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Petitioner: NANDLAL KASERA VS Respondent: COMMISSIONER OF INCOME-TAX, WEST BENGAL-IIIHonorable Justice P. B. MUKHARJIH. N. Ghosh, A. K. Chatterjee,B. L. Pal and Dipak Sen
1969 P T D 733
1969 P T D 733
[Calcutta (India)]
Before P. B. Mukharji and Laik, JJ
NANDLAL KASERA
versus
COMMISSIONER OF INCOME‑TAX, WEST BENGAL‑III
Income‑tax Reference No. 11 of 1962, decided on 6th June 1966.
Reference‑Nature of jurisdiction‑Whether High Court can interpret facts‑Reassessment‑Assessee not producing materials or books of account‑Best judgment assessment‑Rejection of application for setting aside‑Appeal against best judgment‑Tribunal's power to reduce estimate‑Indian Income‑tax Act, 1922 Ss. 22(4), 23(4), 27, 34(l)(a) & 66(1), (5).
The original assessment on the assessee for 1948‑49 was completed on December 11, 1953. As the Income‑tax Officer later discovered that the assessee had done considerable speculative business in jute and hessian in his own name as also in the name of a firm and had also acquired considerable property from such businesses, he started reassessment proceedings for the said year. Though the assessee filed his return of income and denied any profit in speculative business or connection with the firm, he did not produce any books of account in compliance with the statutory notices and, hence, the officer made a reassessment to the best of his judgment under section 23(4) read with section 34 estimating the income of the assessee from the undisclosed business at Rs. 4,60,000. The assessee filed a petition under section 27 for cancelling the best judgment reassessment under section 23(4) giving reasons for non‑production of the books on the earlier occasion. As the case made in the application under section 27 was wholly inconsistent with the declaration made by the assessee earlier, the assessee was asked to explain the discrepancy. The assessee, thereafter, tried to reconcile the two statements. The Income‑tax Officer however dismissed the application under section 27. The assessee appealed to the Appellate Assistant Commissioner both against the best judgment assessment as also against the order dismissing the application under section 27 but both the appeals were dismissed. The assessee went up on further appeal to the Tribunal. The Tribunal dismissed the appeal against the dismissal of the application under section 27. In the merits appeal, the Tribunal, however, holding that the officer did not give any basis for making the addition of Rs. 4,60,000, reduced the addition to Rs. 1,00,000. On a reference to the High Court;
Held, (1) the Tribunal acted illegally in noticing facts which it had no jurisdiction to notice after dismissing the assessee's application under section 27 ; (2) the Tribunal had no basis to add the sum of Rs. 1,00,000 which was an arbitrary figure ; but the figure of Rs. 4,60,OC0 adopted by the officer was not arbitrary, but supported by reason, facts, figures and evidence.
Dicta : In deciding a question of law, the High Court has power to interpret any question of fact and this power is implicit in section 66 of the Income‑tax Act, 1922. If that implicit power is denied, the High Court's jurisdiction to decide the question of law raised in the reference will be seriously jeopardised. But this interpretation of fact must be of a fact which is essential for determination of the question of law and without which interpreta tion it is not possible to decide the question of law.
Held also, the jurisdiction of the High Court is not to be determined by the person at whose instance the reference is made under section 66. Once the reference is before the Court, either at the instance of the assessee or of the taxing authorities or under direction of Court, the Court has unqualified jurisdiction to decide the questions of law raised in the reference irrespective of the party at whose instance the reference is made.
Scope and nature of the jurisdiction of the High Court under section 66 explained.
Bank of Bihar Ltd. v. Commissioner of Income‑tax (1962) 45 I T R 427 (S C) ; Chainrup Sampatram v. Commissioner of Income‑tax (1951) 20 I T R 484 ; Commissioner of Income‑tax v. Daulatram Rawatmull (1964) 53 I T R 574 (S C) ; Commissioner of Income‑tax v. Lakshminarain Badridas (1937) 5 I T R 170 ; 64 I A 102; Rajkumar Mills Ltd. v. Income‑tax Appellate Tribunal (1958) 33 I T R 750 and Sri Meenakshi Mills Ltd. v. Commissioner of Income‑tax (1957) 31I T R 28 (S C) ref.
H. N. Ghosh, A. K. Chatterjee and S. Mitra for the Assessee.
B. L. Pal and Dipak Sen for the Commissioner.
JUDGMENT
P. B. MUKHARJI, J.‑The question for determination on this income‑tax reference is;---
"(1) The Income‑tax Appellate Tribunal in its order dated 27th March 1961, having held that the Income‑tax Officer has made addition of Rs 4,60,000 to the income of the appellant without any basis and arbitrarily, was it justified in adding the sum of Rs. 1,00,000 to the income of the appellant as estimated income and is such addition arbitrary and fanciful and based on no materials ?
(2) In the facts and circumstances of the case, was the Appellate Tribunal justified in coming to the conclusion that any part of the income of Hanuman & Co. should be added to the income of the appellant or was the same done arbitrarily and without any materials ?"
The statement of the case in this reference makes the following facts relevant for the purpose of determining or deciding the question.
The assessee is Nandlal Kasera of 243, Chittaranjan Avenue, and an individual, owning some properties and having a share in the firm of Messrs Bengal Kopak Ginning. The assessment year is 1948‑49. The accounting year is 2003/4 Diwali ending on the 11th November 1947. The original assessment for the year 1948‑49 was completed on the 11th December 1953, on a total income of Rs. 2,985 only. It was then subsequently discovered and the Income‑tax Officer came to know that the assessee had done extensive speculative business in jute and hessian, in his own name and also in the name of Messrs Hanuman & Co. and had acquired considerable property from such business, which he had concealed. Notice was therefore issued under section 34(1)(a) by the Income‑tax Officer for the reassessment of the total income of the assessee. The assessee in reply filed a return o income showing a loss of Rs. 1251 only. The assessee admitted before the Income‑tax Officer that he had done some speculative business with one Madanlal Saraf which was supposed to result in a huge loss but the assessee had not shown that loss in the return filed on the flimsy grounds that he had no details relating to the transaction. I hereupon, the Income‑tax Officer issued notice under section 22(4) of the Act calling upon the assessee to produce all the books of account and vouchers. On the date of hearing, the assessee appeared with his authorised representative and stated that he had not maintained any books of account whatever. Indeed, the assessee denied any connection with Hanuman & Co. and, in fact, in his deposition recorded by the Income‑tax Officer under section 37 on the 8th January 1958, the assessee made the following statement:‑--
"I hereby declare that I have not done any business in the name of Messrs Hanuman & Co. I have not entered into any business transaction with the said I4anuman & Co."
This has now been proved to be wholly an outrageous falsehood. This Income‑tax Officer did not accept the plea that was made. The investigations made by him from the banks revealed that the assessee was himself the proprietor of Hanuman & Co.
The assessee did not produce any books of account in compliance with the statutory notices. In the circumstances, the Income‑tax Officer made a reassessment to the best of his judgment under section 23(4) of the Income‑tax Act, 1922, read with section 34, estimating the income of the assessee from the undisclosed business at Rs. 4,60,000. The total income assessed by the Income‑tax Officer by his order dated 31st January 1953, was Rs. 4,62,652. The assessee thereafter, on the 1st April 1958, filed a petition under section 27 of the. Act for cancelling the assessment made under section 23(4) of the Act. There the assessee came forward with the story for the first time that he had only half share as a partner in Hanuman & Co. and that the books of account of Hanuman & Co. were not with him when the requisition was made by the Income‑tax Officer under section 22(4) of the Act and that was the reason why he was not in a position to produce those books of account before the Income‑tax Officer. He, however, admitted even in the petition under section, 27 of the Act that those books were then available and he was ready to produce the same.
"As the case made in the application under section 27 of the Act was wholly inconsistent with the declaration that the assessee had made to the effect that he had no business transaction with Hanuman & Co., he was asked to explain this outright discrepancy. The assessee's explanation, which is recorded, is extraordinary and is in the following terms :‑-
"As the matter was fairly old and your petitioner had become an old man his memory had failed regarding the actual position of Messrs Hanuman & Co."
The whole attempt from now onwards was to explain these two irreconcilable statements only on the ground of lapse of memory on medical certificate. The Income‑tax Officer rejected the plea of lapse of memory and dismissed the assessee's applica tion under section 27 of the Act.
The facts on record show from the statement of case that the Income‑tax Officer found that the assessee had speculative dealings through one Madanlal Saraf, Stock & Share Broker, of No. 7, Lyons Range, Calcutta this Madanlal Saraf paid Rs. 6,979 to Messrs Hanuman & Co. by cheque on the 24th February 1957, on the Comilla Union Bank. That cheque was collected by Hindustan Mercantile Bank Ltd. on the account of payee Hanuman & Co. On examination of the proposal form for opening the bank account, it was found that the assessee, Nandlal Kasera, was mentioned there as the proprietor of Hanuman & Co. The Income‑tax Officer also found that Messrs Sagarmal Dhanraj of 1, Roopchand Roy Street, Calcutta, had speculative dealings with the, assessee. In fact, the karta of Sagarmal Dhanraj produced hundis paid to Hanuman & Co. to settle the differences. These very hundis had been endorsed by the assessee, Nandlal Kasera himself, on behalf of Hanuman & Co. to other persons and Sagarmal Dhanraj had made the final payment to the holder in due course.
The Income‑tax Officer therefore rightly held that the assessee was the sole proprietor of Hanuman & Co. and he rightly disbelieved the plea of the assessee that the account books of Hanuman & Co. were not in his custody when he had made the requisition under section 22(4) of the Act.
At this point it is necessary to make a reference to some other fact on the basis of which certain arguments were made of behalf of the assessee before us on thin reference in the statement of case it had been said that the assessee produced the statement before the Income‑tax Officer purported to have been granted on behalf of Messrs East India Jute & Hessian Exchange Ltd., showing that a sum of Rs. 21,28,875 had been deposited by Messrs Hanuman & Co. with the Clearing House Bank as against Rs. 12,33,839‑1‑0 received by Messrs Hanuman & Co. That statement was also supposed to show that the business of Messrs Hanuman & Co. was closed on the 17th November 1947. Now the point to be remembered about this fact is that this was not disclosed at the time of the best judgment assessment under section 23(4) of the Act. This was a smoke screen put up at the time of the application under section 27 of the Act, when the assessee thought that his game of concealment was up. This fact will be important when we come to consider the order of the Tribunal which reduced the assessment to Rs. 1,00,000 from Rs, 4,60,000 on this fact alone.
To proceed with the account of relevant facts, it is necessary to state that the Income‑tax Officer dismissed the assessee's application under section 27 of the Act by his order dated 18th February (sic), 1958. The assessee thereafter appealed to the Appellate Assistant Commissioner both against the best judgment assessment as well as against the order dismissing his application under section 27 of the Act. The Appellate Assistant Commissioner dismissed both the appeals by his consolidated order dated 4th February 1959. The Appellate Assistant Commissioner came to the conclusion that :‑
"The observations and finding of the Income‑tax Officer in my view are well‑founded,"
He also came to the finding and conclusion that :‑---
"It is quite evident after going through the above facts that the assessee has in a well‑calculated way falsely disowned his proprietorship of Messrs Hanuman & Co. and that in pursuance of this false declaration, with the said purpose of preventing a proper assessment of his profits on the above concern, he did not make available his books of account in spite of the ample opportunities given to him under section 22(4)."
The Appellate Assistant Commissioner also found as a fact that the whole case of the assessee about his medical certificate and lapse of memory was unacceptable. He records the fact that the assessee was attending before the Appellate Assistant Commissioner, had been talking and. arguing his own case and he found:‑
"My impression is that at any rate now he fully recapitulates the material facts of his case and even minor details as well."
He, therefore, accepted the Income‑tax Officer's finding on this point and rejected the assessee's story of loss of memory.
The Appellate Assistant Commissioner, thereafter, proceeds to discuss the merits of the case and records his findings of fact. He finds that it is clear that Messrs Sagarmal Dhanraj made a total sum of Rs. 5,22,626 by way of difference in jute and he assigned them to Hanuman & Co. Copies of accounts of Hanuman & Co. from Messrs Sagarmal Dhanraj and Madanlal Saraf were cited by the Appellate Assistant Commis sioner in support of his finding. It is also found as a fact that the account with Sagarmal Dhanraj 'as noted above showed payment of Rs. 5,22,626 as speculative profit to Hanuman & Co. and RQ. 71,706 as speculative profit realised from Hanuman & Co. during the financial year 1947‑48. Thirdly, the Appellate Assistant Commissioner confirms the Income‑tax Officer's finding on the record that the account with Madanlal Saraf showed a total debit of Rs. 12,052 and total credit of Rs. 20,418 resulting in a profit of Rs. 8,366 to the appellant during the financial year 1947‑48. Fourthly, the Appellate Assistant Commissioner also confirmed the Income‑tax Officer's finding that Madanlal Saraf had paid Rs. 6,979‑11‑0 to Messrs Hanuman & Co. by cheque dated August 24th 1957, which cheque was collected by Hindustan Mercantile Bank on account of the payee Hanuman & Co. Fifthly, the copies of accounts and proposal forms showed that Kasera, the assessee, was the sole proprietor of Hanuman & Co.
Sixthly, the Income‑tax Officer had examined the karta of Messrs Sagarmal & Co. and also the karta of Messrs Sagarmal Dhanraj who testified that the hundis which were paid to Hanuman & Co. were to settle differences in speculative profits. The statement on behalf of Sagarmal Dhanraj showed that the payments made by them to the assessee were speculative profit. The Appellate Assistant Commissioner noticed that in the account of the Income‑tax Officer, one single entry only was there in respect of a cheque return for Rs. 11,350. The total receipts were Rs. 5,22,525. The debits were Rs. 71,706. This gave a net profit of Rs. 4,50,819 in the dealings with Messrs Sagarmal Dhanraj. The profit from Madanlal Saraf during the financial year 1947‑48 came to Rs. 8,366. The total of these amounts came to Rs. 4,59,185. The Income‑tax Officer estimated the appellant's income at Rs. 4,60,000. On those facts the Appellate Assistant Commissioner, on the calculation and figure set out above, came to the following conclusion : ‑
"In these facts and circumstances of the case the estimate as made by the Income‑tax Officer would not be excessive."
He, therefore, confirmed the Income‑tax Officer's order under section 23(4) and dismissed the assessee's application under section 27 of the Income‑tax Act.
The assessee, thereafter, appealed to the Tribunal both for relief against the best judgment assessment under section 23(4) as well as the order made under section 27 of the Act. What the Tribunal did was this : The Tribunal dismissed the assessee's application under section 27 of the Income‑tax Act. The relevant finding on the point of the Tribunal is :‑
"His (assessee's) failure to produce the books of account of the business, in response to notice under section 22(4), was, therefore, clearly a default which invited assessment under section 23(4). We are not impressed by his plea of lapse of memory to explain away his categorical disclaimer about his having any connection with Hanuman & Co. nor are we satisfied that he had sufficient reasons not to produce the books before the assessment was made when he could so conveniently produce them after the assessment was made. We, therefore, hold that the Income‑tax Authorities were justified in refusing to reopen the assessment under section 27."
Pausing here for a moment on the above decision and on the point under section 27 of the Act, it is quite clear that the Tribunal was coming to a finding that the attempt to produce documents and specifically the hint of the fact in the statement purporting to have been granted by the East India Jute and Hessian Exchange Ltd. showing the deposit of the sum of Rs. 21,28,873 by Hanumaa & Co. with the Clearing House Bank as against Rs. 12,33,839‑1‑0 received by Hanuman & Co. was not found to be dependable fact. These are the books or statement of account which the Tribunal says were "conveniently" produced after the assessment was made.
But curiously enough the Tribunal on the merits came to a very strange conclusion. The Tribunal records that the Income -tax Officer did not give any basis for making the addition of Rs. 4,60,000 in the order itself but the Appellate Assistant Commissioner had tried to give the basis from certain particulars contained in the foot‑note to the assessment order. The Tribunal forgot that the Income‑tax Officer and the Appellate Assistant Commissioner were both authorities to find facts. The Tribunal was entirely wrong in mentioning a "foot‑note" to the assessment order. There was no foot‑note in fact, in theory or in imagination. What the Tribunal thought was in the foot‑note were the facts on record, namely, the evidence from Sagarmal Dhanraj, the bank, Madanlal Saraf and other evidence which we have just mentioned above. The Appellate Assistant Commissioner summarised serially almost all the relevant facts and reasons showing to the hilt even by calculation that the Income‑tax Officer's estimated income of the assessee at Rs. 4,60,000 under the best assessment judgment was supported by all material facts relevant for the purpose. Therefore, this conclusion of the Tribunal is not supported by any fact or evidence.
But the Tribunal does not‑stop there.
The Tribunal proceeds to say :‑---
"That the appellant received considerable amount from Messrs Sagarmal Dhanraj but his contention is that he received them not on his own but on account of some other clients and that his only income was brokerage income from these transactions . . . . . Reliance is also placed on the fact that on the balance the appellant had paid Rs. 9 lakhs more to the Clearing House than he had received from it. The Income‑tax Officer could not know this fact in view of the non‑cooperation of the appellant . . . . . In view, however, of the fact that ignoring all this important aspect introduces an element of arbitrariness in the assessment, we will take that into account and reduce the addition to Rs. 1,00,000 as estimated income from the business in the name of Hanuman & Co."
This is an extraordinary decision and conclusion by the Tribunal. It is open to serious criticism and cannot be sustained. We shall briefly state the reasons.
In the first place, the Tribunal, having rightly rejected the assessee's application under section 27 of the Act, should never have considered statements or facts produced with that application under section 27. The reason is simple. The rejection of the application under section 27 of the Act is rejection also of the supposed statements and facts that were intended to be introduced by that application under section 27. Having rejected that application, it was improper and illegal on the part of the Tribunal to refer again to such documents or statements which were part of the application under section 27 of the Act. This whole story of the assessee about Rs. 21,28,875 and Rs. 12,33,839‑1‑0 set out above was for the first time smuggled by the assessee through his application under section 27 of the Act. It is not evidence and the Tribunal should never have relied on that statement.
Secondly, the Tribunal was wrong in holding that disregard of this fact introduced any element of arbitrariness in the orders of the Income‑tax 1'fficer and the Appellate Assistant Commis sioner. On the contrary, consideration by the Tribunal of matters not on record or in evidence or properly brought within the procedure of the Income‑tax Act vitiated the Tribunal's decision on this point.
Thirdly, the Tribunal's decision to add Rs. 1 lakh as the estimated income was wholly unwarranted by the facts. There is not an iota of evidence in support of such a figure as Rs.1 lakh which the Tribunal estimated. It is an absolute and utter fancy, a mere caprice and whimsical figure. As against that arbitrary decision of the Tribunal, the figure of Rs.4,60,000 arrived at by the Income‑tax Officer and carefully analysed by the Appellate Assistant Commissioner is clearly accounted. We are of opinion that the amount of Rs. 4,60,000 was based on incontestable fact and evidence on record. 1 here was no evidence, legal or otherwise, to show that the assessee paid nine lakhs of rupees more. Even then there was no evidence that by any process of calculation or payment or by any method or reason it is possible to arrive at the figure of Rs. 1,00,000 which the Tribunal did. We, therefore, hold that the Tribunal had no basis to add the suns of Rs. 10,00,000 or to come to that figure as an estimate and that this sum of Rs. 1,00,000 was arbitrary and based on no material. At the same time we come to the finding that the figure of Rs. 4,60,000 was not arbitrary but supported by reason, facts figures and evidence.
It will be the appropriate stage here to refer to some of the decisions cited at the Bar and in particular to the arguments about the nature of jurisdiction under section 66 of the Income‑tax Act. Before discussing the decisions and the arguments on the scope and ambit of the jurisdiction under section 66 of the Income‑tax Act, it will be convenient to give the answers to the questions. For the reasons and the facts stated above we proceed to answer the question in the following manner;
In the first question the interrogation is based on the hypothesis and assumption contained in the expression, forming part of the question, namely, "having held that the Income‑tax Officer has made an addition to Rs. 4,60,000 to the income of the appellant without basis and arbitrarily". This hypothesis or assumption is wrong and we are of the opinion that the addition by the Income‑tax Officer of the sum of Rs. 4,60,000 to the income of the appellant was not arbitrary nor without any basis, but was fully supported by facts and figures and was a correct and appropriate sum. On the second part of the first question raising the point, "was it (Tribunal) justified in adding the sum of Rs. 1 lakh to the income of the appellant as estimated income and is such addition arbitrary and fanciful and based on no materials," we hold and answer this part of the question by saying that the addition of the said sum of Rs. 1 lakh as aforesaid by the Tribunal was arbitrary and fanciful and was not supported by any material whatsoever.
The answer to the second question asked on this reference follows from the above answer to the first question. We hold and answer that the Appellate Tribunal was certainly justified in coming to the conclusion that a part of the income of Hanuman & Co. should be added to the income of the appellant and to that part of the question the answer must be in the affirmative.
The second part of the second question raising the point "or was the same done arbitrarily and without any materials the answer is in the affirmative so far as the sum of Rs. 1 lakh was concerned, and we hold that the proper addition should have been Rs. 4,60,000 as done by the Income‑tax Officer and confirmed by the Appellate Assistant Commissioner.
The questions, therefore, are…
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