 33 I T R 182, this decision cannot hold the field.
Following the decision in Commissioner of Income Tax v. McMillan & Co. Pandit Bros. v.
Commissioner of Income Tax (1954) 26 I T R 159, and Commissioner of Income Tax v. Sarangpur Cotton Manufacturing Co. Ltd. (1938) 6 I T R 36, we would hold that no assessment under the Proviso to Section 13 can be sustained if the Income Tax Officer or the Appellate Authority, in case of appeal) has not considered and recorded a finding against the assessee as to whether he has been regularly employing a method of accounting or whether his income, profits and gains can properly be deduced from his method of accounting if he has been regularly employing a method of accounting, and that the Income Tax Officer's decision on these matters is not to be a subjective or arbitrary decision but a judicial decision and cannot be accepted if there is no material to support his finding."
12. The above observations it will be seen merely speak of definite finding on the part of the Income Tax Officer to be given by him that the case falls within one or the other of the two categories covered by this proviso (of Section 13) and secondly that merely because not stock register was maintained by the assessee-firm, therefore, it would not be materials upon which such a finding can be given by the Income Tax Officer and thirdly that if the assessee is regularly employing a method of accounting even if the profits as entered in his accounts is not the true profits the Income Tax Officer will not be justified in rejection his method of accounting. Obviously, in the instant matter under consideration, although, as already said, no definite finding such as the one referred to above has been recorded by the Income Tax Officer but impliedly there is such a finding on his part which will be seen to be contained in the assessment order of the Income Tax Officer and that he has not merely computed the income, gains and profits of the assessee firm in accordance with the said part of the proviso of Section 13 only because there was no stock register maintained by the assessee firm in this case but there is also the reason that no accounts of the Dacca Branch were also produced and in addition there are the computative figures of other businessm en who carry on similar business which show a greater profit of return on their sales. In the instant case no question has been raised by the learned counsel for the assessee firm about the firm regularly employing a method of accounting as that question has not been argued at all. I, therefore, find that this ruling also is of no assistance to the firm's case.
13. The next case quoted is Mrs. Mirabai D. Desai & Sons v. The Commissioner of Income Tax, Bombay (1936) 4 I T R 95. In this reported case it has, inter alia, been observed as under:- "The assessee held a licence from Government to sell liquor at a shop. He entered in his accounts the amount of liquor purchased from the Government Depot and calculated the amount sold, not by the cash received but by charging the market price for the day for the amount by which the stock of liquor was diminished that day. The Income Tax Officer refused to accept this method of accounting as there was no fixed market price for liquor and made an assessment under the proviso to Section 13 adopting his own basis. He also added Rs. 82,797 in respect of Kasar. that is, selling by short measure, saying that it was a well-known fact that all liquor sellers of the locality used to sell at short measure and that the assessee must be taken to have adopted this practice.
On a reference by the Commissioner, Held (i) that the Income Tax Officer was entitled in the circumstances to reject the assessee's system of accounting and to adopt a basis of his own but he ought to have shown in the assessment order the basis on which he arrived at the price fixed by him; (ii) that the Income Tax Officer was not, however, entitled to add anything to the income of the assessee on account of Kasar by charing the assessee with a criminal practice for which there was no evidence."
14. It will be appreciated from the above observation that the assessee firm in this case was charged more by the Income Tax Officer on account of Kasar by charging the assessee on a criminal practice for which there was no evidence. In the instant matter, however, no such question of charging the assessee fine with criminal practice at all arises. As in this case the articles of the assessee firm were not controlled articles, therefore, it cannot be said that they had sold them at black- market rate which might constitute a criminal practice on the part of the assessee firm, consequently, this authority is also of no help to the firm's case.
15. Then the case cited is A. S. Sivan Pillai v. Commissioner of Income Tax, Madras (1938) 34 I T R 328.
In this case it will be seen that the question of assessment of the firm assessed arose out of sale of onions at controlled rate or otherwise. In the instant matter it is an admitted position on all hands that the tobacco or the imported Beedi leaves were not under any controlled rates as such this reported case is also of no help to the assessee's firm case.
16. The learned counsel for the assessee firm also relied upon an unreported judgment in Civil Reference No. 28 of 1960, decided by this Court on 28-2-1962, the case of Commissioner of Income Tax v. Messrs Rashid Textile Mills Ltd. In the judgment of this unreported case para 8 has been relied upon by the learned counsel which is as under: "Mr. Ali Ather, the learned Advocate for the assessee contended, the rightly too, that in the absence of any finding of the Income Tax authorities that the assessee has not maintained a regular account or employed method of accounting which in the opinion of the Income Tax Officer was such that profits and gains not properly be deduced therefrom. The authorities concerned could not discard the waste shown by the account book of the assessee on mere conjecture. It was next contended by Mr. Ali Ather that in making an assessment under Section 23(3) of the Income Tax Act, the assessing authorities were not entitled to make hers case and make an assessment without reference to any evidence or material. There is such much substance in the argument of the learned counsel for the assessee."
17. The above observations in the instant case under consideration, it will be seen, do not exactly apply as already stated by me earlier there is an implied finding by the Income Tax Officer to the effect that the assessee had not maintained a regular account or employed a method of accounting which in his opinion was such that profits and gains could not be properly deduced therefrom. Therefore, under the circumstances obtaining in the present case it cannot be said that the assessm ent done by the Income Tax Officer in this case, was merely a pure goes and without reference to any evidence or material. As such this the unreported ruling is also of no help to the assessee firm.
18. Next the learned counsel for the assessee firm relied upon the commentary in certain pages of the book of Income Tax by Kanga and Palkhivala, 4th Edition. These pages were first 456, where at in its last para, it is observed as under;- "In two cases-
(a) where no method of accounting has been regularly employed by the assessee, and,
(b) where the moshed employed is such that the income, profits and gains cannot properly be deduced therefrom the Income Tax Officer is bound under this proviso to compute the income upon a basis and in a manner determined by himself; The Income Tax Officer must give a definite finding that the case falls within one or the other of the two categories covered by this proviso. The assessee's method of accounting prevails and precludes the Income Tax Officer from computing the profits under the proviso only if it has been regularly employed and is such that the true profits can be correctly determined by it."
Further on at page 457 it has been observed as follows:~ "In Sarangpur Cotton Mfg. Co.'s case (1938) I T R 36, 40, the Privy Council further held that the Income Tax Officer cannot refuse to accept the assessee's method of accounting as a a basis of computation merely because the figure of profits shown by the assessee in the accounts is not the true figure for income tax purposes. 'It may well be that, profit brought out in the accounts is not the true figure for income tax purposes, the true figure can be accurately deduced therefrom. The simplest case would be where it appears on the face of the accounts that a stated deduction has been made for the purpose of a reserve. But there may well be more complicated cases in which nevertheless it is possible to deduce the true profit from the accounts, and the judgment of the Income Tax Officer under the proviso must be properly exercised.
It is misleading to describe the duty of the Income Tax Officer as a discretionary power'. Again, the Income Tax Officer cannot reject the accounts or the assessee's method of accounting merely because the accounts are not balanced, i.e. the aggregate of the expenditure has not been deducted from the aggregate of the gross receipts, or because the relevant accounting years of the assessee covers two dates of the 31st March. If there is no material before the Income Tax Officer to justify the finding that income cannot properly be deduced from the assessee's regular method of accounting, an assessm ent made in pursuance of this proviso would be vitiated, In the case of an assessee who maintains regular account books which are not found to be incorrect, the mere facts that a stock register is not maintainable and that the rate of profits shown by the assessee's books is considered by the Income Tax Officer to be unreasonably low may provoke an inquiry but they would not be sufficient to justify action under this proviso."
19. From the above observations in this book it will appear that the dictum laid down, generally speaking, is that in the case of an assessee, who maintained regular account books which are not found to be incorrect, the mere facts that a stock register is not maintainable and that the rate of profits shown by the assessee's books is considered by the Income Tax Officer to be unreasonably low may provoke an inquiry but they would not be sufficient to justify action under this proviso. But it will be seen in the instant matter under consideration that no account books were produced before the Income Tax Officer which can be said to make the regular maintenance of account books by the assessee firm, therefore, the above observations in the book just referred to are of no help to the firm's case. Obviously in the instant matter there are at least three reasons for the Income Tax Officer to have adopted to compute the income upon a basis and in a manner determined by himself as such the above observations in the book do not lend support to the assessee's case.
20. On the other hand, the learned counsel appearing on behalf of the Income Tax Tribunal has contended that there was not only ''any material" before the Tribunal on the facts and circumstances of this case to confirm the rejection of the book resuit and upholding the application to proviso to Section 13 of tae Income Tax Act but there was ''sufficient material" before it to do so and that the question referred to this Court for opinion be answered in the affirmative, In support of his contentions he first cited and relied upon the case of Messrs Nasir Industries v.
Commissioner of Income Tax, South Zone, Karachi PLD 1967 Kar. 561. In this reported case the question referred for the opinion of the High Court was as under: - ''Whether the Tribunal having found that 'in busine ss of this kind no manufacturing account can be maintained giving proper quantitative reconciliation' and not having found any other defects in the accounts maintained could in law apply the proviso to Section 13 of the Income Tax Act and resort to estimate the sale and rate of Gross Profits?"
The facts involved in this reported case were as follows:- "For the assessm ent year under consideration the applicant disclosed sales of Rs. 1,08,818-8-6 of finished goods and of Rs. 11,449 of raw material and an over all gross profit of 25.5% thereon. The Income Tax Officer discarded these results on the ground that in earlier years the applicants were assessed at 40% gross profits. He further found that other manufacturers of plastic goods have shown profits at 50%. In addition to this he also took into consideration the fact that the manufacture of plastic goods had made declaration of excess income which in some cases had raised the profits to 60%. According to the conclusion reached by the Income Tax Officer all the sales were not vouched and the cash memos, did not mention the name and other particulars of the purchasers. He, therefore, rejected the book resuit by order dated 7th June 1955 and estimated the total sale of finished goods at Rs. 2,00,000 and raw materials at Rs. 20,000 and applied 60% gross profit on the former and 40 on the latter."
On these facts the High Court answered the question under reference in the affirmative. It is, therefore, argued by the learned counsel on behalf of the Income Tax Appellate Tribunal that as in this reported case profits of other businessmen carrying on similar business was taken into consideration the same was done by the Income Tax Officer in the instant case also. Therefore, this ground as well supported the conclusion reached by the Income Tax Officer under consideration, it will be found that this case does help this contention of the said learned counsel and it goes to show that profits of other similar businessmen can also be taken into consideration while assessing a firm's profits, income or gains on its business, as has been done in this case.
21. The next case cited by the learned counsel is Commissioner of Income Tax v. Kassimali Ismail PLD 1963 Kar. 382, wherein it has been held as under:- "That the fact there was absence of day-to-day record of cleaning and packing done by the assessee and the entire shortage could not be verified and was excessive was sufficient material to support the Appellate Tribunal's action in reducing shortage allowed by the Appellate Assistant Commissioner."
It will be seen that this case shows that there was absence of day-to-day record of cleaning and packing done by the assessee firm as mentioned above which facts although do not exist in the instant matter in their entirety but this much is clear from the present case that the accounts of the Dacca Branch of the assessee's firm were not at all produced before the Income Tax Officer.
Clearly, therefore, on these fact the present case does in a way help the counsel who has cited it.
22. The next case relied upon by the learned counsel for the Income Tax Appellate Tribunal was Radha Debi Jalan and others v. Commissioner of Income Tax, Calcutta (1951) 20 I T R 176 at page
177. In this reported case it has been observed, inter alia, as follows:- "If the High Court could hold that there was evidence before the Tribunal on which it could properly take the view that the profits had been derived from an adventure in the nature of trade, it would not be entitled to say that the Tribunal was wrong although there might be other evidence pointing to the opposite conclusion. The evidence, however, in order that it may support the finding, must be evidence covering all the essential points. If all such points are covered, the quality or sufficiency of such evidence is not a matter for the High Court."
23. Relying on this reported case the learned counsel has contended that in this case before the Appellate Tribunal there was evidence covering all the essential points therefore, all such points were covered and as such the quality or sufficiency of such evidence was not a matter for this Court to decide upon. I think the observations in this reported case do help the learned counsel who bos cited it and the quality or sufficiency of evidence before the Appellate Tribunal was not in fact open for us to consider under the circumstances of the present case when there was enough material before it which has been mentioned in the assessment order by the Income Tax Officer.
24. Then the learned counsel for the Appellate Tribunal then has quoted the case of Messrs Govindram Bros. Ltd. v. Commissioner of Income Tax, Central Bombay (1946) 14 I T R 764 at page
772. At the last- mentioned page it has been observed as under:- "As has been pointed out by Mr. Iustice Finlay in the case of H. & G. Kinemas Ltd v. Cook (1938) 18 Tax. Cas. 116; which is a very wellknown case, to which this Court is not infrequently referred, the only matter which this Court in its advisory capacity can consider on a finding of fact is whether there is any evidence upon which the Tribunal could come to the conclusion to which it in fact came. To quote from the language of Mr. Jastice Finaly (page 121):- 'I have come to the conclusion in this case that I cannot interfere with the decision of the Commissioners. I desire to say quite definitely that it is their decision and not mine. It is not necessary that I should express an opinion, and I do not express an opinion, as to whether, if I had been in their position, I should have arrived at the same conclusion. There are two reasons, one of general application and one of special application, for eaying this. The one of general application is that this is, in my opinion, a pure question of fact. It according results that all questions of fact and of degree are for the Commissioners, and it is never proper for this Court to interfere, unless it is prepared to say that there was no evidence upon which the finding could be made.' "
25. From the above observations it will be found clear that ali question of facts and of degree are for the Commissioner of the Income Tax and it is never proper for the High Court to interfere, unless it is prepared to say that there was no evidence upon which the finding of the Income Tax Commissioner could be made. Such a situation does not exist in the instant matter as there was enough material or at least a some material before the Income Tax Appellate Tribunal upon which it came to the conclusion on which it has arrived. Therefore, it cannot be said that there was no evidence upon which the Income Tax Appellate Tribunal could reach the resuit it has actually reached. This reported case obviously, therefore, helps the case of the Appellate Tribunal.
26. The last reported case quoted by the learned counsel for the Appellate Tribunal was the case of Punjab Trading Co. Ltd. v. Commissioner of Income Tax, Simla (1964) 53 ITR 335. In the reported case it has been, inter alia, observed as under:- "The view that if accounts are prima facie regularly and properly kept and the Income Tax Officer cannot find any particular flaw in the method of accounting, he is bound to accept the profit disclosed by such accounts is not correct. The effect of such a view would be that if any assessee produces a plausible set of regularly kept accounts the Income Tax Officer is powerless to do anything about income, profits and gains in accordance with the method of accounting regularly employed by the assessee, if that method in fact does not show the true income, profits and gains, Pandit Brothers v. Commissioner of Income Tax (1954) 26 I T R 159, does not lay down as a proposition of law that the want of a stock register by which a proper check could be made is not such a serious defect as to make the proviso to Section 13 inapplicable. It is for the Income Tax authorities to consider all the materials which are placed before them and if after taking into account in any case the absence of a stock register and other materials they are of the opinion that correct profits and gains cannot be deduced from the accounts kept by the assessee that they would be justified in applying the proviso to Section 13.
In a business which merely consists of buying raw material and selling it after proceeding, the absence of a register showing the daily working of each factory is just as material as the absence of a stock register in the case of an ordinary merchant.
The account books of the assessee who carried on the business of ginning cotton showed that the yield of cotton was low in the accounting year compared with the earlier years. The explanation of the assessee was not believed by the Income Tax Officer, and relying upon the low yield and the fact that the assessee had not kept any register from day to day about the consumption of raw material and production of ginned cotton, the income tax authorities applied the proviso to Section 13 of the Income Tax Act.
Held that there was sufficient material in the case for invoking the provisions of the proviso to Section 13."
It will be seen from the above observations that it is for the Income Tax Authorities to consider all the materials which are placed before them and after taking into account in any case the absence of a stock register and other materials they are of the opinion that correct profits and gains cannot be deduced from the accounts kept by the assessee then they would be justified in applying the proviso to Section 13. This is what has happened in this case and on the materials before the Income Tax Officer he was clearly of the opinion that the method of accounting b employed by the assessee firm was such that in his opinion, the income, profits and gains could not be deduced therefrom as such the computation was made by him upon such basis and in such a manner as he himself determined. The reasons advanced in the assessment order by Income Tax Officer, clearly show that the conclusion that he has reached was quite justified on his part. I, therefore, find that there was "sufficient material" not only "any material" before the Income Tax Tribunal to have come to the conclusion as is mentioned in the question referred to for our opinion.
27. For the foregoing reasons I would answer the question referred in the affirmative. Looking ro the facts and circumstances of this case the assessee firm shall bear the costs of this reference.
Dorab Patel, J.-I agree with my learned brother's conclusion.