1. The assessee in this case is a firm called 'Kishenlal Roopchand and Company', its place of business being 27, Godown Street, Madras-1. It is engaged in cloth trade as also money-lending. The partners are Misrilal Lunia and Jayanthraj Lunia.
2. The assessee was originally assessed on a total income of Rs. 66,209 for the assessment year 1951-52, Later, action under Section 34(1)(a) of the Indian Income-tax Act, 1922, was taken on the basis that certain credit entries were found in the accounts of one Pattu Padmanabha Chetty in the name of Champalal Jayanthraj and Kishenlal Roopchand. Based on the credit entries the assessee's assessment was revised by adding Rs. 28,211 to the income as originally assessed. The revised assessment was challenged in appeal before the Appellate Assistant Commissioner but without success. Thereafter, the assessee went in appeal to the Tribunal and the Tribunal sustained the addition to the extent of Rs. 10,000 alone. At the instance of the assessee the following two questions have been referred to this court for its opinion:
'(1) Whether, on the facts and circumstances of the case, the provisions of Section 34(1)(a) have been properly invoked ?'
(2) Whether, on the facts and circumstances of the case, the decisionof the Tribunal in confirming the treatment, of the credit in the name ofKishenlal Roopchand as concealed income for the assessment year 1951-52is based on materials '
3. The circumstances under which the revision of assessment under Section 34(1)(a) came to be made in the assessee's case may briefly be set out. In the course of assessment proceedings of one Pattu Padmanabha Chetty the Income-tax Officer noticed the following credit entries :
Assessment yearName in which credit appearedPeak amountInterest
Rs.Rs.1950-51Champalal Jayanthraj10,0001,173.501951-52do.17,000851.00Kishenlal Roopchand10,000360.00
4. The Income-tax Officer examined the said Padmanabha Chetty on September 10, 1956, with reference to the said credit entries. The latter claimed that the three items of credit referred to above as well as those in the name of Misrilal and Jayanthraj were received from one and the same party by name Champalal, that Jayanthraj had been introduced to him by his friend Champalal and that the transactions were entered in his books in such names as were directed by Champalal. Thus, Padmanabha Chetty claimed that the credits in favour of Jayanthraj and Kishenlal Roopchand were true and genuine and that, therefore, the amounts referred to above should be taken to be the amounts borrowed by him from the persons concerned. But he was unable, to produce any evidence in the form of receipts, etc., in support of his alleged borrowings from Jayanthraj and Kishenlal Roopchand, The Income-tax Officer was not inclined to accept the statement of Padmanabha Chetty that the credit entries represented his actual borrowings. He, therefore, proceeded to treat the credit entries as undisclosed income of Padmanabha Chetty and assessed him accordingly. His appeal to the Appellate Assistant Commissioner having failed he went before the Tribunal. The Tribunal deleted the additions made, observing as follows:
'We were taken through the accounts entries in relation to Jayanthraj and also the evidence of Jayanthraj and of the assessee himself. Champalal was not examined. We are of the opinion that the amount represents genuine borrowing from Jayanthraj, a partner of Kishenlal Roopchand. It was not improbable that the amount was obtained through Champalal, the intermediary. There is evidence to show that Champalal acted as an intermediary between the assessee and his principals and that if he has instructed the assessee to show the credit in the name of Jayanthraj, the assessee had no other alternative.
From the evidence it is clear that any document did not pass when these transactions took place. Therefore, the absence of any record of any document is not, in our opinion, fatal to the acceptance of the assessee's case. Jayanthraj has admitted that he knew the assessee from 1949 though a statement of his that he took on rent a godown belonging to the assessee is untrue. He also admitted that Champalal was known to him. In the circumstances, there is nothing improbable in the assessee having borrowed the money and shown the credit as directed by Champalal. Besides all that, the money has been repaid by cheques and cash along with other borrowings. We are satisfied that the transactions are genuine and there is no room for adding the cash credit.'
5. Thereafter, the Income-lax Officer took up the assessee's assessment for the assessment year 1951-52 for revision under Section 34(1)(a) with a view to bring in the cash credits found in the accounts of Padmanabha Chetty which the Tribunal held to be true and genuine borrowings. This was objected to by the assessee on two grounds: (1) that the initiation of proceedings under Section 34(1)(a) is invalid and the Income-tax Officer had no jurisdiction to reopen the assessment under Section 34(1)(a) and (2), that in any event the credit entries found in the accounts of Padmanabha Chetty cannot be used against the assessee without further materials to conclusively show that Padmanabha Chetty actually borrowed the amounts from the assessee and that in fact there are no materials to base a finding that the assessee had in fact lent monies to Padmanabha Chetty during the year 1951-52 as has been reflected in his accounts. The Income-tax Officer at the request of the assessee gave an opportunity to him to cross-examine the said Padmanabha Chetty on February 22, 1960. Champalal Jayanthraj through whom Padmanabha Chetty is said to have borrowed the three amounts referred to above was also examined and one K. Radhakrishniah, the son-in-law of Pudmanabba Chetty, was also examined by the Income-tax Officer. After considering the statements given by Padmanabha Chetty on September 10, 1956, and February 22, 1960, and similar statements of Champalal and Radhakrishniah dated June 11, 1956, and July 25, 1956, respectively, the Income-tax Officer came to the conclusion that the amount which stood credited in the names of Jayanthraj and Kishenlal Roopchand were the monies which belonged to the assessee-firm. In that view, he included in the reassessment a sum of Rs. 28,211 in respect of the assessment year 1951-52. Aggrieved against the addition made in the reassessment proceedings, the assessee filed an appeal before the Appellate Assistant Commissioner con tending that the initiation of proceedings under Section 34(1)(a) was not legal and proper and that, in any event, there are no materials to show that the assessee-firm was a creditor in respect of the credits found in Padmanabha Chetty's accounts. But the Appellate Assistant Commissioner, however, rejected the assessee's contention and held that the initiation of proceedings under Section 34(1)(a) was legal and proper and the impugned sums were the concealed income of the assessee and, therefore, the addition made by the Income-tax Officer was justified.
6. There was a further appeal to the Appellate Tribunal. The Tribunal accepted the contentions of the assessee relating to the two items of credits standing in the name of Jayanthraj. It, however, confirmed the addition in relation to the credit entry of Rs. 10,000 hi the name of Kishenlal Roopchand on the ground that the materials on record were sufficient to make out a prima facie case that the cash credit in the name of the assessee in Padmanabha Chetty's accounts was in fact the transaction of the assessee. The Tribunal also rejected the assessee's contention that the provisions of Section 34(1)(a) can have no application.
7. The learned counsel for the assessee contends before us that the materials on record cannot form a sufficient basis for a finding that the credit entries in Padmanabha Chetty's accounts really represented the assessee's lending transactions, that the materials on record did not in fact establish any connection between the assessee and the credit entries found in Padmanabha Chetty's accounts, and that the reasoning given by the Tribunal for excluding the two items of credit entries found in the name of Jayanthraj would equally apply to the credit entry found in the name of the assessee.
8. Mr. Padmanabhan, learned counsel for the assesses, has taken us through the various statements given by Padmanabha Chetty, Champalal Jayanthraj and Radhakrishniah on the basis of which the addition of Rs. 10,000 has been justified by the Tribunal, to show that these statements even if they are accepted on their face value are quite insufficient to establish any connection between the amounts credited in Padmanabha Chetty's accounts with the assessee. A perusal of the statement of Padmanabha Chetty shows that he borrowed all the there items of credit from one and the same person, and that the credit entries were made in favour of two different names as directed by his friend and neighbour, one Champalal, who arranged for the loans. He has not stated in either of the two statements made on 10th September, 1956, and 22nd February, 1960, that he borrowed the amounts directly from Jayanthraj or Kishenlal Roopchand in whose name the credit entries stand. He has merely stated that sometimes Champalal used to go alone and bring the amounts and on other occasions he used to accompany Champalal who will go inside the place of business of Kishenlal Roopchand of which Jayanthraj was a partner and inform him that he has brought the money from Jayanthraj. Though Padmanabha Chetty has stated that he used to take receipts for payment of monies lent to him to the persons concerned, no receipts have been produced to show that amounts have actually been returned to the persons whose names have been entered in his accounts.
9. Thus, except saying that Champalal represented that the monies were taken from Jayanthraj and Kishenlal Roopchand and instructed Padmanabha Chetty to make the entries accordingly, there is no direct contact established between Padmanabha Chetty and Jayanthraj or Kishenlal Roopchand. In this connection the significance of the statement made by Padmanabha Chetty that all the three items of credits were borrowed from the same person cannot be overlooked. As already stated, the Tribunal has deleted the addition so far as the two items of credits standing in the name of Charnpalal Jayanthraj is concerned, on the basis that those credit entries were real and genuine and that the amounts credited were actually borrowed from Champalal Jayanthraj who was also conducting money-lending business in addition to various other businesses either in his individual name or otherwise.
10. While the Tribunal has accepted the statement of Padmanabha Chetty in part and held that the two items of credit entries really represented the borrowals made from Champalal, it did not give due weight or significance to the other portion of the statement that all the three items were borrowed from the same person. If Padmanabha Chetty's statement that all the three amounts were borrowed from the same person is to be accepted, then the item which is in dispute between the parties at this stage should also represent the borrowal from Champalal. We are not able to find any reason as to why the Tribunal did not attach any significance to this portion of the statement of Padmanabha Chetty. As a matter of fact, the Tribunal does not say one way or the other as regards the above statement.
11. When Padmanabha Chetty himself says that all the amounts credited in his accounts were borrowed from the same person and there being no other evidence to show that the borrowals were from two different persons it is not possible to treat the entry relating to Rs. 10,000 on 29th September, 1950, alone separately as having been borrowed from a different person than Champalal, merely because the credit in relation to the said sum of Rs. 10,000 stands in the name of Kishenlal Roopchand. As has been explained by Padmanabha Chetty himself, the name Kishenlal Roopchand was found entered in Padmanabha Chetty's account only at the instance of Champalal who provided the funds. Therefore, the mere fact that the credit entry was found in the name of Kishenlal Roopchand cannot be used against the assessee especially in the face of the statement of Padmanabha Chetty that the said sum of Rs. 10,000 was also borrowed from one and the same person from whom other sums were also borrowed.
12. Champalal who has also been examined does not specifically say that the sum of Rs. 10,000 in dispute is the amount actually borrowed by Padmanabha Chetty from Kishenlal Roopchand through him. On these materials we are not inclined to think that any finding that Padmanabha Chetty actually borrowed the said sum of Rs. 10,000 from Kishenlal Roopchand could be based.
13. The Tribunal states that there is no reason to disbelieve Padmanabha Chetty's version that the monies had been borrowed by him from the assessee firm through Champalal. But that version is common to all the credit items. We see no reason as to why the credit entry relating to Rs. 10,000 alone should be treated differently from the other items. We are inclined to hold that the Tribunal is not justified on the materials on record in holding that the credit entry of Rs. 10,000 standing in the name of the assessee in Padmanabha Chetty's accounts constituted the undisclosed income of the assessee.
14. The learned counsel for the revenue contends that the Tribunal having based its finding on some material, it is not open to this court to consider the question of sufficiency of the materials and that if two views are possible on the materials on record and the Tribunal has taken one view, this court sitting as a reference court cannot substitute its view as against the view expressed by the Tribunal. According to Mr. Balasubramaniam, learned counsel for the revenue, if there is some material to support the finding given by the Tribunal, this court cannot interfere with that finding on the ground that the materials relied on by the Tribunal are not sufficient to base that finding.
15. It cannot be disputed that if there are relevant materials on which the finding arrived at by the Tribunal could reasonably be based, then this court cannot interfere with that finding of the Tribunal on the basis that another view is possible on the same material. But at the same time this court has undoubted jurisdiction to interfere with the finding of the Appellate Tribunal if it appears that either the Tribunal has arrived at a finding based on no evidence or its finding is inconsistent with the evidence on record or it has acted on material partly relevant and partly irrelevant or it draws upon its own imagination and imports facts and circumstances not apparent from the record or it bases its conclusions on mere conjectures or surmises or no person judicially acting and properly instructed as to the relevant law could have come to the determination reached by the Tribunal. If any authority is needed for the above proposition, we shall refer to the decision in Commissioner of Income-tax v. S.P. Jain : 87ITR370(SC) . In that case, the Supreme Court cited with approval the following passage from the judgment of Bhagwati J. in Omar Salay Mohamed Sait v. Commissioner of Income-tax : 37ITR151(SC) :
''We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it, this court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate which were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this court.''
16. The Supreme Court also referred to the extended view of Lord Radcliffe in Edwards v. Bairslow,  28 ITR 579 and the restricted view of Lord Simonds in the same case as regards the extent of interference by the court sitting in reference on the orders of the Tribunal, and observed as follows :
'Whether we adopt the extended view advanced by Lord Radcliffe or the view of Lord Simonds, what has to be safeguarded against is that any crystallization of the views of this court and its reluctance to interfere with the findings of fact should not make the Tribunals or the income-tax authorities smug in the belief that, as the courts do not interfere with the findings which form the bed-rock upon which the law will be based, they can act on that assumption in finding facts or by their mere ipse dixit that they are findings of fact wish it to be so assumed irrespective of whether they are sustainable in law or on the materials on record. In a number of cases this court has set out the principles upon which it will interfere with the findings of fact arrived at by the Tribunal. We need not in this case travel beyond the scope of those principles.'
17. The above observations of the Supreme Court will clearly show that this court can interfere with the finding of fact reached by the Tribunal in this case as we are of the view that there are no materials which are relevant, which could form the basis for a finding that the assessee had actually lent Rs. 10,000 to Padmanabha Chetty and that the same represented the undisclosed income.
18. We have to, therefore, answer the second question in the negative and in favour of the assessee.
19. In view of our answer in respect of question No. 2, it is not necessary to express our opinion on question No. 1. The reference is answered accordingly. The assessee will have his costs. Counsel's fee Rs. 250.