- (1.) THE petitioner is a registered firm. THE year in dispute is the assessment year 1961-62. It is carrying on the business of manufacturing of sewing machines, lathes, milling machines, drills, chaff catting machines, machinery castings and assembling of radios. It consisted of the following partners:
(2.) THE share of each partner has been shown against his name. THE Income-tax Officer, Batala, framed the assessment of the petitioner for the year 1961-62, vide order dated March 18, 1966, on a total income of Rs. 2,58,997. THE income as assessed included a sum of Rs. 1,86,132 which comprised of three items, namely, Rs. 1,58,939, an item in the Uchanti bahi, Rs. 20,000 with respect to branches of the petitioner firm, and Rs. 7,193 representing certain items of export nature. Although the above income was found by the Income-tax Officer as the income of the petitioner, yet it had filed a revised return showing its income as Rs. 1,68,331. It went up in appeal against the order of the Income-tax Officer before the Appellate Assistant Commissioner who reduced the total income by Rs. 67,232, vide order dated January 24, 1970. This total assessable income of the petitioner was computed by him as Rs. 1,91,765. He also imposed a penalty on it under Section 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in the sum of Rs. 72,000. It went up in appeal before the Income-tax Appellate Tribunal which was partly accepted by it on July 28, 1971. It reduced the gross profits by another 2 per cent. Thus, the balance of the assessable income as found by the Tribunal came to Rs. 1,67,765. It also reduced the penalty to 40 per cent. It allowed certain consequential reliefs. THE petitioner then made an application to the Tribunal to refer the case to the High Court to decide certain questions of law. THE Tribunal dismissed the application on December 27, 1971. It has now come to this court under Section 256(2) of the Act, praying that the Tribunal be ordered to state the case and refer the following questions of law to it: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not admitting an additional ground of appeal regarding independentness of business of Uchanti bahies ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not giving proper weight to the Uchanti bahies statement procuied from the Excise and Taxation department when the said Uchanti bahies only showed a net profit of Rs. 3,895 ? (3) Whether the revenue has been able to prove the concealment or the onus has been discharged satisfactorily when on facts and circumstances of the case, it was proved beyond any shadow of doubt by the petitioner that Uchanti bahies business was an independent business ? (4) Whether, on the facts and in the circumstances of the case, there was any material or evidence before the Tribunal to hold that the assessee has deliberately furnished inaccurate particulars of such income as required by Section 271(1)(c) of the Act for the assessment year 1961-62 ? (5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in levying penalty under Section 271(1)(c)?" Before dealing with the contentions of the learned counsel for the parties, I may refer to one more fact which will be necessary for the determination of the respective contentions of the learned counsel for the parties. A raid was made on the premises of the petitioner on August 9, 1961, and the sales tax authorities took into possession a bahi known as Uchanti bahi. The purchases and sales of agricultural implements had been recorded in it. The bahi was returned by the sales tax authorities in 1963. It is stated by the petitioner that it was lost by one of its partners at the bus stand on account of the circumstances beyond his control. The petitioner, therefore, could not produce it before the income-tax authorities. The sales tax authorities had prepared copies of the entries of the said bahi, which were produced before the income-tax authorities. The Income-tax Officer came to the conclusion that the Uchanti bahi had been lost for no fault of the assessed. He further held that, as the Uchanti bahi had not been produced, the assessee cannot be given any benefit of doubt. It has been found by the Tribunal that the loss of Uchanti bahi has been accepted by the Income-tax Officer as the assessments were not made under Section 144 of the Act. It is contended by the learned counsel for the petitioner that the business, regarding which entires were made in Uchanti bahi, was a separate business. He states that though the partners in that business were the same but they had different shares in profit and loss than those what they had in the assessee-firm. The nature of business represented in the Uchanti bahi was of purchase and sale of agricultural implements and whereas that of the petitioner-firm was of manufacturing of agricultural implements. The learned counsel further argues that the point was raised by the assessee's counsel before the Income-tax Officer and he dealt with it. He further argues that when its counsel raised the aforesaid question before the Tribunal it did not allow him to do so on the ground that it was an additional ground which had not been raised before the income-tax authorities. In the circumstances, he argues that the Tribunal had misdirected itself in holding that the question was not raised before the income-tax authorities though the Income-tax Officer had considered the matter and dealt with it in his order. We have heard the learned counsel for the parties and find force in the contention of the learned counsel for the petitioner. The Income-tax Officer after dealing with this question held that he was unable to agree with the assessee that the transactions in Uchanti bahi related to an independent business especially when the rate of profit shown by the assessee was extremely low. The Tribunal while dealing with the question reproduced the contentions of the learned counsel for the parties as follows: "Before coming to the penalty appeal, we would like to mention about one aspect of the case. Before us, the assessee sought to press two fresh grounds of appeal, viz., (1) that it was an independent business, (2) that the sharing would appear from certain entries in the Uchanti bahi (we will come to it presently) and, therefore, we would come to the conclusion that this was a different business. It was pointed out that the Income-tax Officer has also taken note of this argument and in fact it was suggested that the profit was shared as follows: In fact, it was further urged that while the assessee's regular line of business was manufacture, this business (shall we say Uchanti bahi business) was in the nature of purchases and sales and these were two distinct businesses.
(3.) THE departmental representative contended that this was entirely a new ground which was never taken up at any stage before any of the officers and, therefore, this may not be accepted at this stage." The Tribunal held that it did not think that the assessee's contention before the Income-tax Officer or the Appellate Assistant Commissioner was that it was a separate business. It further observed that it involved a detailed investigation of the case. It, therefore, did not allow the assessee to raise the point. The question was again raised before the Tribunal in the application under Section 256(1) of the Act. It held as follows: "It was urged for the first time before the Tribunal that the transactions in the Uchanti bahi did not pertain to the assessors' business but related to an independent business carried on by the same partners but with a different profit-sharing ratio. But the Tribunal did not permit the assessee to raise this factual contention for the first time before the Tribunal, more so because, in its very nature, it entailed detailed examination of the facts which could not be permitted at the second appeal stage." We have already mentioned that the matter was raised before the Income-tax Officer and was dealt with by him. In our view, the conclusions of the Tribunal are not rationally possible. In G. Venkataswami Naidu and Co. v. Commissioner of Income-tax, [1959] 35 ITR 591, 601 (SC) their Lordships of the Supreme Court held that in certain circumstances the conclusions of fact recorded by the Tribunal can be challenged under Section 66(1) of the Indian Income-tax Act, 1922. The said Section is in pari materia with Section 256(1) of the Act. The relevant observations are as follows: "In some cases, the point sought to be raised on reference may turn out to be a pure question of fact; and if that be so, the finding of fact recorded by the Tribunal must be regarded as conclusive in proceedings under Section 66(1). If, however, such a finding of fact is based on an inference drawn from primary evidentiary facts proved in the case, its correctness or validity is open to challenge in reference proceedings within narrow limits. The assessee or the revenue can contend that the inference has been drawn on considering inadmissible evidence or after excluding admissible and relevant evidence ; and, if. the High Court is satisfied that the inference is the result of improper admission or exclusion of evidence, it would be justified in examining the correctness of the conclusion. It may also be open to the party to challenge a conclusion of fact drawn by the Tribunal on the ground that it is not supported by any legal evidence; or that the impugned conclusion drawn from the relevant facts is not rationally possible; and if such a plea is established, the court may consider whether the conclusion in question is not perverse and should not, therefore, be set aside. It is within these narrow limits that the conclusions of fact recorded by the Tribunal can be challenged under Section 66(1)." ;