K. Assan Koya and Sons vs Commissioner of Income Tax

T. Kochu Thommen, J.—The following question has been, at the instance of the assessee, referred to us by the Income Tax Appellate Tribunal, Cochin Bench :

" Whether, on the facts and in the circumstances of the case, and particularly in the context of the remand report of the Income Tax Officer not considered by the Tribunal, the Tribunal was justified in upholding the addition of Rs. 38,331 made by the Income Tax Officer to the total income in its entirety ? "

During the year previous to the assessment year 1973-74, the asses-see carried on business in rice. There was a search of the business premises of the assessee as well as the residence of the assessee''s employee on June 30, 1973, as a result of which a pocket diary was seized from the employee''s residence. The diary disclosed that the price at which a certain quantity of rice had been sold by the assessee during the relevant period was much higher than what was recorded in the assessee''s books of account. The assessment was accordingly completed on the basis of the information disclosed by the diary.

The assessee''s appeal was rejected by the Appellate Assistant Commissioner in regard to this question. The assessee approached the Tribunal in second appeal and contended that if the customers who dealt with the assessee during the relevant period were to be examined, they would disclose that the price paid by them was not at variance with what was recorded in the books of account. This submission obviously appealed to the Tribunal as seen from its remand order dated June 28, 1980 (see annexure C). The Tribunal by that order called for a report from the Income Tax Officer after verification of the prices paid to the assessee by the concerned customers. A remand report was accordingly submitted by the officer. The complaint of the assessee is that though the report was available with the Tribunal, the Tribunal did not take it into account and disposed of the appeal without any reference to it. Thus, material evidence available to the Tribunal had been totally ignored.

These contentions of the assessee which are ably urged before us by the assessee''s counsel, Shri Sudheer Gopi, are fully supported by the statement of the case where it is stated that the Tribunal did not take into account the remand report.

The Tribunal, being the highest fact-finding authority, must come to its findings of fact by drawing the necessary inference from the basic facts available to it and in accordance with the correct principles of law. In doing so, it is not open to the Tribunal to eschew relevant material or take into account irrelevant material. The Tribunal must necessarily decide on the basis of the evidence on record and with reference to the provisions of law. That the material which was directed to be obtained by the remand order was, in the opinion of the Tribunal, a relevant material is self-evident from the remand order itself. It was, therefore, not open to the Tribunal to come to a conclusion without having regard to the evidence disclosed by the remand report. It is perfectly within the discretion of the Tribunal to draw any inference which is reasonably possible on the basis of the totality of the evidence, including the remand report. It is, therefore, open to the Tribunal to disregard the evidence of the customers after considering the same. It is perfectly open to the Tribunal to say that the statements of the customers which are inconsistent with what is recorded in the pocket diary are unreliable. But it is not open to the Tribunal to reach a conclusion without adverting to it. The complaint of the assessee is not that the Tribunal rejected the evidence after considering the same, but that it did not consider the evidence at all. The genuineness of the complaint is fully supported by the statement of the case.

Counsel for the Revenue, however, relies on the following observation of the Allahabad High Court in Laxmi Co., Kanpur Vs. The Commissioner of Income Tax, U.P., :

"Any observations made by the Tribunal, when sending the case to the Excess Profits Tax Officer for report on facts, could not, therefore, bind the Tribunal at the time when it gave its final decision."

With respect, we agree with that observation. But, in our view, it has no relevance to the submissions made on behalf of the Revenue. It is true that the Tribunal is not bound by its observations in the remand order, but it is bound to apply its mind to the report and draw such inference as it deems fit.

In the circumstances, we answer the question in the negative, that is, in favour of the assessee and against the Revenue.

We direct the parties to bear their respective costs in this tax referred case.

A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.