RUHUL ISLAM, J.-These two appeals by special leave arise from the deci--sion of the High Court Division under section 66(l) of the Income-tax Act answering the question raised by the assessee and remanding the case to the Deputy Commissioner of Taxes to determine the income, profits and gains of the assessee in accordance with the provisions of section 13 read with section 23 of the Income-tax Act. Leave was granted to examine whether the High Court Division was correct its answering the question raised by the assessee, although it is a pure question of fact. The assessee respondent filed at application under subsection (1) of section 66 of the Income-tax Act raising the following question for the decision of the High Court Division.
"Whether on the facts and circumstances of the case the Tribunal was justified in confirming the rate of gross profit at 10 per cent. Applied by the authorities below on a wrong appraisal of the fact that due to restriction in import the rate of gross-profit applicable to the dealings of applicant increased during the previous year."
2. With these remarks the Deputy Commissioner of Taxes rejected the trading accounts of the assessee and made a fresh estimate in exercise of his power under section 13 of the Income-tax Act, for finding the true profit. He found the sale at Tk. 9,00,000 and gross profit at the rate of 10 amounting to Tk. 90,000 and after deduction of the gross profit as shown by the assessee added Tk. 32,121. In appeal by the assessee the Appel--late Joint Commissioner after examining the papers produced by the assessee found that the assessee is a wholesaler in dyes and chemicals and not a wholesaler in paint as recorded by the Deputy Commissioner of Taxes. On examining the purchases found by the Deputy Commissioner not supported by vouchers he found that original printed vouchers produced before him provided complete details of the sellers in support of the said purchases ; and all other purchases were also supported by vouchers. He, however found that the Deputy Commissioner's finding regarding want of particulars of customers in the cash memos was correct ; and that it was also correct that the assessee did not keep any stock tally of goods.
On these findings the Appellate Joint Commissioner reduced Tk. 32,121 to Tk. 27,750 and directed modifica--petition of the assessm ent order. The assessee took an appeal thereof to the Income- tax Appellate Tribunal. The Tribunal by its judgment and order dated November 23, 1976 dismissed the appeal and armed the judg--ment and order of the Appellate Joint Commissioner with the following observation ".... That Deputy Commissioner of Taxes finding regard to lack of parti--culars of customers in the cash memo. Is correct ; that the assessee did not also keep any stock tally account for goods. The Appellate Joint Commissioner of Taxes, therefore, concluded that total rejection of trading account was justified in view of the tact that purchases were vouched and verifiable and also that since sales were not verifiable it would be reasonable to construct the sales disclosed on the basis of 10 % gross profit rate "
3. The contention of the appellant is that the question framed by the assessor is a pure question of fact and no question of law arises from the judgment of the Appellate Tribunal and no reference lay under section 66(1) of the Income-tax Act, but the learned Judges without examining whether the question raised by the assessee for decision is a question of law on an erroneous view of the provision of law answered the question in the negative.
4. In support of the contention Mr. A. M. Mahmudur Rahman, the learned Advocate submitted that the gross profit shown by the assessee, upon due consideration of the materials produced by the assessee, was found low in respect of business and trade in the accounting year, being a question of fact, at best it would be agitated before Appellate Joint Commissioner. In the instant case the Appellate Joint Commissioner partly accepted the case of the assessee and reduced. The learned Advocate submitted that the Deputy Commissioner while applying 10% rate determining gross profit resort--ed to estimating under section of the Act to find out the profit after dis--believing the true accounts of the assessee. The Appellate Joint Com--missioner on examining the papers produced by the assessee which included originally printed vouchers found that the papers showed complete details of the sellers in respect of the purchases shown, by assessee, and to that extent the findings of the Deputy Commissioner of Taxes were modified He, however, found that the cash memos produced by the assessee did not contain the particulars of the consumers, and in this slate of the record found of the Deputy Commissioner of Taxes was justified in rejecting the trading account and estimating the turnover. According to the Appellate Joint Commissioner as the sales were not verifiable it would be reasonable to reconstruct the disclosed sales for adopting a reasonable gross profit. He also approved the remark of the Deputy Commissioner of Taxes relating to the rate of gross profit shown in the return; and his application of gross profit at 10% was found reasonable. With these findings the Appellate Joint Commissioner decided that Tk. 27,750 should be added towards reconstruction of the disclosed sales for adopting gross profit at 10 % and thereby addition of Tk. 32,121 by the Deputy Commissioner of Taxes was replaced by Tk. 27,750 and accordingly the assessm ent was modified.
5. There being valid ground for rejecting the trading accounts as shown above, we find there is sufficient force in the submission made by the learned Advocate that the High Court Division was not justified in setting aside the decision of the Tribunal with the following observation :- ---..That income-Tax authorities cannot reject any trading account of assessee without complying with the provisions of section 13 of the income-tax Act. The impugned decision of the Tribunal trust be held to have beep made illegally and it is accordingly set aside."
The orders of the Income-tax authorities show that there were grounds for rejecting the trading accounts of the assessee and resorting to the power conferred tinder section 13 of the Income-tax Act. Determination of rate of gross profit for the particular year in respect of the particular business or trade, is purely a question of fact, and that being so it could not be made ground for making reference under section 66(1) of the Income-tax Act. The learned Advocate rightly made a grievance that there being sufficient compliance with the proviso to section 13 of the Income-tax Act, the High Court Division seriously erred in allowing the application and answering the question in the negative. Proviso to section 13 of the Income-tax Ac reads as under :-- "Provided that, if no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Deputy Commissioner of Taxes the income, profits and gains cannot properly be deduced therefrom then the computation shall be made upon such basis and in such manner its the Deputy Commissioner of Taxes may determine."
Section 13 lays down the manner how the computation of the assessable income is to be trade if the assessing officer finds that the assessee does not maintain accounts in accordance with method of accounting regularly employed, or accounts maintained by the assessee, in the opinion of the assessing officer, the income, profits and gains cannot be properly reduced therefrom. Thus the assessing officer has been given the power to reject the accounts of the assessee and take recourse to the proviso to section 13 In such a case the assessing officer is competent to change the basis of gross-profit as calculated by the assessee and' raise it to a higher percentage. In such a case, the assessing officer is only required to, record with reason that the system of amounting employed by the assessee does not reflect true income and, therefore, true income cannot be properly deduced therefrom.
6. In Civil Appeal Tao. 34 of 1981 the respondent Harendra Kumar Sit, a retail dealer in grocery, disclosed his total turnover, for the assess--ment year 1973-74, in the grocer account at Tk. 82,992 and gross profit at Tk 12,781 that is the gross profit at the rate of 15.4 %. The Deputy Commissioner of Taxes on examining the account found that the assessee18-A accounts did not reveal a true and realistic picture of the assessee's business activity and that the books of accounts were not maintained in course of day to day business trading but were manufactured afterwards. On this finding the Deputy Commissioner of Taxes rejected the accounts and esti--mated total turnover at Tk. 6,69,500 and gross-profit way adopted at the rate of 16 % thereon, and thereby making an addition of Tk. 94,339 in the grocery account. The Deputy Commissioner of taxes after examining the accounts clearly recorded as follows :- "Above defects in cash book itself suggest that the books of accounts were not maintained in course of day-to-day trading but were manu--factured afterwards. In view of all the above defects I reject the books of accounts and take recourse to estimate."
The Appellate Joint Commissioner, however did not accept the estimate made by the Deputy Commissioner of Taxes as correct. He reduced the estimate of total sales to Tk. 5,50,000 against Tk.
6,69,500, but confirmed the gross profit at the rate of 16% as against 15.4 % as shown by the assessee. Against this decision of the Appellate Joint Commissioner there were two appeals to the Income-tax Appellate Tribunal-one preferred by the assessee and the other preferred by the Department. Both the appeals were dismissed. The Tribunal dismissed the appeals with the following observation "Since the bulk of sales are retail, estimate of gross profit rate at 16% made by the Deputy Commissioner of Taxes and confirmed by the Appellate Joint Commissioner of Taxes appears to be justified. No, material has been placed before us so as to Justify any interference with the order of the Appellate Joint Commissioner of Taxes which is hereby confirmed."
7. From the discussions in the judgments it appears that there is hardly any scope to argue that estimates on sales and gross profits en sales by the Deputy Commissioner of Taxes as well as by the Appellate Joint Commis--sioner are arbitrary, excessive or without any materials. We find there is substance in the contention of the appellant that determination of the rate of gross profit in a particular accounting year in respect of particular business and trade is a question of fact. We also find that there is substance in the contention that the learned Judges of the High Court Division were not justified in making the remark that there is nothing to show from the judg--ments of the Appellate Joint Commissioner and the Tribunal that the method employed by the assessee was such that no income, profits and gains could be properly deduced therefrom. The common questions as framed in the two applications under section 66(1) of the Income-tax Act is a pure question of fact, and that being the position the learned Judges clearly erred in law in entertaining the reference under section 66(1) of the Income-tax Act made by the assessee-respondent.
8. The learned Advocates appearing for the respondents in both the appeals submitted that mere low profit or absence of book register cannot be said to be good reasons for taking recourse to section 13 by the Deputy Commissioner of Taxes for rejecting the account maintained by the assessee and making fresh estimate.
9. Mr. S.R. P.I (appearing in Civil Appeal No. 34 of 1981) argued that the respondent maintained his day-to-day accounts regularly, following the method of accounting regularly employed by him; and that the accounts could not be ejected by the Deputy Commissioner of Taxes merely on the basis of some unfounded suspicion and speculation as to its correctness.
10. It is true mere low profit by itself may not be a ground for rejecting the accounts. So also some defects in the books of account may not be a ground for rejecting the accounts. Basic foundation for rejecting the account roust be a clear finding by the assessing officer that from the accounts as contained by the assessee incomes, profits and gains cannot be properly therefrom. It has already been noted above that in rejecting the trading accounts of the respective assessee the Deputy Commissioner of Tax elaborately discussed and gave his reasons for rejecting the accounts and taking recourse to section 13 for making estimate of the total sale to find out gross profit. If the findings are based on materials, then the estimate made by the assessing officer cannot be said to be arbitrary. Mr. P.I found it difficult to place his case on that plain.
11. Mr. C. R. A.I appearing for the respondent in Civil Appeal No. 50 of 1981 practically adopted the arguments advanced by Mr. S. R. Pat. He only added that the finding of the Deputy Commissioner of Taxes shows that the Deputy Commissioner of Taxes was not justified in rejecting the trad--ing accounts of the assessee and estimating the total turn over, and the learned Judges of the High Court Division were not in error in allowing the reference application and answering the question raised therein in the negative.
12. The learned Advocates for the respondents sought support from some of the observations made by this Division in the case of Commissioner of Income-tax v. Messrs Atta Hussain Khan Ltd.
(28 DLR 141(AD)). On examining the judgment as reported we find it difficult to apply any of the observations made therein to the facts of the instant cases. In the instant cases it has been very clearly shown that the trading accounts of the respective assessee was rejected on valid grounds and action of the Deputy Commissioner of Taxes for taking recourse to section 13 and making estimate for finding out the total sale and the gross profit or for that matter of the Appellate Joint Commissioner of Taxes modified the orders, cannot be assailed on any such ground. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.