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Judgment
RAMAPRASADA RAO J. - The following two questions, one at the instance of the assessee and the other at the instance of the Income Tax
department, were referred by the Income Tax Appellate Tribunal, Madras, as arising out of its order dated 30th May, 1969, in I.T.A. No. 966 of
1967-68 :
Whether, on the facts and in the circumstances of the case, the Tribunal is justified in upholding the addition of Rs. 56,258 ?
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in rejection the plea of the department that an
addition of Rs. 1,25,000 should be retained for the assessment year 1961-62 ?
During the assessment year 1961-62, the assessee was carrying on the business of manufacture and purchase and sale of jewellery and precious
stones. During the course of the examination of the books of the assessee, the Income Tax Officer came across certain loans alleged to have been
taken on hundis by the assessee and was of the view that those loans are not real and had not been taken for business purposes. After examining
the partners as also a broker through whom some of the loans under the hundies had been taken, the Income Tax Officer held the view that the
assessee did not get actually cash as loans through the broker, but really brought in his own unaccounted monies in a circuitous way. The Income
Tax Officer, therefore, took the peak credit of Rs. 1,25,000 which was the largest amount of such camouflaged loans as disclosed in the books
and treated it as the income of the assessee from undisclosed sources. He added on this sum to the income of the assessee and made certain other
additions and passed the final order of assessment dated March 29, 1966. The assessee took up the matter in appeal to the Appellate Assistant
Commissioner. The Appellate Assistant Commissioner agreed with the assessing officer and also took the view that the sum of Rs. 1,25,000
represented the assessees own money; but the appellate authority, on an overall analysis of the accounts of the assessee, found that a sum of Rs.
68,742 was acceptable for the purpose of deduction and so deducted the sum from the peak credit of Rs. 1,25,000 and retained an addition of
Rs. 56,258 and modified the order of the Income Tax Officer. The assessee went up further and questioned the addition of the sum of Rs. 56,258
before the Tribunal. The Tribunal called for several documents and examined the statements made by the assessee as well as the brokers and the
bankers whose names are disclosed in the hundies and came to the conclusion that the bankers and the brokers did not support the so-called
lending as genuine. It would say that whatever may be the general conduct of the bankers and brokers which was far from satisfactory, the
assessee had not been able to shake their evidence. It rejected the departments contention that the entire peak credit of Rs. 1,25,000 has to be
added on as income of the assessee. It would also observe that the department having failed to file and appeal or a memorandum of cross-
objections in the appeal filed by the assessee and not having questioned otherwise the order of the Appellate Assistant Commissioner, it could not
probe into the request of the department that the addition should not be only in the sum of Rs. 56,258, but it ought to be the entire sum of Rs.
1,25,000. In this view, the Tribunal, while agreeing with the Appellate Assistant Commissioner that a sum of Rs. 56,258 only was to be added on,
disposed of the appeal of the assessee in that way and would not grant any relief to the department. It was in those circumstances that the above
questions have been referred to us for our answer.
The question referred at the instance of the department could be taken up first. It is admitted that the department did not prefer any memorandum
of cross-objections in accordance with the provisions of section 253(4) of the Income Tax Act and rule 23 of the Tribunal Rules. What the
department wants is that a sum over and above Rs. 56,258 and up to a limit of Rs. 1,25,000 should be added to the total income. The only
question before the Tribunal was whether the retention of Rs. 56,258 is justified or not. But Mr. J. Jayaraman, the learned counsel for the
department, attempts to contend that the substance of the contention is not to enhance the tax but only to find what is the taxable income. The
argument is that once the peak credit in the account books remained unexplained, then there should be an automatic addition of such a credit to the
income of the assessee without any more consideration of the facts. We are unable to agree. Though the powers of the Tribunal are expressed in
sections 253 and 254 of the Income Tax Act, 1961, equivalent to section 33 of the earlier Act, and even though, prima facie, the appellate powers
of the Tribunal are expressed to be so wide, yet there are in-built restrictions regarding exercise of the jurisdiction of the Tribunal under the very
same section which creates such a power. Section 254, equivalent to section 33(4) of the earlier Act, binds the Tribunal to limit the scope of the
appeal to the subject-matter before it. Obviously, therefore, it cannot traverse beyond the scope of the appeal. The Supreme Court in
Hukumchand Mills Ltd. Vs. Commissioner of Income Tax, Central Bombay and Others, expressed the view that the apparent wide scope of the
power of the Tribunal as could be culled out from the expression ""pass such order as the Tribunal thinks fit"" would include all powers, excepting
the power of enhancement, which are conferred on the Appellate Assistant Commissioner while dealing with the first appeal. It is not disputed that
the department can file an appeal if so directed and in any event a cross-appeal or a memorandum of cross-objections as prescribed against the
order of the Appellate Assistant Commissioner and the department, not having availed itself of the available remedies in law, cannot be heard to
say that it can leisurely contend, at the time of disposal of a regular appeal by the assessee, to the assessees prejudice and to take up the position
during the course of the hearing of the appeal that it could seek for an enhancement of the assessment or for that matter for urging a contention
which it failed to raise through a proper channel. Though the statutory appeal under the Income Tax Act before the Tribunal springs from the
prescribed procedure under the Act or the Rules, yet it cannot be availed of by a litigant or the department who is guilty of laches and who has not
availed himself of such specific remedies. On an a priori consideration, the scope of the appeal and the effective subject-matter therein cannot be
enlarged. The special procedure prescribed in such cases is not far different from the procedure prescribed under the CPC for the adjudication of
rights between the appellant and the respondent. If the respondent has not chosen to invoke the jurisdiction of the Appellate Tribunal in the manner
prescribed and known, then it is not open to it to lightheartedly ask the Appellate Tribunal to consider also its alleged grievance, when the
department failed to bring such a grievance with the subject-matter of the scope of the appeal in a proper and intelligible manner. The Tribunal
was, therefore, right in having expressed the view that it cannot go beyond the ground of appeal and that the only question before it was whether
the retention of Rs. 58,258 was justified or not. We, therefore, answer the second question, which is obviously referred to us at the instance of the
department by the Tribunal, against the revenue.
Regarding the first question, it is necessary to make a few preliminary remarks to appreciate the contentions of Mr. Abdul Karim. It is almost
fundamental that the court of reference while dealing with an order of the Tribunal under the Income Tax Act is not exercising appellate jurisdiction,
but a peculiar jurisdiction which is created by statute and circumscribed by the ratio in several authoritative judicial pronouncements; particularly if
the question involved revolves round facts and appreciation of the same, the matter becomes more difficult for this court, when an occasion arises
for a judicious interference with the findings of the Tribunal. Even though the normal rules of evidence bind the taxing officers, yet the Tribunal
which has a peculiar judicial function to perform has certain inhered responsibility within the framework of the exercise of such jurisdiction. Where
in a given case it is reasonably clear that all the evidence before the Tribunal has not been considered in its correct perspective and if important
evidence which touches upon the subject-matter has either been ignored or not traversed or due consideration and reasonable care has not been
given to the weighty facts appearing on the record, then the court of reference should not be slow to interfere and do justice as justice should
always seem to be done. The learned counsel for the department referred to Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax
[1954] 26 ITR 775 . The Supreme Court therein said that the technical rules of evidence and pleadings do not fetter the Income Tax Officer and
he is entitled to act on materials which may not be accepted as evidence in a court of law. But, In the same judgment, the Supreme Court has
pointed out that the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any
material at all. In fact, in that case, the Supreme Court remanded the case with a direction that in arriving at the profits, the assessee should be
given a full opportunity. Therefore, the position is not so helpless as contended by the department. If it is established that the order of the Tribunal
is without reference to acceptable material and indeed when the material on record has not been adverted to, then the High Court has certainly a
power to interfere. We have at any rate three pronouncements of the Supreme Court in support of the above opinion. In Lalchand Bhagat Ambica
Ram Vs. Commissioner of Income Tax, Bihar and Orissa, , the limits of jurisdiction of the High Court to interfere with the findings of facts reached
by the Tribunal have been clearly set out. They reiterated the position that if the Income Tax Appellate Tribunal as a fact-findings authority arrives
at conclusions after due consideration of the evidence before it, there is no cause for interference. But if there is no evidence to support the finding
and if the findings are based on no evidence at all or if there is improper rejection of material and relevant evidence, then such findings are liable to
be set aside. The acid test seems to be that the resultant conclusion reached by the Tribunal is neither reasonable not could it be reasonably said to
flow from the disclosed facts. It appears to be fairly clear that once the Tribunal is furnished with material and hypothesis, it is its statutory duty to
dissect and assess the weightage of such evidence and consider them before concluding. An objective non-speaking finding of fact without
reference to such disclosed material would provoke interference at the hands of the higher statutory hierarchy. In Commissioner of Income Tax,
Punjab Vs. Indian Woollen Textile Mills, the position is made still more simpler. The Supreme Court said in that case that if the Tribunal does not
consider the evidence covering all the essential matters and bases its findings upon some evidence only ignoring other essential that would amount
to a misdirection in law and the finding would give rise to a question liable to be referred to the court. In Killick Nixon and Company Vs.
Commissioner of Income Tax, Bombay, , the Supreme Court reiterated the position by stating that the Tribunal being the final authority on the
questions of fact, it was bound to consider all the evidence and arguments raised by the parties and a bare recording of a conclusion with out
setting out any reason in support thereof would amount to a misdirection and was equivalent to non-application of its mind properly to the material
on record. The only embargo which is set upon the jurisdiction of the High Court is to prevent the High Court from sitting as a court of appeal in
reference and to embark upon a reappraisal of the evidence and a reappreciation thereof. It is in the light of the above decisions, the material
available on record in this case has to be considered and it is to be found whether the Tribunal adverted to such material fully and reasonably and
whether it has given due consideration and care to such impact which such material may have in the circumstances on the conclusions which the
Tribunal has to arrive at on such facts.
The broker, who was examined, was hopelessly prevaricating. In the course of the evidence he gave the impression that he was thoroughly
acquainted with the money-lenders from whom the assessee is said to have entered into these questionable transactions. When he was asked
whether he has arranged genuine loans, he refused to answer the question. He would slyly get over inconvenient questions by emphasising what
according to him was meant by adjustment entry. He would not explain the expression properly. He would, however, say that in all such cases, the
money is given by the borrower to the banker who gives in exchange cheque to the borrower. He would answer to a specific question as to
whether the cheques given will be honoured thus : ""L.K.S. Jewellers having given cash will not keep quiet if the cheques given by the banker is
dishonoured."" He is a party to arrange non-genuine loans for the assessee amongst others. It is not in dispute that in the account books of the
bankers there was no entry regarding the issuance of cheques as spoken to by the broker. Obviously, this fantastic evidence of the broker is purely
as an accommodative measure to save the bankers with whom he had, has and is likely to have, dealings in the future. As to how and in what
respect such prevaricating testimony for an interested witness was relied upon by the Tribunal has not been made clear. The Tribunal, after
referring to the evidence, would say that the borrowings are evidenced by entries in the assessees books and the discharged hundies. But the
bankers and the brokers have not supported the lending as genuine. They did not advert to the missing link, namely, the account of the bankers.
They are prepared to accept without affording a reason therefor, the self-serving incriminating testimony of the bankers that they would help third
parties such as the assessees to borrow fictitiously. Though they expressed the view that the statement given by the bankers were to save their own
skin, they would say that the bankers and the brokers stood the test of cross-examination. After elaborately incorporating in their order excerpts of
the testimony of the broker, they would conclude by saying :
However, it is unnecessary to labour the point, as we are called upon to decide only the justification for the retention of Rs. 56,258 in the
assessment. In any event, therefore, the loans to the extent of Rs. 56, 258 was properly retained by the Appellate Assistant Commissioner. We do
not see sufficient justification to interfere with the addition of the sum of Rs. 56,258.
The next aspect to be considered is as to whether the Tribunal has given any reason which can be accepted by a court of law as to why the
hundies should be treated as non-genuine and should be ignored. It is not in dispute that some of the bankers discounted the said hundies. This is
seen, for example, from the account of Seth Kubchand Vashumal. There, they referred to the fact that they have discounted the hundies in the
course of their business and we find from their account books that the so-called non-genuine advances to L.K.S. Jewellers is also entered there.
This is only illustrative of the fact that the bankers who gave evidence and who even according to the Tribunal wanted to save their skin, admittedly
discounted the hundies in question. If the hundies are merely fictitious, it is not possible to accept with precision that they could be the subject-
matter of discounting. The bankers vague statements that they had no banking facilities appears to be not correct, as their account books which
have been produced for inspection give a different tale. Again, the Tribunal found some of the so-called non-genuine hundies to be genuine. They
did not give any particular reason to say so or to accept the assessees case. The dissection of the hundies into two compartments, one group being
accepted as genuine hundis and the other as non-genuine hundis has to be based on acceptable hypothesis. We find that three hundis have been
held to be non-genuine and four hundis have been held to be genuine. There is no rational or reasonable explanation given by the Tribunal as to
why such a treatment should be meted out to some hundis and a different one to the other set of hundis.
On the whole we find that there has not been a legal approach to the totality of the available material for purposes of arriving at a conclusion. The
broker was prevaricating. There is no explanation given by the bankers as to how they could discount the so-called non-genuine hundi. The
evidence of the broker was not considered in juxtaposition to the statements given by the bankers which the Tribunal themselves characterises as
self-serving and given to save their skins. The avoidance to consider the important material which has an impact on the questions arising for
consideration before the Tribunal, are all matters which have a definite bearing upon the question in issue. We have already referred to the legal
aspect that if the Tribunal fail to give due consideration and care to all the materials before them and if important evidence is ignored and if no
acceptable reason is given as to the truncated fashion in which the appreciation of evidence has been done, then such an order cannot be accepted
and a well instructed person would require much more deeper examination of all the relevant facts to conclude one way or the other. It is also by
now clear that it is necessary for the revenue to go deep into the subterranean region of facts and discover if possible veins therein on wanton
attitude of evasion and thereafter explore the reasonable possibility of finding against the assessees and speaking for the revenue. Such an attempt,
in our view, has not been done. We are, therefore, not in a position to afford an answer to the question referred to us by the Tribunal as arising out
of their order.
We have briefly referred to the lacuna in the order, as to multiply such situations would serve no better purposes.
In the result, we set aside the order of the Tribunal in part and remand the case to them with directions that in arriving at their conclusions on the
facts, they should clearly fortify their decision by acceptable reasoning and which reasoning in turn should be based on the facts and circumstances
appearing in the case. The Tribunal is at liberty to remit the case to the assessing officers, if necessary to take further evidence and afford a fuller
opportunity to all concerned to prove the genuineness or otherwise of the hundis which have been held by the Tribunal as non-genuine. With these
observations, the first question referred to us is not answered. But the subject-matter is remitted to the Tribunal for fresh consideration in the light
of the observations made above. There will be no order as to costs.