COMMISSIONER OF INCOME TAX Vs. NIRMAL LIQUORS

JUDGEMENT

(1.) AT the instance of the Revenue and as directed by this court in Original Petition No. 7453 of 1985, the Income-tax Appellate Tribunal (in short, "the Tribunal") has referred the following two questions of law for the decision of this court under Section 256(2) of the Income-tax Act, 1961 :

(2.) THE respondent is a registered firm, We are concerned with the assessment year 1979-80 for which the accounting period ended on March 31, 1979. THE assessee-firm was doing the business of running arrack shops in Piravam Excise Range. THE shop numbers were 1 to 5. For the assessment year 1979-80, it returned an income of Rs. 68,690, THE Income-tax Officer noticed certain defects in the accounts. He took up the total sales up to May 21, 1978. THE arrack purchased during the period was only 12,260 litres. THE sale proceeds amounted to Rs. 3,72,553. It disclosed an average price of Rs. 30.38 per litre. But the average sale price per litre admitted by the assessee for the entire year was Rs. 23.50 per litre. THE Income-tax Officer picked up another date, i.e., January 8, 1979. THE total quantity of liquor purchased up to January 8, 1979 was only 17,420 litres. As per the average selling rate disclosed by the assessee, it should have sold 79,175 litres. This disclosed an excess quantity of liquor sold by 8,755 litres, as shown by the assessee itself. THE Income-tax Officer proposed to adopt the average selling rate at Rs, 30 per litre which was arrived at from the admitted figure of purchase for the period ending on May 21, 1978. THE assessee objected to the proposal. It was pleaded that the assessee had a certain quantity of opening stock of arrack which was not mentioned in the books of account. If this was also taken into account, the selling price would have been as admitted by the assessee, namely, Rs. 23.50 per litre. THE further plea was that the assessee used to borrow liquor occasionally from adjoining contractors. Material was also let in to prove that the selling price of arrack was Rs. 23.50 per litre. Certain affidavits of employees and the President of the Abkari Employees' Union and Circle Inspector of Excise, in support of the average selling price as pleaded by the assessee, were filed. THE Income-tax Officer was not impressed with these materials and explanations tendered. He rejected the availability of opening stock of arrack as also the plea of borrowal from the other contractors. THE affidavits filed by the managing partner and others were rejected. THE Income-tax Officer adopted the selling price of Rs. 30 per litre at the average rate on the gross quantity of 99,060 litres sold during the year. He worked out the deficiency of sale proceeds at Rs. 6,43,380. It was added to the total income as unexplained business receipt. In appeal, the Commissioner of Income-tax (Appeals) reduced the addition to Rs. 3.5 lakhs. He stated that the assessee maintains accounts and when such accounts are produced in support of the return, the assessee should stand or fall by those accounts. In the absence of an entry or mention of opening stock in the accounts, it could not be accepted. THE borrowing from other contractors was also rejected. THE Commissioner of Income-tax found that there were very wide fluctuations from month to month. THE price varied from Rs. 19 to Rs. 46.24 per litre. No proper explanation was forthcoming from the assessee for such wide variations in the selling price. If the average selling rate of Rs. 23.50 per litre was applied to the sale proceeds, it would work out to an addition of Rs. 2 lakhs, He found that there was no sanctity about the average selling price being adopted as Rs. 23.50 per litre. At the same time, the Commissioner of Income-tax was of the view that the finding of the Income-tax Officer that the selling rate of Rs. 30 per litre should be applied is also without foundation. He referred to two comparable cases furnished by the asses-see which showed the selling rate varying from Rs. 28 to Rs. 30 per litre. Since there was a difference" of Rs. 3 in the admitted rates in the two comparative cases, he held that it will be fair if an average selling rate of Rs. 27 is adopted. Thus, the addition was limited or reduced to Rs. 3.5 lakhs. THE order passed by the Commissioner of Income-tax is dated July 30, 1983. THE assessee as also the Revenue filed appeals before the Tribunal. Both of them were considered together and a common order dated August 24, 1984 was passed by the Tribunal. In paragraph 5 of the judgment, after narrating the gist of the orders rendered by the Income-tax Officer and the Commissioner of Income-tax and after noticing the rival pleas put forward by the assessee and also by the Revenue, the Tribunal adjudicated the matter thus :

(3.) AMONGST, others, one aspect very much highlighted by the Revenue before us was that the interference with the quantum of addition by the Tribunal was done illegally and unauthorisedly. The modification effected by the Tribunal by fixing the income at Rs. 1,41,000 was done arbitrarily and at the ipse dixit of the Tribunal. Counsel for the assessee submitted that the Tribunal, as the final appellate fact-finding tribunal, had ample jurisdiction to alter the basis and quantum of the estimate or taxable income fixed by the authorities below and it cannot be stated that the Tribunal had no jurisdiction to fix a lower estimate of income. The determination of the taxable income by the Tribunal is largely a finding of fact and this court in answering the reference will not ordinarily interfere with the said finding of fact. Counsel for the assessee submitted that the Tribunal determined or fixed the income of the assessee at Rs. 1,41,000 by placing reliance on a comparable case and it cannot be stated to be either illegal or unjustified. It is true that the powers of the Tribunal are stated in the widest terms in Section 254 of the Income-tax Act. The powers vested in the Tribunal arc similar to the powers of an appellate court functioning under the Code of Civil Procedure. The frontiers or the limits are specified in the section itself. It is true that as a final fact-finding authority, it is open to the Tribunal to unravel the entire facts and circumstances of the case and enter appropriate findings of fact. It is the duty of the Tribunal to enter a proper finding of fact on all issues. The power vested in the Tribunal is very wide. However, wide the said powers may be, the High Court and the Supreme Court have always jurisdiction to interfere with the findings of the Tribunal, if it appears either that the Tribunal has misunderstood the statutory language because the proper construction of the statutory language is a matter of law or it has arrived at a finding based on no evidence, or where the finding is inconsistent with the evidence or contradictory, or the Tribunal had acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination and imports facts and circumstances not apparent from the record or bases its conclusions on mere conjectures and surmises or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases, the findings arrived at are vitiated. The Tribunal should determine the matter in accordance with law. If it fails to advert to relevant factors or adverts to irrelevant factors or poses a wrong question for consideration or fails to pose the correct question for consideration--in all such cases, the Tribunal will not be acting in accordance with law. An order of the Appellate Tribunal is open to interference by this court, if it is illegal or unfair or irrational (unreasonable). "While it is true, that this court will not ordinarily interfere with the findings of fact, entered by the Tribunal, such reluctance should not make the Tribunal smug in the belief that as the courts do not interfere with the findings, which form the bedrock upon which the law will be based, they can act on that assumption in finding facts or by their mere ipse dixit that they are findings of fact to be so assumed, irrespective of whether they are sustainable in law or on the materials on record".--See CIT v. S.P. Jain [1973] 87 ITR 370, 381, 383 (SC) ; also Padfield's case [1968] 1 All ER 694 (HL) ; Council of Civil Service Unions v. Minister for the Civil Service [1984] 3 All ER 935 (HL) ; Wheeler's case [1985] 2 All ER 1106 (HL) 1111 ; Metropolitan Borough of Tameside's case [1976] 3 All ER 665 (CA) and H.W.R. Wade., Administrative Law, 5th Edn. (1982), page 364.