1. These two references have been made by the Madras Bench of the Income-tax Appellate Tribunal, as directed by this court on the application of the assessee, who is the same in both these cases. Income-tax Reference Case No. 55 relates to the assessment year 1961-62, while the other reference relates to the assessment year 1962-63, The assessment for the year 1961-62 is governed by the Indian Income-tax Act, 1922, while the assessment for the year 1962-63 is governed by the Income-tax Act, 1961, The question referred in Income-tax Reference Case No. 55 of 1967 is :
'Whether the Tribunal was justified in applying the proviso to Section 13 of the Indian Income-tax Act, 1922, to the facts of the case?'
2. The question in the other reference is practically the same, the only difference being that instead of the proviso to Section 13 of the Indian Income-tax Act, 1922, it refers to the proviso to Section 145 of the Income-tax Act, 1961.
3. The assessee is a private limited company doing business in hill produce. For the assessment year 1961-62 it declared a less of Rs. 9,354 in respect of its trade in arecanut, pepper, ginger and turmeric. The Income-tax Officer accepted the books of account of the assessee in respect of pepper, ginger and turmeric except in respect of arecanut. The gross profit disclosed by the assessee's accounts in arecanut were Rs. 9,958. But the Income-tax Officer estimated it at 4.5% of the turnover, and added Rs. 19,646 in fixing the gross profit in arecanut. Thus, the assessee's total income was fixed at Rs. 10,385.
4. For the assessment year 1962-63, the assessee declared an income of Rs. 2,676. The books of account of the assessee were accepted for this year also in respect of the assessee's business in pepper, ginger and turmeric, but they were rejected in respect of arecanut. As against a gross profit of Rs. 19,789 disclosed by the assessee's books of account, the Income-tax Officer estimated it by adding Rs. 36,568, and the assessee's total income was fixed at Rs. 39,444.
5. The assessee filed appeals before the Appellate Assistant Commissioner against both these assessments. The appeals were dismissed by him, holding that the proviso to Section 13 of the 1922 Act applied in one case, while the proviso to Section 145 of the 1961 Act applied in the other case, and that the rejection of the accounts in respect of arecanut business was justified. The assessee filed further appeals before the Income-tax Appellate Tribunal; but the appeals were dismissed on the same ground by a common order dated 16th December, 1964. In dealing with the assessee's contention that there was no ground for invoking the application of the above provisions, the Appellate Tribunal stated as follows :
'The main defect in the assessee's books is that the purchases are supported only by its own bought notes. No doubt, this is a common feature in this line of business as purchases are made mostly from agriculturists who do not have their own vouchers. But the fact remains that it is not possible to verify the particulars mentioned in the bought notes as in most cases the parties cannot be traced. The assessee's accounts are therefore such that the income, profits and gains cannot be properly deduced therefrom. This is sufficient for the application of the proviso to Section 13.'
6. It is clear from the above finding that the only ground on which the Appellate Tribunal held that the proviso to Section 13 of the 1922 Act would apply to the case was that the assessee's purchases are supported only by its own bought notes in respect of arecanut. Admittedly, the sellers are agriculturists from whom it is not possible in the ordinary course of business to have vouchers. It is also admitted that maintenance of bought notes by the purchasers is the common feature in this line of business. Therefore, the fact that the assessee did not obtain bought notes from the sellers is not a defect by itself or something which the assessee could have helped in the ordinary course of its business. There is no case that the purchases are inflated or bogus purchases have gone into the accounts. Admittedly, the accounts are properly and regularly maintained ; and they have been accepted in respect of three out of the four commodities in which the assessee deals. In these circumstances, the unavoidable fact that the purchases of arecanut are supported only by the assessee's bought notes is no ground for the application of the proviso to Section 13 of the 1922 Act, or the proviso to Section 145 of the 1961 Act, as the case may be.
7. The learned counsel for the revenue contended that the finding of the Appellate Tribunal that the proviso to Section 13 of the 1922 Act applied to the case was one on a question of fact and that this court was not entitled to interfere with that finding. If this finding is based on any material, it is true that this court would not examine its correctness. But if the finding cannot be sustained on any material, or if the facts stated in support of the finding have no relevancy to the conclusion of the Tribunal, it raises a question of law; and this court is entitled to examine whether the said finding can be sustained on these limited grounds. In this case, the assessee's accounts relating to arecanut business were rejected on the sole ground that the purchases are supported only by its own bought notes, which by itself does not constitute a valid ground for rejection of the accounts, for reasons which we have stated above.
8. In the result, we answer the two questions referred to us in these cases in the negative and in favour of the assessee. There will be no order as to costs. A copy of this judgment will be forwarded to the Income-tax Appellate Tribunal in each case.