1. The assessee in this case had business activities both in Ceylon and in India. He owned properties in both the countries. In the course of his assessment for 1964-65, the ITO found that the assessee had made investments in his name as well as in the names of his wife and son. Investments were made to the extent of Rs. 1,05,850. When the assessee was asked to explain the source for those investment which were not to be found in the account books kept by the assessee, it was explained that the monies had come from out of the savings from his agricultural income. It was also explained that dividends from shares which had not been brought into the books also accounted for a portion of the investments. In addition, the assessee explained that whenever his wife or sons travelled from Ceylon to India, they brought into India remittances of monies not disclosing them to the foreign exchange authorities in either country. The explanations were not believed by the ITO. He held that of the total investments of the value of Rs. 1,05,850 which were made by the assessee during the relevant account year both in his name and in the names of his wife and son, the assessee was in a position to explain the sources of funds from untaxed dividends and untaxed agricultural income to the extent of Rs. 44,961 after allowing for household expenses. He thus calculated that the assessee had yet to explain the sources of investments to the extent of Rs. 60,889. Since there was no valid explanation as to this part of the value of the investments, the ITO added this amount to the income returned by the assessee.
2. The assessment in the manner aforesaid was followed by penalty proceedings initiated earlier under s. 271(1)(c) of the Act on the ground that the assessee had concealed particulars of his income to the extent that he was not able to explain satisfactorily, his investments to the extent of a sum of Rs. 60,889. The penalty proceedings were subsequently taken over by the IAC. Before this authority, the assessee explained that the ITO had not properly judged the resources which the assessee had, from out of which the investments must be regarded as having been fully and properly explained. It was submitted that the ITO was not justified in estimating the agricultural income of the assessee at Rs. 20,000 per annum, nor was he justified in putting the household expenses at Rs. 20,000. It was also submitted that the remittances which the assessee's wife and son had brought from Ceylon clandestinely were of a kind which could not be supported by proof of such remittances. The IAC once again went into the resources which were available in the hands of the assessee for making the investments. According to the IAC, the ITO had failed to give further credit to agricultural income of Rs. 8,000 and dividend income of Rs. 24,961. He further held that after setting off Rs. 15,000 as household expenses a net sum of Rs. 17,961 must be given credit to, for the purpose of ascertaining what the balance of unexplained source for investment made by the assessee was. In this re-estimation of the availability of funds with the assessee for making investments, the IAC arrived at a figure of Rs. 30,000 as the value of the investments for which the assessee's explanation fell short. Since there was thus an estimated shortfall of Rs. 30,000 in the sources of investment made by the assessee, the IAC concluded that this must be regarded as the assessee's concealed income for which there was no proper explanation. On this basis, he levied a penalty of Rs. 20,000 under s. 271(1)(c) of the Act.
3. The assessee appealed against this penalty. But when the appeal was called on the date of hearing the assessee was not present either in person or by authorized representative. The Tribunal, however, went into the records and found that the penalty had been levied by the IAC only on the basis of the estimate of the resources available with the assessee and by rejecting the explanation given by the assessee before the authorities as to the sources from which the investments were made and the extent of funds available with him for such investments. The Tribunal particularly referred to the fact that the assessee had a substantial business income in Ceylon year after year. they observed that having regard to his business and other interests in India, the likelihood of unauthorised remittances of money by the assessee from Ceylon to India could not be entirely ruled out. They further observed that in such matters it would not be proper to expect strict proof of such unauthorised or illegal remittances from abroad. Apart from this aspect of the case, viewing it on the basis of probabilities, the Tribunal concluded that the explanation offered by the assessee in regard to the sources of investments in the names of his wife and son must be held to be plausible. They proceeded to hold that even if the explanations of the assessee were proved to be false, the mere falsity of the explanations given by the assessee could not give rise to the inference that the amount added in the assessment must represent his income. The Tribunal referred to, and followed, the decision of the Supreme Court in CIT v. Anwar Ali : 76ITR696(SC) and held that it was for the Revenue to establish that the falsity of the explanation of the assessee as to the sources of investment really represented taxable income which was concealed from the view of the Department. The Tribunal held that, in the instant case, the Department had not established that the explanation offered by the appellant was either false or was unacceptable. They pointed out that the Department had not even established that the explanation offered by the assessee regarding the sources of investment was false. In the result, it canceled the penalty levied by the IAC.
4. In this reference, at the instance of the Revenue, the following question of law has been referred to us for our opinion :
'Whether, on the facts and in the circumstances of the case, and the Tribunal not having referred to and relied on any evidence to prove the existence of the source of income for the assessee's wife and son in Ceylon, the Appellate Tribunal was right in canceling the penalty under section 271(1)(c) in the case of the assessee ?'
5. Mr. Rangaswamy, learned standing counsel for the I.T. Dept., urged that in this case, the Tribunal ought properly to have invoked the Explanation to s. 271(1)(c) of the Act as it stood in the relevant assessment year. The learned counsel submitted that the order of assessment showed that the income returned by the assessee was below 80 per cent. of the assessee's income and hence this was a case where the Explanation to s. 271(1)(c) applied so as to lay the initial presumption against the assessee that he had concealed particulars of his income. Learned counsel further submitted that with this initial presumption against the assessee, it was for the assessee to rebut that presumption by proving that in returning his income at a lower figure he had not practised fraud or had been guilty of willful or gross neglect. Since the assessee had not established absence of fraud or willful neglect, the presumption against the assessee must be held to have stuck to him. On this basis, the learned standing counsel submitted that the penalty ought properly to have been sustained by the Tribunal. Learned counsel further submitted that there was no discussion in the order of the Tribunal as to the applicability of the Explanation to the facts of the present case.
6. We do not think that we should accept the learned counsel's finding fault with the Tribunal for not applying the Explanation to s. 271(1)(c) of the Act in so far as the present case is concerned. We have summarized the basis on which the order of assessment was passed against the assessee. We have also briefly set out the reasonings of the IAC in his order levying penalty. In the penalty order, there was not a word said about the applicability of the Explanation to s. 271(1)(c). When the matter went before the Tribunal, the assessee was absent, but the Tribunal went into the merits of the appeal in the presence of the authorised representative for the Department. It does not appear from the order of the Tribunal that at the hearing of the appeal the departmental representative invoked the Explanation to s. 271(1)(c) in an effort to sustain the order of penalty. Whether a contention could have been entertained by the Tribunal is a different matter, for, the Explanation had not been invoked by the IAC in the order levying penalty. if any argument had been addressed on the Department's side that notwithstanding the IAC's silence the Tribunal should look at the whole matter from the view-point of the Explanation to s. 271(1)(c), we dare say that the Tribunal would have mentioned it in their order. It is, therefore, not surprising that the Tribunal should not have gone into the subject of the Explanation, but decided the case on the basis of the decision of the Supreme Court in Anwar Ali's case : 76ITR696(SC) , applying the consequential rule as to onus of proof. Even while applying the Supreme Court's ruling the Tribunal did go into the facts and found that the Department itself had nowhere established that the explanation offered by the appellant regarding the sources of his investment was either false or was unacceptable. The orders of assessment as well as penalty go to show that it was the endeavor of the Department to reconstruct the financial accounts of the assessee on the basis of what they considered to be a fair estimate, and from that seek to analyst and find out what would be the financial sources from out of which the various investments made by the assessee during the year could properly be explained. In such a situation, therefore, the Tribunal felt that the whole thing was built on estimates, and there was no evidence whatever in support of the theory that the assessee had concealed particulars of his income. The Explanation to s. 271(1)(c) seems to have been farthest from the mind of the Department both when IAC acted and at the time of the hearing of the appeal by the Tribunal.
7. The learned standing counsel for the Department submitted that even in the absence of the Department not pressing for the application of the Explanation to s. 271(1)(c), the Tribunal ought properly to have invoked that provision of their own accord, while considering the merits of the penalty order. The learned standing counsel referred, in this connection, to a decision of the Orissa High Court in CIT v. Laxmi Auto Stores : 106ITR626(Orissa) . In that case, a penalty imposed by the Department had been canceled by the Tribunal, but without going into the application of the Explanation to 271(1)(c) of the Act. The Orissa High Court held that the ambit of the dispute before the Tribunal was wide enough to cover the justification for penalty from all angles and since the Explanation to s. 271(1)(c) was the law applicable to the point at issue before the Tribunal, that Explanation must be deemed to have been canvassed before the Tribunal. The Tribunal in that case merely followed the decision of the Supreme Court in Anwar Ali's case : 76ITR696(SC) and had canceled the penalty. According to the Orissa High Court, even if the Explanation had not been canvassed before the Tribunal, it was the bounden duty of the Tribunal to invoke the provision as though it had been canvassed before them by the Department. The learned standing counsel submitted that we should adopt this rule of practice laid down by the orissa High Court.
8. We regret to differ, with respect, from the Orissa High Court. Whatever might be the position of the AAC, as an appellate authority, so far as the Tribunal is concerned, they are not strictly an I.T. authority, in the sense that they are an integral part of the I.T. Dept. On the contrary, by their constitution, powers and jurisdiction, not to speak of the manner of their recruitment, the Tribunal are an independent arbitral tribunal. The proceedings before them are adversary proceedings in which the Department, on the one side, and the assessee on the other face each other as opposing parties. In such a situation, the Tribunal have to decide only those issues which are properly raised before them by the one or the other party in the appeal or in the cross-objections. In the present case, the Tribunal proceeded to decide the appeal on merits even while the assessee had defaulted in appearance, because under the Act the Tribunal have got to decide an appeal and not merely give it a disposal, by dismissing it for default of appearance. This, however, does not mean that the Tribunal have got to take upon themselves the responsibility of finding facts or of points of law which are not urged by the Department or the assessee, as the case may be. The Tribunal are under no obligation to invent grounds for either of the parties. In this case, the record does not show that the departmental representative raised before the Tribunal the question of applicability if the Expanation to s. 271(1)(c). In these events, we hold that the Tribunal was quite right in proceeding to decide the appeal on the basis of the evidence mustered by the Department on the question of concealment of income without reference to the Explanation. The Tribunal was also justified in following the decision of the supreme Court in Anwar Ali's case : 76ITR696(SC) having regard to the state of the evidence before them on the question of concealment. If the Tribunal had not referred to the Explanation to s. 271(1)(c) that was because the matter was never mooted. we disagree with the view of the Orissa High Court that even though a point has not been raised, it must be deemed to have been raised and the Tribunal is under a duty to decide not only points which are actually raised but also points which are not raised, but which must subsequently be deemed to have been raised before them.
9. For all the reasons, we decide the question of law, in the affirmative and against the Department. The assessee will have his costs. Counsel's fee Rs. 500.