1. At the instance of the assessee-company, the following three questions have been referred to us under s. 256(21) of the I.T. Act, 1961, for our advice :
'1. Whether, on the facts and in the circumstances of the case, the Triibunal was justified in disallowing the commission of Rs. 14,250 paid to Shri Naresh K Patel
2. Whether, on the facts and in the circumstances of the case, the Tribunals finding that commission paid was not for services is perverse and such as no reasonable man can arrive at
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not entertaining the argument regarding deducting actual expenses from the gross receipts to be excluded for computation of manufacturing profits for the purpose of section 80-I holding that it was a new claim ?'
2. In order to appreciate the rival contention urged in support and rebuttal of these questions, a few facts need be noticed.
3. The assessment year with which we are concerned in this reference is 1970-71., the corresponding accounting year being financial year 1969-70. The assessee carries on the business of manufacturing and selling textile machinery. it also derived income as a partner in the firms of M/s Swastic Construction Company and M/s. Ajit Construction Company. It made a return of income for the aforesaid assessment year showing a total income of Rs. 6,86,198. The ITO, however, assessed the income at Rs. 9,22,075. In he course of the assessment, the assessee made a two-fold claim, one pertaining to the payment of commission to one Shri Naresh K Patel and another pertaining to the deduction under s.. 80-I of the I.T. Act, 1961. The assessee claimed that it had paid aggregate commission of Rs. 1,09,906 in the relevant accounting year. Out of this aggregate amount of commission, the assessee claims to have paid Rs. 14,250 to one Shri Naresh K. Patel by way of commission on the sale of Pre-Set-Felt Finishing Range manufactured by the assessee-company to M/s. Arvind Mills Ltd., Ahmedabad. This claim of the assessee-company did not find favour with the ITO who, on a consideration of the following circumstances negatived the claim of the assessee-company. The circumstances which weighed with the ITO in so negativing the claim were :
(1) solitary role of Shri Naresh K Patel acting as broker in respect of the sale effected by the assessee-company;
(2) assertion by the purchasers, M/s. Arvind Mills Ltd., that they purchased the said items of machinery directly from the assessee-company;
(3) no reference to the said Shri Naresh K Patel acting as an intermediary;
(4) absence of agreement in respect of the payment of commission;
(5) absence of any other evidence that the said payment was for business expediency; and
failure on the part of Shri Naresh K. Patel of file a return.
4. In the aforesaid circumstances, therefore, the ITO rejected the claim as stated above.
5. The assessee, therefore, carried the matter in appeal before the AAC, inter alia, on the ground of negation of this claim. The AAC for certain additional grounds found himself unable to accept the claim and this confirmed the order of the ITO so far as it related to this claim of Rs. 14,250. The additional ground which weighed with the AAC were : (1) status of Shri Naresh K Patel being a student in the relevant accounting year, (2) the absence of evidence to indicate that Shri Naresh K Patel helped the assessee in selling the machinery.
6. The assessee, therefore, carried the matter in further appeal to the Tribunal, where, for the very same reasons, the claim did not find favour with the Tribunal.
7. The second claim pertaining to the deduction under s. 80-I was the claim of manufacturing profit of Rs. 4,95,681 which, inter alis, included (a) erection charges of Rs. 60,005, (b) rent received on hire of machinery of Rs. 44,100 (c) export incentive of Rs. 34,731, and (d) profit on sale of assets - Rs. 7,851. The ITO held that these four receipts were not of manufacturing activity and, therefore, not entitled to be included in the manufacturing profit for the purpose of computation of deduction under s. 80-I. He, therefore, excluded these four items. In appeal, the AAC was of the opinion that the export incentive of Rs. 34,731 was liable to be included in the manufacturing profit for purposes of computation of such deduction. He, however, agreed with the ITO that the other tree items were not liable to be included. He, therefore, partially allowed the appeal to that extent.
8. Further appeal to the Tribunal met with the same fate. However, in the course of the hearing of the appeal, the assessee claimed that the ITO and for that matters the AAC, were not justified in deducting the entire amount on these various counts since, in the very nature of things, the assessee had spent some amounts for purposes of earning, erection charges, or rent for hiring out the machinery or for export of goods or in sale of the assets. The Tribunal could not persuade itself to accept this alternative claim of the assessee since in its opinion the assays did not press this in the memo of appeal as one of its grounds on which it was aggrieved by the order of the AAC and, in any case, it was not open to the asssessee to raise this claim at that late stage. The appeal of the assessee, therefore, failed before the Tribunal.
it is in this backdrop that the questions set out above have been referred to us.
Re : Questions Nos. 1 and 2 :
9. It is trite position in law that in exercise of the reference jurisdiction under s. 261 of the I.T. Act, 1961, it is not open to the High Court to review the primary facts found by the Tribunal and the factual inferences therefrom, and if any party wants to challenge the correctness of the findings given by the Tribunal, it can do so on the ground that the same is not supported by any evidence on record or is based on irrelevant or inadmissible evidence or in unreasonable or perverse by seeking a reference raising any one of these grounds challenging the findings of fact (see : Aluminum Corporation of India Ltd. v. CIT : 86ITR11(SC) ), Karnani Properties Ltd. v. CIT : 82ITR547(SC) and CIT v. Radha Kishaan Nand Lal : 99ITR143(SC) . The assessee had specifically sought the reference by raising this question as to whether the Tribunal's finding that the commission paid was not for services rendered is perverse and is such that no reasonable man could have arrived at.
it should be noted that on March 28, 1973, the statement on oath of Shri Naresh K Patel was recorded the statement on oath of Shri Naresh K Patel was recorded by summoning him under s. 131 of the I.T. Act, 1961. Before recording the statement of Shri Naresh K Patel, the ITO concerned had addressed a letter on March 23, 1973, to M/s. Arvind Mills Ltd., seeking information on various questions set out in the said letter. One of the relevant questions on which the information was sought was question No. 3 as to whether the said mill-company had purchased the machinery directly or through any other person. In reply to this letter, the mill-company had by its letter of March 24, 1973, stated that they and purchased the above machinery directly from the assessee-company. It has been further stated in the said reply as under :
'On their behalf Champaklal and Naresh K Patel had been to our Mills to negotiate the order.'
10. In the statement of Naresh K Patel recorded by the ITO, he has, inter alia, stated that after he passed his S. S.C. Examination in March, 1964, he was taking interest in engineering goods and was going to factories mainly for study and also for some business, and that he had visited many factories in connection therewith. He knew Arvind Group people and also Swastic Textile people, and particularly S/Shri Arvindbhai Narottambhai and Champakbhai Shah. He inquired from Shri Arvindbhai if any machinery was wanted by him. On inquiry from Shri Arvindbhai, he found that they needed felt-finishing machinery and he, therefore, introduced Shri Champakbhai of Swastic Group to Shri Arvindbhai. He admitted that he received commission in this transaction only and he had not undertaken any business on commission from September, 1970 to 1973, when he was in the United States of America. The Revenue authorities as well as the Tribunal found, on an appreciation of the evidence-oral as well as documentary-that said Shri Naresh K Patel had not rendered any services and, therefore, not entitled to any commission as claimed to have been paid by the assessee-company. This finding of fact has been challenged in this reference before us.
11. By the precise question which has been set out for our advice, this finding has been challenged as perverse and, in any case, one which no reasonable person could have reached. It has been urged on behalf of the assessee that the Tribunal has completely ignored the important evidence by which it was clearly established that Shri Naresh K Patel had not only brought the purchaser and the supplier together but has also rendered services inasmuch as he along with Shri Champakhbai Shah negotiated for the order. On behalf of the Revenue, the finding of the Tribunal was sought to be supported on the short ground that it may be that the Tribunal might have misdirected itself in appreciation of evidence, it at all it had, but in no case this court, in exercise of its advisory jurisdiction under s. 256 of the I.T. Act, 1961, could enter into a re-appraisal of the evidence on the ground that the finding is perverse and/or such that no reasonable person could have reached it. We are afraid that the submission made on behalf of the Revenue is too specious one which we can agree to. The reasons are obvious. In the first place, the statement of Shri Naresh K Patel on oath clearly establishes that he was instrumental in bringing both the purchaser and the supplier together. In other words, he introduced the supplier to the purchaser. This statement of Shri Naresh K Patel has remained absolutely uncontroverted since the ITO had not thought fit to cross-examine him at the stage when he recorded the statement, or after he received the reply from Arvind Mills Company (vide their letter of March 24, 1973) in response to the query sent by him to them (vide has letter of March 23, 1973). The learned counsel for the Revenue., however, attempted to persuade us that in view of the reply of the Arvind Mills Company in their letter of March 24, 1973, where it has been unequivocally stated that they had purchased there machinery in question directly from Swastic Textile Trading Company, Ahmedabad, the aforesaid statementof Shri Naresh K Patel cannot be said to have remained uncontroverted. As a matter of facts, in the submission of the learned counsel for the Revenue, the statement has been falsified. We are unable to agree with the learned counsel because what has been stated by Arvind Mills Company in their reply of March 24, 1973, on which reliance has been placed by the learned counsel for there Revenue, is only to the effect that they had purchased the above machinery directly from Swastic Textile Trading Company. In other words, they had not purchased it through any stockists or dealers. It would not mean, however, that Shri Naresh K Patel was not responsible in bringing the purchaser and supplier together as claimed by him. On the contrary, the association of Shri Naresh K Patel with the transaction in question has been confirmed by the mill-company in the said letter. No doubt, they have not stated that Shri Naresh K. Patel was instrumental in braining both the parties together. But there was no occasion for the mill-company by the ITO concerned particularly after he recorded that statement of Shri Naresh K Patel. We are, therefore, of the opinion that the statement of Shri Naresh K Patel has remained uncontroverted. It would, therefore, be difficult to conclude. as has been done by the subordinate revenue authorities as well as by the Tribunal, that no services were rendered by him. If the statement of Shri Naresh K Patel had gone unchallenged, the only conclusion which a reasonable person could reach other. The matter does not rest there. There is an unequivocal statement in the letter of Arvind Mill Company where they have stated that on behalf of Swastic Textile Trading Company, Shri Champakbhai Shah and Naresh K Patel had been to the mill-company to negotiate the order. No further attempt has been made by the ITO to find out as to whether this statement of the mill-company was correct or not. The net result is that this assertion of the mill-company was correct or not. The ITO had also not called Shri Naresh K Patel again in order to find out whether the afore-said statement of the mill-company was correct or not. The net result is that this assertion of the mill-company that Shri Naresh K Patel was also Shri Champakabhai Shah and negotiated for the order with the authorities of the mill-company again remains uncontroverted. The result is that it would be difficult to conclude as has been done by the Tribunal and the subordinate revenue authorities that no services were rendered by Shri Naresh K Patel. We are, therefor, of the opinion that the finding of the Tribunal that insasmuch as Shri Naresh K Patel had not rendered services, he was not entitled to commission, is a finding which, on the evidence which we have pointed out, is clearly unreasonable. The result is that the assessee-company is entitled to claim the deduction of the amount of Rs. 14,250 paid by way of commission to Shri Naresh K Patel. In that view of the matter, question NO. 2 should be answered, that the finding of the Tribunal that the commission paid was not for services rendered is such that no reasonable man could have arrived at, that is in question No. 1 should be answered in the negative, that is, in favour of the assessee and against the Revenue.
12. The controversy regarding the admissibility of four items as being entitled to be included in the manufacturing profit for purposes of computation of deduction under s. 80-I was pressed into service at the instance of the assessee on a two-fold ground. In the first place, the assessee claimed that the ITO as well as the AAC were not justified in excluding the three items, namely, Rs. 60,005, Rs. 44,100 and Rs. 7,851, being the erection charges, rent for the hire of there machinery and profit on sale of assets respectively as non-manufacturing receipts. In the alternative, it was urged before the Tribunal that the entire amount ought not to have been excluded since the assessee was entitled to deduct the actual expenses from gross receipts for the computation of manufacturing profit for purposes of s. 80-I deductions. The Tribunal rejected the alternative contention on the ground that it was a new claim which was not urged before the authorities below. It is in view of this opinion of the Tribunal that the third question has been raised and set out for our advice.
13. On behalf of the assessee, it is urged that the alternative claim could not have been, by any stretch of imagination and without violence to the language, treated as a new claim since in the ultimate analysis it pertains to the justification for the exclusion of items either wholly or partially from the manufacturing profit for purposes of s. 80-I deductions. On a matter of principle also, it is urged on behalf of the assessee that the Tribunal is competent to pass such orders in no way restricted to the determination of the question raised before the departmental authorities.
14. We are of the opinion that the grievance of the assessee is justified. The scope and width of the jurisdiction of the Tribunal has been succinctly stated by the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd.  66 ITR 710, where the question was as to whether the Tribunal was justified in allowing the claim of Rs. 93,215 which the assessee-mill-company had spent for introduction of Casablanca conversion system' in its spinning plant and, therefore, the assessee-company was entitled to development rebate on that amount. In the alternative, for the first time the assessee-company claimed before the Tribunal that the amount laid out was in any event expenditure for current repairs and, therefore, admissible under s. 10(2)(v) of the 1922 Act. The Tribunal, though disallowed the claim of the assays-company for development rebate on the amount laid out for the introduction of 'casablance conversion system', upheld the expenditure as admissible deduction since it fell within the term of ss. 10(2)(v) of the 1922 Act as a permissible allowance for the computation of the taxable income of the assessee. In appeal., at the instance of the Commissioner, the Supreme Court held that the Appellate Tribunal was competent to grant the relief as it did since there was no restriction in the 1922 Act on the jurisdiction of the Tribunal to determine a question, whether of law or of fact, which relate to the assessment of the assessee, may be raised before the Tribunal, and if the grant of relief on either ground is justified. It would be open not only to the Tribunal but also to the departmental authorities to grant such relief as they were duty bound under law to do so, and the right of the assessee to the reliefs is not restricted to the plea raised by him. The Tribunal was, therefore, not justified in the present case before us in rejecting the claim of the assessee which it had alternatively urged since, in the ultimate analysis, as has been rightly submitted by the learned counsel for the assessee, the question was as to what items should be excluded either wholly or partially from the manufacturing profit for purposes of computing the deduction under s. 80-I of the I.T. Act, 1961. The subject-matter cannot be said to be a different subject-matter. The only question was that in respect of that subject-matter, whether the exclusion of the items should be whole or partial. With respect, we are of the opinion that the Tribunal was not justified in refusing to enter into the question on the ground that it is altogether a new plea or for that matter a point pertaining to a new subject-matter. In that view of the matter, the third question should be answered in the negative, that is, in favour of the assessee and against the Revenue.
15. The Commissioner shall pay costs of this reference to the assessee.