REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NOS. 3265-3266 OF 2003

VIJAY KUMAR TALWAR — APPELLANT

VERSUS

COMMISSIONER OF INCOME  TAX, DELHI

— RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

1. Challenge in these two appeals, by special leave, is to the orders dated  

21st December, 2001 and 19th February, 2002 whereby the High Court of  

Delhi dismissed : (i) the appeal filed by the appellant herein under Section  

260-A of the Income Tax Act, 1961 (for short “the Act”) in I.T.A. No.202 of  

2001, holding that the order of the Income Tax Appellate Tribunal,  New  

Delhi (for short “the Tribunal”) did not give rise to any substantial question  

of law; and (ii) the review petition preferred by the appellant against order  

dated 21st December, 2001, holding that the petition was not maintainable.  

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2. Shorn of unnecessary details, the facts material for adjudication of the  

present appeals may be stated. These are :

The appellant (hereinafter referred to as “the assessee”) was a partner  

in a firm, named and styled as M/s Des Raj Tilak Raj, having its business at  

Delhi, with a branch at Calcutta.  The said partnership firm was dissolved  

w.e.f. 1st April 1982. As per the dissolution deed, the assessee took over the  

business of the Calcutta branch of the erstwhile firm. Thereafter, from 21st  

October, 1982, the assessee started a proprietary concern by the name of M/s  

Des Raj Vijay Kumar.  

3. On 27th May,  1983, a search took place at  the assessee’s  premises  

during  which  certain  incriminating  documents  were  recovered  and  

seized.   During  the  course  of  assessment  proceedings  for  the  

assessment year 1983-1984, for which the previous year ended on 31st  

March 1983, the assessing officer examined the seized record.  One of  

the registers so examined, revealed cash receipts of `3,49,991/- in the  

name of 15 persons, most of which were purportedly received during  

the period of April, 1982 to October, 1982. When the assessing officer  

sought an explanation from the assessee with regard to the said cash  

credits in the register, the assessee merely stated that the cash receipts  

were in the nature of realisations from the past debtors of the erstwhile  

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firm.  In order to appreciate the said stand, the assessing officer called  

for the account books of the Calcutta branch of the erstwhile firm for  

the  relevant  period,  but  the  assessee  failed  to  produce  them.  The  

assessing officer also examined the assessee’s brother, a partner in the  

erstwhile  firm,  who  also  stated  that  the  account  books  were  not  

available.  

4. Having noted that the outstanding realisations of the Calcutta branch  

in  the  preceding  years  varied  from  `25,000/-  to  `30,000/-,  the  

assessing officer held that the assessee’s submission that cash receipts  

of  `3,49,991/- related to earlier years was untenable. Therefore, vide  

order dated 20th February, 1986, the assessing officer added a sum of  

`3,49,991/-  as assessee’s  income under the head “unexplained cash  

receipts.”  

5. Aggrieved,  the  assessee  appealed  to  the  Commissioner  of  Income  

Tax,  (Appeals)-XV,  New  Delhi,  who  vide  his  order  dated  6th  

December 1989, dismissed the same and confirmed the addition made  

by the assessing officer.  

6. Being still aggrieved, the assessee carried the matter in appeal before  

the  Tribunal.  Vide order  dated 27th September,  1994,  the Tribunal,  

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while  partly  allowing  the  appeal,  remitted  the  matter  back  to  the  

assessing  officer  for  de-novo  adjudication.  The  Tribunal  observed  

that:

“We find that some of the entries pertained to the period when  the erstwhile firm was in existence whereas the assessee did not  conduct business at Calcutta in a proprietary capacity but was  only a partner in the erstwhile firm. The A.O. himself observed  in the assessment  order that the cash receipts  are from April  1982 to October, 1982 i.e. prior to the start of the assessee’s  proprietary business in the name of M/s Desraj Vijay Kumar.  As against this, we find that some of the entries are dated prior  to April, 1982 when the erstwhile firm was in existence. Then  again,  it  is  not  known  as  to  what  happened  to  the  income  between the period 1.4.1982 to October, 1982 as the erstwhile  firm is supposed to have been dissolved w.e.f 1.4.1982 and as  per the assessee’s version the proprietary business was started  from October 1982. There is no information made available to  us as to whether the Department initiated any action u/s 148 to  subject the cash receipts aggregating Rs. 3,49,991/- in the hands  of the erstwhile firm…………………………………………… ……………..…………………………………………………… …………….…. 11. In view of the aforesaid discussion, we although taking the  view that the onus on the facts and circumstances of the case  squarely lies on the assessee, hold that the material has to be re- considered in light of the afore-said observations…..”

7. Pursuant thereto, on 17th May, 1995, the assessing officer asked the  

assessee to file confirmations of the 15 parties, in whose names cash  

credit entries appeared in the register seized during the search.  In his  

reply  dated  22nd May,  1995,  the  assessee  stated  that  the  said  cash  

receipts were realisations of the sales effected in the earlier years by  

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the erstwhile firm.  Subsequently, the assessee was given three more  

opportunities on 2nd June 1995, 16th June, 1995, and 3rd July, 1995 to  

produce fresh evidence, which were not availed of by him. Vide letter  

dated 28th July, 1995, the assessee was given a final opportunity to file  

confirmations of the 15 parties, with their complete addresses. In his  

reply,  the  assessee  filed  the  confirmations  of  7  parties,  with  the  

address of 6 other parties.  The assessing officer considered the two  

remaining parties as non-existent.  It  is pertinent to note that all the  

seven confirmations filed by the assessee were identical, and did not  

contain  either  a  date  or  the  GIR No.  of  the  confirming party;  and  

merely stated that the concerned party had dealings with the erstwhile  

firm, and it  had made purchases from them in the year ending 31st  

March,  1982 and had made  payments  prior  to  October,  1982;  and  

since the matter was really old, the books of accounts of the firm were  

not available.  

8. When  the  assessing  officer  sent  letters  to  the  six  parties,  whose  

addresses had been supplied, three did not respond, while two others  

denied any relationship with the firm, and remaining one letter was  

returned  by  the  post  office  with  remarks  “not  known.”  Similarly,  

when letters were sent to parties who had filed confirmations, three of  

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those letters were returned by the post office marked “not known.”,  

and  another  one  as  “no  claims.”  One  of  the  parties  denied  any  

relationship  with  the  firm.  In  light  of  these  circumstances,  the  

assessing officer,  vide order dated 19th March, 1996, confirmed the  

original assessment.  

9. The assessee preferred an appeal before the Commissioner of Income  

Tax,  (Appeals)-III,  which  was  dismissed  vide  order  dated  16th  

December, 1998. The Commissioner observed that:

“The  contention  of  the  appellant  is  apparently  unacceptable.  Any business realisations of the partnership would have been  shared  by  the  erstwhile  partners.  The  cash  receipts  of  `3,49,991/-  as  per  the  seized  material  is,  therefore,  held  to  belong to the appellant and assessable as unexplained receipts  in  the  hands  of  the  appellant.  The  assessment  of  appellant’s  income including the aforesaid receipt is, therefore, confirmed  and the appeal is dismissed.”

10. Still  not  being  satisfied,  the  assessee  carried  the  matter  in  appeal  

before  the  Tribunal.  The  Tribunal,  vide  order  dated  23rd October,  

2000,  while  partly  allowing  the  appeal,  held  that  the  addition  of  

`3,49,991/- was correct. It observed that:

“We are also of the opinion that the confirmations filed by the  appellant are of no use because they have not been co-related  with the transactions alleged to have been found entered in the  register  seized  during  the  time of  search  if  it  represents  the  realization of outstanding amount on sales, this could have been  

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proved with the cross reference to the entries in the register. We  cannot ignore the fact that the enquiry letters sent by the A.O.  remained unserved, unanswered and denial.”

11. On 22nd February,  2001,  the  assessee  moved  an  application  under  

Section  254(2)  of  the  Act  before  the  Tribunal  for  rectification  of  

mistakes in the order of the Tribunal dated 23rd October, 2000. It was  

pleaded that the Tribunal had erred in observing that the assessee’s  

premises were raided due to heavy sales, and that cash amounting to  

`3,49,991/-  was  seized;  that  the  assessing  officer  had  issued  ITNS  

150, which the assessee had filed before the Commissioner (Appeals);  

and that the Tribunal did not take into consideration the arguments  

and various judgments relied on by the assessee. Vide order dated 25th  

September, 2001, the Tribunal rejected the rectification petition on the  

ground that:-  (i)  the  Tribunal  had  relied  on  the  assessing  officer’s  

order in relation to the factual position, and there was no reason to  

interfere with the same; (ii) while it was true that cash amounting to  

`3,49,991/- was not recovered, but the said amount was entered in the  

register which was recovered; and therefore, this would not affect the  

findings of the Tribunal; (iii) the remarks in relation to ITNS 150 were  

not made by the Tribunal, but by the department’s representative and  

(iv) re-considering the judgments relied on, and the arguments made,  

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would  tantamount  to  a  review,  which  power  the  Tribunal  is  not  

authorised to exercise under Section 254(2) of the Act.

12. The assessee preferred an appeal before the High Court under Section  

260-A of the Act.   As already stated, the High Court, vide judgment  

dated  21st December  2001,  dismissed  the  appeal  of  the  assessee,  

observing that:

“To  us  it  appears  that  the  findings  recorded  by  the  Commissioner of Income Tax as also the Income Tax Appellate  Tribunal  are  pure  findings  of  fact.  Appreciation  of  evidence  does not fall within the realm of this Court’s jurisdiction under  section 260-A of the Income Tax Act………………………… ………………………………………………………………… …………………………………….. Having regard to the fact and circumstances of this case we are,  therefore, of the opinion that no question of law far less any  substantial  question  of  law  arises  for  consideration  in  this  appeal.”

13. Thereafter, the assessee filed a review petition before the High Court,  

which was also dismissed vide order dated 19th February, 2002.

14. Hence, the present appeals.

15. Mr.  K.R.  Manjani,  learned  counsel  appearing  on  behalf  of  the  

assessee, assailed the impugned orders on the ground that since the  

Tribunal had taken into consideration irrelevant materials, its findings  

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were perverse and, therefore, the High Court has erred in holding that  

there was no substantial question of law involved.

16. Per  contra,  Mr.  R.P.  Bhatt,  learned  senior  counsel  appearing  on  

behalf of the Revenue supported the view taken by the High Court and  

asserted that the impugned orders deserve to be affirmed.  

17. Before adverting to the rival submissions,  it  would be expedient to  

refer to Section 260-A of the Act. The provisions, relevant for our  

purpose, read thus:

“(1)  An appeal  shall  lie  to the High Court  from every order  passed in appeal by the Appellate Tribunal, if the High Court is  satisfied that the case involves a substantial question of law… ………………………………. ……………………………………………….......................... (3) Where the High Court is satisfied that a substantial question  of law is involved in any case, it shall formulate that question… …………………………………… ……………………………………………………………….… …………………………………………………………………. (7) Save as otherwise provided in this Act, the provisions of the  Code of Civil Procedure, 1908 (5 of 1908), relating to appeals  to the High Court shall, as far as may be, apply in the case of  appeals under this section.”

18. It is manifest from a bare reading of the Section that an appeal to the  

High  Court  from  a  decision  of  the  Tribunal  lies  only  when  a  

substantial  question of  law is  involved,  and where  the  High Court  

comes to the conclusion that a substantial question of law arises from  

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the  said  order,  it  is  mandatory  that  such  question(s)  must  be  

formulated.   The  expression  “substantial  question  of  law”  is  not  

defined  in  the  Act.   Nevertheless,  it  has  acquired  a  definite  

connotation through various judicial pronouncements. In Sir Chunilal   

V. Mehta & Sons, Ltd.  Vs.  Century Spinning and Manufacturing  

Co. Ltd.1,  a Constitution Bench of this Court,  while explaining the  

import of the said expression, observed that:

“The  proper  test  for  determining  whether  a  question  of  law  raised  in  the  case  is  substantial  would,  in  our  opinion,  be  whether it is of general public importance or whether it directly  and  substantially  affects  the  rights  of  the  parties  and  if  so  whether it is either an open question in the sense that it is not  finally settled by this Court or by the Privy Council or by the  Federal  Court  or  is  not  free  from  difficulty  or  calls  for  discussion of alternative views. If the question is settled by the  highest  Court  or  the  general  principles  to  be  applied  in  determining the question are well  settled and there is a mere  question of applying those principles or that the plea raised is  palpably  absurd  the  question  would  not  be  a  substantial  question of law.”  

19. Similarly, in Santosh Hazari Vs. Purushottam Tiwari2¸ a three judge  

Bench of this Court observed that:

“A point of law which admits  of no two opinions may be a  proposition of law but cannot be a substantial question of law.  To be “substantial” a question of law must be debatable, not  previously settled by law of the land or a binding precedent,  

1 AIR 1962 SC 1314 2 (2001) 3 SCC 179

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and must have a material bearing on the decision of the case, if  answered either way, insofar as the rights of the parties before it  are concerned. To be a question of law “involving in the case”  there must be first a foundation for it laid in the pleadings and  the question should emerge from the sustainable findings of fact  arrived at by court of facts and it must be necessary to decide  that question of law for a just and proper decision of the case.  An entirely new point raised for the first time before the High  Court is not a question involved in the case unless it goes to the  root of the matter.  It  will,  therefore,  depend on the facts and  circumstance  of  each  case  whether  a  question  of  law  is  a  substantial one and involved in the case, or not; the paramount  overall  consideration  being  the  need  for  striking  a  judicious  balance between the indispensable obligation to do justice at all  stages and impelling necessity of avoiding prolongation in the  life of any lis.”

20. In  Hero Vinoth (Minor)  Vs.  Seshammal3, this  Court  has observed  

that:

“The general rule is that High Court will not interfere with the  concurrent  findings  of  the  courts  below.  But  it  is  not  an  absolute  rule.  Some  of  the  well-recognised  exceptions  are  where (i) the courts below have ignored material evidence or  acted  on  no  evidence;  (ii)  the  courts  have  drawn  wrong  inferences from proved facts by applying the law erroneously;  or (iii) the courts have wrongly cast the burden of proof. When  we refer to “decision based on no evidence”, it not only refers  to cases where there is a total dearth of evidence, but also refers  to  any  case,  where  the  evidence,  taken  as  a  whole,  is  not  reasonably capable of supporting the finding.”

21. A finding of fact may give rise to a substantial question of law, inter  

alia,  in the event the findings are based on no evidence and/or while  

arriving at the said finding, relevant admissible evidence has not been  3 (2006) 5 SCC 545

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taken into consideration or inadmissible evidence has been taken into  

consideration or legal principles have not been applied in appreciating  

the evidence, or when the evidence has been misread. (See:  Madan  

Lal  Vs.  Mst.  Gopi  & Anr.4;  Narendra Gopal  Vidyarthi  Vs.  Rajat   

Vidyarthi5;  Commissioner  of  Customs  (Preventive)  Vs.  Vijay  

Dasharath  Patel6;  Metroark  Ltd.  Vs.  Commissioner  of  Central   

Excise, Calcutta7; West Bengal Electricity Regulatory Commission  

Vs. CESC Ltd.8)  

22. Examined on the touch-stone of the afore-noted legal principles, we  

are of the opinion that in the instant case the High Court has correctly  

concluded that no substantial question of law arises from the order of  

the  Tribunal.   All  the  authorities  below, in particular  the  Tribunal,  

have  observed  in  unison  that  the  assessee  did  not  produce  any  

evidence to rebut the presumption drawn against him under Section 68  

of the Act, by producing the parties in whose name the amounts in  

question had been credited by the assessee in his books of account.  In  

the absence of any cogent evidence, a bald explanation furnished by  

the assessee about the source of the credits in question viz., realisation  

4 (1980) 4 SCC 255 5 (2009) 3 SCC 287 6 (2007) 4 SCC 118 7 (2004) 12 SCC 505 8 (2002) 8 SCC 715

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from the debtors of the erstwhile firm, in the opinion of the assessing  

officer, was not satisfactory.  It is well settled that in view of Section  

68 of the Act, where any sum is found credited in the books of the  

assessee for any previous year, the same may be charged to income  

tax  as  the  income  of  the  assessee  of  that  previous  year,  if  the  

explanation  offered  by  the  assessee  about  the  nature  and  source  

thereof  is,  in  the  opinion  of  the  assessing  officer,  not  satisfactory.  

(See:  Sumati Dayal  Vs.  Commissioner of Income Tax, Bangalore9  

and Commissioner of Income Tax Vs. P. Mohanakala10).  We are of  

the opinion that on a conspectus of the factual scenario, noted above,  

the conclusion of the Tribunal to the effect that the assessee has failed  

to prove the source of the cash credits cannot be said to be perverse,  

giving rise to a substantial question of law.  The Tribunal being a final  

fact finding authority, in the absence of demonstrated perversity in its  

finding, interference therewith by this Court is not warranted.  

23. For the foregoing reasons, we have no hesitation in holding that no  

question of law, much less any substantial question of law arises from  

the order of the Tribunal requiring consideration of the High Court.  

9 1995 Supp (2) SCC 453 10 (2007) 6 SCC 21

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There  is  no  merit  in  the  appeals.   Both  the  appeals  are  dismissed  

accordingly with costs, quantified at `20,000/-.   

……………………………………                   (D.K. JAIN, J.)  

                             ...………………………………….                  (T.S. THAKUR, J.)

NEW DELHI; DECEMBER 6,  2010.

RS

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