TMI Blog1959 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ny circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court. Set aside the order of the Appellate Tribunal and remand the matter back to the Income-tax Appellate Tribunal, Madras "A" Bench, to reconsider the same in accordance with law, in the light of the observations made above. Appeal allowed. Case remanded. - C.A. 15 OF 1958 - - - Dated:- 5-3-1959 - Judge(s) : BHAGWATI., KAPUR., SINHA JUDGMENT The judgment of the court was delivered by BHAGWATI, J.---This appeal with special leave is directed against the order of the Income-tax Appellate Tribunal, Madras "A" Bench, dated August 8, 1952, made in I. T. A. No. 3254 of 1951-52 allowing the appeal and reversing the order of the Appellate Assistant Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15, 1948, and that these amounts were credited in her name as deposits in the books of account of the appellant. In proof thereof the appellant produced before the Income-tax Officer the original invoice relating to the sale of jewels and gold, furnished by Messrs. Shariff Hassan Bros., Shroff Merchants, Porbandar, through whom the sales were effected along with a copy of their accounts. The letters received from the Imperial Bank of India and the Central Bank of India evidencing the transmission of funds were also produced. After his statement was recorded as aforesaid, the Income-tax Officer on January 29, 1949, addressed a letter to the appellant calling upon him to obtain from Yamnabai an affidavit to the effect that she really possessed jewels, gold and sovereigns worth nearly Rs. 1,60,000 and that these were given to him by her for being sold and deposited with him. He also wanted to ascertain from her as to when these jewels and sovereigns were purchased and what was the value of cash, jewellery and other valuables owned by her at that time which information he desired should also be included in that affidavit. This affidavit was required to be furnished on or before Feb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1933 and enquired which of the two statements, i.e., one made on the previous occasion on November 18, 1941, or that made in her affidavit dated February 14, 1949, was correct. He further asked the appellant whether he had any evidence to prove that she actually possessed considerable jewels and sovereigns. The appellant replied on March 14, 1949, stating that her affidavit filed on November 11, 1941, referred to jewels which her daughter, i.e., the appellant's mother-in-law, had at the time of her death and which were taken back by her then, and were subsequently given to the appellant's wife at the time of her marriage in 1933, that she did not give her own jewels and sovereigns at the time of the appellant's marriage but only his mother-in-law's jewels, that she retained her own jewels and sovereigns and those were sold recently, that it was this subsequent sale that had been referred to in the affidavit dated February 24, 1949, and that neither of the statements made by her, one made on November 18, 1941, and the other made on February 24, 1949. was incorrect. He also stated that she did not have documentary evidence in her possession to prove ownership of the jewels and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wealth. These affidavits were dated April 18, 1949, and were sworn by (1) Dadamiah, son of Omarmiah, Town Kazi of Ranavav, aged go, (2) Jusub son of Abubucker of Ranavav, aged 35, who was a neighbour and a resident in the same compound with Yamnabai, and (3) Ebrahim Jan Mohamed, son of Jan Mohamed, aged 80 residing at Porbandar, and son-in-law of her uncle. He also obtained the affidavit of Kassam Shariff which was sworn on the same date, i.e., April 18, 1949, showing the sale of the jewellery, gold and sovereigns by the appellant, through his firm Messrs. Shariff Hassan Bros., merchants, residing at Porbandar, Kathiawar District. These affidavits were submitted by the appellant along with his reply to the penalty notice dated April 25, 1949, which recounted all the facts which supported the contentions of the appellant and pointed out that there was no discrepancy between the statements made in the affidavit dated November 18, 1941, and that dated February. 24, 1949, and the affidavits dated April 18, 1949, which had been obtained by him from the parties at Ranavav above-mentioned showed that Yamnabai was possessed of plenty of jewels, gold and sovereigns which were sold by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f request to the District Court of Porbandar to examine the said persons on commission for the purpose of verifying the correctness of the contents of the affidavits. The appellant further pointed out that Kassam Shariff had already been addressed by the Income-tax Officer and the information received from him an a direct enquiry by the Income-tax Officer might be used to check the correctness of the facts disclosed in his affidavit. (This statement obviously had reference to the letter dated May 24, 1949, which had been sent by Shariff Hassan Bros., in reply to the letter dated December 14, 1948, addressed to them by the Income-tax Officer. Therein the Income-tax Officer had asked the firm to let him know what were the jewels that were sold, their approximate weight, their value and the names and addresses of the parties to whom the jewels were sold by them and the date of such sales. He had also asked them to send along with their reply a copy of the account of the appellant as found in their books for the year 1948. In reply the firm gave the price of the jewels, gold and sovereigns sold by the appellant to them together with their statement of account furnished to the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the transaction between Messrs. Shariff Hassan Bros., and the appellant was concerned, that this transaction was not a solitary one, but Messrs. Shariff Hassan Bros., had done similar transactions which were also found in their books, that under his instructions the Inspector had interviewed Harjivan Trikamji, the head munim of Messrs. Shariff Hassan Bros., who had also confirmed the transaction as having been effected during 1948 and stated that actual delivery of gold and bullion stock took place in his presence, and that his Inspector had also interviewed Messrs. Jusub Abubacker and Dadamiah who had confirmed their affidavits filed before the Income-tax Officer, Madurai. By his letter dated February 22, 1951, the Additional Income-tax Officer, Madurai, wrote back to say that there were suspicions about the transaction inasmuch as it was likely that the appellant could have earned a large income during the control and had subsequently not brought the same to account, the inference being that he had invested these unaccounted profits in purchase of gold and jewellery and had later sold the same and brought the sale proceeds to Madurai. The question moreover was whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d March 17, 1951, addressed to the Additional Income-tax Officer, Madurai, wherein he stated that he had taken an opportunity of visiting Ranavav which was 8 miles away from Porbandar, that he had seen the house belonging to her which was a pacca building but of old style and if put in market would not fetch more than Rs. 10,000 to Rs. 15,000 and that the house was at that time occupied by Jusub Abubucker whom he again cross-examined in a casual way. He further stated that there were few cloth dealers in Ranavav and they were mostly Hindus who did not know her but there was one Mohammadan cloth dealer who knew her and who was also cross-examined by him and his answers were also sent by him along with the letter. He also stated that he had cross-examined the head munim of Messrs. Shariff Hassan Bros. and tried to get from him something to prove whether the ornaments in question were newly purchased or not but the result was in the negative. He therefore suggested that if the latter wanted his suspicions to be confirmed, the jewellery, gold and sovereigns in which the unaccounted profits were suspected to have been concealed must have been purchased somewhere in Bombay or Madurai a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sait. 2. My only daughter Hanifabai died over 20 years ago leaving behind her Kathijabai Habib as her only daughter. She left no son. I had given her considerable jewels. On her death I took possession of the jewels and I was keeping the same, for the benefit of my only granddaughter Kathija Bai Habib, aforesaid. 3. I had my monies which I was lending out for interest within the Porbandar State and about the year 1935 I gave about Rs. 73,000 to my granddaughter as I have no son or grandson and she is the only person to whom I could bequeath my properties after my daughter's demise. 4. I had given her all the jewels on the occasion of her marriage in 1933." The Appellate Assistant Commissioner interpreted this affidavit to mean that "all the jewels" which she had referred in paragraph 4 of that affidavit and which she stated she had given to Kathija Bai Habib, the wife of the appellant, on the occasion of her marriage in 1933 had reference only to " considerable jewels " which she had given to her daughter Hanifabai, which she had taken possession of on the latter's death and which she was keeping with her for the benefit of her only granddaughter Katbija Bai Habib. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted gold bars and the Income-tax Officer's impression was also partly due to his applying the poor South Indian standards of weight of jewellery worn by women. The Appellate Assistant Commissioner accordingly held that in the face of such overwhelming evidence there was no justification at all for disputing the appellant's claim that the credits did really represent Yamnabai's monies and on no account could they be treated as profits camouflaged and both the items aggregating to Rs. 1,59,240 were therefore liable to be deleted. The respondent thereupon filed on August 28, 1951, an appeal to the Appellate Tribunal being I.T.A. No. 3254 of 1951-52. This appeal was disposed of by an order made by the Appellate Tribunal on August 8, 1952, whereby the Tribunal allowed the respondent's appeal and vacated the order passed by the Appellate Assistant Commissioner to the extent of Rs. 1,50,240 mentioned above. The Tribunal, in the first instance, set out the background of the transaction which it considered to be essential in appreciating a question of this size. The first thing which it pointed out was that the business carried on by the appellant was of a large magnitude consisting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps in Madurai, the business would be suffering loss with a Pandora's box of gold lying at his disposal in the distant Kathiawar State beyond the reach of the then British Indian taxing authorities." The absence of a reply from M/s. Shariff Hassan and Bros., to the letter addressed to them by the Income-tax Officer, Madurai, dated December 14, 1948, till after the issue of the notice under section 28(1)(c) on the appellant was also adversely commented upon and it was observed that the old lady in her declining years gave away all she had including gold and cash, excepting jewellery etc., worth Rs. 12,000 which was said to be with her, to her only grandchild Khathija Bai and continued to live in a small house at Kathiawar counting her days. The conclusion reached on the above premises by the Tribunal was that the appellant had in his possession this much money and he managed to remit it from Porbandar to Madurai, to give a colouring of reality and that all the other circumstances had been nicely woven so as to paint the picture in as real colours as possible. The Tribunal then commented upon the Appellate Assistant Commissioner's looking at the information gathered subsequently by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25, 1948, through the Imperial Bank and the other for the sum of Rs. 53,200 through the Porbandar State Bank was also subject to comment. On all these considerations the Tribunal appeared to be satisfied that these sums represented unaccounted for money in the hands of the appellant which he managed to remit to Madurai and accordingly treated that as sums whose nature and source had not been properly explained and that they had been correctly treated by the Income-tax Officer as income of the appellant. The Appellate Assistant Commissioner's order was accordingly vacated to the extent of Rs. 1,59,240 as mentioned above. Being aggrieved by the above order of the Tribunal the appellant applied for a reference to the High Court under section 66(1) of the Income-tax Act, on October 15, 1952. This application being Reference Application No. 751 of 1952-53, was rejected by the Tribunal by its order, dated August 8, 1953, on the ground that the question whether these credits did not represent sale proceeds of gold belonging to Yamnabai was a pure question of fact. The Tribunal observed in the course of that order that "both on account of lack of direct evidence regarding Yamnabai po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises : Whether the finding of the court of fact is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. It was similarly observed by us in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, that the powers given to the Income-tax Officer under section 23(3) of the Income-tax Act, however wide, did not entitle him to base the assessment on pure guess without reference to any evidence or material. An assessment under section 23(3) of the Act could not be made only on bare suspicion. An assessment so made without disclosing to the assessee the information supplied by the departmental representative and without giving any opportunity to the assessee to rebut the information so supplied and declining to take into consideration all materials which the assessee wanted to produce in support of his case constituted a violation of the fundamental rules of justice and called for exercise, of the powers under arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the same, that the low rate of profits earned in the business might have been due to various causes which would have come to light had the appellant been examined by the Income-tax Officer in that behalf and had been called upon to explain the same, and that a trial balance-sheet without any touching up was indeed more reliable than a balance-sheet prepared by an assessee after due deliberation. It was further submitted that the observation of the Appellate Tribunal that the departmental authorities ought to have examined the veracity of the appellant's accounts was also based on a conjecture that the books of account of the appellant did not represent the true state of affairs and was contrary to the statements contained in the order of the Appellate Assistant Commissioner to the effect that no defects or any other suspicious feature had been found by the Income-tax Officer in the accounts of the appellant, that his past history was good and that, therefore, the suspicion of the Income-tax Officer was not based on any material, that as a matter of fact, the income-tax returns submitted by the appellant in the previous assessment years had been accepted by the income-tax au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having in her possession jewellery, gold and sovereigns of the aggregate value of Rs. 1,60,000 was discounted by the Appellate Tribunal without any rhyme or reason and the circumstances attending upon the transaction were not properly understood and appreciated by it. The first and the foremost mistake which according to counsel the Appellate Tribunal committed was to misread her affidavit dated November 18, 1941. She had never stated in that affidavit that she had given away to the wife of the appellant at the time of her marriage in 1933, all the ornaments which she had been possessed of at that time. The affidavit dated November 18, 1941, made by her had to be read as a whole and "all the jewels" referred to by her in paragraph 4 of that affidavit obviously referred to the "considerable jewels" which, according to her statement in paragraph 2 thereof, she had given to her only daughter Hanifabai and which she had taken possession of on the latter's death and kept with her for the benefit of her only granddaughter Kathija Bai Habib, the wife of the appellant. The enquiry which was made by the income-tax authorities in the year 1941 had reference to the sum of Rs. 73,000 which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er being 70 years old was not sufficient to create any apprehension in her mind that she was going to pass away in the near future, jeopardizing the treasure which she possessed in her house. Moreover, there was evidence that she had secreted these valuables in an "old treasure" which was in the house (vide the statement of Jusub Abubucker in his examination by the Income-tax Officer, Junagad, dated March 15, 1951). She had been staying in her own mohalla where the people of her own community stayed and who apparently had great regard for her, she being a lady of charitable disposition. Jusub Abubucker was also looking after her and as a matter of fact he had been asked by her to keep a watch over her house when she left Ranavav for Madurai as aforestated and if she had entertained the idea of returning from Madurai to Ranavav after some time, there was really no necessity for her to take away these valuables, jewellery, gold and sovereigns from the "old treasure" where she had kept them and carry the same along with her to Madurai. She did not entertain any apprehension in regard to the safety of these valuables in her house nor was there any immediate occasion for her taking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he affidavits which were sworn by Dadamiah, Ibrahim Jan Mohamed, Jusub Abubucker and Kassam Shariff were also criticized by the Appellate Tribunal as not worth the paper on which they were transcribed because according to it the deponents were not subjected to cross-examination on the matter at issue. The Appellate Tribunal obviously forgot that when the Income-tax Officer, Madurai, had by his letter dated May 16, 1949, asked the appellant to produce these witnesses for cross-examination the appellant had immediately replied on May 30, 1949, that these deponents were staying at Ranavav and Porbandar which was more than 200 miles from Madurai and suggested that either interrogatories be administered to them or a letter of request be sent to the District Court of Porbandar to examine those persons on commission. Yamnabai herself was also offered for further examination by the Income-tax Officer, if he so desired. As a matter of fact in the further enquiry which was conducted by the Income-tax Officer, Junagad, on March 15, 1951, Harjivan Trikamji, the Mehtaji of Messrs. Shariff Hassan Bros., Jusub Abubucker and one Hajee Dada Abdul Kassim were examined and whatever was possible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trace the sale, the actual remittance from the two banks and the persons who remitted the money and would have also cross-examined the purchasers regarding the disposal of such a vast wealth and other connected matters. The Appellate Tribunal in fact refused to look at the information gathered subsequently and to consider the same while arriving at its own conclusion in regard to the transaction in question. According to counsel, the information which has been thus gathered constituted an important piece of evidence whatever may have been the infirmity attaching to the same in the mind of the Appellate Tribunal and the Appellate Tribunal was bound to consider the same and reach its own conclusion on all the materials available including that information which had been gathered subsequently at Junagad under the circumstances herein before stated. The Appellate Tribunal was, therefore, not justified in not considering the evidence which was taken subsequently at that end at the instance of the Department itself and any conclusion arrived at by the Appellate Tribunal was, it was contended, vitiated by improper rejection of relevant and material evidence. (E) The alleged loopholes p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Madurai, on December 18, 1948. The explanation rendered by Messrs. Shariff Hassan Bros., in their letter dated May 24, 1949 that they had misplaced the letter of the Income-tax Officer, Madurai, dated December 14, 1948, and hence could not reply to the same earlier, it was urged, was a reasonable explanation and the Appellate Tribunal was not justified in criticising the firm of Messrs. Shariff Hassan Bros., in the manner it did stating that they had not even the decency to reply to the query of the Income-tax Officer, Madurai. (4) The different modes of remitting the monies, viz., of the sum of Rs. 1,05,000 through the Imperial Bank of India and the sum of Rs. 53,282 through the Porbandar State Bank, did not furnish any material for suspicion or surmises. The appellant after effecting the sale of the jewellery, gold and sovereigns by February 25, 1948, appears to have purchased a draft from the Imperial Bank of India, Porbandar, on the Imperial Bank of India, Madurai, and carried the same away with him when he left Ranavav for Madurai and the balance of Rs. 53,282 was sent by the firm of Messrs, Shariff Hassan Bros., by Air Mail from Porbandar State Bank through Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Tribunal and remanding the matter back to it for dealing with the same in accordance with law, after taking into consideration all the circumstances adverted to in the arguments of Shri A. V. Viswanatha Sastri, the whole evidence which was available in the file of the appellant and such further evidence as the parties may be advised to lead before it. We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be gi ..... 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