1. This application under Section 66(2) of the Indian Income-tax Act, 1922 (hereinafter called the Act) is filed by the Commissioner of Income-tax, Madhya Pradesh, for a direction requiring the Income-tax Appellate Tribunal, Bombay, to state the case of the assessee Shri ChintamanraoBalaji, Sagar, and to refer to this Court the following questions said to be arising out of the Tribunal's order dated 1st August 1964 allowing the assessee's appeal arising out of the assessment proceedings for the assessment year 1957-58. The questions, which the Commissioner desires to be referred to this Court for decision, are:--
1. Whether there was any material before the Appellate Tribunal to hold that the cash balance of Rs. 38000/- represented assessee's share in the profits earned by the firm M/s. Vrajlal Manilal and Company, and kept outside the books?
2. Whether the appellate Tribunal was justified in holding that the cash balance of Rs. 38000/- represented assessee's share in the profits earned by the firm M/s. Vrajlal Manilal and Company and kept outside the books, when it was never the case of the assessee?
2. The assessee is a partner in the registered firm M/s. Vrajlal Manilal and Company, Sagar. In the Wealth Tax Return filed by the assessee, he showed a sum of Rs. 38000/- as cash balance on 2-11-1956. The Income-tax Officer called upon the assessee to explain the source of the said amount. The assessee offered the explanation that he was a salaried employee before he became a partner in the firm Vrajlal Manilal and Company and the said amount represented his savings as also the amounts that he got as provident fund and gratuity. He also stated that part of the amount comprised of presents received by him as well as withdrawals effected from the books of the firm. The Income-tax Officer rejected this explanation as being insufficient and treated the entire sum of Rs. 38000/- as the income of the assessee from undisclosed sources. He, therefore, ordered the addition of the said amount to his total income. On appeal, the Appellate Assistant Commissioner of Income-tax, Jabalpur, agreed with the view taken by the Income-tax Officer and rejected the appeal. On a further appeal, the Tribunal allowed the appeal making the following observations:--
'2. ................The learned counsel forthe assessee contended that the question in dispute had to be decided on broad probabilities that the assessee was a very big assessee paying large amount of income-tax for many years and that there was nothing improbable about his having Rs. 38000/- on the valuation date as claimed by him.
3. We are inclined to accept the claim of the assessee that he had an amountof Rs. 38000/- with him, not so much on the ground indicated by him as on the ground that the firm of which he was a partner, has been held by the Tribunal to have earned profits which were outside the books of accounts and the assessee's share of those profits would come to more than Rs. 38000/-. We would, therefore, delete the amount from his assessment, because his share of profit from the firm not accounted for in the books would automatically be included in his income by way of his share.'
3. The contention raised by the learned counsel for the respondent is that the questions which are desired to be referred to this Court for opinion are not questions of law but are merely questions of fact and therefore the Tribunal cannot be required to state the case and to refer the said questions for opinion of this Court. It is urged that on the material before the Tribunal it could properly come to the conclusion that the amount of Rs. 38000/- could be the cash balance with him out of those amounts which represented his share of earned profits in the partnership business and to which he was assessed by the Tribunal beyond the amounts included in the books of accounts of the partnership. It is further urged that as there was no suggestion in the proceedings before the Income-tax Authorities that the assessee earned those profits from some other undisclosed sources, the inference of the Tribunal that the said amount of Rs. 38000/- could be explained by the additional income assessed in prior years of the partnership firm Vrajlal Manilal and Company which were outside the books of accounts of the firm and out of those profits the assessee's share would come to more than Rs. 38000/-, was justified.
4. In our opinion, the contentions raised on behalf of the assessee are justified. The Tribunal rightly refused to state the case on the ground that no question of law arose. The inference of the Tribunal that there is a connection between the profits withheld by the assessee from his account books and the cash credit entries found therein and the conclusion that since additions were made to the book profits in excess of the amount of the cash credits, the addition of the cash credits become redundant, were held to be findings of facts giving rise to no question of law, in Commr. of Income-tax Madras v. S. Nelliappan : 66ITR722(SC) . The same view has been taken' by us in Misc. Civil Case No. 70 of 1968 decided by us today (Commr. of Income-tax, M.P. v. Pandharinath Jagannath).
5. It was urged by the learned counsel for the appellant that the onus of Droving the source of Rs. 38000/- was on the assessee and as the explanation was rejected by the Tribunal, the Tribunal was not justified in interfering with the order made by the Income-tax Officer which was confirmed by the Appellate Assistant Commissioner. It is further urged that in circumstances of the case the conclusion reached by the Tribunal is purely based on conjectures and surmises. We are unable to agree with this submission. In : 66ITR722(SC) it has been held that in hearing an appeal the Tribunal may give leave to an assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. It has further been held in the same case that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because the findings are inconsistent with the case pleaded by the assessee.
A perusal of the order made by the Tribunal clearly shows that before it was urged on behalf of the assessee that the disputed question had to be decided on broad probability and it was urged that as the assessee had been paying large amounts of income-tax for many years past, there was nothing improbable in his having Rs. 38000/- on the valuation date as claimed by him in his Wealth Tax Return. The Tribunal considered this probability. Further, the observations made by the Tribunal in paragraph 3 of its order quoted above do not show that the explanation offered by the assessee was completely rejected by the Tribunal. The observations clearly go to point out that the Tribunal was more impressed by the probability of the assessee having Rs. 38000/- on the crucial date according to the submission made on behalf of the assessee. On the material placed before the Tribunal, the Tribunal could certainly reach the conclusion it reached. The Tribunal was therefore justified in allowing the appeal and there was no error of law in its approach and hence its order did not raise any question of law.
6. The application under Section 66 (2) of the Act made by the Commissioner of Income-tax is, therefore, dismissed. In the circumstances of the case, we do not make any order as to costs.