S.N. Vadhyar and Sons vs Commissioner of Income Tax

Kalliath, J.—At the instance of the assessee, the Tribunal, Cochin Bench, has referred the following questions for the decision of this Court:

"1. Whether there is any evidence in the case to support the rejection of accounts of the assessee-firm?

Whether, on the facts and in the circumstances of the case, the rejection of the assessee''s accounts and the addition of Rs. 1,15,000 made to the admitted income of the assessee-firm are valid and sustainable in law having regard to the evidence on record and the manner in which it was brought on record and used against the assessee?"

The Tribunal referred the questions as per the directions of this Court in the judgment in Original Petition No. 339 of 1978-D dated 1-1-1981.

The assessment year is 1971-72. The assessee is a dealer in iron and steel materials. The ITO rejected the assessee''s book results and made additions under four heads:

Rs.

(i) Amounts used for unaccounted purchases

30,000

(ii) Profit on sale of such purchases

9,000

(iii) Amount used in under-invoicing purchases

60,000

(iv) Short credit of sales and omission of sales

5,43,000

The assessee filed an appeal before the AAC. The AAC deleted all the additions except Rs. 18,629 out of the addition of Rs. 60,000. The department filed an appeal before the Tribunal against the deletions made by the AAC and the assessee filed an appeal against the retention of Rs. 18,629. The Tribunal dismissed the appeal filed by the assessee and partly allowed the appeal filed by the department. By allowing the departmental appeal partly, the Tribunal restored an addition of Rs. 1,15,000. The assessee wanted the questions set out in the first paragraph of this judgment to be referred for the decision of this Court. The Tribunal has referred the questions for decision.

We heard the contention of the assessee and the revenue. The ITO made the additions to income based on the books of account, documents, letters, etc., seized by the department from the business premises of one Narayana Swamy Iyer. The books and documents seized by the department revealed that the assessee had dealings with him (Narayana Swamy Iyer), that the assessee had purchased goods from him in fictitious names and that he had sold goods without bills and had also understated some of the purchases and sales in his own books. Narayana Swamy Iyer was working as agent to two dealers in iron and steel (i) Hardware and Mill Stores, Bombay, and (ii) Ganesh Export & Import Co., Calcutta. He was in charge of the sales and purchases of both these parties. He maintained one set of books in which these transactions were reflected. A search of his premises was made on 6-7-1972. Though the AAC expressed the view that there is nothing to show that Shri Narayana Swamy Iyer''s books are to be preferred to the assessee''s, the Tribunal did not accept this view. The Tribunal considered that the books seized during search was a record of contemporaneous transactions and should be preferred to the books of the assessee, produced by the assessee before the ITO.

The assessee''s clearing agent is one Ali Moopan & Sons. There is no serious dispute about this fact. On 14-9-1972, the ITO inspected the business premises of this person u/s 131 of the income tax Act, 1961 (''the Act''). The ITO impounded certain files and books maintained by Ali Moopan & Sons. The Tribunal had emphasised the fact that the inspection, requisition and impounding of the books and documents took place on the same date to show the collusive entries therein. The books and documents impounded included a file showing duplicates of vouchers and a rough cash book maintained by their employee, one Ali Koya.

Shri Narayana Swamy Iyer, a partner of Hardware and Mill Stores and Ali Koya were examined by the ITO. The assessee also cross-examined Narayana Swamy Iyer later. This fact is revealed in the order of the Tribunal.

The counsel for the assessee submitted before us that the conclusions and inferences drawn by the Tribunal from the evidence in the case are not in accordance with law and that the findings based on those conclusions and inferences are perverse and not to be accepted by the Tribunal. The counsel also submitted that, in order to determine the fact that the findings are perverse, this Court should examine the various documents produced in the case as evidence and also the deposition of the witnesses examined in the case. The counsel further submitted that when the Tribunal referred the questions of law to be answered with a statement of fact, it has not produced along with the statement of case, the evidence on which the Tribunal has recorded its findings and that this Court should call for a supplementary statement and also the. documents and deposition which formed the foundation of the case of the department.

The counsel for the revenue submitted before us that the questions referred for our decision are purely questions of fact and that there is absolutely no reason for this Court to call for a supplementary statement of the case along with the deposition and other documents in the case. Further, he submitted that the Tribunal has prepared the statement of facts with notice to the assessee and the Tribunal used to post the case for finalising the statement of case to be forwarded to the High Court with notice to the assessee. The assessee has not submitted before the Tribunal that the statement of case should incorporate the depositions and other documents. When the assessee has not insisted before the Tribunal incorporation in the statement of case, of the documents and depositions of witnesses, it is not open to the assessee to insist before this Court that this Court should call for a supplementary statement and the documents which the assessee wanted to rely to substantiate that the findings of the Tribunal are perverse and against law.

It is settled law that when the Tribunal draws up a statement of case and refers a question of law to the High Court, the section mandates that the said question must arise out of its order and the statement of the case will necessarily be limited to the statement of facts already brought on the record either before the ITO or before the AAC or before the Tribunal. When the High Court is exercising its advisory jurisdiction, it is dealing with a question of law arising from the order of the Tribunal and has to answer the said question in the light of the statement of the case submitted to it by the Tribunal. Ordinarily and in the normal circumstances, the statement of the case would refer to facts selected by the Tribunal from out of the material already on the record and it is in the light of the said statement of the case that the question has to be answered by the High Court. Certainly, the provision in the Act, giving the High Court advisory jurisdiction in regard to questions of law arising from the order of the Tribunal, authorises the High Court to refer the case back to the Tribunal to make such additions to the statement of the case or alterations therein as the Court may direct in that behalf. But, it has to be noted that this power can be exercised by the High Court only if it is satisfied that the statement of the case is not sufficient to enable it to determine the question raised by it. Only if the High Court feels that, in order to answer satisfactorily the question referred to it, it is necessary to have additional material included in the statement of the case, can the High Court make an appropriate direction in that behalf (see Keshav Mills Co. Ltd. v. CIT [1965] 56 ITR 365 (SC).

The Tribunal has made certain clear findings in its order. From a reading of the order of the Tribunal, it is clear that the assessee''s main case is that the documents seized by the department from Narayana Swamy Iyer are totally unreliable and no addition can be made on the basis of the papers found from a person whose veracity is discredited since he himself was subject to search by the department. The assessee contended that though the books and records seized during search of the premises of Narayana Swamy Iyer reflected transactions with the assessee, the Tribunal ought not to have relied on the statements found in those books of account of Narayana Swamy Iyer, because the department obtained those books of account during search. But the Tribunal did not accept this contention. The evidentiary value of these books of account does not depend upon the fact whether they were seized when a search was made or not. It depends upon the corroboration of the statements in the books by other evidence, materials and circumstances involved in the case.

The Tribunal has considered the individual items seriatim on the basis of which certain additions were made. The first item that was considered is goods covered by R.R. No. 899052 dated 15-7-1970. By this, R.R. 226 bundles of M. S. rods were despatched by Ganesh Exports & Import, Co. of Calcutta.

The assessee''s case is that they have not purchased these goods. The R.R denotes the name of the consignee as self. There is no serious dispute that the assessee''s clearing agent is one Ali Moopan & Sons. The ITO inspected the business premises of Ali Moopan on 14-9-1972, and issued summons to Ali Moopan and Sons to produce certain files and books maintained by them.

The books of account of Ali Moopan were inspected by the ITO and the Tribunal has stated that the books and documents of Ali Moopan showed that they have cleared the goods for and on behalf of the assessee. Further, the Tribunal said that ''that the bill refers to the goods sent under the RR is beyond dispute''. The Tribunal also found that the bills were prepared in the normal course of business and that Ali Moopan & Sons are the assessee''s regular clearing agents. Further, the Tribunal has stated that there is evidence for establishing the nexus of the purchase with the assessee and that this fact is corroborated by primary and contemporaneous books maintained by the agents.

The Tribunal then refers to railway receipt No. 099911 dated 22-12-1970 or 23-12-1970. By this railway receipt, the Calcutta party of Iyer sent 339 bundles of M. S. rods by rail. The consignee is self. The consignment was also cleared by Ali Moopan & Sons. Of course, in this case, the Tribunal found that there is no evidence that the bill was first prepared by the agent in the assessee''s name and then cancelled, but the Tribunal found that the primary books show that it is the assessee''s goods. The Tribunal also found that the books of the clearing agent have been maintained in the regular course of the business of loading and unloading. The witness examined for the clearing agent is Ali Koya. The Tribunal held that the books of account of Ali Koya and the file containing the duplicate of bills have put the matter beyond doubt and that there is no substance in the argument of the assessee that these books cannot be relied on. The Tribunal finally held that ''We have no doubt at all about the genuineness of the books and bills''.

The counsel for the revenue submitted before us that there is no case for the assessee that the Tribunal has recorded its finding on no evidence. To say that there is no evidence (no legal evidence) is different from saying that the Tribunal has gone wrong in relying on certain items of evidence. It is for the Tribunal to weigh and assess the evidentiary value of materials placed before it and the testimony of witnesses and the records produced before it. The question referred for the decision of this Court is not one wherein it is stated that the findings of the Tribunal are based on no evidence.

A similar situation was considered by the Supreme Court in Commissioner of Income Tax, West Bengal III Vs. Kamal Singh Rampuria, . The Court observed thus (at page 160):

"...In other words, the argument was that, in the absence of a question whether the finding of the Tribunal was based on no evidence or that it was perverse, the High Court exceeded its jurisdiction in examining for itself the materials in support of the Tribunal''s finding and acting as a court of appeal.

In our opinion, there is justification for the argument put forward on behalf of the appellant" (p. 160)

The first question referred for decision is whether there is any evidence in the case to support the rejection of the accounts of the assessee-firm? This question does not reveal a clear challenge to the finding of the Tribunal to the effect that the finding is perverse.

The Supreme Court has made it very clear in Commissioner of Income Tax, Bihar and Orissa Vs. Ashoka Marketing Ltd., that the jurisdiction of the High Court is only advisory in character and that the High Court must accept the findings of fact recorded by the Tribunal and render advice only on questions of law arising out of the order of the Tribunal. The High Court cannot sit in appeal over the judgment of the Tribunal and cannot attempt to reappreciate the evidence. The Tribunal had sufficient materials for rejecting the accounts of the assessee-firm. It cannot be said that the finding is based on no evidence.

In Karnani Properties Ltd. Vs. The Commissioner of Income Tax, West Bengal, , the Supreme Court observed thus:

"When the question referred to the High Court speaks of ''on the facts and in the circumstances of the case'', it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal." (p. 548)

Essentially, both the questions are questions of fact and this Court is not justified in reappreciating the evidence in the case. The core of the case is whether the assessee had suppressed income exigible to tax. The question whether the assessee had suppressed income itself is a question of fact. Further, this question depends upon the genuineness of the accounts of the assessee. Whether the accounts are genuine or not is a pure question of fact and a finding on a question of fact by the Tribunal is binding on the revenue and on the subject. See Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 (SC).

The counsel for the assessee submitted that the relevant GVR of the lorries which carried the goods were not produced and the non-production of the GVR has not been given due consideration in appreciating the evidence and that if the GVR was shown to the assessee, the assessee could have obtained an opportunity to cross-examine the witnesses in the light of the GVR. This aspect of the matter has been answered by the Tribunal in the following terms: ''But, compared to the weight of evidence with the department, we do not think the absence of GVR registers should make a difference in appreciation. We, therefore, hold that the department has proved that the goods covered by the two railway receipts were really bought by the assessee.''

From the above observation of the Tribunal, it is clear that the Tribunal has made an assessment of the evidence, not considering or valuing the items of evidence individually, but appreciating all the materials and circumstances, the books of account and the testimony of witnesses as a whole. On this aspect of the matter, the Tribunal has said that to round up the discussion on this point, we agree that the evidence of the goods clerk by itself is not against the assessee. But it does take colour when seen in the background of the other pieces of evidence.

The Tribunal has considered separately the additions on account of under- invoicing. The basis of the addition is the papers seized from the accounts of the business premises. The assessee contended that he did not get a proper opportunity to cross-examine the witnesses at the first stage. The Tribunal has said that they have no doubt about the genuineness of the books seized from the premises of Narayana Swamy Iyer and that the nexus with the assessee and the purchases are undeniable. It was also found that the correspondence seized by the department would show the payment of ''on monies'' on the purchases. The assessee had a grievance that he was not able to cross-examine the witness. This is answered by the Tribunal thus:

"At the earlier stages, the assessee had a grievance that he could not cross-examine Sri Iyer, but that is no more pressed before us. Sri Iyer was cross-examined later. The partner of Hardware and Mill Stores had given a statement which supports the department''s case."

It is also to be noted that there is no substance in the case of the assessee that he did not get an opportunity to cross-examine any person from the Bombay firm as a witness. This aspect of the matter is clear from the following observation of the Tribunal:

"It is a fact that the assessee asked for a cross-examination of the partner of the Bombay firm. He was allowed to cross-examine him in Bombay on two dates, January 2, 1974, and February 11, 1974, but that was not availed of because of some reason or other. Before the Appellate Assistant Commissioner, no ground was taken that he did not get an opportunity."

In these circumstances, we do not think that there is any point in saying that the finding recorded by the Tribunal is perverse insofar as a meaningful opportunity was not given tar the assessee to cross-examine certain persons from the Bombay firm to establish his case. The Tribunal has held that the ITO has succeeded in establishing payment of ''on money'' on purchases.

In considering the question whether the assessee has received ''on money'', it is difficult to expect any direct evidence regarding the receipt of ''on money'' and to prove conclusively that any such ''on money'' went to the assessee. This aspect of the matter has been considered by a Division Bench of the Delhi High Court in Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd. Vs. Commissioner of Income Tax (Central), . The Division Bench observed that the finding of the Tribunal was one of fact and the facts and the circumstances justified the finding. The nature of the business being what it was, it was not possible to expect any direct evidence regarding such ''on money'' and to prove conclusively that any such ''on money'' went to the assessee-companies and that the view taken by the Tribunal was not a mere conjecture but was an inference from the facts and circumstances of the case.

The Tribunal, in paragraph 25 of the order, has clearly stated that there is evidence to show that the assessee has suppressed purchases, paid ''on money'' on certain purchases and underestimated some sales. The ITO has made separate additions on each of such findings. The Tribunal further made it clear that, from the evidence, the Tribunal will treat the books of account as unreliable and so, the proviso to section 145 of the Act should be applied.

The counsel for the assessee argued before us that the questions of law framed in this case basically depend upon the fact whether the findings of the Tribunal are perverse or not. Now, we have considered some aspects of the matter in order to show that we have examined the reasons given by the Tribunal for recording findings against the assessee just to know whether it is possible to characterise the findings as perverse. In deciding the question whether an order or decision of an authority based on finding of facts is a decision or order which can be characterised as perverse, it is always better to keep in mind the words of caution predicated by Lord Hailsham, L.C. in In re: W (an infant) [1971] 2 All E.R. 49 (HL) at p. 56. ''Two reasonable parents can perfectly reasonably come to opposite conclusions on the same set of facts without forfeiting their title to be regarded as reasonable.'' In the case before us, the counsel for the assessee submitted that the findings of the Tribunal are totally unreasonable in the sense that no reasonable person can arrive at the conclusions the Tribunal has reached on the facts before the Tribunal. We cannot agree.

In Nottinghamshire County Council v. Secretary of State for the Environment [1986] 1 All E.R. 199 (HL), Lord Scarman has gone to the extent of saying that, for the courts to intervene on the ground of unreasonableness, prima/ad� the case should show that the official concerned has behaved absurdly or must have taken leave of his senses. This aspect of the matter in regard to a contention that a finding of an authority is unreasonable and perverse has been very plainly highlighted in the Full Bench decision of this Court in Balakrishna Pillai v. St ate of Kerala [1988] 2 KLT 1039. In the result, we hold that the order of the Tribunal is perfectly legal and valid. No question of law arises out of the order of the Tribunal. We hold that the questions referred are pure questions of fact and no question of law arises out of the order of the Appellate Tribunal. We decline to answer the questions referred to us. The income tax reference is disposed of as above.