K. Lakshminarayanan, Coimbatore vs The Commissioner of Income Tax, Madras

Ramaprasada Rao, J.—This is petition u/s 256(2) of the Income Tax Act, 1961, whereunder the petitioner is seeking a direction to the

Appellate Tribunal to state the case and refer the following questions of law for the opinion of this court:

` (1) Whether on the facts and in the circumstances of the case the Inspecting Assistant Commissioner had jurisdiction to levy penalty on the basis

of the satisfaction of the Income Tax Officer in the course of the assessment proceedings?

(2) Whether on the facts and in the circumstances of the case the provisions of Section 271(1)(c) can be invoked by the Inspecting Assistant

Commissioner in the absence of any proceedings before him?

(3) Whether on the facts and in the circumstances of the case the Tribunal was justified in confirming the penalty for alleged concealment when the

income itself was based on estimates?

The short facts necessary for appreciating the contentions of the petitioner are as follows:--

The assessee, a bus operator carrying on business in Coimbatore, was admittedly not maintaining any accounts in relation to his business for the

accounting year ending March, 1963. For the assessment year 1963-64, he returned an income of Rs. 16,124/- on October 3, 1963. On

February 15, 1964 the Income Tax Department searched the premises of the petitioner and seized certain incriminating sheets which had a bearing

on the petitioner''s business. In fact, those sheets reflected the collections received by the assessee during a part of that relevant year. On the basis

of such sheets and the material thereunder, the Revenue had to estimate the income. But, before final orders were passed for the relevant

accounting year, the petitioner filed a revised return. But, it is to be noted that even the revised return was based on no specified or specific

material such as account books etc. kept by him, but once again based on his own speculation. The Income Tax Officer estimated the assessable

income of the petitioner at Rs. 93,260/- which on appeal to the Appellate Assistant Commissioner was reduced to Rs. 50,000/- and which on a

second appeal by the Department was increased to Rs. 62,500/-. The Inspecting Assistant Commissioner of Income Tax concurrently took up

penalty proceedings as provided in the Act and levied a penalty of Rs. 25,000/-, On an appeal against such levy of penalty to the Income Tax

Appellate Tribunal the penalty Order and the quantum were confirmed. It is common ground that before the Tribunal no question was mooted

relating to the jurisdiction of the Inspecting Assistant Commissioner to entertain the proceedings and levy penalty as he did. The Tribunal on the

merits found that the penalty order was justified and had to be upheld. An application u/s 256(1) was made before the Tribunal to refer the above

questions of law said to be arising from and out of this order. On a refusal by the Tribunal to do so, the present application has been filed.

Mr. Padmanabhan, the learned counsel for the petitioner, would urge that the matter involved in this case is not purely a question of law, but is a

matter concerning jurisdiction and therefore notwithstanding the fact that the matter was not mooted before the Appellate Tribunal, it is open to this

Court is exercise of its powers, u/s 256(2) to require the Tribunal to state a case and to refer the questions as framed by him to the High Court. He

would also state that the Revenue, in the course of levying the penalty and processing the proceedings for the imposition of penalty, did not find as

a fact as to which portion of the escaped income is attributable to any overt or covert act on the part of the petitioner. In the absence of such a

finding, the penalty imposed is again vitiated by an error of law.

u/s 256(1), the Appellate Tribunal is required in law, at the instance of the assessee or the Department, as the case may be, on an application

made to them in the prescribed form, to refer to the High Court any question of law ""arising out of such order."" Sub-section (2) of Section 256

enables this Court, on a refusal by the Appellate Tribunal to refer, in the manner contemplated u/s 256(1) to cause a reference of such questions,

again on an application made for the purpose to this Court, if it is not satisfied with the correctness of the decision of the Appellate Tribunal. The

question, therefore, is whether in the order of the Appellate Tribunal, any question of law arises therefrom. If such a question does arise, then it is

statutorily obligatory on the part of the Appellate Tribunal to refer such a question to this Court and if it fails to do so, then their decision would be

incorrect.

The parenthesis arising out of such order u/s 256(1) had been the subject-matter of constant interpretation. Where the subject is whether a

question of law arises out of the order of the Tribunal, one should find intrinsically in the order itself any misapplication of law or error of

jurisdiction or error apparent thereon or at least an unreasonable inference on proved facts. If on the other hand no argument has been addressed

on a particular aspect and incidentally therefore no question has been raised and presented before the Tribunal for decision, then they had no

opportunity to advert to it or consider it and above all decide on it. It is one thing to say that a question was argued and a question of law arises

therefrom; but it is totally a different situation when the record is conspicuously silent about a particular aspect such as the jurisdiction to levy a

penalty in the particular circumstances of the case, etc., and which in the instant case is now sought to be raised before us for the first time, and it

would not be proper to say that the Tribunal failed to refer such a question to Court for an answer as if it arose out of its order. Incidentally, we

might add that it is not reasonable to expect that while seeking for a reference, every aspect of a comprehensive question, which has a wide

coverage, has to be referred. The advisory jurisdiction of this Court has only an impact on matter raised and considered by the Tribunal and in

certain exceptional cases to matters which are ancillary and intimately connected with it. No doubt, as has been said, the Court ought not to be

super-refined to avoid a decision on a question of law but which is ancillary to the main question referred. This would be so when on an overall

review, a point of law does arise by necessary implication though not ex facie on record.

But it would be different in a case where there was no argument on a phase of the question and particularly when the Tribunal was not called upon

to decide about the jurisdiction of the Revenue to impose a penalty. It would be difficult in such circumstances for this Court u/s 256(2) to require

the Appellate Tribunal to state the case and refer a question sought to be raised for the first time before it. It is common ground that the question of

jurisdiction was not raised before the Tribunal. But, the argument is that the matters relating to jurisdiction go to the root of the question and it

something which is more than a question of law. This might be so. But, as long as the Tribunal was not confronted with such a problem and was

not called upon to apply its mind to it, then it would be unreasonable to characterise the order of the Appellate Tribunal as incorrect and call upon

them to state a case on a question which cannot, and obviously does not, arise from its order. By approaching this Court u/s 256 in such

circumstances, the normal statutory routine cannot be by-passed, and a new question called out from the order of the Tribunal outside its text,

scope and content.

Mr. Padmanabhan puts the argument in a slightly different way. He would say that the penalty having been levied on an estimated income, it is

necessary for the revenue to find as to what portion of such an income was deliberately suppressed and what other portion of such income

escaped under normal circumstances, such as accidental omissions etc. In a case where the Best Judgment method was invoked, and particularly

when it was resorted to because there were no accounts kept by the assessee, then it would be impracticable to divide the estimated income into

separate parts, one to be characterised as income deliberately suppressed and the other due to normal omissions. Such a dichotomy can be

envisaged in a case where there are accounts or in the alternative some acceptable material to adjudge and compute the income earned by the

assessee and avoided by him from being disclosed. On the other hand, if the conduct of the assessee is contumacious enough and by itself is wholly

provocative to assess him on the Best Judgment method and consequentially the Revenue is compelled to bring to tax an escaped income

computed on the Best Judgment formula, then there is no scope for a finding as to what part or portion of such income has been wantonly or

deliberately suppressed, and as to what other portion has been suppressed due to normal exigencies.

Mr. Padmanabhan, however, refers to a decision of our Court in M. Hussain Ali and Sons Vs. Commissioner of Income Tax, Madras, . That

was a case where the accounts kept by the assessee were rejected and the Best Judgment method was invoked and laterly penalty imposed. In

those circumstances, Justice Srinivasan observed as follows:--

Where it is shown that the assessee has deliberately concealed particulars of income and has pursued a policy of concealment, it may well be that

the Income Tax Officer may not stop to consider whether any items omitted were explainable on the basis of inadvertent mistakes or the like, for

the over-all activity of the assessee may colour the entire transaction.

We do not think that the ratio in this case in any way helps the petitioner. On the other hand, the learned Judge has indicated that if the conduct of

the assessee is so coloured and contumacious, then it is not necessary that there should be a further probe by the Revenue as to whether he is

partly excusable and his conduct would partly be condoned. In the instant case, there are no account. Even, when the assessee filed his revised

return, it is admitted that he did it only on his own speculation and without having the necessary materials to support it and again this return possibly

might have been based on the incriminating material accidentally recovered by the Revenue in the course of such search. In such circumstances, we

are unable to agree with Mr. Padmanabhan that in the absence of a finding as to what portion of the escaped income was due a deliberate act on

the part of the assessee, there is an error in the order of the Tribunal and it is therefore necessary for us to direct the Tribunal to state a case on the

questions formulated by the petitioner in the petition.

5A. For the above reasons, we are unable to say that any question of law arises out of the order of the Tribunal and that their order is in any way

incorrect within the meaning of Section 256(2) of the Income Tax Act, 1961.

The petition is dismissed with costs. Counsel''s fee Rs. 150/-.

Petition dismissed.