G.P. Singh, C.J.
1. This is a reference made by the Income-tax Appellate Tribunal referring for our answer the following questions of law :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the assessee's accounts ?
(2) Whether, on the facts and in the circumstances of the case, the additions made by the Tribunal are sustainable?'
2. This reference was made as directed by this court under Section 256(2) of the I.T. Act, 1961, by order dated 7th December, 1979, in M.C.C. No. 77 of 1975.
3. The relevant assessment year is 1964-65. The assessee is assessed in the status of HUF. The assessee carried on business of coal mining inthe district of Chhindwara in Madhya Pradesh. During the relevant previous year, the assessee worked two collieries, namely, Ghorawari Hirdagarh and West & East Burkuhi. These collieries belonged to M/s. J.A. Trivedi Brothers, a registered firm. The collieries were worked by the petitioner under a general agreement. The books of the assessee were rejected under Section 145(2) of the Act and a best judgment assessment was made in the manner provided in Section 144. In sustaining the order of the ITO in so far as it related to rejection of books, the Tribunal gave the following reasons : (1) there was no quantitative tally ; (2) from the record it was not clear as to what was the amount paid to Siddique, one of the sub-contractors, who was also not examined by the assessee ; (3) payment was made to the other contractor, Ramlakhan. on the basis of conversion of truck loads into tonnage ; and (4) Ramlakhan was not really a sub-contractor as he did not maintain any records and solely depended upon the payments made by the assessee.
4. The argument of the learned counsel for the assessee is that the finding reached by the Tribunal in rejecting the books under Section 145(2) is vitiated by taking into account irrelevant and non-existent facts and by omission to consider relevant facts and circumstances. In our opinion, this argument has to be accepted. It appears to have been argued before the Tribunal that the accounts were properly maintained by the assessee and were checked by the governmental authorities and, therefore, there could be no chance of manipulation in the accounts and that they should be accepted. This argument which is referred to in para. 11 of the order of the Tribunal has neither been rejected nor accepted. There is omission to consider this argument. It is relevant in this connection to notice that a mining lessee is required to maintain accounts under Clauses (i) and (j) of Rule 27 of the Mineral Concessions Rules, 1960. Annual and monthly returns have also to be submitted in accordance with Regulations 4 and 5 of the Coal Mines Regulations, 1957. The returns are to be submitted in Forms II and III. The coal produced in the collieries was despatched by rail. That itself is a check against manipulation of accounts. The Tribunal did not consider the argument of the assessee that the statements and returns submitted by the assessee were checked by governmental authorities under the aforesaid rules and regulations and, therefore, the accounts maintained by the assessee could not be rejected. In our opinion, this was an important factor to be taken into account. Further, the Tribunal committed the error of taking a non-existent fact into consideration by observing that what amount was paid to Siddique, who was one of the contractors, was not clear from the record and that he was also not examined. This is a non-existent fact because Siddique died some time in 1961. He could not, therefore, be asub-contractor in the relevant previous year, and he could also not be examined. Further, the Tribunal's observation that the other contractor, Ramlakhan, was paid on the basis of conversion of truck loads into tonnage is also a non-existent fact. The agreement under which Ramlakhan worked states that the payment would be made at Rs. 8'07 per tonne of coal on the basis of weighment recorded at the railway weigh-bridge. In rectification proceedings the Tribunal accepted the mistake to this extent that Ramlakhan was not paid on the basis of conversion of truck loads into tonnage. The Tribunal, however, committed another mistake by stating that he was paid on the basis of conversion of cubic feet into tonnage. There is absolutely no material on record for this finding. The labourers working in the mines may have been paid on the basis of cubic feet but as pointed out by us earlier, Ramlakhan was being paid at the rate of Rs. 8.07 per tonne of coal in accordance with the weighment made at the railway weigh-bridge. The finding reached by the Tribunal in sustaining the rejection of books under Section 145(2) is thus vitiated by non-consideration of relevant facts and by taking into account irrelevant and non-existent facts. The finding is, therefore, erroneous in law. The Tribunal will have to reconsider the question and to give a fresh finding by considering all the relevant facts. For the reasons given above, we answer the questions as follows :
(1) The Tribunal was not right in law in rejecting the assessee's accounts. The Tribunal will reconsider this question after taking into account all relevant facts and circumstances.
(2) In view of the answer given to question No. 1, the additions made by the Tribunal have to be held to be not sustainable. The Tribunal will re-examine that question in the light of the findings that it may record on the question relating to the assessee's accounts.
5. There will be no order as to costs of this reference.