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PETITIONER: ESTHURI ASWANTHIAH

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, MYSORE

DATE OF JUDGMENT: 18/04/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1968 AIR   36            1967 SCR  (3) 681  CITATOR INFO :  R          1968 SC 883  (8)  R          1970 SC 352  (8)

ACT: Indian   Income-tax  Act,  1922-Cash   credits-Income   from undisclosed sources-Appellate Tribunal adding such income on concession   from  counsel-Duty  to  decide   on   evidence- Tribunal’s  duty  when  dealing with  case  after  receiving opinion of High Court in reference.

HEADNOTE: On  July  1, 1949 the assessee who carried  on  business  in Mysore  State brought into his books of account  an  opening cash  balance of Rs. 1,87,000.  The Income-tax Officer  held that  out of the above sum Rs. 1,37,000 was  the  assessee’s income    from   undisclosed   sources.    The    assessee’s explanations were rejected by the Income-tax Officer and  in appeal   by  the  Assistant  Commissioner.   The   Appellate Tribunal considered that on the facts of the case it was not unlikely  that  on the relevant date the assessee  had  some cash  but  held  Rs. 50,000 to be  income  from  undisclosed sources observing : "[Counsel] for the assessee also  stated that his client was prepared to be assessed on Rs.  50,000". In  reference  the  High  Court  held  that  the  Tribunal’s conclusion was based on no evidence.  The assessee appealed. HELD  :  The function of the Tribunal hearing an  appeal  is purely judicial.  It is under a duty to decide all  question of  fact and law raised in the appeal before it :  for  that purpose  it  must consider whether on the  materials  relied upon  by  the assessee his plea is made out.   The  Tribunal cannot  make arbitrary decisions.  Its order in the  present case  without  recording  any  reasons  in  support  of  the estimate  of  unaccounted income could  not,  therefore,  be sustained.  There was also substance in the assessee’s  plea that evidence in his favour had not been properly considered and that his case had not been fairly tried. [684C-F;  685A- B] Income-tax  Appellate  Tribunal,  Bombay &  Ors.  v.  S.  C. Cambatta  & Co. Ltd., 29 I.T.R. 118 and Rajkumar Mills  Ltd. v.  Income-tax Appellate Tribunal, 33 I.T.R.  750,  referred to.

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JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 631 of 1966. Appeal  by special leave from the judgment and  order  dated November  23,  1964 of the Mysore High Court  in  Income-tax Revision Petition 6 of 1964. K.   Srinivasan and R. Gopalakrishnan, for the appellant. S.   T. Desai, A. N, Kirpal, S. P. Nayyar for R. N. Sachthey for the respondent. The Judgment of the Court was delivered by Shah,  J.-The  appellant a trader in  groundnuts  and  other commodities  in  the  State of Mysore was  taxed  under  the Mysore Income-tax Act, 1923, for the assessment years ending with  the  assessment year 1949-50.  On July  1,  1939,  the assessee brought 6 8 2 into  his  books of account an opening cash balance  of  Rs. 1,87,000.   In  proceedings for assessment to ’tax  for  the year which ended June 30, 1950 the assessee was called  upon to explain that entry and to produce his books of account of the  earlier years.  The assessee pleaded that his books  of account upto June 30, 1949, were lost and that the amount of Rs.  1,87,000 represented "  cash brought from an iron  safe kept  in his house".  The Income-tax Officer found  that  in each previous year when the assessee was assessed under  the Mysore  Income-tax  Act, he had pleaded that  his  books  of account  were either lost or stolen in the succeeding  year. The Income-tax Officer was of the view that the assessee had probably an amount of Rs. 50,000 on hand representing a cash balance brought forward from the previous year, and that the balance  of  Rs.  1,37,000 was the  assessee’s  income  from undisclosed  sources.   The order passed by  the  Income-tax Officer assessing to tax the income of the assessee for  the year  1951-52 was set aside by the Appellate Assistant  Com- missioner  on the ground that under S. 2(11) of the  Income- tax  Act, 1922, the previous year for the income from  other sources  could only be the financial year ending  March  31, 1950.  Giving effect to this finding, the Income-tax Officer issued  a notice of reassessment under s. 34 of  the  Indian Income-tax  Act for bringing to tax the amount disclosed  by the books of account of the assessee for the assessment year 1950-51. The  assessee  submitted  a petition to the  High  Court  of Mysore  for a writ declaring that the notice under S. 34  of the  Act  issued  by  the  Income-tax  Officer  was  without jurisdiction,  and  for  an order quashing  the  notice  and proceedings consequent thereon.  This petition was dismissed by  the High Court of Mysore and the order was confirmed  by this Court in appeal. In  the meanwhile the Income-tax Officer completed  the  as- sessment  for  the  year  1950-51 and  brought  to  tax  Rs. 1,37,000  as  income  from  undisclosed  sources  which  had escaped  tax.  The assessee’s contention that he had  assets on  hand exceeding Rs. 1,55,000 from his share of the  joint family  property,  business income and  other  sources,  and those assets were brought into his books of account on  July 1, 1949, was rejected by the Income-tax Officer.  The  order passed by the Income-tax Officer was confirmed in appeal  by the Appellate Assistant Commissioner.  The assessee appealed to  the Appellate Tribunal and contended, inter  alia,  that the evidence produced by him showed that he had with him  on October  27, 1946, in his bank account Rs. 1,38,946 that  he had  received  Rs. 55,846 as his share on partition  of  the

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joint  family  of which he was a member,  and  that  besides these  sources he had agricultural income.   The  Income-tax Appellate  Tribunal  modified  the order  of  the  Appellate Assistant Commissioner and brought to tax 683 Rs. 50,000 as income from undisclosed sources.  The  reasons recorded  by the members of the Tribunal may be set  out  in their own words               "It  is clear that the assessee has  not  been               able  to  explain the source of  Rs.  1,37,000               satisfactorily.   But there have been  trading               additions for the assessment years 1951-52 and               1952-53 of Rs. 27,899 and Rs. 85,000.  But the               assessee  has not proved that this amount  was               all intact and besides, as pointed out by  the               Departmental Representative, the bank  balance               on  22-10-1946 would not have represented  the               cash possessed by the assessee and at the same               time, it is not unlikely that the assessee had               some  cash  having  regard  to  the  trade  in               jaggery,  the assets got on partition  in  the               Hindu undivided family and other sources;  the               Counsel for the assessee also stated that  his               client  was  prepared to be  assessed  on  Rs.               50,000.   So we direct that the addition  must               be confined to Rs. 50,000 only." The Tribunal drew up a statement of the case under s.  66(2) of  the Income-tax Act and submitted three questions to  the High  Court  of Mysore, of which the second  and  the  third questions are relevant for the purpose of this appeal :               "2.   Having found that the assessee  was  not               able  to explain satisfactorily the source  of               the  credit  of  Rs.  1,37,000,  whether   the               Tribunal  had  any  material to  come  to  the               conclusion  that the addition of Rs.  1,37,000               made  by the Income-tax Officer as the  income               from undisclosed sources should be reduced  to               Rs. 50,000 only?               3.    Whether   on  the  facts  and   in   the               circumstances  of the case, the  Tribunal  was               justified  in law in reducing the addition  of               Rs.  1,37,000  to Rs. 50,000  as  income  from               undisclosed sources ?" The  High Court answered the two questions in the  negative. The High Court observed ’that the Tribunal’s conclusion that out  of the amount brought to tax by the Income-tax  Officer only Rs. 50,000 represented income from undisclosed  sources was based on no evidence.  The High Court observed :               "The finding . . . . shows that, the  Tribunal               also did not accept ’the explanation given  by               the assessee as regards the cash credit  entry               on   1-7-1949.   But  strangely  enough,   the               Tribunal,  for no reason whatsoever,  came  to               the conclusion that the unaccounted income may               be estimated at Rs. 50,000.  We do not 684 .lm15 know  how the offer of the counsel for the assessee  was  at all  relevant.  The Tribunal’s surmise about the  assessee’s income from jaggery trade and the receipt by him at the time of the partition in his family is not based on any material. Surmises  have  no  place  in  judicial  and  quasi-judicial proceedings." The  judgment recorded by the Tribunal has not the merit  of clarity or of consistency.  The Tribunal commenced by disbe-

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lieving  the  explanation of the assessee  relating  to  the source of the credit entry.   After    some     inconclusive statements it proceeded to record that  it was not  unlikely that the assessee had some cash on hand from profits  earned in  the  trade  from jaggery, and from  assets  received  on partition  of the joint family of which the assessee  was  a member.   In  estimating  Rs.  50,000  as  the  income  from undisclosed  sources, ’the Tribunal merely relied  upon  the offer  made  by  counsel  for the  assessee.   This  was  an unsatisfactory way of disposing of the appeal.  The function of the Tribunal in hearing an appeal is purely judicial.  It is  under  a duty to decide all questions of  fact  and  law raised  in the appeal before it : for that purpose  it  must consider  whether  on  the  materials  relied  upon  by  the assessee  his  plea is made out.  Conclusive  proof  of  the claim  is  not  predicated  :  the  Tribunal  may  act  upon probabilities,  and  presumptions  may supply  gaps  in  the evidence which may not on account of delay or the nature  of the  transactions  or  for other reasons  be  supplied  from independent sources.  But the Tribunal cannot make arbitrary decisions  it  cannot  found its  judgment  on  conjectures, surmises  or speculation.  Between the claims of the  public revenue and of the tax-payers, the Tribunal must maintain  a judicial balance.  The order passed by the Tribunal  without recording  any  reasons  in  support  of  the  estimate   of unaccounted income cannot, therefore, be sustained. But  counsel  for  the assessee said that the  case  of  the assessee had not been fairly tried.  He said that there  was on the record evidence that in a partition suit between  the assessee  and his brother the assessee received on June  30, 1949  an amount of Rs. 48,500 and Rs. 14,647 and Rs.  13,116 representing "money bonds".  He also said that the  assessee bad made a profit of Rs. 70,000 in his business in  jaggery, that  between November 18, 1946 and December 16,  1948,  the assessee  had drawn cheque "to self" on the Mysore Bank  for Rs. 1,67,800, and between January 18, 1947 and November  25, 1947  the  assessee  had drawn cheques  "to  self"  for  Rs. 52,255, and that on October 22, 1946 the assessee had in his Bank  Account a balance of Rs. 1,39,946:  Counsel  contended that the assessee had at the material time large funds which could have been brought into the books of account on July 1, 1949, but the Tribunal failed to consider the evidence 685 and  had merely accepted the offer made by counsel  for  the assessee  that  lie  should be assessed in the  sum  of  Rs. 50,000. For the reasons already recorded, we agree with the  answers recorded by the High Court on the two questions. But  it is necessary to give, certain effective  directions, lest  a bald order of dismissal of the appeal may result  in injustice, especially when the assessee had not a fair trial of  his  case before the Tribunal.  Section  66(5)  of  the Indian  Income-tax  Act,  1922,  requires  the  Tribunal  on receiving  a copy of the judgment of the High Court to  pass such  orders  as  are  necessary  to  dispose  of  the  case conformably  to  such  judgment.  This  clearly  imposes  an obligation  upon the Tribunal to dispose of ’the  appeal  in the  light of and conformably with the judgment of the  High Court.  Before the Tribunal passes an order disposing of the appeal, there would normally be a hearing.  The scope of the hearing  must of course depend upon the nature of the  order passed by the High Court.  If the High Court has agreed with the view of the Tribunal, the appeal may be disposed of by a formal order : if the High Court disagrees with the Tribunal on  a question of law the Tribunal must modify its order  in

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the light of the order of the High Court : if the High Court has  held  that the judgment of the  Tribunal  is  vitiated, because it is based on no evidence or that it proceeds  upon conjectures, speculation or suspicion, or has been delivered after  a  trial contrary to rules of  natural  justice,  the Tribunal  would  be  under a duty to  dispose  of  the  case conformably  with the opinion of the High Court and on  ’the merits  of the dispute.  In all cases, however,  opportunity must be afforded to the parties of being heard. Income-tax  Appellate  Tribunal,  Bombay &  Ors.  v.  S.  C. Canbatta & Co.  Lid. (1) the Bombay High Court explained the procedure  to  be  followed in the  disposal  of  an  appeal conformably  to the judgment of the High Court.  Chagla,  C. J., in delivering the judgment of the Court observed               ". . . . when a reference is made to the  High               Court  either under s. 66(1) or section  66(2)               the decision of the Appellate Tribunal  cannot               be  looked upon as final; in other words,  the               appeal is not finally disposed of.  It is only               when   the  High  Court  decides   the   case,               exercises its advisory jurisdiction, and gives               directions  to  the Tribunal on  questions  of               law,  and the Tribunal reconsiders the  matter               and  decides  it, that the appeal  is  finally               disposed  of....... it is clear that what  the               Appellate  Tribunal  is doing after  the  High               Court  has heard the case is to  exercise  its               appellate powers under section 33. . . . . The               shape that the appeal would ultimately take in               the decision that (1)  29 I.T.R. 118. 6 8 6                the Appellate Tribunal would ultimately  give               would    entirely depend upon ’the view  taken               by the High Court." A  similar  view was expressed by the Bombay High  Court  in Rajkumar Mills Ltd. v. Income-tax Appellate Tribunal(1). The  High Court has held, and we agree with the High  Court, that the judgment of the Tribunal is based on no  reasoning and  is on that account speculative.  But by recording  that answer,  it  is  not to be implied that  the  order  of  the Appellate  Assistant Commissioner is confirmed.  It will  be the  duty of the Tribunal, conformably with the judgment  of the  High Court, to dispose of the case after  hearing  the, assessee  and the Commissioner in the light of the  evidence and according to law. Subject  to  this direction, the appeal is  dismissed.   The appellant  will  pay the costs of the Commissioner  in  this appeal. G.C.                                                  Appeal dismissed. (1) 33 I.T.R. 750. 687