Auto Equipment Ltd. Vs. Commissioner of Taxes [54 DLR (HCD) (2002) 496]
Appeal from Taxes Appellate Tribunal[1], Dhaka
Background of The Appeal: The main commercial activities of Auto Equipment Limited, are the sales of insecticide and tubewell parts. An income of Taka 5,81,386 was recorded by the assessee in its income tax return for the 1993-94 assessment year. After conducting an assessment required by sections 83(1) and 79 of the Income Tax Ordinance, 1984, the assessing officer discovered that the income was Taka 66,09,004. The assessee provided the assessing officer with entire books of accounts, including sales records, despite having a modest claimed income. Subsequently, aggrieved by the assessment order, Auto Equipment Limited appealed to the Commissioner of Taxes (Appeals). The Commissioner, by order reduced the income and consequently, the Gross Profit (GP) rate of 25%. Dissatisfied with the Commissioner’s decision Auto Equipment Limited appealed to the Taxes Appellate Tribunal, which maintained the Commissioner’s order. Being aggrieved against there, the appellants came up with an instant appeal before the High Court.
Issue: Whether the Taxes Appellate Tribunal was justified in Maintaining the Commissioner of Taxes’ decision to reconstruct sales at a gross profit rate of 25%?
Argument: Auto equipment Limited claimed that the Tribunal erred in Maintaining the Commissioner of Taxes’ decision the decision of the Commissioner. They argued that if the deputy commissioner of taxes can verify receipts and documentation relating to purchase and sale then the absence of stock register does not mean that the accounts are invalid. They relied on legal precedents to back this up. They specifically cited the Commissioner of Income Tax v. Friends Corporation case. This case proved that low profitability and the lack of a stock register are not always signs of accounting irregularities. The applicant also emphasized that the applicability of a stock registry varied depending on the specific facts of each instance, as demonstrated by Commissioner of Income Tax v. Messrs. Ata Hossain Khan Ltd. These examples reinforced the applicant’s claim that the absence of a stock registry shouldn’t make the accounts null and void as long as the other entries are accurate and credible. The low earnings and absence of stock registry did not always indicate accounting irregularities.
Judgment: The High Court held that the lack of a stock register shouldn’t be a deciding factor in situations where receipts and documentation pertaining to the purchase and sale are verifiable. Therefore, the Tribunal’s decision to maintain the Commissioner’s order regarding the reconstruction of sales and adoption of GP rate at 25% was deemed unjustified. The question was answered in the negative and in favour of the assessee.
Comments: The applicant’s main argument centred on the need for a stock register when auditing accounts. It relied on precedents to argue that the lack of a register does not invalidate accounts where other records are
[1] Taxes Appellate Tribunal is the highest Judicial authority in determining factual point of income tax cases. But in the case of law point, the appellant can go with a reference application to the honorable High Court against the order of the Tribunal.
Appeal from Taxes Appellate Tribunal[1], Dhaka Background of The Appeal: The main commercial activities of Auto Equipment Limited, are the sales of insecticide and tubewell parts. An income of Taka 5,81,386 was recorded by the assessee in its income tax return for the 1993-94 assessment year. After conducting an assessment required by sections…