' GUL MUHAMMAD &IAN, J.-This order shall also dispose of T. R. 72-74 71-74 which are also between the same parties and involve the same question of la w.
2. Briefly the facts giving rise to these tax references are as follows: ' The petitioner is a wholesale dealer in indigneous mills made cotton cloth. It filed the following three returns pertaining to the three references under consideration as follows : {{TABLE}} Tax ref. Assessm ent Sales declared G. P. Rate year disclosed Rs, 71-74 1970-71 x 5,24,179 1.9% 72-74 1971-72 10,47,685 2.1% 73-74 1972-73 5,13,130 3% {{TABLE}}
3. The assessee produced with regard to assessment year 1970-71, cash book, ledger and stock register to prove its version of the return. The Income-tax Officer considered the disclosed G. P. Rate at 1.9% as too low, in comparison to other similar cases, where rate of 2.5% was being applied. He also doubted the correctness of the accounts in view of the fact that the books were being maintained by a part-time accountant visiting two or three times a week. He found that the cash book was not being properly maintained as the same was for "journal purposes' also. The sales were shown mostly on cash basis. Keeping in view the defective nature of the books the I. T.
0. Rejected the accounts. He, however, came to the conclusion that in addition to a capital of Rs, 1,40,000 the assessee had credit facilities because of the large credit balance of Rs, 81,848 as shown on 31st March 1970, compared to a small amount of debit to be received. He also took into consideration the opening and closing stocks and estimated the sales at Rs, 16,00,000 with a G. P.
Rate at 2.5%.
4. As for the assessm ent year 1971-72 the assessee produced cash book and ledger. It appears from the order of the I. T.
0. That the stock register was not produced. These boots were also found to have been maintained by a part-time accountant visiting after a week or so. As those books were not being written daily, the I. T. O. Found himself unable to work out a genuine gross profit. He, therefore, rejected the books under section 13 and proceeded to make a fair estimate in the light of the past history of the case.
In this year the assessee employed a capital of Rs, 1,30,000 along with a credit facility of Rs, 44,000, He was found having an opening stock of Rs, 1,72,612 and closing stock of Rs, 79,854 and his turn over was estimated to be 15 times in view of his whole-sale business with a G. P. Rate of 2.5%.
5. Regarding assessm ent year 1972-73, the assessee produced cash book and ledger only. The I. T.
0. Found that the assessee's sales had dropped by 50% while the G. P. Rate improved and went up to 3%. In this case also the books of account were round to have been written by a part time accountant visiting after a fortnight or so. He therefore, found them unreliable and rejected them forthwith. He then took into consideration the opening and closing stocks which valued Rs, 79,855 and Rs, 1,15,138 respectively. The average of the stock was worked out to one lac and implying the turn over of 15 times in similar cases. He estimated the sales to Rs, 15,00,000. Fall in sale due to war was partly accepted though such fall was not noticed by him in similar cases. According to the I. T.
O. The assessee had suppressed his sales to a ridiculously low level. The sales as estimated and the G. P. Rate applied by the I.
0. In all the three cases are as under : {{TABLE}} Assessm ent Sales estimate G. P. Rate applied year Re.
1970-71 16,00,000 2.5% 1971-72 12,00,000 2.5% 1972-73 8,00,000 3% {{TABLE}}
6. Feeling aggrieved the petitioner filed three separate appeals before the Inoome-tax Appellate Tribunal, Lahore, contending that the Income-tax Officer was not justified in rejecting its accounts about sales and making additions without any basis. It further submitted that as the purchases were properly vouched and were supported by the stock register, the declared sales could not have been rejected for the simple reason that the full particulars and addresses of the customers wore not recorded in the books. The Tribunal, however, did not accept the contentions of the petitioner and upheld the order of the Income-tax Officer. The observations of the Tribunal for rejection of the accounts may be reproduced below with advantage : "Although it was contended that the purchases being vouched and the accounts being supported by stock register these should not have been rejected merely for lack of full addresses of customers yet on looking into the sale vouchers of the appellant, we noticed that complete addresses in all the cases that we checked, for instance No, 3301 dated 9-1-1971, No, 3023 dated 2- 2-1971 and No, 3003 dated 16-3-1971, the addresses of the purchasing firms are merely given as Lahore while in voucher No, 2097 dated 7-9-1970 only the name Messrs Lai Din & Sons is given without any further particulars. It is important to note here that the appellant is a wholesale dealer selling cloth by bales and the price of each bale is about Rs, 2,000. In the case of such a whole- saler the particulars of customers cannot, for obvious reasons, be dispensed with the accounts which do not fulfil this requirement cannot obviously be treated as dependable. The rejection of the accounted version in this case was thus, by no means unmerited."
' The Tribunal also elaborately discussed the grounds for estimating sales and came to the conclusion that as there was nothing wrong with the estimates of sales made by the Income-tax Officer his order should be upheld.
7. The petitioner now challenges the orders passed by the Tribunal as well as the Income-tax Officer through the present references made directly to this Court under section 66 (1) of the Income-tax Act. These raise the following common question of law for consideration : "Whether on the facts and in the circumstances of the case there was any material before the Tribunal for rejection of the book version and for making addition to the declared sales and enhancement of the declared gross profit rate?"
8. It is contended by the learned counsel that as the Income-tax Officer did not reject the petitioner's stock register, be had to accept the book version with regard to its purchases and proceed to estimate the sale proceeds or the G. P. Rate, to determine assessable income. The precise argument is that if the stocks are not disputed then the dispute can only be with regard to the gross profit rate. The business of the assessee is buying cloth in wholesale and selling it by bales. According to him his gross profits for the previous year would be the difference between the sale proceeds of the cloth and the purchase price of the same quantity in that year. The petitioner had declared his gross profit for the year 1970-71 at 1.9%. His sales for the year thus could be stocks plus 1.9% or estimated G. P. Rate of 2.5% with regard to it. In his view, therefore, the I. T.
0. Could no estimate the sale proceeds to Rs, 16,00,000 without disbelieving the stocks register and without upsetting the total stocks purchased in that year. The same argument is raised with regard to the years 1971-72 and 1972-73.
9. There cannot be two opinions about the point raised but the very foundation laid for it is not existing. We have given above the findings of the Income-tax Officer as well as the Appellate Tribunal to show that not only the sales but the stocks were also doubted by those two functionaries. It will be observed from the assessment orders of the Income-tax Officer in these three assessm ents that the assessee produced its stock register only for the assessment year 1970-71. The Appellate Tribunal also verified certain vouchers for the same year. Admittedly, therefore, the assessee who produced its stock register only for one year cannot put up a claim that his stock version about the other two years was also accepted. Agate the very discussion by the Income-tax Officer as well as the Appellate Tribunal shows that the entire book version bad been rejected. When they talk of 'turnover' it is the very declared stock position, which is being doubted I for turnover in this context may simply mean as to how many times the available capital has been rotated for purchasing stocks for sale. Had the declared stock version been accepted by any of the two authorities, they would not have considered the 'turn order' position. The capital available forms the basis of turnover method and the authorities proceeded to determine the total stocks purchased in these years with that method and not by accepting as correct the assessee's version. In a turnover method. The sale price of the opening stock less expenses becomes the capital for the purchase of the next stock and so on, but if the books are being relied, one would only add up the stocks as are shown to have been purchased in a particular year. It is, therefore, quite clear that both the I. T.
0. As well as the Tribunal rejected the petitioner's book version even about stocks and there is no valid reason to accept the plea of the petitioner.
9-A. The learned counsel also submitted that a book version cannot be ignored or rejected simply for the reason that some of the sales are not verifiable. He argued that even a genuine sale may not be verifiable when a genuine purchaser gives a fictitious name or a wrong address. It is correct that a seller is not required to verify the antecedents of a prospective buyer and he has no means to check his particulars either. The argument as it is raised, is thus valid and had it been the only reason to reject the stock register, we might have had a different opinion. The situation obtaining in the case is, however, entirely different. Firstly, as discussed above, the assessee produced his stock register only for one year and the argument could not hold good for other two years. Secondly, the objection of the Tribunal was not that fake or bogus particulars were given in the sale vouchers but that no addresses were given at all under those entries. It is imagined that in case of such whole sale dealings a consciencious seller who has to prepare his accounts for income-tax purposes would not omit to incorporate the addresses etc. In his accounts for the purpose of verification.
That would show a bona fide attempt on the part of the assesseee though he may not guarantee the correctness of those particulars. It appears to be from that point of view that the Tribunal observed that in such whole-sale ,dealings those particulars could not be dispensed with for the purpose of -verification. The objection appears to be that the assessee had not attempted to maintain even apparently valid accounts.
10. The Income-tax Officer as well as the Tribunal applied 'available capital-turnover' method in these cases. The Income-tax Officer estimated the total turnover at 15 times the average capital credit facilities. The Tribunal, however observed that capital-turnover ratio in similar other business was as high as 1 to 60. It was found to be 1 to 4 in the petitioner's case which was ridiculously low.
The Tribunal, therefore, did not find any fault with the estimate arrived at by the Income-tax Officer on the basis of available capital credit facilities. It therefore, cannot be said that there was no basis for those estimates or that the Tribunal had no material before it either for rejection of the accounts or for making additions to the sales and enhancement of declared gross profit rate. Seen in the light of what has been said above, we do not think that the Tribunal commited any illegality in making those observations as it is a valid way of looking at the accounts and we are not pursuaded to declare it unlawful. The learned counsel relied on S. M. Yousaf Brothers v.
Commissioner of income-tax (1) to say that in such a situation the Income-tax Officer must have noted the ratio of the unverifiable entries with the verifiable ones to justify his decision to reject the book version of the sales. As discussed above, the authorities never relied on this aspect of the case exclusively to reject the accounts. This was remarked in reply to the argument raised by the petitioner. The petitioner had produced stock register for one year. The books were being maintained by a part-time Accountant who visited two or three times a week in the year 1970-71, after a week or so in the year 1971-72 and after a fortnight or so in the year 1972-73. The G. P. Rate was low as compared to the similar business. The turn over was also not commensurate with the available capital-credit facilities. Turnover of other (1) 1974 PTD 45 assessees in the similar business was much higher. The available data was considered and compared. In view of the above, it cannot be successfully pleaded that the impugned decision was unlawful.
11. The above discussion leads us to the conclusion that there was sufficient material before the Tribunal for rejection of the book version and for making addition to the declared sales and enhancement of the declared gross profit rate. The petitioner shall pay the costs of the respondents.