COMMISSIONER OF INCOME TAX Vs. ASSOCIATED GARMENTS MAKERS

JUDGEMENT

(1.) THE Revenue not having succeeded under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act") before the Income-tax Appellate Tribunal, Jaipur Bench (for short, "the Tribunal"), and the Tribunal having dismissed the application, has made this application under Section 256(2) of the Income-tax Act, 1961, with the prayer that the Tribunal may be directed to state the case and refer to this court the following questions of law for decision :

(2.) MESSRS. Associated Garments Maker, M. I. Road, Jaipur, the assessee, consists of two partners. It derives income from stitching of clothes. It observes Deewali year as its accounting year. For the assessment year 1981-82, the assessment was completed under Section 143(3) read with Section 144B of the Income-tax Act on September 26, 1984, on a total income of Rs. 41,010. The Commissioner of Income-tax, on examining the record of the assessee, noticed that, against the liabilities of Rs. 36,133, details of which have been given in the table in the order of the Commissioner, under Section 263 of the Income-tax Act (annexure 1), created during the previous assessment years which were also allowed as deduction in the assessment completed by the Income-tax Officer under Section 143(1), were squared up in the account for the subsequent year by showing the payments through cheques to nine parties, namely, Kedar Master, MESSRS. Kurli Tailoring House, MESSRS, fagdamba Tailors, Phool Mohid, Delhi Tailoring, Siddique Karigar, MESSRS. Bombay Readymade Salai Kendra, MESSRS. Stitch Well and Rattan Tailors, vide vouchers Nos. 239 dated November 7, 1980, for Rs. 3,768, 237 dated November 7, 1980, for Rs. 4,644, 236 dated November 7, 1980, for Rs. 2,760, 231 dated November 4, 1980, for Rs. 3,036, 230 dated November 4, 1980, for Rs. 3,054, 239 dated November 4, 1980, for Rs. 3,300, 228 dated November 4, 1980, for Rs. 6,088.40, 227 dated November 4, 1980, for Rs. 4,798.60 and 226 dated November 4, 1980, for Rs. 4,684, respectively. As the assessee observes the Deewali year as the accounting year and the cheques were issued at the fag end of the accounting year and they were not encashed up to the end of the year or for another six months, therefore, the Commissioner of Income-tax was of the opinion that the Income-tax Officer should have included the above amounts in the assessee's income under the provisions of Section 41(1) of the Income-tax Act, 1961. The Commissioner of Income-tax was of the opinion that the assessment order passed by the Income-tax Officer, City Circle II, Jaipur, was erroneous and prejudicial to the interests of the Revenue. Accordingly, a notice under Section 263 of the Income-tax Act was issued to the assessee on September 18, 1986, to show cause why the assessment be not suitably modified and/or cancelled for directing a fresh assessment. Written submissions were filed by the representative of the assessee and he also argued the case. The chartered accountant of the assessee, in the written submissions, as well as his counsel, challenged the validity of the initiation of proceedings under Section 263 of the Income-tax Act on the grounds that the order sought to be revised was an order passed by the Income-tax Officer after incorporating the directions of the Inspecting Assistant Commissioner under Section 144B and, according to him, the Income-tax Officer's order had merged with the Inspecting Assistant Commissioner's directions and, therefore, the Commissioner of Income-tax was not competent to initiate proceedings under Section 263 of the Income-tax Act, and all the liabilities were genuinely incurred for the purposes of business of the firm and payments were made by cheques which were encashed in the subsequent year. Therefore, there was no justification for making any disallowance on this account. The Commissioner of Income-tax considered the aforesaid objection and, under his order dated September 25, 1986, made under Section 263 of the Income-tax Act, set aside the assessment order and observed that, after giving the assessee an opportunity of being heard and allowing him to place any evidence to substantiate its contention, a fresh order in accordance with the directions given in the earlier paragraphs of the Commissioner's order shall be made. The assessee preferred an appeal before the Tribunal and the Tribunal, by its order dated August 19, 1988, allowed the appeal and the view taken by the Tribunal was that the Commissioner cannot get jurisdiction, that the Explanation to Section 263 of the Income-tax Act was not retrospective and that the assessment order dated September 26, 1984, having been made after receiving the directions under Section 144B of the Income-tax Act from the Inspecting Assistant Commissioner (Assessment-II) Jaipur, the Explanation to Section 263(1) will not be attracted. It was further held that the mere possibility of the amount having been received by other relatives of the partners is nothing but surmise and, therefore, no error could be said to have occurred in the assessment order of the Income-tax Officer and the power under Section 263 of the Income-tax Act could not have been exercised by the Commissioner of Income-tax. An appeal was filed by the Revenue before the Tribunal for making a reference and the Tribunal, under its order dated February 22, 1989, dismissed the application. In the opinion of the Tribunal, the finding is based on record and existence of error and accordingly is a factual finding and not a question of law. In the opinion of the Tribunal, because question No. 1 fails, as a consequence, questions Nos. 2, 3 and 4 are only of academic interest. The Revenue has made the present application before this court.

(3.) FROM the above cases of the apex court, it can, therefore, be taken as a settled proposition of law that the Income-tax Appellate Tribunal is the final fact-finding authority under the Income-tax Act, and, so far as this court is concerned, on a reference to it under Section 256(1) or even under Section 256(2) of the Income-tax Act, unless the party who applies for reference challenges the finding of facts by raising a question, this court has to take the finding of fact as arrived at by the Tribunal as final. But, if, in a given case, this court comes to the conclusion that, in arriving at the finding of fact, the last court of fact, namely, the Appellate Tribunal, has not taken into account all the relevant material adduced by the parties in the case on the question in controversy or the finding of fact is not clear and is defective in law and, therefore, it is highly unreasonable or unsatisfactory, and, with such a defective finding, the question of law arising out of the order of the Tribunal cannot be answered by this court, it will be open to this court, in exercise of its power under Section 260(1) of the Income-tax Act, to leave the matter open to the Appellate Tribunal to rehear the appeal and then to record a clear finding after rehearing the parties on the question in controversy and to direct the Appellate Tribunal to dispose of the appeal.