Shah, J. - (1.) The High Court of Judicature at Bombay answered in the affirmative the following two questions which were referred by the Income-tax Appellate Tribunal, Bombay, under sections 66(2) of the Income Tax Act :"(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in law in adding to the total income of the assessee the sum of Rs. 1,45,706 and/or Rs. 48,185 or any part thereof (2) Whether there was any material on record to support the finding that Rs. 1,45,706 and/or 48,185 or any part thereof represent the income of the assessee -
(2.) With special leave the assessees, Messrs. C. Vasantlal & Co., have appealed to this court.
(3.) The assessees carried on business as commission agents and brokers and also in forward transactions in cotton, bullion and other commodities. In the course of proceedings for assessment of income-tax of the assessees, for the assessment year 1947-48, two entries in the assessees books of accounts for Samvat 2002 (which was the previous year for the purpose of assessment) showing payments of Rs. 48,185 and Rs. 1,45,706 to Messrs. Meghaji Kapurchand and Messrs. Bhimaji Motiji respectively were noticed by the Income-tax Officer. A partner of the assessees explained that these two parties were their constituents, and had entered into speculative transactions through them as brokers with Bhawanji Lakhmichand and Joitram Kedarnath and that the latter had suffered losses which aggregated to Rs. 12,303 and Rs. 1,81,587 respectively and that the payments to the assessees by the said two persons "were passed on" to these two constituents. The Income-tax Officer was not satisfied with the explanation and examined Achaldas, a partner of Messrs. Meghaji Kapurchand, and Poonamchand, a partner of Messrs. Bhimaji Motiji. On a consideration of the material placed before him the Income-tax Officer held that the entries made in the relevant account books maintained by the assessees were "fictitious", and in computing their income disallowed the assessees claim in respect of the amounts of Rs. 1,45,706 and Rs. 48,185. The assessee appealed against the order of assessment to the Appellate Assistant Commissioner, Bombay. It was urged before that officer that Achaldas and Poonamchand, partners of Messrs. Meghaji Kapurchand and Messrs. Bhimaji Motiji, were examined by the Income-tax Officer in the absence of the assessees and they had no opportunity of cross-examining them. The Appellate Assistant Commissioner summoned these two persons to appear before him and permitted the assessees to cross examine them. The Appellate Assistant Commissioner held that the transaction in cotton which were entered in the books of accounts of the assessees were not genuine but the assessees had merely acted as brokers or "mediators", Joitram Kedarnath and Bhawanji Lakhmichand having directly "bought losses" from Messrs. Meghaji Kapurchand and Messrs. Bhimaji Motiji. He, therefore, directed that an amount of Rs. 1,94,890 be excluded in computing the assessees total income. The department appealed against the order of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal, Bombay. The Tribunal reversed the order passed by the Appellate Assistant Commissioner and restored the order passed by the Income-tax Officer. The Tribunal under the direction of the High Court of Bombay submitted a statement of the case and referred the two questions set out hereinbefore. The High Court after an exhaustive review of the evidence held that there was material on the record to support the findings of the Tribunal that the sums of Rs. 1,45,706 and Rs. 48,185 which were the subject-matter of the reference represented the income of the assessees.;