COMMODITY & EQUIPMENT INT'L (PVT.) LTD. vs COMMISSIONER OF INCOME-

1. MUHAMMAD MUJEEBULLAH SIDDIQUI, I.---Through this Reference the Income Tax Appellate Tribunal has referred following question of law for our opinion: "Whether provisions of section 32(3) of the Income Tax Ordinance, 1979 could be involved in the facts and circumstances of this case, for the reason of declared gross profit rate being ridiculously low as compared to the previous history of appellant and parallel cases, when the purchases and sales were found to be verifiable and were accepted?"

2. Heard the learned counsel for the parties and perused the statement of case as well as the assessm ent order, first appellate order and the order passed by the learned Income Tax Appellate Tribunal, out of which the above question of law arises.

3. Mr. Salman Pasha, learned counsel for the applicant, has submitted that the Assessing Officer accepted the declared sales and purchases, but enhanced the GP fate from 3% to 12.5% on the basis of GP rate applied in the preceding year. He has submitted that each assessment year is an independent unit and the facts and circumstances prevailing in the each assessment year are to be considered independently until and unless the facts and circumstances are similar. He has submitted that after the acceptance of sales and purchases in an account case it would be a bad mathematics to enhance the GP rate.

4. Mr. Aqueel Ahmed Abbasi, learned counsel for the respondent, is not able to deny that in the assessm ent order the Assessing Officer has observed that the sales and purchases are verifiable.

5. Mr. Abbasi has supported the enhancement of GP rate on the basis of past history.

6. We are of the considered opinion that the past history can be a good guide in those cases where no accounts have been maintained and the debit and credit (sic) the Assessing Officer has not doubted the veracity of entries on the debit and credit side, past history can never be acted upon.

7. As admittedly in the assessm ent year 1987-88 the sales and purchases are verifiable, therefore, we are of the considered opinion that the learned Income Tax Appellate Tribunal was not justified in upholding the enhancement of the GP rate by invoking the provisions contained in section 32(3) of the Income Tax Ordinance, 1979. For the sake of convenience the provision contained in section 32(3) of the Income Tax Ordinance, 1979 is reproduced below:--- "32. Method of accounting.---(1)

8. Where no method of accounting has been regularly employed, or if the method employed is such that, in the opinion of the Deputy Commissioner, the income, profits and gains cannot be properly deducted therefrom, or where, in any case to which subsection (2) applies the assessee fails to maintain accounts, makes payments or record transaction in the form or manner, as the case may be, prescribed under the said subsection, then, the income, profit and gains of the assessee shall be computed on such basis and in such manner as the Deputy Commissioner thinks fit."

9. A perusal of the above section shows that where no method of accounting has been regularly employed or the method employed is such that in the opinion of the Deputy Commissioner, the income, profits and gains cannot be properly deduced therefroth or where subsection (2) applied, the assessee fails to maintain accounts, makes payments or records transactions in the form or manner, as the case may be, prescribed under the said subsection, then only the income, profits and gains of assessee shall be computed on such basis and in such manner as the Deputy Commissioner thinks fit. Resort to the provisions contained in section 32(3) of Income Tax Ordinance, 1979 cannot be made until and unless the conditions precedent specified in the provision itself are fulfilled. We find that the Assessing Officer has nowhere given any finding that the accounts have not been properly maintained or it has been maintained in such a manner that it is not possible to deduce the correct income, profits and gains. On the contrary, the Assessing Officer has held that the purchases and sales are verifiable. In these circumstances the learned Income Tax Appellate Tribunal ought to have accepted the declared GP rate as well. It appears that the learned Income Tax Appellate Tribunal failed to advert to the point that in the were of acceptance of declared purchases and sales the enhancement of GP rate would be against principle of accounting and would be certainly a bad mathematics.

10. For the foregoing reasons it is held that the provisions contained in section 32(3) of the Income Tax Ordinance, 1979 thus could not be invoked. The question referred to us is answered accordingly.

11. A copy of this judgment should be sent to the Income Tax Appellate Tribunal under the seal of Registrar for passing the appropriate order conformably to this judgment. .