1. SALEEM AKHTAR, J. These two applications have been filed by the assessee under section 66 (1) of the Income-tax Act in respect of the assess--ment years 1969-70 arid 1970-7I. The applicant had originally raised two questions, bait during argument question No. I namely "whether in the facts end circumstances the case the Income-tax Officer had any authority in law to estimate the excess income for the period to which the Martial Law Regulation 32 of 1969 did not apply?" has not been pressed. We are left with question No. 2 which is as follows:- "Whether the addition of Rs. 1,31,333 to the declared income without having found any fault in the accounts book maintained is arbitrary and unsupported by any material or evidence on record?
2. In I. T. C. No. 680/72 question is the same except that the amount mentioned therein is Rs. 1,16,666.
3. Both these applications will be disposed of by this judgment.
4. The applicant is a private limited Company carrying on business as Managing Agent for Hussain Industries Group of Karachi. For the account--ing year ending 30th September, 1968 assessable in assessm ent year 1969-70 the applicant filed return showing income of Rs. 75,015. The Income-tax Officer proceeded with the assessm ent under section 23 (3) of the Income-tax Act and made an addition of Rs. 1,31,333. The applicant had not declared any excess income for the period from 1-10- 1967 to 30th September, 1968, therefore, the Income-tax Officer assumed that the applicant must have earned excess income to the same extent as he had declared for the earlier period. He accordingly determined Rs. 1,3,333 to be the excess income for the period from 1-10-1968 to 30-9- 1969 and accordingly added that amount as income from the undisclosed sources. In respect of assessm ent year 1970-71 which is subject-matter of I.-T. C 680/72 an addition of Rs 1,16,666 was made on the same ground,. The applicant filed separate appeals against both the orders which were dismissed by the learned Income-tax Appellate Tribunal. The learned Tribunal observed as follows :- "In this case it is observed that neither the assessee's declaration under Martial Law Regulation 32 nor the processing order thereof indicated why the assessee had not declared excess income from 1-10-1967 to 15-7-1969 from the undisclosed sources."
5. There is nothing in the order of the learned Tribunal to show that the account presented by the assessee/applicant was defective, unverifiable an proper profits and gains could not be deduced from it. Mr. Ali Athar, the learned counsel for the applicant has contended that the income has been added on presumption and without rejecting the account books maintained properly. Under M. L. R. 32 any person who had filed return of his income under the Income-tax Act for the assessm ent year 1960-61 or in assessment year thereof upto assessment year 1968-69 bad reason to believe that the return so filed was trot correct was permitted to file a revised return of hi income.
6. It was provided that no action of any kind whatsoever, shall taken for having submitted an incorrect return originally. It also provided the method of charging to tax on excess income declared under it. M. L. R. 3 is a self-contained Code to levy the tax on the excess income declared under it. Such declaration could be made for the period covered by assessment year 1960-6I to assessm ent year 1968-69. Such declaration was subject t scrutiny under. M. L. R.
32. It was, therefore, open for the authorities under M. L. R. 32 to question whether the income declared for part of the period required any scrutiny or not. The applicant had declared excess income under M.
7. L. R. 32 upto the tear ending 30th September, 1967. The learned Tribunal while endorsing the view expressed by the Assessing Officer wanted to know why the assessee had not earned or declared excess income for the period 1-l0-1968 to 30-9-1969 and merely on the basis of this non- declaration have proceeded to add income from the undisclosed sources. The question why the assessee had not declared excess income under M. L. R. 32 for period 1-10-1968 to 30-9-1969 can hardly be within the ambit of enquiry mad by the Assessing Officer or the learned Tribunal. This question could have been enquired by the proper authorities under proper Regulation. Whether such non-declaration could be trade for adding income is open to serious challenge. It is well established that the Assessing Officer while exercising his power under section 13 can reject the account books which are not proper maintained and from which the profits and gains cannot be properly deduced and then proceed to assess under the proviso of that section. Exercise of power under the proviso is dependent upon such facts. In the present ca from the order of the learned Tribunal it is not clear that the accounts maintained by the assessee were not proper and unverifiable or that they we rejected on some cogent and reasonable grounds. In the absence of such finding resort to tire proviso to section 13 cannot be sustained. What the Income-tax Officer has done is that he has accepted the book version, but taking the previous declaration into consideration presumed that ex income would have been earned during the assessment year and not declared by the assessee in his returns. M. L. R. 32 does riot permit that if a declaration has not been made for part of the period the Assessing Officer will entitled to raise any presumption from it.
8. In fact M. L. R. No. 32 while requiring the persons to declare excess income seems to give some sort to immunity and unless Assessing Officer was specifically authorised to draw presumptions from such non-declaration he cannot be allowed to do so. This will only amount to vesting power in Assessing Officer on more presumption, conjectures and surmises. Such powers are not vested in the Assessing O who is controlled by clear provisions of the Income-tax Act. We are therefore, of the view that the order of the Assessing Officer that in the facts and circumstances of the case the addition of the aforestated amounts w arbitrary and not supported by material or evidence on record. We, therefore, answer the question No. 2 in the affirmative.