THE COMMISSIONER OF INCOME-TAX, LAHORE vs Messrs COLONY WOOLLEN
This petition for leave to appeal arises from a tax assessment dispute concerning the respondent's accounts for the assessment year 1966-67. The Income-tax Officer rejected the respondent's submitted accounts based on an analysis of raw material purchases and historical profit ratios, subsequently adding Rs. 50,000 to the trading account. The Income-tax Appellate Tribunal upheld this addition. Upon reference, the Lahore High Court, relying on precedent, ruled that the Income-tax Officer and the Tribunal violated the first proviso to Section 13 of the Income-tax Act 1922 by failing to compute income on a proper basis when rejecting the accounts. The petitioner (Commissioner of Income-tax) sought leave to appeal, arguing that the assessment was not arbitrary but based on careful scrutiny, and that the High Court's reliance on the Rajput Metal Works Gujranwala case conflicted with Supreme Court and Privy Council precedents. The Supreme Court granted leave to appeal, noting that the petitioner's submissions regarding the consistency of the High Court's decision with established legal principles required further examination by the Court.
- Does an Income-tax Officer violate the first proviso to Section 13 of the Income-tax Act 1922 by adding a sum to a trading account for low profit rates without a proper basis of computation?
- Is an assessment made after scrutiny of accounts and historical data considered arbitrary under the Income-tax Act 1922?
- Section 13, Income-tax Act 1922
- Section 66(1), Income-tax Act 1922
ORDER
1. DORAB PATEL, J.---The dispute in this petition for leave relates to the accounts submitted by the respondent for the assessm ent year 1966-67. The Income-tax Officer scrutinised the accounts submitted in the light of the purchases of raw material by the respondent, the ratio of profits shown by the respondent in earlier years, etc., and on what appears to be a careful examination of the material he reached the conclusion that the accounts submitted were not fit to be accepted, therefore, he added Rs.50,000 to the respondent's trading account by his order dated 30-6-1971.
2. The respondent challenged this order in a direct appeal before the Income-tax Appellate Tribunal but as the anneal was dismissed it filed an application under section 66(1) of the Income-tax Act in the Lahore High Court in which it raised two questions. The first question was whether the assessm ent made by the Income-tax Officer was "violative of the first proviso to section 13 of the Income-tax Act 1922 for want of computation of an income on any basis". And the second question was whether there was any material before the Tribunal for rejecting the accounts submitted by the respondent.
3. On the basis of a judgment of their own High Court in Rajput Metal Works Gujranwala v.
4. Commissioner of Income-tax Rawalpindi (1976) 33 Tax., the learned Judges, who heard the respondent's reference held:-- "In view of the law so laid down, we conclude that the Income-tax Officer in adding and the Tribunal in maintaining the addition of a sum of Rs.50,000 "for low rate of profit, excessive wastage and low production" violated the first proviso to section 13 of the Income-tax Act and we answer the question accordingly. In view of such an answer the reasons already given, we would not, for the present, like to deal with the second question ....'
5. Hence this petition for leave.
6. Mr. Ilyas Khan submitted that the assessment made by the Income-tax Officer was not arbitrary, because it had been made after a careful scrutiny of the accounts submitted together with the earlier and on law his submission was that accounts of the respondent the view taken in the Rajput Metal Works Gujranwala's case was inconsistent with the law declared by us in Miss Assi v. Income- tax Appellate Tribunal PLD 1979 SC 949 and the judgment of the Privy Council in Commissioner of Income-tax, United and Central Provinces v. Badridas Ramrai, Shop, Akola, Owner Laxminarayan Badridas Shrawagi AIR 1937 P C 133. As these submissions require examination we grant leave. The appeal will be made ready on the present record with liberty to the parties to file additional documents, if any.