Bimal Chandra Basak, J. - (1.) The question of law arising in this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), is as follows: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the managing director's remuneration allowable for the assessment year 1970-71 was only Rs. 1,200 per month ?" The facts of this case as admitted and not disputed are as follows : For the assessment year 1970-71, the assessee-company claimed the managing director's remuneration at the rate of Rs. 2,000 per month, apart from provident fund contribution and commission on sales. The ITO by his order of assessment dated 26th March, 1973, allowed the provident fund contribution and commission on sales. He, however, restricted the allowable salary to Rs. 1,000 per month and gave a deduction of Rs. 12,000 as against Rs. 24,000 as claimed by the assessee. In doing so he relied on the order of the AAC in respect of the assessment year 1969-70. The balance of Rs. 12,000 was disallowed "as being excessive and not dictated by the business needs of the company ".
(2.) Being aggrieved by the same the assessee preferred an appeal. The AAC by his order dated 20th November, 1972, has merely stated that the matter has been decided by the Tribunal and following the order of the Tribunal the ITO was directed to allow the salary at Rs. 1,200 per month and provident fund equal to one month's salary, i.e., Rs. 1,200 (relief Rs. 2,600). This decision of the Tribunal was in respect of the earlier year.
(3.) The assessee preferred an appeal before the Tribunal. Nobody appeared on behalf of the assessee at the time of the hearing of the appeal. The Tribunal passed the following order : "The AAC has merely directed this issue in accordance with the Tribunal's order and directed the allowance of the salary at Rs. 1,200 per month and contribution of one month's salary to the provident fund, i.e., equal to Rs. 1,200. The departmental representative relied on the findings of the AAC and we see no reason to take a view different from the AAC on the facts of the case. The addition made on this point is sustained. Against the same this reference has been made." Mr. Sanjoy Bhattacharyya, the learned counsel appearing on behalf of the assessee, has submitted that the Tribunal has proceeded wrongly in this matter. He has further submitted that the scope and power of the ITO in this context was considered by a Division Bench of this court in the case of CIT v. Edward Keventer (P.] Ltd. He has submitted that this decision has examined the scope of the power and the duties of the ITO in respect of disallowing a claim for deduction. He has submitted that in the facts of this case the ITO has not properly exercised his jurisdiction and power. The ITO has merely relied on the AAC's order for the earlier year. Though the ITO has stated "in this order keeping in mind the trading results of the year", it is not known what is meant by that because it appears from the order itself that the sales have been increased by Rs. 12,000 over the last year. He has submitted that each year's assessment is separate from the other and that an order in respect of the earlier year may be relevant, but the ITO cannot and should not automatically follow the order made in respect of the earlier year. He should apply his mind independently in respect of every year. He is not to act arbitrarily. He is to act objectively which he has failed to do in the present case.;