HAIDER ALI PIRZADA, J.--In this reference under section 66(1) of the Income-tax Act, 1922, the following questions of law have been referred for the opinion of this Court :-- "(i) Whether on the facts and circumstances the case where the assessee being a foreign Company and having produced certified copy of the accounts duly certified by a Chartered Accountant, the income-tax Officer was justified in rejecting the accounts ?
(ii) Whether having produced certified copies of the accounts duly certified by a Chartered Accountant; the Income-tax Officer could have insisted the production of the original books of accounts maintained by a foreign Company in a foreign country?
(iii) Whether on the facts and circumstances of the case the Income-tax Officer could assess the income as nil."
2. The facts necessary for appreciation of the questions raised in this application may briefly be set out. The applicant is a Company approved by the Central Board of Revenue as per their Letter No. C. No. 8(2). I. I. 2/66, dated 29-9-1966 under subsection (5-A) of section 2 of the Income-tax Act, 1922 (XI of 1922) to be a Company for the purpose of the Act with effect from assessment year 1966-67. The applicant filed a return of its income for the assessment year 1966-67. During the assessm ent proceedings the Income-tax Officer issued a -notice under section 22(4) of the Income-tax Act, requiring the applicant to produce books of accounts. In response to the said notice the applicant submitted certified copy of the accounts duly certified by a Chartered Accountant but the Income-tax Officer refused to accept the same on the ground that the books of accounts should have been produced. The authorised representative submitted that the books of accounts were at bead-office. The Income-tax Officer rejected the accounts and did not accept that the applicant had suffered a loss and assessed the applicant's income as nil by his order dated.... The applicant preferred an appeal before the Income-tax Appellate Tribunal which was dismissed by an order dated 17-8-1972.
3. The learned counsel appearing on behalf of the applicant contended that the applicant bad submitted the certified copies of accounts audited by world renowned auditors, which should have been sufficient for the purpose of making the assessment. It is not the applicant's case that the time allowed by the Income-tax Officer for producing the books of accounts was short. It was incumbent upon the applicant to produce the accounts-books. The Income-tax Officer in his order clearly observed that the operating cost was made up of various items like discharging cost, clearance charges, supervisory fees, spare parts; maintenance, rent, board and lodging, insurance, travel. The fact remains that mere submission of the break-up of the operating costs even with names of persons to whom the same were paid could certainly not serve the Income-tax Officer's purpose. He had not only to examine the genuineness of the expenses incurred under the various heads but also bad to examine them in greater detail with particular reference their allowability under the provisions of the Income-tax Act. The Income-tax Officer could not do so to the absence of complete records and for that reason the expenses claimed remained unproved. We are of the view that the Income-tax Officer was justified in rejecting the accounts. The question No. 1 is answered in the affirmative.
4. The learned counsel for the applicant contended that the applicant had submitted the certified copies of the accounts duly certified by then Chartered Accountant to the Income-tax Officer. The Income-tax Appellate Tribunal observed that the audited accounts contained a note indicating the facts as if the auditors did not assume the responsibility of certifying that the claim of expenses was in accordance with the provisions of the Income-tax Act.
Reading the section under which the notice was issued it is clear that the Income-tax Officer is empowered to ask for the production of accounts-books if the said books are necessary for the purpose of making an assessm ent under the Act. In this case it is not in dispute that the question involved in the assessm ent was the extent and the reasonableness of the expenses for the purpose of considering how far and to what extent and what portion of those expenses should be allowed as deduction in computing the income of the applicant under the provisions of the Pakistan Income-tax Act. It appears that the Income-tax Officer wanted to satisfy himself about the extent and the reasonableness of the expenses incurred by the 'applicant. The Income-tax Officer is entitled to see whether, how and for whom these expenses were incurred and for this direct the applicant to produce relevant books of accounts. It is in this background, in our opinion, the applicant was required to produce books of accounts which are evidence in support of the items constituting expenses which had been claimed as allowable deduction for the relevant assessm ent. Having regard to the facts and circumstances, in our opinion, it would not be sufficient compliance with the notice if the applicant produces certified copies of the accounts. In the facts and circum--stances of the case, we answer the question in affirmative and in favour of the revenue.
5. Mr. A. A. Sharif, the learned counsel for the applicant, contended that the Income-tax Act nowhere authorises the Income-tax Officer to make an assessment on nil income. This argument is without force. The Income tax Officer disallowed the expenses on the ground that full particulars of the expenses incurred by the applicant has not been furnished as such he ignore the loss. The Tribunal pointed out that nil income simply denotes that the figure of receipts and the expenses being equal no balance is left to reflect any profit or loss. It is clearly on perusal of the order of the Income-tax; Officer that this conclusion has been based by the Tribunal. The Tribunal, has taken the view that such a situation could be possible in this case where the Income-tax Officer accepted the receipts disclosed by the applicant but because of the applicant's inability to prove the expenses, he disallowed) an estimated amount of 17,811 out of the applicant expenses claimed as 1,58,603. This estimated disallowance would result in a nil income. In our opinion, the Income-tax Officer was justified in determining the income as nil. In that view of the matter the question must be answered in the affirmative and in favour of the revenue.
In the facts and circumstances of the case, however, parties will pay and bear their own costs.