ORDER IFTIKHAR AHMAD BAJWA, ACCOUNTANT MEMBER.- Appellant an individual, deals in Carpets. In these two appeals assessm ent made on income of Rs. 1,72,700/- and Rs. 1,46,000/- as against declared income of Rs. 65,500/- and Rs. 66,000/- for assessment years 1987-88 and 1988-89 respectively are contested. The two appeals are disposed of as under:-
2. Assessm ent year 1987-88: Assessme nt was originally made on income of Rs. 5,90,500/- which included an amount of Rs. 2,69,000/- deemed as income on account of purchase of property. The Tribunal vide its order dated 17.12.1990, set aside the assessment for re-examination of the question of investment in property by the to and at the same time directed the CIT(Appeals) to dispose of appellant's application under Section 156 wherein appellant has agitated that a specific ground regarding estimate of sales had not been adjudicated upon in the order of the first appellate authority. In the proceedings under Section 62/135 the to did not confine himself to the question of addition under Section 13 on account of purchase of property and went on to compute profit from estimated sales. In appeal before the first appellate authority, the appellant took the position that ITO's action of estimating sales was beyond the directions obtained in the order of the Tribunal and was, therefore, illegal.
3. Appellant had claimed that the question of estimate of sales was to be decided by the CIT (Appeals) in pursuance of the orders of the Tribunal but since the CIT failed to pass an order under Section 156 on the application dated 14.5.1990 by 30.6.1991, the action had become time-barred within the terms of sub-section (3) of the Section 156 of the Income Tax Ordinance and the Department had no choice but to accept the declared results. This plea was, however, not accepted by the first appellate authority who upheld that estimate of sales as well as the rates of profit applied by the Assessing Officer.
4. The above mentioned objections were reiterated before us at the time of hearing of appeal.
Appellant's Authorized Representative read out the relevant portion of Tribunal's order dated 17.12.1990 which is reproduced below:- "The first objection raised by the appellant was that the learned CIT (Appeals) has not discussed the issue of sales estimated at Rs. 20,00,000/- against those declared both for exports and local sale at Rs. 8,40,000 and Rs.2,60,000/- respectively. It was maintained that as an application for rectification under Section 156 had been made to the learned CIT (Appeals) in the matter, he should have given some finding on the same case. It was basically a mistake apparent from record because a specific ground had been taken before the learned CIT(A) on this issue. Under the circumstances, case is remanded back to the learned CIT (Appeals) for disposing of the application under Section 156 of the Income Tax Ordinance."
In the subsequent part of Tribunal's order, the question of investment in property was discussed and on this question the assessm ent was set aside with certain directions to the to for reassessm ent.
5. In pursuance of Tribunal's order the to re-examined the case and passed an order on 29.2.1992.
The Assessing Officer was quite conscious of the fact that question of estimate of income from business had been remanded back to the CIT(Appeals) as is evident from the following observations in the order under Section 62/135 dated 29.2.1992.
"Considering the above affidavits and other grounds on account of application moved u/S. 156 before the CIT (Appeals) Lahore, the learned That vide their order ITA No. 953/LB of 1989-90 dated 7.12.1990 had set aside the assessm ent with the observation that the addition made u/S. 13(1) (d) has to be considered de novo after making enquiries. In the said order the directions were also issued to the learned CIT (Appeals) regarding rectification of appellate order as requested by the assessee."
Inspite of the above observations, the Assessing Officer did not leave the question of estimate of income for the CIT (Appeals).
Assessee contention that the action under Section 156 on application dated 14.5.1990 had become time barred on 30.6.1991 under sub-section (3) of Section 156 which lays down that in such a situation the mistake shall be deemed to have been rectified and thus the declared results merited acceptance, however, did not find favour that the to who observed:- "So far as assessee contention regarding acceptance of his declared turnover is concerned the same is not tenable being a no account case. The assessee is an exporter of carpets after purchase from different parties and also making the local purchase and sale of carpets. Keeping in view the extent of business and also considering the history of the case income for the year under consideration is determined in the following manner...."
6. The CIT(Appeals) disposed of this issue in the following words:- "The correct legal position is that under sub-section (3) of Section 156 only mistakes remaining uncorrected may be deemed to have been rectified. If the omission on the part of the CIT to adjudicate on the issue of sales is a mistake then the same automatically stands rectified and the present appeal being infractors should be dismissed. However, in my opinion it was a case of commission and not that of mistake and therefore the provision of section 156 are not applied. Also the assessm ent having been disposed by the learned Tribunal, pending proceedings till the date of that decision may be considered disposed of. Learned Tribunal has already directed that die issue of estimate of sales is to be reconsidered by the Appellate Commissioner in pursuance of that direction I take up the matter now. The estimates made by the to seems to be reasonable considering the nature of the business. Regarding GP rate of 18% applied the same is confirmed."
It is evident from the orders of the Revenue Authorities that the to as well as the CIT(Appeals) acted in violation of the directions of Tribunal's order dated 17.12.1990. The to knowing fully well that the assessm ent had been set aside for reexamining the question of investment in property and the question of income from business was to be disposed of by the CIT(Appeals), did not stop at disposing of question of investment in property and instead went on to compute the income from business by estimating local sales and applying GP rates of 18% and 15% on exports and local sales respectively. This transgression was obviously beyond the scope of his authority in respect of this assessm ent. The CIT Appeals), on the other hand, failed in his duty by not complying with the directions of the Tribunal and instead confirming the estimates of the Assessing Officer which as mentioned earlier were unwarranted by law. The CIT(Appeals) woke up rather late in the day and proceeded to take-up the matter but instead of taking up the matter, the CIT(Appeals) pronounced "the estimates made by the to seems to be reasonable considering the nature of business. Regarding GP rate of 18% applied the same is confirmed." The CIT(Appeals) did not bother to elaborate which estimates seemed to be reasonable because the estimates in the assessment order dated 31.8.1988 had been remanded back to him vide Tribunal's order dated 17.12.1990 but the said estimate had been superseded by the subsequent estimates as per ITO's order under Section 62/135 dated 29.2.1992.
7. It is evident that the appellant has been given a short- shrift by the Assessing Officer as well as the First Appellate Authority both of whom violated the directions of the Tribunal. The orders of the authorities below are, therefore, unsustainable. It would however be unfair and inappropriate to subject the appellant to another round of assessment and appeal proceedings.
8. The fact that a mistake apparent from record had been agitated before the CIT(Appeals) has already been accepted in Tribunal's order dated 17.12.1990. Assessee contention that the application dated 14.5.1990 remained un-disposed of by 30.6.1991 and in the absence of any order, mistake must be deemed to be rectified under sub-section (3) of Section 156 is no doubt correct.
The contention that the deemed rectification means acceptance of the declared-version however, cannot be accepted. It merely means that the ground challenging estimate of sales and assessm ent (as per ground No. 7 of the grounds of appeal against the original assessment) will have to be accepted. As a result the estimate of sales and assessment of income from business ought to be redetermined.
9. Coming to the estimates as per ITO's order dated 29.2.1992 which had been confirmed by the CIT(Appeals) in order dated 15.8.1992, the same are apparently excessive and unsustainable. The to had applied GP rate of 18% on the declared exports while GP rate of 15% was applied on local sales estimated at Rs.4,00,000/- as against the declared sales of Rs. 2,60,000/-. This had resulted in income from business at Rs. 1,65,200/-. These estimates were stated to have been made in view of the extent of business and considering the history of the case. So far as the history is concerned, the last three assessm ents had been made on income of Rs. 25,800/-, Rs. 31,000/-, and Rs.51,400/- respectively. All these assessm ents having been made under the Self-assessment Scheme did not provide any sound criteria to be followed in the subsequent assessment. The three assessments however clearly disproved ITO's claim that assessment under appeals was being made on the basis of the history of the case. The declared sales of Rs. 11,00,000/- on an admitted capital of Rs.
1,00,000/- were not at all unreasonable and thus estimate of sales at Rs. 4,00,(XX)/- as against declared sales of Rs. 2,60,000/- was unjustified. Similarly, GP rate of 18% on exports and 15% on local sales as against the declared GP rate of 10% on local sales was without any basis. The to had mentioned that GP rate of 18% was being applied in view of the parallel cases and the same had been confirmed by the CIT(Appeals) without any comments. However, no such case was cited in the assessm ent order not to speak of confronting the same to the appellant. On the other hand, appellant's AR produced copies of assessment orders of cases 5.10.1225579 and 5.10.1206193 to show that GP rate of 12 1/2% was being applied in other cases of this trade. Considering the background of the case, the nature of business and the resources of the appellant it would be appropriate to estimate the local sales at Rs. 3,00,000/- and the total sales i.E. Exports and local sales would be subjected to GP rate of 12.
10. For Assessm ent Year 1988-89, appellant had disclosed GP @10% on total sales of Rs. 6,00,000/- which comprised of exports at Rs. 1,00,000/- and local sales at Rs. 5,00,000/-. On the basis of last year's assessm ent the declared exports were subjected to GP rate of 18% and GP rate of 15% was applied on local sales estimated at Rs. 8,00,000/-. Appellant's objection that estimate of sales as well as the GP rate were excessive is not without merit. Considering that commission income of Rs.
30,000/- had also been disclosed for this year, estimate of local sales at Rs. 8,00,000/- as against declared amount of Rs. 5,0, 000/- was obviously excessive and disappropriate to the capital employed in the business. Estimate of local sales is accordingly reduced to Rs. 6,00,000/-. For the reasons mentioned in the order for the earlier year, the total sales i.E. Exports as well as the local sales would be subjected to GP rate of 12
11. The two appeals succeed as above.