2014 S C M R 907
[Supreme Court of Pakistan]
Present: Sarmad Jalal Osmany, Muhammad Ather Saeed and Mushir Alam, JJ
Messrs F.M.Y. INDUSTRIES LTD.---Petitioner
Versus
DEPUTY COMMISSIONER INCOME TAX and another---Respondents
Civil Petition No.332-K of 2013, decided on 27th February, 2014.
(Against the order dated 3-5-2013 of the High Court of Sindh, Karachi passed in I.T.A. No.161
of 1998)
(a) Income Tax Ordinance (XXXI of 1979) [since repealed]---
----Ss. 136 & 137---Reference to High Court against judgment of Income Tax Appellate Tribunal---
Appeal to Supreme Court---Questions of fact---High Court and Supreme Court cannot entertain any
question on a finding of fact given by the Income Tax (Appellate) Tribunal.
(b) Income Tax Ordinance (XXXI of 1979) [since repealed]---
----S. 136---Reference to High Court against judgment of Income Tax Appellate Tribunal---Scope---
Questions of law---High Court only had to give opinion on questions of law raised before it---Only those
questions could be raised before the High Court which were questions of law and arose from the order of
the (Appellate) Tribunal---Questions of law included questions argued before the Tribunal on which
finding had either been given or not given by the Tribunal, and also those questions which were never
argued but had been adjudicated upon by the Tribunal.
Commissioner of Income Tax, Companies-III, Karachi v. Krudd Sons Ltd. 1994 SCMR 229 =
1994 PTD 174 ref.
(c) Income Tax Ordinance (XXXI of 1979) [since repealed]---
----Ss. 136 & 137---Reference to High Court against judgment of Income Tax Appellate Tribunal---
Scope---Appeal to Supreme Court---Scope---Questions of law neither agitated before the Appellate
Tribunal nor adjudicated upon by the Tribunal---Such questions could not be raised before the High
Court or Supreme Court.
Iram Ghee Mills (Pvt.) Ltd., Lahore v. Income Tax Appellate Tribunal, Lahore 1998 PTD 3835
ref.
Syed Shahanshah Hussain, Advocate Supreme Court for Petitioner.
Muhammad Saleem Mangrio, Advocate Supreme Court for Respondents.
Date of hearing: 27th February, 2014.
ORDER
MUHAMMAD ATHER SAEED, J.---This civil petition for leave to appeal has been file
against the judgment of the learned High Court of Sindh, Karachi dated 3-5-2013 whereby the learned
High Court had dismissed the appeal filed by the present petitioner against the order of the Income
Tax Appellate Tribunal (Headquarters) Karachi dated 2-4-1998 in I.T.A. No.502/KB of 1997-98.
2. Brief facts of the case are that petitioner, a company which carries on the business of
manufacturing of yarn, processing of cloth and bleaching/printing services filed its return of income
along with audited accounts declaring net loss of 33,385,950. The Deputy Commissioner of Income Tax
issued a number of notices under sections 61 and 62 of the Income Tax, Ordinance, 1979 (hereinafter
referred to as 'the Ordinance') directing the petitioner to produce the books of accounts for examination
and to submit details of various accounts of receipts and expenditure and also the reasons for the
decrease in the sales and considerable drop in the gross profit. According to the Deputy Commissioner
of Income Tax the petitioner failed to produce the books of accounts and only furnished few details
asked for. He, therefore, rejected declared income, estimated sales and gross profit and assessed the total
income at Rs.32,960,053. Being aggrieved by the assessment order, the petitioner filed an appeal before
Commissioner of Income Tax (Appeals-I), Karachi who vide his order dated 20-12-1997 in Income Tax
Appeal No.124 allowed the appeal and deleted the additions made in the trading accounts and accepted
the declared sales and gross profit. Being aggrieved by the order of the Commissioner of Income Tax
(Appeals) the present respondent filed an appeal before the Income Tax Appellate Tribunal
(Headquarters) Karachi who vide their order dated 2-4-1998 in I.T.A. No.502/KB of 1997-98 allowed
the appeal and vacated the order of the Commissioner of Income Tax (Appeals) and restored the
additions made by the Deputy Commissioner of Income Tax in the trading accounts. Being aggrieved by
the order of the Income Tax Appellate Tribunal an appeal was preferred by the present petitioner before
the learned High Court of Sindh. The appeal was not filed on the proper prescribed pro
forma and no questions of law stated to arise out of the order of the
Tribunal were stated for the opinion of the learned High Court. However on the directions of the
learned High Court, the following questions were referred through a statement filed on 5-4-2006:--
(i) Whether the learned Tribunal erred in law in finding that respondent No.1 could have taken
adverse action against the appellant without first issuing a notice under section 62 of the Income Tax
Ordinance, 1979?
(ii) Whether the learned Tribunal erred in law in finding that respondent No.1 could depart from its
own established past practice of accepting the book results without presenting cogent reasons or material
on record in support of such a departure?
(iii) Whether the findings of the learned Tribunal were adequately supported by the evidence, as
required by law?
3. The learned High Court vide impugned judgment held that the first question was a question of
fact and need not be answered whereas they answered the second question in negative in favour of the
present respondent and against the petitioner and as a consequence thereof they dismissed the appeal
filed by the present petitioner.
4. We have heard Syed Shahanshah Hussain, learned Advocate Supreme Court for the petitioner
and Mr. Muhammad Saleem Mangrio, learned Advocate Supreme Court for the respondent.
5. The learned Advocate Supreme Court for the petitioner initially submitted that the Income Tax
Tribunal had erred in vacating the well reasoned order of the Commissioner (Appeals) and restoring the
addition in the trading accounts made by the Deputy Commissioner of Income Tax and has given no
cogent reasons for its action. He further submitted without conceding that even if it is assumed that the
books of the accounts were not produced then the Deputy Commissioner of Income Tax could not pass
an assessment order under section 62 of the Ordinance but the same should have been a best judgment
assessment under section 63 of the Ordinance and while making assessment under section 63 of the
Ordinance he could not draw adverse inference against the petitioner for not producing the books of
accounts and could only pass a reasonable order based on his best judgment, which should not be
capricious or arbitrarily but has to be based on reasons and logic. He drew our attention to the letter of
the counsel for the petitioner No.M-10/T/0881/97 dated 30th May, 1997 and submitted that the books of
accounts were produced through this letter and various details were filed. He submitted that while
finalizing the assessment under section 62 of the Ordinance, the assessing officer was bound to issue a
notice under the provisions of section 62 of the Ordinance and this was not done, therefore, the
assessment as framed stands invalidated. He once again stressed his arguments that if the books of
accounts were not produced, the assessing office can only frame the assessment under section 63 of the
Ordinance on the basis of the best judgment and not under section 62 of the Ordinance. When we
pointed out to him that he had not referred this question for the opinion of the learned High Court, he
stated that he has filed an appeal and not a reference and on the direction of the learned High Court the
questions of law were submitted through a statement but in the grounds of appeal this point was agitated
and the learned High Court should have considered it and given its opinion on this ground. He further
argued that the reasons for the fall in the sales and decrease in the gross profit were mentioned in the
Chairman's report which was a part of the annual audited accounts which were filed along with return of
income and the assessing officer has not been able to give plausible reasons for rejecting this
explanation. In support of his arguments he relied on the following judgment:--
(1) Commissioner of Income Tax, Companies-III, Karachi v. Krudd Sons Ltd. 1994 SCMR 229 =
1994 PTD 174.
(2) Unreported judgment of the High Court of Sindh dated 6-6-1999 in Income Tax Appeals
Nos.95 and 96 of 1998.
On the basis of the above arguments, he prayed that since the order of the Tribunal is based on mis-
application of the relevant law, therefore; this order and the impugned judgment upholding the same be
set aside and order of the Commissioner (Appeals) restored.
6. The learned Advocate Supreme Court for the respondent strongly opposed the arguments of the
learned Advocate Supreme Court for the petitioner and supported the impugned judgment. He submitted
that the books of accounts were never produced before the assessing officer and the learned Tribunal has
given a finding of fact that the books were not produced and view of this factual finding there was no
need for issuance of notice under section 62 of the Ordinance. He further submitted that along with
notices under section 61 of the Ordinance for the production of books of accounts and submission of
details a number of notices under section 62 of the Ordinance which have been reproduced in the
assessment order had been served on the petitioner but remained un-complied with and therefore the
assessing officer had no other option but to finalize the assessment under section 62 of the Ordinance on
the basis of the available details and information. He, therefore, prayed that the petition being devoid of
merit may be dismissed.
7. We have examined the case in the light of the arguments of the learned counsel for the parties
and have also perused the records of the case including the assessment order, the orders of the
Commissioner of Appeals, and the Income Tax Appellate Tribunal and the impugned judgment and the
judgments relied on by the learned counsel for the petitioner.
8. We have also perused the letter of the assesse's counsel dated 30th May, 1997 in which it has
been mentioned that the books of accounts are being produced. On this point the assessing officer in the
assessment order has observed that on 30th May, 1997 no one attended nor books were produced.
However, this letter was acknowledged to the following extent:--
(i) Sufficient time was not allowed by this office. According to them details asked for by this
office require at least 20 days to comply with.
(ii) Preparation of details of sales and purchases was just not possible in just 7 days which according
to them was provided by this office.
(iii) Reasons for fall in GP are given in Director's report annexed with audited accounts.
(iv) Certain other details were claimed to have been enclosed with
tax advisors letter. However, factually there were non and Mr. Saleem of Messrs Ebrahim & Co. was
informed about this on telephone on the same day.
(v) The Tax Advisor promised to furnish remaining details in due course.
9. Even otherwise as mentioned above, it is a question of fact that the books of accounts were never
produced before the assessing officer and this factual finding of fact has been given by the Income Tax
Tribunal and the learned High Court and this Court cannot entertain any question on a finding of fact.
As already pointed out earlier the learned counsel for the petitioner argued at considerable length, that if
books of accounts were not produced then the assessing officer should have finalized the assessment
under section 63 of Ordinance and not under section 62 of the Ordinance. On our pointing out that this
question was not raised before the learned High Court, he argued that he had filed an appeal and not a
reference and mentioned this ground in the grounds of appeal but in the question of law filed on the
direction of the learned High Court it was not mentioned, but he should have been allowed to argue on
the basis of its mention in the grounds of appeal. We may in this connection refer to the judgment of the
learned Lahore High Court in the case of Iram Ghee Mills (Pvt.) Ltd., Lahore v. Income Tax Appellate
Tribunal, Lahore (1998 PTD 3835) in which the learned High Court held as under:--
"From the aforesaid juxta-positional study of the old and new provision, we are quite clear to
hold that amended section has not alt d fundamentals of jurisdiction of this Court. The statutory altered
mechanism of moving the Income Tax Tribunal in the first instance, had been totally eliminated and 'the
Assessee/Tax Payer/Commissioner had been blessed with a right to claim answers on question of law
from this Court straightway. On this view of the matter, it is thus clear that the change brought in the
nomenclature of this provision is cosmetic in nature and is designed to obligerate procedural pre-
conditionalities. Manifestly, neither the nature of jurisdiction of this Court nor its ambit has been
changed. This amendment has been made in deference to observation of Supreme Court made in
Pakistan v. Majistic Cinema (PLD 1965 SC 379). On this analysis of
old and new provision, we have thus, reached the conclusion that the expression 'appeal' employed in
the new provisions is simply cosmetic in nature and powers of this Court under the old section."
10. A perusal of the above extract reveals that the learned High Court only has to give opinion on
questions of law raised before, it and not on the grounds mentioned in the appeal. It is now a settled law
that only those questions can be raised before the learned High Court which are questions of law and are
arising from the order of the Tribunal. Questions of law have been held to include questions argued
before the Tribunal on which finding has been given by the Tribunal or questions argued before the
Tribunal but no finding has been given by the Tribunal on such questions and questions which were
never argued but had been adjudicated by the Tribunal. The question whether assessment should have
been finalized under section 62 or 63 of the Ordinance does not fall under any of these categories. It was
not argued before the Tribunal nor adjucated by the Tribunal. We, therefore, regret that this question do
not merit consideration by us at this stage. In this connection we would also refer to the judgment of this
Court in the case of Collector of Customs E&ST and Sales Tax v. Pakistan State Oil Company Ltd.
(2005 SCMR 1636) where this Court held as under:--
"Perusal of section 196 of the Act reveals that High Court can exercise its jurisdiction only in
respect of questions of law arising out of order under section 194-B of the Act. It is significant to note
that before the Customs hierarchy plea of limitation was not raised. It being so, the High Court was not
competent to consider said plea, as it was neither raised, before the Collector Customs, nor before the
Tribunal. There is no discussion on the point of limitation in the orders passed by the Collector Customs
and the Tribunal. Question of limitation is a mixed question of law and fact and unless it was raised
before the forum below, it could not straightway be agitated before the High Court. It can be concluded
that such question never arose from the order passed by the Tribunal. Factual controversy is sorted out
up to the level of the Tribunal. Remedy under section 196 is restricted to legal points only, which was
not available to the respondent-Company before the High Court."
From a perusal of this extract it is clear that a new question of law that has not been agitated before the
Tribunal cannot be raised before the High Court or this Court.
11. We have also examined the judgments relied on by the learned Advocate Supreme Court for the
petitioner. These judgments are distinguishable. In the case of Krudd Son quoted (supra), the books of
accounts were produced before the assessing officer and therefore the mandate of provisions of proviso
to section 62(1) of the Ordinance was applicable. Whereas in the unreported judgment, it was held that
the assessment under section 63 of the Ordinance was capricious whereas in the case before us the
Tribunal has held that the assessment order was fair and reasonable.
12. From a perusal of the order of the Tribunal it is seen that the Tribunal has very ably discussed all
aspects of the case and has cogent reasons for vacating the order of the Commissioner of Appeals and
restoring the additions made by the assessing officer. We are also of the view that the learned High
Court has effectively dealt with the questions referred before it and adjudicated upon the same in
accordance with the provision of section 136 of the Ordinance. We are, therefore, of the considered
opinion that the impugned judgment and the order of the Tribunal are unexceptionable and the order of
the Commissioner of Appeals is full of discrepancies and assumptions and has, therefore, rightly been
vacated by the Tribunal and the learned High Court.
13. Resultantly, this petition being devoid of merit is dismissed and leave to appeal refused.
MWA/F-1/SC Petition dismisse
