Law: Income Tax Act, 1922

Section: 60(2)

Law: Income Tax Ordinance, 1979

Section: 1M(2),60(2)

(a) Income-tax Act (XI of 1922)-----S.60(2)--Income-tax Ordinance (XXXI of 1979), S.1M(2)--Reference-¬Question of law--Question whether there was any basis for applying 17-1/2% and¬ 20-1/2% as the rate of profit on the estimated sales is a question of law. (b) Income-tax Ordinance (XXXI of 1979)-- ---S.135--Fixation of rate-by Appellate Tribunal merely on certain presumptions is not justified. JUDGMENT SALEEM AKHTAR, J.-- This judgment will dispose of these Income Tax Cases which relate to the same assessee in respect of Assessment years 197374 and 1974-75. The applicant is engaged in manufacturing cotton yarn. For the assessment year 1973-74 ending on 30th September, 1972, the applicant declared total sales of Rs.96,54,867 on which gross profit of Rs.11,47,094 was declared which worked out to 11.68%. The Income Tax Officer while framing assessment observed that the production of yarn was low as compared to the expected production calculated according to Awan Committee formula. The applicant pointed out that Awan Committee formula could not be applied as it was made for the purposes of Central Excise Duty and instead the production of yarn should be calculated on the basis of cotton consumed. This contention was not accepted and the Income Tax Officer relying on the Awan Committee Formula and Nazir Committee Formula rejected the production result holding that production of yarn should have been 49,25,737 Ibs. He further observed that wastage in production of yarn at 17.3% was excessive and fixed the wastage at 15%. The Income Tax Officer made addition of Rs.20,12,547 to the disclosed trading result. In respect of assessment year 1974-75 on similar grounds the Income Tax Officer added Rs.3,172,730 to the declared trading result. This assessment is subject matter of I.T.C.No.19/81. In appeal relating to the year 1973-74 on the enhanced sale of Rs.1,05,00,000 gross profit was calculated [1 17-1/2% which came to Rs.18,35,000 which resulted in addition of Rs.9,55,705 to the trading result instead of Rs.20,12,547. For the year 1974-75 on enhanced sale of Rs.1,90,00,000 gross profit was calculated at 20% which came to Rs.38 lacs as against gross profit of Rs.29,50,814…

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