I. T. A. NO. 514-A (IB) OF 1986-87, DECIDED ON 5TH JANUARY, 1988. Versus I. T. A. NO. 514-A (IB) OF 1986-87, DECIDED ON 5TH JANUARY, 1988.
ORDER
1. The assessee a registered firm which derives income from the purchase and sale of rice and pulses, etc. on wholesale basis, filed a return to declare net profit of Rs.35,800 under Self- Assessment Scheme, the details of which are given below:-
2. Income in respect of the first period from 1-7-1982 to 25-12-1982.
3. Rs.15,027
4. Income in respect of the second period from 26-12-1982 to 30-6-1983.
5. Rs.15,667
6. Income as per books of accounts.
7. Rs.30,694
8. Addition to be disclosed
9. Rs. 5,106
10. Income for the purpose of taking benefit of Self-Assessment Scheme.
11. Income as per return
12. Rs.35,800
2. Since case of the assessee. was set apart for a detailed scrutiny in terms of paras 1 to 6 of C.B.R;s Circular No. 14 of 1983, assessment relating to the charge year 1983-84 was finalized under section 62 of the Income-Tax Officer, 1979 (hereinafter called the Ordinance). In consequence thereof, income of the assessee was determined as under:
13. 1st period (from 1-6-1982 to 25-12-1982)
14. Turnover estimate at Rs.11,94,000
15. G. P. @ 4 %
16. Rs.53,730
17. Estimate of commission receipts.
18. Rs. 3,000
19. Gross income.
20. Rs.56,730
21. Less expenses as claimed
22. Rs.11,111
23. Balance income.
24. Rs.45,619
25. Add back out of P & L a/c
26. Rs. 200
27. Net income for the 1st period.
28. Rs.45,819
29. 2nd period (from 26-12-1982 to 30-6-1983). Turnover estimate at Rs.12,83,000
30. G. P. @ 4 %
31. Rs.57,735
32. Estimate of commission.
33. Rs.12,000
34. Gross income
35. Rs.69,735
36. Less expenses as claimed.
37. Rs. 9,833
38. Income of the second period.
39. Rs.59,902
3. On the basis of above computation, income of the assessee for both periods in respect of the charge year 1983-84, was determined at Rs.1,05,721. Income as assessed heretobefore was contested in appeal before learned A.A.C. who by virtue of Appeals Nos.698 and 699, dated 23-8-1986, confirmed assessment relating to the charge year 1983-84. In this view of the matter, assessee filed second appeal before the Tribunal which was contested on the basis of following grounds of appeal:-
(i) that selection of assessee's case for detailed scrutiny was illegal on the ground that it was immune from it.
(ii) that without prejudice to assessee's contention in para 1, there was no justification with the Income-tax Officer to have discarded properly maintained books of accounts and that learned A.A.C. also committed the same error while confirming rejection of book result.
(iii) that without prejudice to ground No.11, estimate of turnover as well as gross profit rate for the charge year 1983-84, was excessive. It was accordingly prayed that an appropriate relief may be given to assessee by the Tribunal.
4. Mr. Z. A. Sheikh, learned counsel for assessee has raised a preliminary objection in regard to selection of assessee's case for a detailed scrutiny vide para 1(6) of C.B.R's. Circular No.14 of 1983. Arguing further, he has pointed out that though this ground of appeal was duly taken up before learned A.A.C. yet he did not dwell on it in accordance with law and in consequence thereof, rejected it in a summary manner without putting on record necessary material to support the consequential finding. To set the controversy at rest, it is worthwhile to refer to the finding of learned A. A. C. at this stage: -
40. "The appellant had applied to the C.I.T., Rawalpindi claiming that his case was immune from detailed scrutiny. The application was rejected by the C I T., Rawalpinding through his letter, dated 13-4-1985. The findings of the learned C. I. T., Rawalpindi are correct. It may also be noted here that the present objection of the appellant cannot be raised before me because it appears that the appellant is trying to revive an issue, which was settled by the C.I.T., Rawalpindi. If the appellant was aggrieved by the order of the C.I.T., Rawalpindi, mentioned above, he should have sought the proper remedy which, in any case, is not the office of the A.A.C."
5. In regard to learned A.A.C.s observation, Mr. Z A. Sheikh, learned counsel of assessee has pointed out that once the first appellate authority had taken upon itself to adjudicate on an issue that was raised before him, it was not right on his part to have stated that remedy for it lay elsewhere. In fact with a finding rejecting assessee's plea that his case was not immune from a detailed scrutiny, learned A.A.C. had sealed assessee's plea. Therefore, on the facts and in the circumstances of this case, his further observation that in regard to a settled issue, he should have approached any other authority was misconceived. Having heard both the parties at some length on this issue, I have no hesitation in stating that learned A.A.C. having taken upon himself the responsibility of adjudicating on a plea raised before him 'could not subsequently say that a proper forum for it lies elsewhere. This finding is based on the fact that learned A.A.C. after hearing plea of assessee had given a finding on it. With it, responsibility of learned A.A.C. had assumed finality subject to revision/second appeal before the Zonal Commissioner of Income-Tax or the Tribunal. Since assessee is now before' the Tribunal, therefore, it is required to examine whether or not assessee was entitled to the benefit of Self-Assessment Scheme for the charge year 1983-84?
6. Learned counsel of the assessee has stated that in accordance with para 6(b) of Circular No.8, dated 28-8-1983, case of assessee fell beyond the scope of detailed scrutiny. This statement has been objected to by learned D. R. on behalf of the department who has stated that in accordance with para 3 of the circular, assessee was not entitled to the benefit of Self-Assessment Scheme as the addition volunteered by him for the purpose of inclusion in the income as per books of accounts, did not bear the same proportion to the undeclared sales as net profit computed on the basis of books of accounts bears to the declared sales. Having heard both the parties in depth, my finding in respect of their conflicting claims is given in the paras that follow hereafter.
7. With the object of resolving the controversy, it is necessary to first of all incorporate here para 6(b) on which reliance has been placed by Mr. Z. A. Sheikh, learned counsel of assessee and para 3 which has been brought in aid by learned D. R. on behalf of the department that case of assessee was rightly set apart for detailed scrutiny by the Income-Tax Officer:-
41. "6. The following categories of cases shall be immune from selection for detailed scrutiny subject to the conditions specified against 'each: -
(b) Cases which are immune from detailed scrutiny for either of assessment years 1981-82 or 1982-83 by virtue of declaring higher income;
(b) If the income declared for the assessment year 1983-84 is higher by 20 per cent or more as compared with the average of the assessed income of the three preceding years;
42. Or
43. If the income declared for assessment year 1983-84,bears the same proportion to the income last assessed as the turnover/ receipts declared for assessment year 1983-84, bears to the turnover/ receipts last assessed provided that the income declared for assessment year 1983-84, is higher than the income last assessed;
44. Whichever is the higher."
45. Para 3.
46. Lump sum additions .--Tax-payers are allowed to make lump sum additions under any head of income. If the addition pertains to business outside the books or income from other source the tax-payers may indicate the nature and source of such income. In case the lump sum addition pertains to any other business, hitherto not disclosed, an actual or estimated trading account of such business may accompany the return. However, the tax-payers shall not be forced to declare the nature and source of income. No questions shall be asked regarding the lump sum additions made by them to avail the benefit of Self- Assessment Scheme. Where separate trading accounts are not filed, it would be presumed that such lump sum addition is on account of the same business and it bears the same proportion to the undeclared sales as the net profits computed on the basis of books of account bear to the declared sales. Tax-payers are entitled to add the lump sum additions to their capital."
8. Learned counsel of assessee has submitted three different charts in support of the fact that case of assessee qualified for immunity from detailed scrutiny in accordance with para 6(b) of Circular No.8. of June 26, 1983. For facility or reference, these computation charts are set out below:-
47. Chart No.l .-- Income declared /assessed under
48. Section 59(1)
49. 1980-81 = Rs.20,701
50. 1981-82 = Rs. 24 , 850
51. 1982-83 = Rs.27,000
52. Average = Rs.29,020
53. Income on the basis of turnover.
54. 1982-83 27000/917475 = 2.94%
55. 1983-84 35800/943889 =3.79%
56. Chart No.2.
57. Comparison of turnover before lump sum addition and after lump sum addition:
58. Income as per books 1982-83
59. Rs. 26,500
60. Turnover as per books
61. Rs.9,17,475
62. Average
63. 2.88%
64. Lump sum addition
65. Rs. 500
66. Turnover on Rs.500 with average net profit @ 2.88%
67. Rs. 17,361
68. Total Rs.17,361, Rs.9,17,475
69. Rs.9,34,836
70. Net income.
71. Rs. 27,000
72. Net profit on the basis of turnover.
73. 2.88%
74. Chart No.3.
75. Income as per books 1983-84
76. Rs.30,694
77. Turnover as per books
78. Rs.9,43,889
79. Average % on the basis of turnover.
80. 3.25%
81. Lump sum addition.
82. Rs. 5,106
83. Turnover at average net profit @ 3.25%.
84. Rs. 1,57,107
85. Total Rs.1,57,107
86. Rs.11,00,996
87. Net income declared
88. Rs. 35,800
89. Net profit on the basis of turnover.
90. 3.25%
9. Since there was a discrepancy in regard to disclosed turnover as per assessment order and as per computation Chart No.l, submitted by learned counsel of assessee, he was required to resolve it in respect of the two amounts of turnover. Learned counsel of assessee has stated at the Bar that the figure of turnover for the charge year 1983-84, is not correct because the Income-Tax Officer while making assessment had also clubbed closing stock with the turnover for both the periods. This part of the statement having been conceded by learned DR on behalf of the department, I have been left with no other alternative but to conclude that information in regard to turnover supplied by learned counsel of assessee for the charge year 1983-84, is correct and that of the Income-Tax Officer is misleading on the basis of which a wrong decision was communicated vide Commissioner of Income-Tax, Rawalpindi's Letter No. AP-54/1983-84/8512/J.Br., dated 13-4-1985.
10. Before proceeding further, it may also be mentioned here that I have allowed learned counsel of assessee to club commission receipts with its turnover as this has been the consistent pattern of filing return in the past. Even otherwise, according to para 6(b) of the Circular separate comparison of turnover and receipts was not contemplated where a business comprised of making sales on own account and on behalf of other parties thereby earning commission on it. Since in respect of the case before me the basis of turnover/receipts has been the pattern in the past, it will govern whether or not case of the assessee could not have been selected for a detailed scrutiny. With this finding, my task of adjudicating on the plea of assessee whether disclosed income should have been accepted under the Self- Assessment Scheme has been rendered easier.
11. After having a good look on the three computation charts which have been incorporated in the order, I find that even with a lumpsum addition to the extent of Rs.5,106 volunteered by assessee for the charge year 1983-84, average percentage of net profit on the basis of turnover so computed amounts to 3.25% as compared to turnover on the basis of books of accounts according to which the average percentage of his profit in relation to turnover also amounts to 3.25%. Even on the basis of other criterion as set out in para 6(b) both the calculation support case of assessee that its disclosed income for the charge year 1983-84, qualified for acceptance under Self-Assessment Scheme. Since a finding based on appreciation of the foregoing facts was not recorded by learned AAC, I hereby vacate his order. As a necessary corollary to it, plea of assessee having been accepted, return filed by it for the charge year 1983-84 is held, to fall within the parameter of para 6(b) of Circular No.8, dated 26-6-1983, thereby qualifying for immunity. It is ordered accordingly.
12. As relief has been allowed to assessee on a preliminary objection, it is not necessary for me at this stage to hand out a verdict in regard to the other grounds in the memo of appeal:
13. Appeal filed by assessee succeeds to the extent and in the manner indicated above.
91. M. B. A./546/T Appeal partly accepted.