M.C.DESAI, J. -
(1.)THE following question has been referred to this court by the Income-tax Appellate Tribunal, Allahabad Bench, at the instance of the assessee under section 66(2) of the Income-tax Act :
"Whether in the circumstances of this case the Tribunal exercised their discretion judicially in refusing to entertain the additional ground of appeal and in deciding i ?"
(2.)THE facts are very short. THE assessee carries on business in cloth and of commission agency and money-lending. Its accounting previous year relevant to the assessment year 1955-56 was the period between November 6, 1953, and November 26, 1954. In its accounts of November 25, 1953, and November 27, 1953, there were two cash credit entries of the aggregate amount of Rs. 20,000; it did not include this amount in its return part for assessment year 1955-56. When questioned by the Income-tax Officer it stated that the amount of Rs. 20,000 was advanced to one of the partners by his mother. THE Income-tax Officer did not believe the statement and included the amount in the assessment as income from "undisclosed sources." THE assessee preferred an appeal which was dismissed by the Appellate Assistant Commissioner. "Previous year" is the period of twelve months ending on the 31st day of March next preceding the assessment year, or if the accounts of the assessee have been made up to a date within the said twelve months in respect of an assessment year ending on any date other than the said 31st day of March, then, at the option of the assessee, the year ending on the date of which its accounts have been made up; but, where in respect of a particular source of income an assessee has once been assessed, it cannot in respect of that source exercise the option so as to vary the meaning of the expression "previous year" except with the consent of the Income-tax Officer. If the assessee maintained no accounts in respect of the source concealed by him and from which the income of Rs. 20,000 was derived, the previous year in respect of the source was the financial year ending on March 31, 1955, and if it maintained accounts and they were made up to a date within the financial year 1954-55 in respect of a year ending on any date other than March 31, 1955, it had the option of selecting that year as the previous year. It had not the option, however, if it had in an earlier assessment year been assessed on income from that source and had exercised this option in respect of another previous year, except with the consent of the Income-tax Officer. THE assessees case before us it that it never maintained accounts of the undisclosed source and, consequently, there was no question of its exercising the option; accordingly, the previous year in respect of the source was the period from April 1, 1954. to March 31, 1955, and not the year from November 6, 1953, to November 26, 1954. As the cash credit entries were of November, 1953, income from the undisclosed source was derived prior to the commencement of the previous year and could not be included in the assessment for 1955-56. It had not taken this plea before the Income-tax Officer or even before the Appellate Assistant Commissioner in appeal. It filed a second appeal before the Tribunal and in the memorandum of appeal also it did not take this ground. Under rule 12 of the Appellate Tribunal it to the appellant cannot urge a ground not taken in the memorandum of appeal "except by leave of the Tribunal." On May 26, 1960, during the pendency of the appeal, it applied for leave of the Tribunal to urge the ground that the amount of Rs. 20,000 could not legally be assessed in 1955-56 as income from an undisclosed source as it was derived prior to the relevant previous year commencing on April 1, 1954. It contended that the ground urged by it was "purely legal arising out of facts already on record." THE Tribunal refused the leave, heard the appeal and dismissed it. THE reasons for refusing the leave are given in its order and they are that it was another attempt on the part of the assessee "to thwart the course of proceedings and gain time," that it was never taken before any income-tax authority, that there was no sufficient explanation for its not being taken earlier, that it was not purely a legal plea because the question whether a cash entry represents income is one of fact, and that the ground was not taken bone fide at that late stage and needed going into the facts once again. THE Tribunal dismissed the assessees application under section 66(1) and this court called for a statement under section 66(2).
The normal rule is that an appellant before the Tribunal must confine his arguments to the grounds taken in the memorandum of appeal; if he wants to travel outside the memorandum of appeal, he must obtain the Tribunals leave. He has no absolute right to the leave; otherwise the provision regarding his obtaining the Tribunals leave would become meaningless. If the leave had to be granted merely for the asking, no useful purpose is to be served by requiring the leave. As it is not an appellants absolute right to have the leave, he has to make out a case for obtaining it, and if he fails to do so, the failure itself is ground for refusing the leave. If he makes out a case for the leave, it can still be refused if there are facts on account of which the leave should be refused. Now the only reason given by the assessee for asking for the leave was that the ground was wholly legal and did not require any facts other than those appearing on the record. This is not correct. What is a previous year relevant to a particular source of income is a question of fact. The previous financial year is the relevant previous year but it is subject to the rule that the assessee has not made up his accounts in respect of the source for another period of twelve months and has not exercised the option in favour of that period. Even if he has not maintained accounts in respect of that source, the rule that the financial year is the relevant previous year is subject to the proviso that for an earlier assessment year he was not assessed on the income from the source or he had not exercised the option in favour of another period of twelve months for it. These are essentially questions of fact and unless they are decided, the question "which is the relevant previous year in respect of the undisclosed source ?" cannot be determined. It is true that if an assessee has not maintained accounts in respect of the source, there is no question of his exercising the option and the previous financial year is the previous year, but this only means that the onus is upon the department to show that in respect of the sources he had maintained accounts for a different period of twelve months and had exercised his option in favour of that period or that in some earlier assessment year he had been assessed on income from that source and had exercised the option in favour of another period of twelve months. This shifting of the onus from the assessee to the department does not mean that the question is not one of fact. It does not cease to be a question of fact merely because the onus lies upon the department to show that another period of twelve months is the relevant previous year. It would be a question of law only if, regardless of all circumstances, the previous financial year were the relevant previous year. If a question requires investigation of facts, it is not a question of law. The assessee itself conceded that the new question sought to be raised by it could be decided on the basis of the facts appearing on the record; this confirms that it is not a pure question of law. The provision in rule 12 applies to a ground of law as much as to a ground of fact and an appellant is not entitled absolutely to the leave if the ground is of law. Therefore, the mere fact that the ground is of law did not entitle the assessee as a matter of right to the leave; if had still to show any; when it did not show any additional facts and when the Tribunal found that the new ground was not absolutely a ground of law, it meant that no case was made out by the assessee for the great of leave and this was full justification for the Tribunals refusing the leave.
Since the Tribunal did not find that the assessee had made out a case for the grant of leave, it may not be necessary to consider the grounds urged on behalf of the department for refusing the leave. Still we have considered them and I find that they cannot be ruled out as irrelevant. There is reason behind the ground (for refusing the leave) that thereby the disposal of the appeal would be delayed. If the entertainment of the ground calls for investigation of facts, it means delay in the completion of the assessment proceeding. As I said earlier, allowing the assessee to raise the ground would necessitate investigation of the facts what exactly was the source from which the income was derived, whether accounts in respect of that source were maintained by the assessee and if so to what date they were made up, and whether it had exercised any option in respect of the previous year for that source. It may be that after the matter has been investigated and the source of the income found out, the income ceases to be an income from an undisclosed source, but the question that was sought to be raised was whether the income could be included in the assessment for 1955-56 or not and its answer depended upon whether it was derived in the previous year relevant to the assessment year. The previous year relevant to the assessment year has to be found out even if the income turns out to be from a particular source instead of from an undisclosed source. Once the question of the assessability of the income is raised, it becomes necessary to investigate facts, because, without investigation of facts, the question cannot properly be answered. There are two parties to the question; its answer does not depend upon only what the assessee urges. Before it is answered the department also has to be heard and investigation of facts has to be done if it is necessary in order to dispose of its case. The Income-tax Officer might have failed to investigate the facts because he thought that the previous year for the undisclosed source was the same as that for the disclosed sources. When this is found to be wrong, investigation becomes necessary.
(3.)THAT the ground was never urged before the Income-tax Officer, and in any case before the Appellate Assistant Commissioner, is also a fact which has some logical connection with the question whether the leave to urge it should be granted. The leave is required because the ground was not stated in the memorandum of appeal and would be required even if it had been urged before the Income-tax Officer and the Appellate Assistant Commissioner. It is relevant to consider the reason offered for the assessees failure to urge the ground earlier; its ignorance of the law is no excuse. There may be no substance in the departments contention that the assessee did not act bona fide in raising the ground at the late stage and there might be nothing in the conduct of the assessee which would justify refusal of the leave, but there are other grounds which cannot be brushed aside as irrelevant. So long as there is some logical connection between those grounds and the refusal to grant leave, it cannot be said that the Tribunal acted arbirtarily.
The matter of granting or refusing leave is at the discretion of the Tribunal; this is not disputed. It has to exercise the discretion judicially, i.e. not arbitrarily. So long as it exercises it for reasons which have some logical connection with the way in which it is exercised, it cannot be said to have acted arbitrarily. It must act on the assumption of the correctness of the reasons found by it; if the reasons are subsequently found by another authority to be incorrect, it cannot be said that the Tribunal acted arbitrarily, merely because the reasons on which it based its discretion were incorrect, provided it acted bond fide. It is required to act judicially and not correctly.
Sri Gulati referred to us a number of authorities. In Commissioner of Income-tax v. P. Darolia Sons the Patna High Court held that there is no presumption that an undisclosed income is from the disclosed business, that the question is one of fact to be decided upon the materials and that in the absence of any system of accounting adopted by an assessee and in the absence of any option on his part, it can be taxed only in the assessment for the next financial year. This decision supports the view that I take. It shows that the question is of fact, because only in the absence of a system of accounting and of an opinion, the financial year is the previous year with reference to the undisclosed source. Whether there is any system of accounting for this source and whether any option was exercised in respect of the previous year relating to the source are questions of fact. Gangadas Sarda v. Commissioner of Income-tax, 1956 29 ITR 799 followed the above decision. In Moti Ram v. Commissioner of Income-tax the Supreme Court held that the Tribunal has full jurisdiction and that it is in its discretion to refuse permission to an appellant to raise for the first time before it a new question which cannot be decided without further evidence being taken. In Sushil Chandra Ghose v. Income-tax Officer, 1958 AIR(Cal) 159 the Calcutta High Court held that the previous year for a disclosed source of income is not presumed to be the previous year for an undisclosed source; there can be no quarrel with this proposition. The same view was taken by a Bench of this court in Bishan Dutt v. Commissioner of Income-tax. Neither of these cases lays down that no investigation of facts in required for determining the previous year in relation to the source of undisclosed income. In the case of Bishan Dutt it was observed that it is impossible for an option to be exercised in respect of an undisclosed source of income, but that holds good only for the particular assessment year. The source might have been disclosed in an earlier assessment proceeding and there could have been an exercise of option in the assessment proceeding then. The learned judges have not laid down that in respect of an income from an undisclosed source, the previous financial year is the previous year regardless of all facts and circumstances. In Commissioner of Income-tax v. Hazarimal Nagji Co. it was laid down that the leave can be granted if the new plea does not require a further investigation into facts which are not already on record. In this case the leave was granted must be by way of obiter. Further, saying that the leave can be granted does not mean that the leave must be granted when the circumstances exist. In Commissioner of Income-tax v. M. P. Kolhe the Bombay High Court was concerned with a plea of pure law; the facts in that case were quite different.