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Karoria Mal Lachhmi NaraIn Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Case No. 2 of 1972
Judge
Reported in[1974]96ITR479(P& H)
ActsIncome Tax Act, 1922 - Sections 22(4) and 66(2)
AppellantKaroria Mal Lachhmi Narain
RespondentCommissioner of Income-tax
Appellant Advocate P.N. Chopra,; K.S. Thapar and; P.S. Bayal, Advs.
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
Cases ReferredDistrict Motor Service v. Commissioner of Income
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply.....b.s. dhillon, j.1. this judgment will dispose of the application under section 66(2) of the indian income-tax act, 1922. in order to appreciate the true scope of the petition, brief facts may be narrated.2. the petitioners are members of the joint family of m/s. karoria mal lachhmi narain of jind. the dispute relates to the proceedings of the assessment of income-tax for the assessment year 1957-58, the relevant accounting year being 1956-57. the petitioner-assessee filed a return of income for this year showing the income of rs. 18,805. this income was mainly derived from speculation business and most of the transactions were done in the names of the members of the family. in the return, the assessee claimed speculation loss of rs. 58,722 on account of gur phagun khata and the said.....
Judgment:

B.S. Dhillon, J.

1. This judgment will dispose of the application under Section 66(2) of the Indian Income-tax Act, 1922. In order to appreciate the true scope of the petition, brief facts may be narrated.

2. The petitioners are members of the joint family of M/s. Karoria Mal Lachhmi Narain of Jind. The dispute relates to the proceedings of the assessment of income-tax for the assessment year 1957-58, the relevant accounting year being 1956-57. The petitioner-assessee filed a return of income for this year showing the income of Rs. 18,805. This income was mainly derived from speculation business and most of the transactions were done in the names of the members of the family. In the return, the assessee claimed speculation loss of Rs. 58,722 on account of Gur Phagun Khata and the said amount was credited to the account of M/s. Sagarmal Ganeshilal of Hapur. In support of this claim of loss, the assessee produced confirmation letters and original bills from M/s, Sagarmal Ganeshilal of Hapur. The assessee also produced some other evidence which will be referred to a little later. The Income-tax Officer also obtained a report from the Income-tax Officer, Meerut. The Income-tax Officer also called for the explanation of the assessee vide his letter dated November 23, 1961. A notice under Sub-section (4) of Section 22 of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act') was issued by the Income-tax Officer to the assessee to produce the original sauda nakal in connection with the speculative transactions, which, according to the Income-tax Officer, was not produced by him earlier, and the one produced by him was a faked one. The assessee's plea was that there was no other sauda nakal which had been retained by him and in fact the one produced by him before the Income-tax Officer was the original one, and was not a faked one. The Income-tax Officer proceeded to make best judgment assessment under Section 23 of the Act. The assessee then filed an application under Section 27 of the Act for cancellation of the assessment proceedings on the plea that since there was no original sauda nakal with him and he having not concealed any such book from the income-tax authorities, therefore, there was a sufficient cause for not presenting the same in response to the notice issued under Sub-section (4) of Section 22 of the Act. This petition was also dismissed by the Income-tax Officer and then the assessee filed two appeals before the Appellate Assistant Commissioner, one challenging the order of the assessment passed by the Income-tax Officer on March 13, 1962, on merits, and the other challenging the order of the Income-tax Officer dated June 18, 1962, dismissing his petition under Section 27 of the Act. The Appellate Assistant Commissioner accepted both the appeals on the ground that no notice under Sub-section (4) of Section 22 of the Act could be issued by the Income-tax Officer to the assessee when the return had been filed under Sub-section (3) of Section 22 of the Act. On this ground the learned Appellate Assistant Commissioner quashed both the orders. The revenue feeling aggrieved from this order, filed appeals before the Income-tax Appellate Tribunal which appeals were accepted by the Tribunal vide its order dated July 25, 1963. The Tribunal, following the judgment of the Supreme Court in Commissioner of Income-tax v. Ranchhoddas Karsondas, [1959] 36 I.T.R. 569 (S.C.), came to the conclusion that a return in answer to a general notice issued under Section 22(1) of the Act and under Section 22(3) of the Act could be filed at any time before the assessment. Therefore, it was concluded that though the return in the present case was filed under Section 22(3) of the Act, but since the same was filed in pursuance of a notice under Section 22(1) of the Act, it could be considered as a return filed under Section 22(1) of the Act. It was, therefore, held that the notice issued by the Income-tax Officer under Section 22(4) of the Act could be issued in such a case. On these findings the Tribunal remanded the cases to the Appellate Assistant Commissioner to decide the same on merits. The Appellate Assistant Commissioner then vide his order dated November 3, 1966, dismissed the appeal against the order under Section 27 of the Act and vide his order of the same date, separately passed, dismissed the appeal of the assessee on merits in respect of the loss of Rs. 58,722 though he allowed substantial relief to the assessee on other items to which the assessee was assessed to income-tax by the Income-tax Officer. As regards the loss of Rs. 58,722 claimed by the assessee, the order of the Income-tax Officer was upheld by the Appellate Assistant Commissioner and it was held by him that the books produced by the assessee before the Income-tax Officer were not genuine. The assessee then preferred two appeals before the Income-tax Tribunal and the Tribunal disposed of both the appeals by a consolidated order dated March 16, 1968. The Tribunal disallowed the claim of loss of Rs. 58,722 to the assessee and the assessment under Section 23(4) of the Act was held to be a legal and valid assessment. The assessee then made two applications requiring the Tribunal to state the case and refer the same for the decision of this court as certain questions of law arose out of the consolidated order of the Tribunal dated March 16, 1968. The Tribunal formed the opinion that some questions of law, which will be presently referred to in this judgment, did arise out of the aforesaid order but all the questions of law, which according to the assessee, arose out of the order of the Tribunal, were not in the opinion of the Tribunal, referable to this court for opinion as some of them necessarily pertained to questions of fact and are not questions of law. The details of this aspect of the case will be given a little later. The assessee then filed an application before the Tribunal under Section 35 of the Act for rectification of the mistake apparent from the record of the case which petition was disposed of by the Tribunal vide its order dated May 24, 1969.

3. As regards the order of the Tribunal passed on the appeal of the assessee rejecting his petitioner under Section 27 of the Act, according to the assessee, the following five questions of law arise :

'(i) Whether, in the circumstances and the facts of the case, there is any basis or material for the finding that the sauda nakal, the book of the prime entry, produced was not the real one especially when the relevant transactions in the ordinary course, considering the dates involved, could not appear or be entered on page 1 of the sauda nakal ?

(ii) Whether, in the circumstances and the facts of the case, there is any material to warrant the findings that there was a default in compliance with the provisions of notice under Section 22(4) justifying the completion and maintenance of ex parte assessment under Section 23(4) ?

(iii) Whether, in the context of the facts and circumstances of the case, there was any warrant in law for the finding of the learned Tribunal that the return of income though submitted under Section 22(3) was pursuant to notice under Section 22(1) ?

(iv) Whether, in the context of the facts and circumstances of the case, there is any warrant in law for the finding of the learned Tribunal that the notice under Section 22(4) was legally issued and default in respect of it justified assessment under Section 23(4) of the Indian Income-tax Act, .1922 ?

(v) Whether the learned Tribunal was justified in the findings that the issue and service of demand notice against the legal procedure did not vitiate the assessment ?'

4. From the order of the Tribunal passed on the appeal of the assessee in the assessment proceedings, the assessee claimed the following five questions of law arose out of the said order, which, he prayed, should be referred for the opinion of this court:

'(i) Whether, in the context of the facts of the case and law Involved, the assessment under Section 23(4) of the Indian income-tax Act, 1922, was illegal and invalid ?

(ii) Whether, in the circumstances of the case especially in the context of the acceptance of the speculation profits and losses other than the loss in gur phagun Hapur account as per accounts of the applicant, the finding of the Tribunal that the applicant had proved the payment of Rs. 58,722 on account of losses in gur phagun Hapur account to M/s. Sagarmal Ganeshilal, Hapur, the disallowance of the said loss of Rs. 58,722 was warranted and sustainable ?

(iii) Whether, in the circumstances of the case, the Tribunal could disallow the speculation loss of Rs. 58,722 in gur phagun Hapur account on the premises that it was not proved that the resultant loss of the applicant of speculative transactions was a loss of Rs, 58,722 when the authorities below neither disallowed nor based the disallowance in question on those premises ?

(iv) Whether, in the circumstances of the case and the evidence on the record, there is any material for the finding of the Tribunal that the returned version of the speculative profits was not the total version of the speculative transactions capable of acceptance ?

(v) Whether the Tribunal erred in law and on facts in considering that the loss of Rs. 58,722 was claimed as the loss resultant of all speculative transactions and erred in disallowing it as such ?'

5. According to the Tribunal, the first two questions in appeal from the order under Section 27 of the Act referred to above, are not questions of law and the import of the said two questions is necessarily of facts and, therefore, the finding of fact recorded by the Tribunal is binding, but according to the assessee the said two questions are questions of law which ought to have been referred to this court for opinion. As regards questions Nos. 3 and 4, according to the opinion of the Tribunal, the said two questions are questions of law arising out of the order of the Tribunal but these were decided by the Tribunal in the earlier appeal filed by the department from the Appellate Assistant Commissioner's order. The assessee had not filed a reference against the decision of the Tribunal and it became conclusive. However, the Tribunal came to the conclusion that it is an arguable question whether the assessee again is entitled to challenge the Appellate Assistant Commissioner's order on a ground which had been rejected in the earlier order of the Tribunal. The Tribunal, therefore, on these findings, has referred the following two questions of law for the opinion of this court in I.T.R. No. 592 of 1968-69 :

'(i) Whether, on the facts and in the circumstances of the case and having regard to the findings of the Tribunal in I.T.A. No. 11304 of 1962-63 (which has become conclusive), it was again open to the assessee to contend before the Tribunal that the return filed by the assessee was not one under Section 22(1) and that the notice under Section 22(4) had not been validly issued ?

(ii) Whether, on the facts and in the circumstances of the case, particularly those relating to the return filed by the assessee, the Income-tax Officer was justified in issuing a notice under Section 22(4) to the assessee ?'

6. As regards the questions of law arising from the regular assessment, the same are subject-matter of Income-tax Reference No. 593 of 1968-69. The Tribunal in this connection came to the conclusion that question No. 1 claimed by the assessee was included in the questions referred to in Reference Application No. 592 of 1968-69 and, therefore, the same need not be referred to this court. As regards the other four questions, the Tribunal came to the conclusion that the said questions had given rise to the questions of law arising out of the order of the Tribunal and according to the Tribunal, the said four questions are included in the following question framed by the Tribunal, which has been referred to this court by the Tribunal for opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the disallowance of the loss of Rs. 58,722 aforesaid ?'

7. Aggrieved by the order of the Tribunal, not referring questions Nos. 1 and 2 in appeal from the proceedings under Section 27 of the Act, the assessee has approached this court, by this application under Section 66(2) of the Act, for the issue of a mandamus directing the Tribunal to refer the said two questions of law to this court for opinion.

8. Keeping in view the facts and circumstances of the case, we thought it proper to first hear and dispose of the mandamus application because if the mandamus application is allowed, the reference made by the Tribunal cannot be presently disposed of because in that case it would be proper to decide all the questions of law arising out of these proceedings at one and the same stage.

9. We have heard Mr. Chopra, the learned counsel for the assessee, and Mr. D. N. Awasthy, the learned counsel for the revenue, at considerable length. The question to be determined in the mandamus application is whether the two questions, that is, questions Nos. 1 and 2 raised in the proceedings under Section 27 of the Act are the questions of law arising out of the order of the Income-tax Tribunal or not. In order to determine this question, it has to be seen as to in what circumstances a question of law would arise and in what circumstances the mandamus can be issued. In Commissioner of Income-tax v. Indian Woollen Textile Mills, [1964] 51 I.T.R. 291 (S.C.) it was held by their Lordships of the Supreme Court that in a given case if the Income-tax Tribunal does not consider the evidence covering all the essential matters and bases its findings upon some evidence only, ignoring other essential matters, that would amount to a misdirection in law and the findings would give raise to a question of law and the High Court will have power under Section 66(2) of the Act to call upon the Tribunal to state a case in that situation.

10. Similarly, in Dhiraj Lal Girdhan Lal v. Commissioner of Income-tax, [1954] 26 I.T.R. 736 (S.C.) their Lordships of the Supreme Court held that if the court of fact, whose decision on the question of fact is final, arrives at the decision by considering material which is irrelevant to the enquiry by or considering material which is partly relevant or partly irrelevant, or bases its decision on conjectures and surmises and suspicion and partly on evidence, then in such a situation clearly an issue of law arises.

11. In Roshan Di Hatti v. Commissioner of Income-tax, [1968] 68 I.T.R. 177 (S.C.) the assessee, who had migrated from Lahore, started a jewellery shop at Delhi in the name and style of 'Roshan Di Hatti'. On March 31, 1948, a credit entry of Rs. 3,33,414 was made in the books of account of the assessee as capital of the business, Rs. 2,92,340 being the value of gold ornaments, gold, bullion and precious stones, and Rs. 41,074 being cash. The plea of the assessee was that the assets entered as capital in the books of account were brought at the time of migration of the assessee from Lahore. The Income-tax Officer held that the assessee had only brought assets of the value of Rs. 20,000 on migration from Lahore to Delhi and on that footing treated the balance of the capital introduced into the business on March 31, 1946, as income from undisclosed sources. The Appellate Assistant Commissioner rejected the contention that there being at the date of the order of assessment no Hindu undivided family in existence, the order of assessment was unauthorised. The Appellate Assistant Commissioner, however, estimated the assets brought by the assessee from Lahore at Rs. 1,00,000 and modified the order of assessment and directed assessment of Rs. 2,33,414 as income from undisclosed sources. The Income-tax Appellate Tribunal, on appeal by the assessee, confirmed the order of the Appellate Assistant Commissioner without deciding whether there was disruption of the joint status of the assessee-family as claimed by the assessee. The Tribunal, at the instance of the assessee, referred the following question to the High Court of Punjab under Section 66(1) of the Act:

'Whether, in all the facts and circumstances aforesaid, the assessment was validly made on the assessee, Hindu undivided family ?'

12. It may be pointed out that the assessee in that case had also made an application to the High Court of Punjab under Section 66(2) for an order that the Tribunal be directed to state a case on four other questions, which it was claimed, arose out of the order of the Tribunal. At the hearing before the High Court of Punjab, the assessee pressed the application in respect of the following question alone :

'Whether the facts on the record and circumstances of the case justify the conclusion that out of the capital of Rs. 3,33,414 consisting of gold ornaments, gold rawa, precious stones and cash, a sum of Rs. 2,33,414 represented the income of the assessee from some undisclosed sources and whether there was any material for coming to this conclusion '

13. The High Court of Punjab answered the question referred to it in the affirmative and declined to call for the statement of the case under Section 66(2) of the other question. That decision of the High Court was set aside by their Lordhips of the Supreme Court holding that the question raised by the assessee asking the High Court of Punjab to issue a mandamus was clearly a question of law which the Tribunal was bound to submit to the High Court and when the Tribunal declined to do so, a statement of the case should have been ordered by the High Court. It was held by their Lordships of the Supreme Court that the question whether the conclusion of the Tribunal on a question of fact was based on any material or not, was essentially a question, of law. It was further held that the High Court fell in error in declining the prayer of the assessee and, in dealing with the application for calling for a statement of the case, attempted to collate the facts from the findings of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal and ultimately the conclusion that the application was not maintainable. With these findings, a question of law was framed by their Lordships of the Supreme Court and the High Court was directed to call upon the Tribunal to submit a statement of the case under Section 66(2) of the Act on the question which was reframed by the Supreme Court.

14. Similarly, in Homi Jehangir Gheesta v. Commissioner of Income-tax, [1961] 41 I.T.R. 135 (S.C.), it was held by their Lordships of the Supreme Court that in determining whether an order of the Appellate Tribunal would give rise to a question of law, the court must read the order of the Tribunal as a whole to determine whether every material fact for and against the assessee had been considered fairly and with due care ; whether the evidence pro and con has been considered in reaching the final conclusion and whether the conclusion reached by the Tribunal has been coloured by irrelevant considerations or matters of prejudice.

15. In Rai Bahadur Lala Jodha Mal Kuthiala v. Commissioner of Income-tax, [1968] 70 I.T.R. 62 (Punj.), which is a Bench decision of this court, it was held that when the Income-tax Tribunal merely upheld the order of the Appellate Assistant Commissioner and that there was no basis for the decision of the Appellate Assistant Commissioner and the Tribunal having failed to rely on the evidence on record, the Tribunal's decision was not a finding of fact and the Tribunal was bound to refer the case to the High Court under Section 66(2) of the Act.

16. In another Bench decision of thus, court in Rattan Cloth House v. Commissioner of Income-tax, [1967] 65 I.T.R. 465 (Punj.), it was held that the finding of the Income-tax Appellate Tribunal even though on questions of fact will be liable to be set aside by the High Court on a reference if the findings are based partly on evidence and partly on suspicion, conjectures and surmises.

17. It is not disputed by the learned counsel for the revenue that if the finding of fact arrived at by the Tribunal is based on no evidence, the question of law immediately arises. Similarly, it cannot be disputed that if a finding of fact arrived at by the final court of fact is based on the whole evidence produced in the case and the court of final fact took a particular view of the said evidence which view does not find favour with the higher court that would be essentially a finding of fact and thus no question of law would arise from that finding. But the case of the assessee is that the whole evidence led by the assessee, which is on the file of the case and ought to have been considered by the Tribunal, has not been considered by it, and, therefore, the Tribunal has erred in not taking into consideration the other relevant evidence which was available on the file and has erred in relying only on that part of the evidence to come to the conclusion that the assessee had failed to comply with the notice for the production of the original sauda bahi. From the discussion of the authorities referred to above, I am quite clear in my mind that in a given case where the Tribunal has ignored the relevant evidence which is on the file and has based its findings only on a part of the evidence while ignoring the other relevant evidence, a question of law would certainly arise and the Tribunal is bound to refer the said question to this court. After having stated this proposition of law, the only other matter which needs now to be gone into, is the relevant evidence on the file of the case, which may be looked into and it may be seen whether the said evidence has been considered by the Tribunal in arriving at the finding that the assessee had failed to comply with the notice or not.

18. It may, however, be pointed out that, at this stage, I am not entitled to go into the question whether the relevant evidence, which is alleged to have been ignored by the Tribunal, will turn the fate of the case in favour of the assessee if taken into consideration, but what is to be seen at this stage is whether there is any such evidence which was not taken into consideration by the Tribunal in arriving at the finding of fact and if there is such evidence, the mandamus application has to be allowed. As to what will be the effect of the said evidence, will be a matter which will be determined after the questions sought to be referred to this court, are referred to this court and opinion is given.

19. I have already stated the brief facts of the case but it may be repeated for clarity's sake that the assessee claimed a loss of Rs. 58,772 on account of the speculation business. The Income-tax Officer went into this matter and disallowed this claim of the assessee. This order of the Income-tax Officer is annexure 'E' with the paper book. The Income-tax Officer held as follows in this connection :

'The assessee was called upon to prove the genuineness of this loss. In reply the assessee has produced the following pieces of evidence :

(i) confirmation letters issued by M/s. Sagarmal Ganeshi Lal, Hapur, to whom the said loss was alleged to have been paid.

(ii) bill in original from the said party.

(iii) request for examining the said party under Section 37,'

20. Assessee's request was granted and accordingly commission was issued to the Income-tax Officer, A-Ward, Meerut, for examining M/s. Sagarmal Ganeshi Lal, Hapur, under Section 37, Report from the Income-tax Officer, A-Ward, has been received and examined. I am not satisfied with the genuineness of this loss and disallow it on the following grounds :

(i) Examination of the rokar disclosed that the said loss was paid as under:

Rs. 10,000

onMaghar Sudi 9, Samat 2013, i.e., 11-12-56 through Shri Des Raj Munim' rokar panna 59.

Rs. 25,000

onMagh Sudi 4, Samat 2013, i.e., 3-2-57 through Shri Ganeshi Lal of Hapur

Rs. 20,000

onMagh Sudi 12, Samat 2013, i.e., 11-2-57 throughPunjab National Bank draft.

Rs. 3,735-10

onMagh Sudi 13, Samat 2013, i.e., 12-2-57 throughPunjab National Bank draft.'

21. The report of the Income-tax Officer, Meerut, discloses that the last three items appear in the books of the payee on the date shown or one day later but the date of the first item is materially different. It is Kartik Sudi 10 in place of Maghar Sudi 9, shown by the assessee's rokar, that is, one month earlier. The assessee was called upon to explain this glaring contradiction. In his 9-page reply there is not even a single sentence which could throw any light on this particular discrepancy. Further, if in reality any payment was made at Hapur by Shri Des Raj Munim at least his expenses on account of T.A. should have been debited, but no such expenses have been debited on December 11, 1956, or earlier or later. Shri Des Raj Munim has been examined. According to him all the entries appearing in gur phagun Hapur khata are fictitious. These were made at the instance of Shri Lachhi Ram.

22. Apart from these hard facts the examination of rokar page 54 would reveal that this entry of Rs. 10,000 has been simply planted in the payment side when hardly there was any room for it. In fact the assessee had a closing balance of Rs. 37,756-7-0 after totalling the receipts side at Rs. 38,565-11-0. After introducing this entry of Rs. 10,000 in the payments side he was confronted with the problem of correcting the closing balance. He never wanted to disturb his cash balance. So instead he introduced a sum of Rs. 10,000 on the receipts side as well in the following three names :

(i) Shri Ram Chander Datewala Rs. 3,500(ii) Shri Suraj Bahn Datewala Rs. 3,200(iii) Shri Tara Chand Rs. 3,300

23. On my request, Shri Ram Chander was produced; His statement wasrecorded. He has stated that he paid a sum of Rs. 3,500 in Chet Samat2013, which is March, 1956. How this entry was passed on December 11,1956, remains an unsolved problem. It may be pointed out that Shri RamChander is brother-in-law (Loser) of Shri Lachhi Ram. The other twogentlemen have not been produced. As such all these three entrieson the receipts side are equally fictitious. It may be seen that thetotal of the payments side has been overwritten from Rs. 38,565-11-0 toRs. 48,565-11-0. It was obviously done after planting the fictitiouspayment of Rs. 10,000.

(ii) Dasawar Khata

24. On page 12 appears gur phagun Hapur khata (M/s. Sagar Mal Ganeshilal, Hapur). Its scrutiny reveals that for all the five transactions appearing on the credit side nakal page 1 has been given. These entries are being shown to have taken place on five different dates, that is, Asuj Badi 10, Maghar Sudi 4, Poh Bedi 1, Pho Bedi 10 and Magh Bedi 9. Similarly nakal panna 1 has been given to the first two and the last 4 transactions. For the third and fourth transactions nakal panna 2 and 29 have been given respectively. All these transactions range over the whole year.

25. Similarly, on page 14 appears khata of Shri Subhash Chand, on the debit side nakal panna 1 has been given for all the five transactions which range over the whole year. On the credit side position is almost the same for the first, third, fourth, fifth and sixth transactions. The examination of the nakal reveals that all these entries do not appear at page 1. These do appear on different dates. All these facts were placed before the assessee and he was called upon to explain in what circumstances nakal panna 1 was given. The assessee has not given any satisfactory reply. According to him it is a mistake on the part of his munim, Shri Des Raj. Shri Des Raj admitted that nakal was actually written by him. All these entries made at the instance of Shri Lachhi Ram were made at panna 1 as sufficient space was available on panna 1. He was shown dasawar nakal consisting of two volumes. The first volume in which all these transactions appear has not been written by Shri Des Raj. This clearly shows that nakal has been freshly re-written. It may be pointed out that the assessee did not produce dasawar nakal at the time of first hearing. It was produced after a lapse of seven days at the second hearing on August 10, 1961, and it is quite probable that the assessee rewrote dasawar nakal during the said seven days as he was questioned about the mystery of the pannas on August 3, 1961, when the other books produced were impounded. Furthermore, rewriting of dasawar nakal is proved from the following entries :

(a) At page 2 of dasawar khata, M/s. Ramjas Mal Narsingh Dass, on the credit side at third place there is an entry of Rs. 67-12-0 for which nakal panna 15 has been shown but in the rewritten nakal it appears on page 16.

(b) Again at page 4 of dasawar khata, Shri Kapuri Mal, on the credit side at the fourth place there is an entry of Rs. 60-9-9 1/2. Nakal panna 15 has been shown while in fact it appears at panna 16.

(c) Again at page 7 of dasawar khata in the account of Shri Jogdian on the 7th place in the credit side there is an entry of Rs. 48-5-2 for which nakal panna 15 has been given which actually appears at panna 16.

(d) Again at page 2 on the credit side at the 3rd place there is an entry of Rs. 11-7-6 1/4 for which nakal panna 109 has been given while it actually appears at page 110 in the very beginning. A11 these entries are illustrative and not exhaustive. These clearly indicate that nakal has been simply rewritten in haste and the assessee could not adjust the pannas.'

26. The part of the order was admittedly part and parcel of the order of the Income-tax Officer passed by him rejecting the application of the assessee, filed under Section 27 of the Act, because in the said order, copy of which is annexure 'B' with the paper-book, the Income-tax Officer recorded a finding that he had already pointed out numerous entries which conclusively prove that such sauda naund was maintained and that sauda naund produced by the assessee was cooked up later. In the appeal of the assessee to the Appellate Assistant Commissioner, which was rejected vide his order dated November 3, 1968, annexure 'K', the Appellate Assistant Commissioner went into this question and recorded the following findings :

' The reasons for the Income-tax Officer's view have been stated in detail in the assessment order. The appellant showed a loss of Rs. 58,721 in gur phagun Hapur khata. Gur phagun Hapur khata on page 12 of dasawar khata, produced at the time of assessment, showed that for five transactions appearing on the credit side the nakal page mentioned was page 1 although those transactions were spread over a long period of the year, the dates of the transactions being Asuj Bedi 10, Maghar Sudi 4, Poh Bedi 1, Poh Bedi 10 and Magh Bedi 9. On page 14 of the dasawar khata where the account of Subash Chand appears on the debit side nakal panna 1 has been mentioned for all the five transactions. The nakal produced did not show all these entries on page 1. It was explained before the Income-tax Officer that the wrong nakal page No. was given by mistake by the appellant's munim, Des Raj. Des Raj admitted before the Income-tax Officer that although he wrote the actual dasawar nakal, volume 1 of the dasawar nakal produced before the Income-tax Officer in which all these transactions appear was not written by him. Besides, the nakal was not produced before the Income-tax Officer at the first hearing but seven days later after the other books had been impounded and the assessee questioned regarding the pages. The Income-tax Officer has also mentioned some other discrepancies in the page numbers. In view of all these facts the Income-tax Officer concluded that the nakal produced was not the real one but a new one that had been prepared in a hurry. In the circumstances stated in the assessment order it is quite clear that there was a nakal with the correct page reference as the one produced did not have the entries in question on the pages mentioned in the dasawar khata. It has been urged that Des Raj bore enmity towards the appellant and made false allegations before the Income-tax Officer regarding the entries having been made at the instance of Lachhmi Narain, a member of the Hindu undivided family. Although there were criminal proceedings instituted by the appellant against Des Raj, this happened after the accounting year under consideration. Des Raj's connection with the appellant ceased on April 16, 1961, four years after the end of the accounting year under consideration. Moreover, the Income-tax Officer's belief regarding the existence of the dasawar nakal is based on the entries in the books produced and the other circumstances and not merely on Des Raj's statement. The books clearly indicated that there was a nakal with correct page reference for the transactions in question. The other circumstances stated in the assessment order also support the Income-tax Officer's view. The appellant's statement denying the existence of any such book cannot be believed and it cannot, therefore, be believed that the appellant was prevented by sufficient cause from producing it before the Income-tax Officer. The Income-tax Officer's order under Section 27 refusing to reopen the assessment made under Section 23(4) is upheld.'

27. The Income-tax Appellate Tribunal in its order, annexure 'M', went into the question as to whether or not there were any basis for holding that the real dasawar nakal book has been withheld by the assessee and held as follows:

'6. We will first take up the question as to whether or not there was any basis for holding that the real dasawar nakal book had been withheld by the assessee. The decision on this point will cover the appeal against the order under Section 27 also. Now admittedly the dasawar nakal book produced did not contain the entries at its page 1, which in accordance with the ledger should have been found at that page. This mistake could be a clerical mistake also and could be explained away on that ground but the position in the instant case was somewhat different. This mistake had not crept up in respect of various other transactions in gur phagun Hapur account as had been noted by the departmental authorities: in their orders. There were 5 transactions on the credit side of dasawar ledger in gur phagun Hapur account all of which were mentioned as occurring on page 1 of the dasawar naked book. None of them were, however, found on that page of the dasawar nakal book which had been produced by the assessee. Similarly, in regard to another account, that of Subhash Chand concerning the gur phagun Hapur account, according to the ledger the debit entry was to be found at page 1 of the dasawar nakal but it was not to be found at that page in that book. The assessee had explained before the Income-tax Officer that the page numbers as noted in the ledger were given by mistake but then the Income-tax Officer summoned that munim who had written that ledger and got from him that the entries in the ledger were all fictitious and made at the instance of Lachhmi Narain, one of the coparceners of the assessee-family. The Income-tax Officer put the dasawar khata book (the ledger) pertaining to the accounting period in question, namely, from April 1, 1956, to March 31, 1957, in the hands of the said munim Desraj and asked him whether that ledger had been written by him. He admitted to have written that ledger. The Income-tax Officer further questioned him, which is in the following terms :

'At page 12 of the said khata there is an account under the caption of gur phagun Hapur (M/s. Sagar Mal Ganeshi Lal, Hapur). This shows on the credit side nakal panna 1 for all the five transactions and on the debit side nakal pannas have been given under :

First two transactions nakal panna 1, 3rd transaction nk. panna 2, 4th nk, panna 29, 5th to 8th nakal panna 1. Apparently these transactions were entered on different dates. Please state circumstances under which most of them have been written on nakal page 1 '

The munim Desraj answered as follows:

'I do not remember on which particular date these entries were made. They were made much after the dates which have been shown in the account. All these entries are fictitious. These were made at the instance of Shri Lachhmi Narain perhaps in winter, before the close of the year.' Now one of the arguments which has been made before us is that the evidence of Desraj, the munim, ought to be discarded totally because he was inimically disposed towards the assessee; there being criminal and other types of litigations between that munim and the assessee, some of which were still pending.

7. We find on reading the deposition of Shri Desraj, a copy of which has been made available to us, that in fact there has been a good deal of litigation between the assessee and that person and in fact such litigation was still going on even at the time when his deposition was recorded. We cannot, therefore, accept such statement of Desraj as are directly adverse to the assessee's interest as correct without having any independent evidence corroborating his statement. We cannot just go upon his words that the entries were all fictitious or that the books of account were fictitious but then even if we were to discard the evidence of Desraj, the question still remains unanswered as to why the page number of dasawar nakal regarding the aforesaid five transactions and certain others as given in the ledger was page 1 whereas none of those transactions were found at page 1 of the dasawar nakal book produced before the Income-tax Officer, Desraj had not become inimical to the assessee when dasawar nakal book was being ledgerised by him and there is no evidence of the fact that Desraj was secretly harbouring inimical feelings towards the assessee even at the time. There does not, therefore, appear to be any reason as to why such a mistake should have crept up in the ledger and that also not in respect of a solitary transaction but in respect of several transactions. The only conclusion to which one can arrive at on this fact is that there was in fact another book of dasawar nakal which was being ledgerised and it was on the basis of that book that the page of the dasawar nakal book had been in the ledger and that such book was not forthcoming. Clearly, therefore, the assessee committed the default in compliance with the provision of Section 22(4) of the Indian Income-tax Act, 1922, when it did not produce that book, although specifically called upon to do so. The departmental authorities were, therefore, justified in rejecting the application to reopen the assessment made under Section 23(4). We would, accordingly, uphold their order in that respect and dismiss the assessee's appeal against it namely, I.T.A. No. 16938 of 1956-57.'

28. Precisely speaking, the case of the department was that since in the ledger book produced by the assessee, the entries regarding the parties were referred to at page 1 of the dasawar nakal and there being no such items mentioned at page 1 of the dasawar nakal produced by the assessee during the course of the assessment proceedings, therefore, it should be concluded that the assessee had produced a faked dasawar nakal during the course of the assessment proceedings and the assessee having been given notice under Section 22(4) of the Act for producing the original sauda nakal bai, having failed to comply with the said notice, his application under Section 27 of the Act was rightly dismissed by the authorities below. Whereas the case of the assessee is that in fact the sauda nakal bahi produced by him before the Income-tax Officer was the original and the only one and since there was no other sauda nakal bhai in existence which the assessee could possibly produce in response to the notice issued to him and if that be so, it cannot be said that the assessee had failed to comply with the notice issued to him and, therefore, his application under Section 27 of the Act should have been allowed. It is to be found that the case of the assessee is that it was by clerical mistake that in the ledger, the reference about the entries regarding the Hapur parties was made at page 1 of the sauda nakal bahi; but the case of the department is that the said page of the sauda nakal bahi was correctly referred to in the ledger and since the original sauda nakal bahi was not produced, therefore, those entries were not to be found at page 1. It was pleaded by the assessee and the relevant evidence was also produced by the assessee to prove that the transactions relating to the said entries regarding the Hapur parties were in fact genuine transactions and there being no other entry in the ledger book regarding the speculation business of the assessee, therefore, the contention of the assessee that it was a clerical mistake that a reference to page 1 of the sauda nakal bahi was made, was correct. It was also pleaded that sauda nakal bahi is a' day-book on which the transactions of each day have to be recorded after they are entered into. Therefore, keeping in view the dates of the transactions with the Hapur parties, the entries regarding the said transactions of sauda nakal bahi could not be in any case entered at page 1 of the sauda nakal bahi (day book). It may be mentioned here that the transactions with the Hapur parties entered into by the assessee, as would be clear from annexure 'A-1', are : May 5, 1956 ; May 19, 1956 ; November 21, 1956 ; December 7, 1956; December 10, 1956, and December 25, 1956. I have mentioned these dates in English calendar which dates correspond with the Bikramaditya year's dates given in annexure 'A-1'. The assessee also produced the evidence to show that the transactions entered into between the Hapur party were genuine and that there was no other sauda nakal bahi than the one produced by the assessee by raising the following pleas.

(i) Confirmatory letters issued by the Hapur party as and when the transactions took place.

(ii) M/s. Sagar Mal Ganeshi Lal is a regular assessee of the department and the transaction stood credited in his sauda nakal and sauda khata and other subsidiary books, which had already been produced before the department long ago at the time of the assessment of the said party and were accepted. The profit of Rs. 58,720 received by the Hapur party had already been subjected to tax in the hands of the said party. The assessment at Hapur for the accounting year 1957-58 was completed some 3 years back and as such the question of doubting the genuineness of the transaction is nothing but the outcome of the doubts created by Shri Des Raj who is inimical towards the assessee.

(iii) Contemporary record of satta transactions produced by the assessee.

(iv) Statement on solemn affirmation given by the Hapur party which stands unrebutted clearly supports the genuineness of the transactions. A reference to the said statement would show that the transactions were through local chamber at Hapur and were conducted in the ordinary course of business through a broker who is also an assessee with the firm.

(v) A perusal of the cash account of the parties will show that the cash was transmitted to bank which clearly belies the theory of plantation.

29. It has been found as a matter of fact by the Income-tax Officer that each of the entries regarding the Hapur party find mention in the account book produced by the assessee ; the bills issued by the Hapur party regarding the said transactions; report called by the Income-tax Officer from the Income-tax Officer, A-Ward, Meerut, copy of which is annexure 'A-3' with the paper-book, wherein the said Income-tax Officer reported that the sauda nakal bahi of the Hapur assessee had been examined and the transactions appeared to have been entered into in the ordinary course. It was also mentioned in that report that all these transactions had been entered through the Chamber of Commerce, Hapur.

30. The only question to be seen is whether all this material evidence and other circumstances which have been referred to above, have been taken into consideration by the Tribunal while arriving at the finding of fact as to whether the assessee had withheld the original sauda nakal bahi and thus failed to comply with the notice issued to him by the Income-tax Officer. In my opinion, the answer to this question is bound to be in favour of the assessee. The reference to page 1 of the sauda nakal bahi in the ledger produced by the assessee regarding the transactions with the Hapur party could either be by a mistake as is pleaded by the assessee or on the other hand the assessee failed to produce the original sauda nakal bahi on which it be presumed that such entries did exist in that account. Before arriving at a conclusion as to whether it was a mistake to mention page 1 in the ledger book or whether the original sauda nakal bahi had been withheld, the pros and cons of the case, taking into account the evidence led in support of both these propositions, have to be taken into consideration and then alone if a finding is recorded accepting the explanation of the assessee or otherwise, the said finding will certainly be a finding of fact, but if the material evidence produced by the assessee in support of his explanation has not been taken into consideration by the Tribunal at all, in my opinion, in that case, the question of law would immediately arise. It is a different matter whether such question of law is answered in favour of the assessee or against him, but the finding of fact recorded by the Tribunal will stand vitiated, and the question involved will be essentially a question of law. I have already reported the finding of the Tribunal in this connection and it would be seen that the Tribunal has failed to take into consideration the material evidence and the other relevant circumstances which are on the file of the case. For instance, it is a proved fact that the sauda nakal bahi (day book) was to contain the entries regarding the transactions entered into by the assessee on each date. I have already reproduced various dates on which the transactions with the Hapur party were entered into by the assessee. The said dates spread almost throughout the year. If the entries in the day book had to be made according to the dates of the transactions, all the said entries would possibly not be contained at page 1 of the day book (sauda nakal bahi). If this matter is conclusively found in favour of the assessee, this is bound to support his contention that the reference to page 1 in the ledger in the sauda nakal bahi (day book) might be by mistake. Similarly, the evidence of the confirmatory letters issued by the Hapur party regarding the transactions in question, there being entries in the account books of the Hapur party, which according to the report of the Income-tax Officer, Meerut, were being maintained in the ordinary course of business, and that according to his report in the copy of the bhugtan khata filed in connection with the Hapur party relating to the assessment year 1957-58, the transactions in question already appeared though there having been pointed out some discrepancies between the account books of the Hapur party and that of the assessee, the contemporary record of the satta transactions produced by the assessee, the statements of the Hapur party and the fact that the transactions were gone through the local Chamber of Commerce at Hapur and through a broker who was also an assessee and the facts that Messrs. Sagarrnal Ganeshilal who are the regular assessees of the income-tax department had already produced their accounts before the assessing authority at Meerut and the same were accepted and the said accounts were produced before the Income-tax Officer long before the present dispute arose and the assessment at Hapur for the assessment year 1957-58, was completed three years before, etc., etc., were not taken into consideration by the Tribunal at all. It is quite interesting to note that the Tribunal while passing the order on the appeal filed by the assessee in the regular assessment proceedings, recorded the following findings :

'In the instant case as stated above, the assessee no doubt produced its dasawar nakal book but then it has been found that that book is not the genuine book. Naturally, therefore, the only conclusion to which we can arrive at is that the assessee has not placed all its cards on the table to prove that the resultant of all its speculative transactions was a loss of Rs. 58,736. In our opinion, therefore, even though the assessee has been able to prove that it had to pay a sum of Rs. 58,736 to Sagarmal Ganeshilal of Hapur, it has not been able to establish that the ultimate result of all its transactions was a loss to the tune of Rs, 58,736. In our opinion, therefore, the loss had been correctly disallowed by the departmental authorities.'

31. Thus, it has to be seen that the Tribunal itself carne to the conclusion that the assessee was able to prove that he had paid a sum of Rs. 58,736 to M/s. Sagarmal Ganeshilal of Hapur, but his claim was disallowed on the ground that he had not been able to establish that the ultimate result of all the transactions was a loss to the tune of Rs. 58,736. The relevant material itself on which the Tribunal came to this finding in the regular assessment was also relevant and necessarily to be taken into consideration by the Tribunal while disposing of the appeal filed by the assessee, dismissing the application under Section 27 of the Act, because if it is found as a fact that the said transactions were genuine and the payment of Rs. 58,736 was made by the assessee to the Hapur party, in that case, it will necessarily have a bearing on the question as to whether the sauda nakal bahi (day book) produced by the assessee was the original or not especially in the background when it is found that there is no other alleged false entry in the account books regarding the speculation business except the entry relating to the Hapur party, which, as a matter of fact, according to the Tribunal, was actually entered into and payment made to the Hapur party.

32. It may not be taken that I am in any way expressing my opinion on the merits of the case or that the explanation furnished by the assessee is held to be correct, but what I am trying to point out is that all these factors recorded above, were material for the determination of the question in issue and the Tribunal having not taken the said material factors into consideration, it is open to the assessee to successfully contend that the questions of law in that situation do arise which need be referred to this court. Therefore, in my opinion, the Tribunal should be directed to refer the following two questions of law for the opinion of this court and the application filed by the assessee for mandamus is accordingly allowed to the extent indicated above.

'1. Whether, in the circumstances and the facts of the case, there is any basis or material for the finding that the sauda nakal, the book of prime entry, produced was not the real one especially when the relevant transactions in the ordinary course, considering the dates involved, could not appear or be entered on page 1 of the sauda nakal ?

2. Whether, in the circumstances and the facts of the case there is any material to warrant the finding that there was a default in compliance with the provisions of notice under Section 22(4) justifying the completion and maintenance of ex parte assessment under Section 23(4)?'

33. Before I part with the judgment, I may briefly refer to a few authorises relied upon by the learned counsel for the revenue, Mr. D.N. Awasthy, The said authorities are Purshottam Laxmidas v. Commissioner of Income-tax, [1956] 30 I.T.R. 143 (Bom.), Venkateswara, District Motor Service v. Commissioner of Income-tax, [1968] 55 I.T.R. 597 (Mys.) and Commissioner of Income-tax v. Daulatram Rawatmull, [1964] 53 I.T.R. 574 (S.C.). In my opinion none of these authorities is helpful to the learned counsel for the revenue. These are cases totally different on their own facts and have no bearing on the facts of the present case which give rise to the questions of law.

34. In Purshottam Laxmidas's case, it was held that the court is not concerned in the slightest degree with the merits of the decision ; all that the court is concerned with is whether the finding of fact is justified by any relevant or material evidence. As I have already said that the present case is a case where the material evidence has not been taken into consideration while arriving at a finding of fact, therefore, this authority is of no help to the learned counsel for the revenue. On the same ground, Venkateswara District Motor Service's case is also of no help to the learned counsel for the revenue Similarly, the Supreme Court authority in Daulatram Rawatmull's case is a case where the question raised was : 'Was there some evidence to support the finding recorded by the Tribunal ?' and since it was not a case where the plea was being taken that the material evidence was being overlooked by the Tribunal, therefore, this would also not apply to the facts of the present case.

35. For the reasons recorded above, this mandamus application is allowed to the extent indicated above with costs. The Income-tax Appellate Tribunal, is directed to draw up the case and refer the aforesaid questions to this court for decision along with the questions referred to in I.T.R. No. 10 of 1971.

P.C. Pandit, J.

36. I agree.


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