R. N. MISRA J. - On applications made by the revenue under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), by order dated 10th September, 1975, this court directed the Appellate Tribunal, Cuttack Bench, to state a case and refer the following question for opinion of this court :
'Whether, on the facts and circumstances of the case, the Appellate Tribunal without meeting the objections indicated in the orders of the Income-tax Officer and of the Appellate Assistant Commissioner on the basis of which the accounts had been rejected could hold that the accounts as maintained were flawless and, therefore, the book results should be accepted ?'
Assessee is a private limited company manufacturing buckets, trunks, etc. The relevant assessment years are 1967-68, 1968-69 and 1969-70 corresponding previous years ending with November 11, 1966, November 1, 1967, and Dewali of 1968, respectively. It appears, the companys registered office is at Cuttack and it has a branch at Calcutta but the accounts are ordinarily maintained at Calcutta at the branch. The Income-tax Officer rejected the accounts by finding five defects, namely : -
(i) all the account books of the company had not been produced before the auditors and, therefore, accounts had not undergone the scrutiny of audit;
(ii) correlation between consumption of raw materials and production was not possible in the absence of a manufacturing account and, therefore, the book profit could not be accepted;
(iii)conversion of finished goods into weight had not been recorded and made available for verification;
(iv) enquiries have been made under section 133 of the Act through an inspector visiting the factory premises of the assessee on December 10, 1971, and it was found that the books were at Calcutta including stock register. Thereupon, the Income-tax Officer called for the stock register to be produced. Yet for one of the years in question, the said register was not produced in spite of notice; and
(v) the profit disclosed was ridiculously low.
The first appeal was unsuccessful. Assessees second appeal was disposed of by a learned single member of the Tribunal. The learned Tribunal came to the conclusion on an analysis of the materials as indicated in his order that the assessees accounts were flawless and, therefore, directed the Income-tax Officer to accept the book results disclosed for the three years.
Learned standing counsel strenuously contends that a careful examination of the appellate order of the Tribunal does not show that the defects indicated by the Income-tax Officer leading to rejection of the accounts were indeed examined appropriately. He further submits that except that reasons had been advanced to meet the contentions of the Income-tax Officer, there is no indication in the appellate order that the learned Member looked into the accounts for being personally satisfied that the defects indicated by the Income-tax Officer did not exist or if they existed they did not affect the accounts leading to their rejection. It is next contended that the defects were such that logic could not repair leading to the acceptance of the accounts and, therefore, the Appellate Tribunal was not justified in concluding that the accounts were flawless. In order to come to such a definite conclusion, it was obligatory on the part of the Appellate Tribunal to scrutinize every bit of the accounts and a mee cursory examination of the materials on record could not have led to such a judicial finding.
Mr. Pasayat, on the other hand, for the assessee contends that the objections which led the Income-tax Officer to reject the accounts were catalogued appropriately for the first time by the Tribunal which certainly would mean that the Tribunal was alive to the defects noticed by the Income-tax Officer and a review of the decision shows that all the points have been met.
Having read the appellate order closely we are of the view that the grievance made by the learned standing counsel is well justified. As in our view justice of the cause would be answered if the appeal is to be reheard by the Tribunal, we do not think it appropriate to express any definite view as we are apprehensive that indication of any view would prejudice either party before the appellate authority. It is enough to say that the pointed reasons advanced by the Income-tax Officer were not met and, therefore, the ultimate conclusion was not warranted. We make it clear that it is quite possible that the same appellate authority after scrutinising all the materials in an analytical way may come to the same conclusion and our order would not stand in the way of reaching such a final decision. What we say is that the manner in which it has already been done would not and should not be sustained.
We would accordingly answer the question referred to us by saying :
'On the facts and in the circumstances of the case, the Appellate Tribunal was not justified in coming to the conclusion that the accounts were flawless, particularly when the objections indicated in the order of the Income-tax Officer had not been answered.'
Our answering the question in such a way necessarily would lead to a fresh hearing of the appeal and we would commend to the Tribunal to hear the appeal unaffected by what had been said earlier by the Tribunal or any observation made by us while disposing of these references.
Das J. - I agree.