Kerala High Court
Commissioner Of Income-Tax vs Nirmal Liquors on 26 November, 1990
Equivalent citations: [1991]190ITR636(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of the Revenue and as directed by this court in Original Petition No. 7453 of 1985, the Income-tax Appellate Tribunal (in short, "the Tribunal") has referred the following two questions of law for the decision of this court under Section 256(2) of the Income-tax Act, 1961 :
"1. Whether, on the facts and in the circumstances of the case and also in view of the finding that 'reliance cannot be placed on the assessee's book results', the learned Commissioner of Income-tax (Appeals) and the Hon'ble Tribunal are justified in interfering with the addition made by the Income-tax Officer ?
2. Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal is right in holding 'that it would be reasonable to determine the income of the assessee at Rs. 1,41,100 for this year', and is not the above finding unreasonable, unsupported by relevant materials and independent evidence and also unjustified ?"
2. The respondent is a registered firm, We are concerned with the assessment year 1979-80 for which the accounting period ended on March 31, 1979. The assessee-firm was doing the business of running arrack shops in Piravam Excise Range. The shop numbers were 1 to 5. For the assessment year 1979-80, it returned an income of Rs. 68,690, The Income-tax Officer noticed certain defects in the accounts. He took up the total sales up to May 21, 1978. The arrack purchased during the period was only 12,260 litres. The sale proceeds amounted to Rs. 3,72,553. It disclosed an average price of Rs. 30.38 per litre. But the average sale price per litre admitted by the assessee for the entire year was Rs. 23.50 per litre. The Income-tax Officer picked up another date, i.e., January 8, 1979. The total quantity of liquor purchased up to January 8, 1979 was only 17,420 litres. As per the average selling rate disclosed by the assessee, it should have sold 79,175 litres. This disclosed an excess quantity of liquor sold by 8,755 litres, as shown by the assessee itself. The Income-tax Officer proposed to adopt the average selling rate at Rs, 30 per litre which was arrived at from the admitted figure of purchase for the period ending on May 21, 1978. The assessee objected to the proposal. It was pleaded that the assessee had a certain quantity of opening stock of arrack which was not mentioned in the books of account. If this was also taken into account, the selling price would have been as admitted by the assessee, namely, Rs. 23.50 per litre. The further plea was that the assessee used to borrow liquor occasionally from adjoining contractors. Material was also let in to prove that the selling price of arrack was Rs. 23.50 per litre. Certain affidavits of employees and the President of the Abkari Employees' Union and Circle Inspector of Excise, in support of the average selling price as pleaded by the assessee, were filed. The Income-tax Officer was not impressed with these materials and explanations tendered. He rejected the availability of opening stock of arrack as also the plea of borrowal from the other contractors. The affidavits filed by the managing partner and others were rejected. The Income-tax Officer adopted the selling price of Rs. 30 per litre at the average rate on the gross quantity of 99,060 litres sold during the year. He worked out the deficiency of sale proceeds at Rs. 6,43,380. It was added to the total income as unexplained business receipt. In appeal, the Commissioner of Income-tax (Appeals) reduced the addition to Rs. 3.5 lakhs. He stated that the assessee maintains accounts and when such accounts are produced in support of the return, the assessee should stand or fall by those accounts. In the absence of an entry or mention of opening stock in the accounts, it could not be accepted. The borrowing from other contractors was also rejected. The Commissioner of Income-tax found that there were very wide fluctuations from month to month. The price varied from Rs. 19 to Rs. 46.24 per litre. No proper explanation was forthcoming from the assessee for such wide variations in the selling price. If the average selling rate of Rs. 23.50 per litre was applied to the sale proceeds, it would work out to an addition of Rs. 2 lakhs, He found that there was no sanctity about the average selling price being adopted as Rs. 23.50 per litre. At the same time, the Commissioner of Income-tax was of the view that the finding of the Income-tax Officer that the selling rate of Rs. 30 per litre should be applied is also without foundation. He referred to two comparable cases furnished by the asses-see which showed the selling rate varying from Rs. 28 to Rs. 30 per litre. Since there was a difference" of Rs. 3 in the admitted rates in the two comparative cases, he held that it will be fair if an average selling rate of Rs. 27 is adopted. Thus, the addition was limited or reduced to Rs. 3.5 lakhs. The order passed by the Commissioner of Income-tax is dated July 30, 1983. The assessee as also the Revenue filed appeals before the Tribunal. Both of them were considered together and a common order dated August 24, 1984 was passed by the Tribunal. In paragraph 5 of the judgment, after narrating the gist of the orders rendered by the Income-tax Officer and the Commissioner of Income-tax and after noticing the rival pleas put forward by the assessee and also by the Revenue, the Tribunal adjudicated the matter thus :
"We have considered the rival submissions and perused the papers filed. Except for the bald assertion by the managing partner in his affidavit that the assessee had an opening stock of 3,600 litres of arrack as on April 1, 1978, the assessee could not produce any evidence before the lower authorities or even before us. In the same affidavit, the managing partner admits that the Abkari rules require that the unsold quantity of closing stock of arrack in each year was to be returned to the Government depot. In view of this provision in the Abkari rules, it is difficult to accept the assessee's contention that the assessee had an opening stock of 3,600 litres, especially when there was no evidence for the same. Moreover, as on January 8, 1979, there were excess sales of 8,755 litres. The assessee furnished a letter dated February 5, 1982, from V.V. Manual, managing partner of Navajeevan Liquors, Adoor, stating that Navajeevan Liquors used to advance liquor to the assessee occasionally as and when the assessee was short of arrack. But before the Income-tax Officer the said Manual stated on March 9, 1982, in response to summons that Navajeevan Liquors had not given any quantity of arrack to the assessee at Piravam range and it was a mistake on his part to have given such a letter dated February 5, 1982. In view of these defects much reliance cannot be placed on the assessee's book results. From the list of comparable cases, it is seen that the Income-tax Officer had fixed a net income of Rs. 2,50,000 on agreed basis where the kist amount payable was Rs. 23,10,100 in the case of Anand Liquors, Perumbavoor, for the assessment year 1979-80. On a consideration of all the facts and circumstances of the case, we feel that it would be reasonable to determine the income of the assessee at Rs. 1,41,000 for this year. We hold accordingly."
3. It is thereafter, on motion by the Revenue, and as directed by this court in Original Petition No. 7453 of 1985 that the two questions of law, formulated hereinabove, were referred by the Tribunal for the decision of this court.
4. We heard counsel for the Revenue, Mr. P.K.R. Menon and counsel for the assessee, Mr. Sen. The two questions referred to this court covered a wide spectrum. But, in the light of our ultimate conclusion, it is neither desirable, nor proper, to adjudicate finally the rival pleas raised by the parties at this stage.
5. Amongst, others, one aspect very much highlighted by the Revenue before us was that the interference with the quantum of addition by the Tribunal was done illegally and unauthorisedly. The modification effected by the Tribunal by fixing the income at Rs. 1,41,000 was done arbitrarily and at the ipse dixit of the Tribunal. Counsel for the assessee submitted that the Tribunal, as the final appellate fact-finding tribunal, had ample jurisdiction to alter the basis and quantum of the estimate or taxable income fixed by the authorities below and it cannot be stated that the Tribunal had no jurisdiction to fix a lower estimate of income. The determination of the taxable income by the Tribunal is largely a finding of fact and this court in answering the reference will not ordinarily interfere with the said finding of fact. Counsel for the assessee submitted that the Tribunal determined or fixed the income of the assessee at Rs. 1,41,000 by placing reliance on a comparable case and it cannot be stated to be either illegal or unjustified. It is true that the powers of the Tribunal are stated in the widest terms in Section 254 of the Income-tax Act. The powers vested in the Tribunal arc similar to the powers of an appellate court functioning under the Code of Civil Procedure. The frontiers or the limits are specified in the section itself. It is true that as a final fact-finding authority, it is open to the Tribunal to unravel the entire facts and circumstances of the case and enter appropriate findings of fact. It is the duty of the Tribunal to enter a proper finding of fact on all issues. The power vested in the Tribunal is very wide. However, wide the said powers may be, the High Court and the Supreme Court have always jurisdiction to interfere with the findings of the Tribunal, if it appears either that the Tribunal has misunderstood the statutory language because the proper construction of the statutory language is a matter of law or it has arrived at a finding based on no evidence, or where the finding is inconsistent with the evidence or contradictory, or the Tribunal had acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination and imports facts and circumstances not apparent from the record or bases its conclusions on mere conjectures and surmises or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases, the findings arrived at are vitiated. The Tribunal should determine the matter in accordance with law. If it fails to advert to relevant factors or adverts to irrelevant factors or poses a wrong question for consideration or fails to pose the correct question for consideration--in all such cases, the Tribunal will not be acting in accordance with law. An order of the Appellate Tribunal is open to interference by this court, if it is illegal or unfair or irrational (unreasonable). "While it is true, that this court will not ordinarily interfere with the findings of fact, entered by the Tribunal, such reluctance should not make the Tribunal smug in the belief that as the courts do not interfere with the findings, which form the bedrock upon which the law will be based, they can act on that assumption in finding facts or by their mere ipse dixit that they are findings of fact to be so assumed, irrespective of whether they are sustainable in law or on the materials on record".--See CIT v. S.P. Jain [1973] 87 ITR 370, 381, 383 (SC) ; also Padfield's case [1968] 1 All ER 694 (HL) ; Council of Civil Service Unions v. Minister for the Civil Service [1984] 3 All ER 935 (HL) ; Wheeler's case [1985] 2 All ER 1106 (HL) 1111 ; Metropolitan Borough of Tameside's case [1976] 3 All ER 665 (CA) and H.W.R. Wade., Administrative Law, 5th Edn. (1982), page 364.
6. As stated earlier, the Tribunal is the final fact-finding authority. It is an appellate forum on facts as well as law. In exercising the appellate power, the Tribunal is rehearing the case. Wide as these appellate powers are, the limitation is implicit in the exercise of that power. At the hearing of the appeal, it is for the appellant to show that the decision appealed against is wrong. It will not be sufficient for the appellant to urge or plead that a contrary conclusion is possible on the basis of materials and circumstances disclosed in the case. The burden is on the appellant to prove that the decision appealed against is wrong. See Narbada Prasad. v. Chhaganlal, AIR 1969 SC 395, 399, paragraph 10 ; Mt. Fakrunisa v. Moulvi Izarus Sadik, AIR 1921 PC 55, 56 ; Richard Thorold Grant v. Australian Knitting Mills Ltd., AIR 1936 PC 34, 39 and Kunju Pakiam v. Krishnan Nadar [1963] KLT 362. R. N. Misra J. in Keluni Dei v. Kanhei Sahu, AIR 1972 Orissa 28, 31, paragraph 19, stated the law pithily, thus :
"It is incumbent upon the final court of fact, particularly in the case of a reversing decision--this is an instance of reversal as all the material findings were being reversed--to meet the reasonings of the trial court and indicate its own reasons for the conclusions to be reached."
7. Bearing in mind the guidelines laid down in the above decisions, we perused the order of the Tribunal. On a fair and proper reading of the said order, we are of the view that the Tribunal, in reversing or modifying the order of the Commissioner of Income-tax, has failed to act in accordance with law. There is not even a whisper in the entire order of the Tribunal, that the decision appealed against is wrong or untenable. The Tribunal has not positively stated as to why it disagreed with the decision of the Commissioner of Income-tax. It was positively the duty of the Tribunal first to find that the decision appealed against is wrong or unsustainable and then, on its own reasoning, enter appropriate findings in reversal or modification of the order appealed against. In this case, the Tribunal summarised the decision arrived at by the Income-tax Officer and also the Commissioner of Income-tax. Thereafter, it proceeded to summarise the pleas urged by the assessee as well as by the Revenue. Then on its own, the Tribunal reached the conclusion it did without, in any manner, demonstrating or finding that the decision appealed against is wrong or otherwise unsustainable. The procedure adopted by the Tribunal in reversing the decision of the Commissioner of Income-tax is infirm. The Tribunal failed to discharge its duty as an appellate court to find that the decision appealed against is wrong and unsustainable, before interfering with the said decision. Therefore, we are of the view that the interference in the determination of the income of the assessee by the Tribunal in the sum of. Rs. 1,41,000 is unjustified and is beset with procedural infirmities. The order of the Tribunal discloses an error of law. Therefore, we hold that the decision of the Tribunal dated August 24, 1984, is illegal and unjustified. The decision is not one in accordance with law.
8. At the outset, we stated that, in the light of the conclusion reached by us, it will be neither proper nor feasible to advert to the various pleas advanced by both parties in depth and answer the two questions on merits. We, therefore, decline to answer question No. 1 and question No. 2, in the form in which they have been referred to this court, but, at the same time, in answering question No. 2, we hold that the Tribunal was in error in determining the income of the assessee at Rs. 1,41,000 for this year and it is unjustified in law. To this extent, we answer the second limb of question No. 2 in the affirmative, in favour of the Revenue and against the assessee. We make it clear that our answer to the second limb of question No. 2 is that the finding of the Tribunal in determining the income of the assessee at Rs. 1,41,000 for this year is unjustified in law,
9. We are answering the question referred to this court by holding that the Tribunal committed a procedural illegality or impropriety in arriving at the said conclusion. While answering the question as stated above, we direct the Tribunal to restore the appeals to file and determine the question afresh, in accordance with law and in the light of the observations contained herein.
10. The reference is answered as above.
11. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.