1. This is a reference made under section 66(2) of the Indian Income-tax Act, 1922, by the Income-tax Appellate Tribunal, Madras Bench, in pursuance of the orders of this court. It arises from I.T. As. Nos. 895, 896 and 897 of 1954-55 on the file of the Tribunal in question. The questions of law referred for our opinion are :
'(1) Whether the Income-tax Appellate Tribunal was justified in relying upon the average yield of another excise contractor without giving an opportunity to the assessee for rebuttal and
(2) Whether the Income-tax Appellate Tribunal can rely upon the average yield of only one contractor to determine the yield of the assessee ?'
2. The assessee is an association of persons doing abkari contract in Sadam of Gulbarga District which was formerly a part of the old Hyderabad State and now a part of the Mysore State. In this case we are concerned with the assessment of the assessee for the assessment years 1950-51, 1951-52 and 1952-53. The Income-tax Officer rejected the return submitted by the assessee and added to the income returned by him a sum of Rs. 86,386 for the assessment year 1950-51, Rs. 75,000 for the year 1951-52 and Rs. 46,100 for the year 1952-53. The accounts produced by the assessee were not found to be reliable by the Income-tax Officer and so he had recourse to best judgment assessment.
3. Aggrieved by the order of the Income-tax Officer the assessee went up in appeal to the Appellate Assistant Commissioner. Therein the assessee did not dispute the correctness of the decision of the Income-tax Officer that his account books are not reliable. He merely contended that the estimate of the yield of today made by the Income-tax Officer is grossly excessive. In support of that contention he relied on the certificate given by the Excise Superintendent, according to which the average yield of toddy in a toddy tree in the locality in question was about 90 seers per tree. On the basis of that certificate the Appellate Assistant Commissioner substantially accepted the case of the assessee.
4. The revenue, being dissatisfied by that order of the Assistant Commissioner, took up the matter in appeal to the Income-tax Appellate Tribunal in the appeals referred to earlier. The Tribunal set aside the order of the Appellate Assistant Commissioner and substantially restored the order of the Income-tax Officer. The reason for so doing is found in paragraph 4 of the Tribunal's order. This is what is stated therein :
'For purposes of framing an estimate, the Income-tax Officer adopted generally 120 seers of toddy as yield per tree with slight variations thereof for some of the years for certain specific areas. The basis for such estimate is the production shown by another taper for the year ended September 30, 1950, in an area which was also tapped by the assessee for the earlier and subsequent years. The assessee, however, has shown average yields of 88 I/3, 96 and 103 seers per tree for the three respective assessment years presently under appeal and in support thereof has filed a certificate from the Superintendent of Excise which speaks to the normal yield being round about 90 seers only per tree. This certificate from the excise department, in the circumstances of the case, cannot be said to be conclusive as the first certificate obtained refers to pts. of 36 seers, which the assessee itself admits is incorrect. As against this evidence, the evidence collected by the department in the shape of production data from another assessee is certainly more reliable as a pointer to the assessee's production. In the face of the admission of the assessee that toddy from certain coupes have not been sold in any specific shops, we are unable to support the differential estimates of the Income-tax Officer, ranging from 90 to 130 seers per tree at the various places. On these facts, we are of opinion that a uniform rate of 120 seers per tree for each of the three years under appeal will be reasonable as an estimate.'
5. The order of the Tribunal does not show that the comparable case was put to the assessee and that he was given an opportunity to have his say on the matter. At any rate, this court, in calling for a reference under section 66(2), proceeded on the basis that the comparable case had not been put to the assessee. That being so, the question for our decision is whether the best judgment assessment made on the basis of a comparable case not put to the assessee and the assessee given an opportunity to explain the same, is in accordance with the principles of natural justice.
6. In Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income-tax Mehr Chand Mahajan C.J. observed thus at page 782 :
'In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and, lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced......'
7. For the reasons mentioned in that decision their Lordships came to the conclusion that the assessment levied on the assessee in that case could not be sustained. For the very reasons, we are of the opinion that if an assessing authority wants to make a best of judgment assessment on the basis of a comparable case, that case has to be put to the assessee and the assessee given an opportunity to give his explanation as regards the same. In this case, we do not want to go into the question whether there is any need to disclose the source of information.
8. It was held in Dhirajlal Girdharilal v. Commissioner of Income-tax, that when a court of facts acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding; such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. In this connection, we may also usefully refer to the decision of the Supreme Court in Omar Salay Mohamed Sait v. Commissioner of Income-tax, wherein it was laid down :
'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 the 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 given an opportunity of doing so.........'
9. For the reasons mentioned above, our answer to the first question referred to us is in the negative and in favour of the assessee, that is to say, that the Income-tax Appellate Tribunal was not justified in relying on the statement of another excise contractor without giving an opportunity to the assessee to rebut the same.
10. Now, coming to the second question, Sri K. Srinivasan, the learned counsel for the assessee, did not press for any answer. When we put it to him whether he could contend that whenever best judgment assessment is made on the basis of comparable cases, there should invariably be more than one case, he frankly admitted that he could not contend for such a proposition. We think that the stand taken by him is correct in law. Therefore, our answer to the second question is in the affirmative and against the assessee.
11. No costs.