JUDGMENT: SALEEM AKHTAR, J.--1. This judgment will dispose of these Income Tax Cases which relate to the same assessee in respect of Assessm ent years 1973-74 and 1974-75. The applicant is engaged in manufacturing cotton yarn. For the assessment year 1973-74 ending on 30th September, 1972, the applicant declared total sales of Rs, 96,54,867 on which gross profit of Rs, 11,47,094 was declared which worked out to 11.68%. The Income Tax Officer while framing assessment observed that the production of yarn was low as compared to the expected production calculated according to Awan Committee formula. The applicant pointed out that Awan Committee formula could not be applied as it was made for the purposes of Central Excise Duty and instead the production of yarn should be calculated on the basis of cotton consumed. This contention was not accepted and the Income Tax Officer relying on the Awan Committee Formula and Nazir Committee Formula rejected the production result holding that production of yarn should have been 49,25,737 lbs. He further observed that wastage in production of yarn at 17.3% was excessive and fixed the wastage at 15%.
The Income Tax Officer made addition of Rs, 20,12,547 to the disclosed trading result. In respect of assessm ent year 1974-75 on similar grounds the Income Tax Officer added Rs, 3,172,730 to the declared trading result. This assessme nt is subject-matter of I.T.C. No, 19/81.
2. In appeal relating to the year 1973-74 on the enhanced sale of Rs, 1,05,00,000 gross profit was calculated @ 17-1/2% which came to Rs, 18,35,000 which resulted in addition of Rs, 9,55,705 to the trading result instead of Rs, 20,12,547. For the year 1974-75 on enhanced sale of Rs, 1,90,00,000 gross profit was calculated at 20% which came to Rs, 38 lacs as against gross profit of Rs, 29,50,814 which resulted in addition to the trading account a sum of Rs, 8,49,186 instead of Rs, 31,72,730 as made by the Income Tax Officer. In appeal before the Tribunal estimates of sales were fixed at Rs, 1,02,00,000 and Rs, 1,85,00,000. The applicant then filed two applications under section 66(1) of the Income Tax Act requirng the Tribunal to refer common questions of law arising out of the consolidated order passed by the Tribunal in appeal in respect of the aforestated two assessment years. The Tribunal dismissed the application. The applicant then filed present application under section 136(2) of the Income Tax Ordinance, 1979 read with section 66(2) of the Income Tax Act, 1922 -aising the following questions:-- I.T.C. No, 18/81: (1)Whether in the facts and circumstances of the case there was any evidence or material on the record to support the Income Tax Officer's action in rejecting the Trading Results of the applicant as disclosed by the books of account?
(2)Whether in the facts and circumstances of the case the Tribunal was legally justified in estimating the sales and directing application of 17-1/2% as the rate of gross profit on the estimated sales?
(3)Whether in the facts and circumstances of the case, the Income Tax Officer and the two Appellate Authorities not having found anything wrong with the manufacturing and trading expenses disclosed by the applicant's account books, and the sales as estimated by the Income Tax Appellate Tribunal being only Rs, 5,45,133 more than the sales shown by the Appellate Tribunal could lawfully direct application of 171/2% as the rate of gross profit?
(4)Whether in the facts and circumstances of the case, there was any evidence or material on the record to support the order of the Income Tax Appellate Tribunal confirming rate of gross profit at 17-1/2% on overall sales which included export expenses and export duty.
I.T.C. No, 19/81: (1)Whether in the facts and circumstances of the case there was any evidence or material on the record to support the Income Tax Officer's action in rejecting the Trading Results of the applicant as disclosed by the books of account?
(2)Whether in the facts and circumstances of the case, the Tribunal was legally justified in estimating the sales and directing application of 20% as the rate of gross profit on the estimated sales?
(3)Whether in the facts and circumstances of the case, the Income Tax Officer and the two Appellate Authorities not having found anything wrong with the manufacturing and trading expenses disclosed by the applicant's account books, and the sales as estimated by the Income Tax Appellate Tribunal being only Rs, 4,47,107 more than the sales shown by the Appellate Tribunal could lawfully direct application of 171/2% as the rate of gross profit?
(4) Whether in the facts and circumstances of the case, there was any evidence or material on the record to support the order of the Income Tax Appellate Tribunal confirming rate of gross profit at 20-1/2% on overall sales which included export expenses and export duty?.
3. Mr. Abdul Wadood the learned counsel for the applicant contended that these questions arise from the order of the Tribunal and have wrongly been disallowed. So far question No, 1 is concerned Mr. Khawaja Salahuddin the learned counsel for the respondent contended that it was not pressed before the Tribunal and therefore, this question does not arise. In the order of Appellate Tribunal dated 7th February, 1981 it has been observed as follows:-- "From a perusal of the order of the Appellate Tribunal it is evident that the ground of appeal against rejection of trading result of the applicant as disclosed from the books of account was not pressed.
In this view of the matter the first question as formulated by the assessee/applicant is wholly misconceived and does not truly speaking arise out of the order of the Tribunal.
4. The first question therefore does not arise.
5. The other questions framed by the assessee can be reframed as follows:-- "Whether in the facts and circumstances of the case was there any basis for applying 17-1/2% and 20-1/2% as the rate of profit on the estimated sales for the assessment years 1973-74 and 1974-75 respectively?
6. In our view this is the only question of law which arises from the order of the Tribunal. The application of the above rates of gross profit on the sale is based only on presumptions.
The applicant's contention was that the rate of 15% which was accepted in the year 1972-73 should be accepted during these years but the Tribunal rejected this plea in the following manner:-- "Having regard to the trade conditions, prevalent during the year under consideration and the disclosed profit of the appellant' in our opinion the rate of profit fixed by the learned Appellate Commissioner calls for no interference, but having regard to the results ultimately determined by the learned Appellate Assistant Commissioner the estimates of the sale require a little adjustment and we shall accordingly fix the same at Rs, 102,00,000 and Rs, 1,85,00,000 for the respective years under appeal."
7. From this observation it is clear that the Tribunal has fixed the rate merely on certain presumptions and not on the basis of some definite material or cogent evidence on record. We, therefore, answer the question in the negative.
Reference answered in the negative.