ORDER CH. MUHAMMAD ISHAQ, JUDICIAL MEMBER.- For the assessment year 1988-89, cross appeals have been preferred, one by the department and the other by the assessee. The appeals call in question the order dated 21.8.1989 passed by the learned Commissioner of Income Tax (Appeals)
Faisalabad on various grounds to be discussed herein after in this order.
2. The parties have been heard and the record examined.
3. In this case the appellate-company is deriving income from processing of cloth involving printing and dyeing on behalf of other parties in addition to trading to cloth. For the year under appeal, return of income was filed at Rs. 69,647/-. However, assessment was finalised at an income of Rs. 8,04,339/-. The assessm ent framed on 24.6.1989 was challenged in appeal before the CIT(Appeals) on various grounds. The first appellate authority partly allowed these appeals. The instant appeals, are the outcome of this decision.
4. The assessee-appellant, in his appeal, contests the ^rejection of book version and the estimate of processing receipts. It is stated that all Items of trading account are fully vouched and verifiable.
The &&e$s(ng authority quoted no discrepancy in the debit and credit side of the account.
Therefore, the rejection of the account version was unjustified. It is further agitated that no defect in the purchase and processing charges, as declared by the company, was found. Drawing the comparison between the trading result of the preceding year with those of the present, it is asserted that in terms of volume of sales as well as the percentage of gross profit, the present results are better than the previous one. Therefore merely on the basis of presumption the recorded version which is fully verifiable could not be rejected. Particularly so when no discrepancy of unexceptionable nature was ascertained. The learned AR representing the assessee also placed reliance on the case law which is duly referred to by him in his grounds of appeal. Regarding the estimation of processing receipt at Rs. 1,21,62,000/- against the declared receipts at Rs. 1,18,57,852/- the company declared processing receipts at 3.90 times of the suigas consumed-giving better results than in other parallel cases wherein 3.62 times and 3,51 times of the consumption of gas were accepted. In addition thereto the disallowances in the P&L account are also contested as being unjustified. The learned AR also agitated the addition of Rs. 15,000/- in the miscellaneous income. The G.P. Rate at 4% as directed in the impugned order was also contested as being unjustified because no defects in the books wee pointed out.
5. The learned DR on the other hand, in his appeal contests the reduction made by the learned CIT(Appeals), in the printing receipt, dyeing receipt and the energy receipts as having been done without any basis. It is further asserted that receipts adopted by the assessing officer were quite in accordance with the facts of the case as these were not open to verification. The relief allowed by the learned first appellate authority in the P&L accounts has also been in contested as being unjustified and against the facts and circumstances of the case.
6. The learned Commissioner of Income Tax (Appeals) has recorded a very elaborate and detailed order. He has examined the details of the case and came to the impugned conclusions.
7. In order to appreciate the respective contentions of the parties, we notice that while rejecting the declared trading results, the learned assessing authority as well as the learned first appellate authority has certainly found out no substantial and convincing discrepancies. Rather the assessm ent order discloses the following observation:- "The above comparison indicates improvement in processing receipts but G.P. Rate has declined.
The ratio of suigas consumed in monetary terms with processing receipts has also shown improvement but is still low as compared with the past treatment in this case and other parallel cases. It was contended that for the period under review the assessee has invariably declared this ratio round about 3.5 to 4 times because of the fact that suigas rates have thrice increased during the income year under review. It was contended that this fact has been registered by the department and due consideration given in all the parallel cases. The argument put-forth by the assessee are not wholly without truth but it does not fair well if viewed in the context of the history of the instant case".
8. It is noticed that wherever the assessing authority desired it sought the explanation of the assessee which shows that full scrutiny of the case was duly made. The conclusion drawn by the assessing authority that the arguments put-forth by the assessee are not consistent with the history of the case, cannot be interpreted to mean that the declared trading results failed to inspire confidence. History is certainly something which does provide guide-lines but it does not always make a basis for a clear-cut rejection of accounts. For doing so, the assessing authority, must establish a fool-proof case quoting full facts and figures of all unproved, unverifiable and inaccurate version in the declared trading accounts. Despite lengthy exercise by both the forums below, no such effort appears to have been made in the orders impugned before us. The stock phrases employed including the assertion that the assessee has a history of rejection of accounts, in the circumstances of this case are not convincing to prompt extreme action such as the rejection of accounts.
9. Where, in the normal course of business accounts are maintained, fully audited and then presented, the assessing authority should not especially react so as to discourage the maintenance of accounts out-right. In the various authorities, frequently referred to, it has invariably been held that nonmaintenance of stock-register and consumption register, are not sufficient to warrant rejection of accounts.
10. We, therefore, are inclined to set aside the impugned order and direct the assessing officer to accept the declared trading results. While we making this order, we are quite aware that the objections raised by the learned DR in the context of the impugned order, wherein some relief was allowed by the learned first appellate authority are also to be attended to. We may, in this respect mention here that the learned CIT(Appeals) adopted the estimation of processing receipts at Rs.
1,21,62,000/- as against the declared receipts of Rs. 1,18,57,825/-. It can be concluded that the estimate of processing receipts adopted by the learned first appellate authority also lacked basis as none has been indicated in the impugned order. Similarly the estimate by the assessing authority also had the same defect. We, therefore, direct that the declared receipts at Rs.
1,18,57,825/- be accepted.
11. As regards the G.P. Rate, we are convinced that the declared G.P. Rate is better than the parallel cases on the record in this line of business. The applied G.P. Rate is directed to be applied for the year under appeal.
12. The learned Commissioner of Income Tax (Appeals) upheld an addition ' to the tune of Rs.
15,000/- in the miscellaneous income of the assessee. Similarly addition in the Sale of cloth and the G.P. Rate was also upheld. We have already declared the trading results to be accepted. We, therefore, direct that the addition made in the said heads of account be deleted altogether. The declared account version and the declared G.P. Is also ordered to be accepted.
13. The learned first appellate authority disallowed, in the profit and loss account the following expenses. In the postage, telephone and telegrams, a sum of Rs. 12,900/- has been disallowed. The entire amount of disallowance is deleted. In the stationary and printing account, a sum of Rs. 11,000 has been disallowed. The entire amount of disallowances is deleted. In the entertainment accounts, a sum of Rs. 25,000 is disallowed. The disallowance is restricted to Rs. 10,000/-. In the vehicle running expenses, a sum of Rs. 22,500/- has been disallowed. The disallowance is reduced to Rs. 7,500/-. In the travelling expenses Rs. 600/- have been disallowed; the entire disallowance is deleted. In the head loss on fire, Rs. 10,100/- are disallowed. The entire amount of disallowance is deleted. In the depreciation account Rs. 26,415/- are disallowed. The entire claim of depreciation is allowed and the disallowed depreciation is deleted.
14. In view of the afore-stated reasons, the appeal of the department fails and that of the assessee succeeds to the extent and in the manner indicated above.