1. As directed by this court, the Income-tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion :
'1. Whether, on the facts and in the circumstances of the case, when the account books have not been rejected and no defects therein have been pointed out, the ITO was in law justified in making any addition in the ginned cotton account on the ground of alleged low yield of cotton ?
2. If the answer to the first question is in the affirmative, the assessee having shown better yield of cotton from kapas than in the assessment year 1965-66 and the yield compared favourably with the accepted yield cotton at Barwaha in of a comparable case, the Tribunal was justified in determining the yield of cotton at 34.75% in the assessment year 1966-67 and sustaining an addition of Rs. 13,000 to the book profits on that basis '
2. The material facts giving rise to this reference briefly are as follows : The assessee, which is an HUF, carried on at the material time business in cotton at Bhikangaon and Barwaha. While framing the assessment for the year 1966-67, the ITO found that 6,929 quintals of kapas were ginned at the Barwaha shop of the assessee, but the assessee had disclosed that 2,315 quintals of rui were extracted, thus showing the yield at 33'4 per cent. which was considered to be too low by the ITO. The ITO held thatthe normal yield of cotton could not be less than 35 per cent. He, therefore, made an addition of Rs. 80,000. In the appeal preferred before the AAC, the AAC found that the quantity of rui extracted was 2,364 quintals and not 2,315 quintals, as found by the ITO. The AAC, however, confirmed the finding of the ITO that the normal yield of cotton could not be less than 35 per cent. He, therefore, made an addition of Rs. 18,000 only and partly allowed the appeal. On further appeal before the Tribunal, the Tribunal held that on the basis of the material on record the percentage of yield should be taken to be 34.75%. In this view of the matter, the Tribunal partly allowed the appeal. The assessee submitted an application for making a reference, but that was rejected. Hence, the assessee filed an application before this court under Section 256(2) of the I.T. Act, 1961, hereinafter called the Act, which was allowed and the Tribunal was directed to state the case and refer the aforesaid questions of law to this court for its opinion.
3. Shri Bagadia, learned counsel for the department, raised an objection that the aforesaid question No. 1 does not arise out of the order of the Tribunal. It was urged that that question was not raised before the AAC or the Tribunal. Shri Chaphekar, learned counsel for the assessee, contended that in a reference made under the directions of this court, the department could not contend that the question of law framed by this court did not arise. The contention of the learned counsel for the assessee cannot be upheld. In this connection, we may usefully refer to the following observations of the Supreme Court in CIT v. Smt. Anusuya Devi : 68ITR750(SC) :
'We find it difficult to uphold the view of the Calcutta High Court that, if an order is passed by the High Court calling upon the Tribunal to state a case on a question which does not arise out of the order of the Tribunal, the High Court is bound to advise the Tribunal on that question even if the question does not arise out of the order of the Tribunal. The High Court may only answer a question referred to it by the Tribunal: the High Court is however not bound to answer a question merely because it is raised and referred. It is well settled that the High Court may decline to answer a question of fact or a question of law which is purely academic, or has no bearing on the dispute between the parties or, though referred by the Tribunal, does not arise out of its order. The High Court may also decline to answer a question arising out of the order of the Tribunal if it is unnecessary or irrelevant or is not calculated to dispose of the real issue between the taxpayer and the department. If the power of the High Court to refuse to answer questions other than those which are questions of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question the dispute, be granted, we fail to see any ground for restricting that power when by an erroneous order the High Court has directed the Tribunal to state a case on a question which did not arise out of the order of the Tribunal. We are unable, therefore, to hold that at the hearing of a reference pursuant to an order calling upon the Tribunal to state a case, the High Court must proceed to answer the question without considering whether it arises out of the order of the Tribunal whether it is a question of law, or whether it is academic, unnecessary or irrelevant.'
4. The aforesaid observations of the Supreme Court make it very clear that the High Court's power to decline to answer a question which does not arise out of the order of the Tribunal or which is unnecessary or irrelevant is not taken away, even when by an erroneous order, the High Court has directed the Tribunal to state the case and refer a question which is shown not to arise out of the order of the Tribunal. It is thus evident that, even at this stage, this court has power to decide whether the question referred, by the Tribunal in pursuance of the directions of this court does arise out of the order passed by the Tribunal.
5. Now, in the instant case, the question as to whether the ITO was justified in proceeding to make a best judgment assessment without rejecting the account books of the assessee was admittedly not raised before the AAC. That question was not raised or considered by the Tribunal. In these circumstances, it must be held that question No. 1 does not arise out of the order passed by the Tribunal.
6. As regards question No. 2, learned counsel for the assessee contended that there was no basis for the Tribunal for holding that the yield of cotton, in the circumstances of the case, would be 34.75 per cent., and that the decision of the Tribunal was arbitrary. The Tribunal, however, has referred to the material on record which disclosed that in the assessment years 1968-69 and 1969-70 the yield of cotton in the case of the assessee was 34.77% and 35%, respectively. In a best judgment assessment, there has necessarily to be some guess work. All that is necessary is that it should be an honest guess work and should not be capricious. In the instant case, the finding of the Tribunal cannot be held to be capricious.
7. For all these reasons, we decline to answer the first question as it does not arise out of the order of the Tribunal, and pur answer to the second question is in the affirmative and against the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.