Sabyasachi Mukharji, J.
1. In this reference under Section 256(1) of the I.T. Act, the following questions have been referred to this court :
'1. Whether, on the facts and in the circumstances of the case, the disposal of the appeal by the Tribunal was in accordance with law ?
2. Whether, on the facts and in the circumstances of the case, the order of remand by the Tribunal was legal and valid ?'
2. In order to appreciate these questions it would be proper to refer to the relevant portion of the order of the ITO. The ITO in his order, inter alia, observed as follows :
'In the beginning of September, 1971, it was reported in the press that there had been a violation of the foreign exchange regulation by the bank. For instance, the Statesman (Calcutta edition) of 1st September, 1971, contained the following report;
Mr. R.B. Shah, Custodian, United Commercial Bank of 10, Brabourne Road, Calcutta, was produced in custody on Tuesday, before Mr. H.N. Sen, Chief Presidency Magistrate, Calcutta, after being arrested on the same day by an officer of the Enforcement Directorate, Department of Personnel, Government of India, under Section 19B(1) of the Foreign Exchange Regulation Act, 1947, for the alleged contravention of the provisions of Section 4(2) and 22 of the Act. The CPM granted him bail of Rs. 10,000 till September 6, pending further investigation.
Another accused, Mr. B.L. Purohit, Regional Manager of the United Commercial Bank of 10, Brabourne Road, Calcutta, had also been arrested and produced on Monday on almost similar grounds and was granted bail of Rs. 5,000 till that date, pending further investigation.
In producing the accused before the Magistrate, the Enforcement Officer alleged that M/s. Hindustan Motors Ltd. applied to the United Commercial Bank on June 4, 1966, for sale to the company by the bankof 932,617 at the rate of
291 sh. 5 --- d.32 to the rupee, delivery in six months.
It was further alleged that the bank converted the amount payable by the company in respect of the import bills received during the period, July 8, 1966, up to March 3, 1967, covered against the sale contract of thebank at the rate of
291 sh. 5 --- d.32 and not at the rate prescribed by theForeign Exchange Dealers Association of India as effective from June 8, 1966.
It was further alleged that by certain other criminal acts the United Commercial Bank converted pound sterling not at the rate; prescribed by the Foreign Exchange Dealers Association of India, effective from June 8,1966, but at the rate of
291 sh. 5 --- d.32 to the rupee, during the periodJuly 8, 1966, to March 3, 1967, on the total amount of 932,617 and the amount had been allegedly converted into Indian currency at the rate other than the rates authorised by the Reserve Bank. Such conversion, it was alleged, of pound sterling into Indian currency had been made in contravention of Section 4(2) of the Act. It was further alleged that false information had been furnished to the Reserve Bank, thereby contravening the provisions of section 22 of the Act.
By my letter dated 25th September, 1971, the assessee was called upon to furnish complete details regarding the working of devaluation profits arising in Indian and foreign branches for the years 1966 and 1967. After seeking an adjourment, the assessee finished some details by its letter dated 30th October, 1971. However, in so far as the queries related to transactions with M/s. Hindustan Motors Limited, the required information was not furnished on the plea that all the books, registers, files and correspondence, etc., relating to foreign exchange contracts of Calcutta office had been taken over by the Enforcement Directorate for the purpose of investigation into the contract issued for account of the said company. The same inability was communicated by the assessee's letter dated 14th December, 1971. The matter was discussed with Sri R. Pichai (Manager, Foreign Division) and Sri V.K. Anantharaman (Superintendent, Foreign Exchange Department) after which by its letter dated 20th December, 1971, the assessee furnished a clarification stating that the contract issued for account of M/s. Hindustan Motors Limited was in order, being against production of the necessary documents and that the rate of exchange applied was in accordance with the rate prescribed by the Foreign Exchange Dealers Association of India. However, the relevant books, registers, files and correspondence, etc., were not produced on the ground that they were still in the custody of the Enforcement Directorate. In the meantime, it was learnt that Sri V.K. Anantaraman (Superintendent, Foreign Exchange Department) and Sri N.R. Ghosh (Manager, Calcutta Main Branch) had been examined by the Enforcement Directorate in the course of which their depositions were recorded. The same persons were summoned by me under Section 131 when they confirmed the depositions made by them to the Enforcement Directorate. In addition, the grounds of arrest of Sri R.B. Shah and Sri B.L. Purohit under Section 19B(1) of the Foreign Exchange Regulation Act, 1947, were obtained and perused. On the basis of all these materials it appeared that the working of the devaluation profits as furnished by the assessee was not full and complete inasmuch as the profit relating to the contract for account M/s. Hindustan Motors Limited, which was a manifestly, collusive or colourable transaction, had not been disclosed. Therefore, on 3rd March, 1972, the following letter was issued to the assessee to show cause why undisclosed profit of Rs. 71,53,178 should not be added back to its income.
Please refer to your letter dated 30th October, 1971. It is an undisputed fact that on 4th June, 1966, your bank entered into a contract of forward sale for 9,32,617 with Hindustan Motors Ltd. at Rs. 13.33 per . This contract was in contravention of Sections 3(4) and 4(2) of the Foreign Exchange Regulation Act, 1947, and the terms and conditions prescribed by the Reserve Bank of India in the Exchange Control Manual published on 4th May, 1965. Thus, the contract was illegal and, therefore, invalid and unenforceable. In the result, consequential conversion of the abovestated amount of sterling at Rs. 13,33 per with effect from 8th June, 1966, onwards cannot be accepted as shown by your bank.
For the purpose of covering the above-noted contract your bank purchased sterling to the extent of 8,32,000 prior to the date of devaluation of the rupee (6-6-66) as follows :--
ReserveBank of India
Bank ofIndia Limited
As regards the balance of 1,00,617, you arranged to make delivery as and when required out of your own ready resources of pound sterling. Inasmuch, as the effective rate of exchange with effect from 8th June, 1966, was Rs. 21 per your sales out of the total amount of 9,32,617 will have to be revalued in accordance with the said effective rate. Any amount not actually sold by the last date of your accounting year (31st December, 1966), would have been in your closing stock of foreign exchange and that balance also would have to be revalued at the then prevailing rate of exchange, viz., Rs. 21 per , Your bank has, however, valued the entire amount of 9,32,617 at Rs. 13.33 per which is not correct and which has resulted in a gross understatement of the true profits.'
3. The ITO, thereafter, referred to certain correspondence and the relevant section of the Foreign Exchange Regulation Act and concluded as follows :
'On the basis of material available to me and in the absence of any documentary evidence on the part of the assessee to show how the transactions with M/s. Hindustan Motors Limited were in conformity with the aforsaid statutory provisions, I cannot but conclude that the transactions were of a collusive and colourable nature and that the contract of forward sale for 9,32,617 was illegal as per the grounds framed by the Enforcement Directorate against the bank's officials. In any case, with effect from 8th June, 1966, the legal effective rate of exchange became rupees 21 per and it would not be permissible to value sales during the post-devaluation period at the pre-devaluation rate of exchange (Rs. 13.33 per ) on the basis of any illegal and, therefore, invalid and unenforceable contract. It has been conceded by the assessee that the closing stock of foreign exchange was revalued in accordance with the new rate. Therefore, sales of 9,32,617 made after 8th June, 1966, to M/s. Hindustan Motors Limited would have also to be revalued in accordance with the legal effective rate. In this view of the matter, I add back the difference of Rs. 71,53,172 (at Rs. 7.67 per on the amount of 9,32,617) to be declared devaluation profits for the year 1966.'
4. The assessee being aggrieved by the aforesaid order went up in appeal before the AAC. The AAC discussed the relevant contentions and the facts as set out by the ITO and the arguments and observed, inter alia, as follows:
'I have considered the submissions of the appellant and in my opinion, they carry sufficient force. The allegation 0f the ITO against the appellant-company can be summarised as under :
(i) The transaction for the sale of sterling 9,32,617 to M/s Hindustan Motors was in contravention of the provisions of the Exchange Control Act 1947.
(ii) The transaction was collusive and colourable in nature,
(iii) The sale of foreign exchange after the date of devaluation should have been effected at the rates prevailing in the post-devaluation period. This was more so because the closing stock of the foreign exchange was valued by the appellant at the new rate and, therefore, the contract amount of sterling 9,32,617 should have been valued also at the new rate.
In my opinion, the ITO has brought in a lot of irrelevant material while making the addition in question. The question whether there was a violation of the provisions of the Foreign Exchange Regulation Act or not is subjudice. The ITO's conclusion, therefore, that the impugned transaction in question was illegal and, therefore, colourable and collusive in nature cannot stand the test of scrutiny. Even assuming that the transaction in question was clearly violative of the Foreign Exchange Regulation Act, I fail to understand how any income could have accrued to the appellant on the facts of the case. The undisputed facts are that the appellant had agreed to sell on 4th of June, 1966, sterling 9,32,617 in foreign exchange to Hindustan Motors Ltd., for the purpose of imports. It is also not denied that the Hindustan Motors were in possession of valid import documents. This amount of foreign exchange was released to the Hindustan Motors at the rate prevailing prior to devaluation for the purpose of retiring certain import bills. The appellant had also made effective arrangements to meet its requirements by making forward purchases from the Reserve Bank of India, Chartered Bank and Bank of India. These contracts were taken up after devaluation at the pre-devaluation rate. In the circumstances, it passes my comprehension how it could be held that the transaction was collusive and colourable in nature and that income to the tune of Rs. 71,53,172 accrued to the appellant. The charge under the Income-tax Act is on the real income of the appellant and not on some imaginary income which the appellant could have earned in the opinion of the ITO. If the transaction was in contravention of the foreign exchange regulation, the appellant will have to pay the penalty for the same but that could not be made a ground for making the addition as has been done in the assessment order. The simple and unassailable facts of the case are that the appellant has agreed to sell to Hindustan Motors 9,32,617 for the purpose of imports at the pre-devaluation rate and this contract has been fulfilled in the post devaluation period at the pre-devaluation rate as per the terms of the contract. Except the marginal amount arising from the difference between the buying and selling rates, no other income has accrued to the bank. The addition is, therefore, totally unjustified and deleted.'
5. In our opinion, the aforesaid findings of the AAC clearly bring out the case. His ultimate conclusion was that even assuming that the transaction in question was in clear violation of the Foreign Exchange Regulation Act, he failed to understand how any income could have accrued to the assessee on the facts of the case. According to him these are undisputed facts which we have set out hereinbefore.
6. Being aggrieved by the aforesaid order of the AAC, the Revenue went up in appeal before the Tribunal. The ground of appeal before the Tribunal was as follows :
'That, on the facts and circumstances of the case, the learned Appellate Assistant Commissioner of Income-tax erred in deleting the amount of Rs. 71,53,172 being devaluation profit, validly assessed by the Income-tax Officer.'
7. Original order was passed on 6th February, 1976. Thereafter, setting out the facts and the contentions of the Revenue and the ITO, the Tribunal observed as follows :
'On behalf of the department, Sri B. Pal, the learned counsel, vehemently urged that the order of the Income-tax Officer was well founded and that the Appellate Assistant Commissioner had erroneously deleted the addition made by the Income-tax Officer. However, during the course of his argument, Shri B. Pal found himself not in a position to state the facts because neither the Income-tax Officer nor the Appellate Assistant Commissioner had incorporated the relevant facts in full in their respective orders. For instance, it was not clear whether the profit sought to be added in the assessment was the profit on sale of 932.617 to Hindustan Motors Ltd., or whether the said profit was in respect of purchase of pound sterling made by the assessee-bank from the Reserve Bank of India, Chartered Bank and Bank of India at lower rates and sold to Hindustan Motors Ltd., at higher rates. Similarly, it was not clear whether the said sum of 932,617 was appropriated by the assessee-bank for and on behalf of Hindustan Motors Ltd., in discharge of the bills of foreign suppliers for the goods imported by the said Hindustan Motors Ltd. and, if so, at what rate and on what date the said appropriation was made. Even the dates on which the purchases of pound from the Reserve Bank of India, and Chartered Bank of India have been made by the assessee and the rate on which the alleged sale of 932.617 has been made to Hindustan Motors Ltd. by the assessee-bank were not known. Thus, the learned counsel for the department could not throw light on the material facts in respect of the addition of Rs. 7,53,172.' Then the Tribunal has set out the contention of learned advocate for the assessee, which, to set out here, we do not find any necessity, because we have set out hereinbefore the said contention. Then there is the reply by the learned advocate for the Revenue, which also is not necessary to be set out, but which we have set out hereinbefore. The Tribunal concluded by observing as follows : 'After hearing the arguments of Shri Balai Pal, the learned counsel for the department, and Shri K. Ray, the learned counsel for the assessee, we are convinced that the matter requires further investigation on the part of the departmental authorities. It is evident that at the time when the assessment for the year under consideration was being made by the Income-tax Officer, the assessee could not produce the relevant books, registers, files, correspondence, etc., relating to the foreign exchange contract entered into by the assessee with Hindustan Motors Ltd. It is also a fact that all such books, registers, documents, etc., were in the custody of the Enforcement Directorate which was at that time making investigation into this matter. Thus, the assessee was obliged by force of circumstances not to place before the departmental authorities the relevant facts and evidence. Similarly, the case against the executives and other officials of the assessee-bank regarding the violation of the Foreign Exchange Regulation Act, 1947, was pending before the Chief Presidency Magistrate, Calcutta. Thus, it was not clear whether the various officials of the assessee-bank were individually responsible for the violation of the Foreign Exchange Regulation Act or whether the bank as such was involved. Now that sufficient time has elapsed and the said cases pending against the various officials of the assessee-bank have been decided, it should not be difficult for the departmental authorities to make proper investigation as to whether any profit was earned by the assessee-bank which was not disclosed to the income-tax authorities or whether the violation of the Foreign Exchange Regulation Act was without reference to any profits that have accrued to the assessee-bank. Because of the fact that the Income-tax Officer took judicial cognisance of a press report which appeared in newspapers in connection with the arrest of various officials of the assessee-bank, the addition of Rs. 71,53,172 was entirely based on such press report without reference to the necessary documents, books, registers, etc. All the books of account, documents, etc., are now available with the assessee with the help of which the assessee is now in a position to prove its case. The assessment order is primarily based on presumptions and inferences, whereas the order of the Appellate Assistant Commissioner has reached a conclusion without setting at naught the points made out by the Income-tax Officer. Under the circumstances, there is some force in the contentions made on behalf of the department that the Appellate Assistant Commissioner has not looked into the books of account and documents, etc., which alone could rebut the findings of the Income-tax Officer. It appears that the Appellate Assistant Commissioner has accepted the contentions made on behalf of the assessee although the said contentions were not substantiated with reference to the books of account and documents. For all these reasons, we are of the opinion that the order of the Appellate Assistant Commissioner should be set aside and the appeal should once again be restored to his file for fresh disposal after making proper scrutiny into the facts and circumstances of the transaction which the assessee-bank entered into with Hindustan Motors Ltd. With this object in view, we set aside the order of the Appellate Assistant Commissioner and restore the appeal once again to his file for fresh disposal according to law.'
8. We must record herein that the order of the Tribunal which is printed at p. 77 onwards is not the correct order of the Tribunal and we have set out the original order, a copy whereof was handed over to the court and which is kept on record. This is not disputed by learned advocate for the Revenue. Thereafter, there was a miscellaneous application which appears at p. 95 which is not necessary to be set out herein. The Tribunal after hearing the parties on that application, inter alia, observed as follows:
'We have perused the said misc. application dated 7th March, 1977, and have heard the parties. It appears that the misc. application is directed against certain observations alleged to be observations of the Tribunal in paragraph 5 of the order dated 6th February, 1976. At the very outset we pointed out that paragraph 5 of the said order of the Tribunal does not contain any observations of the Tribunal but incorporates the various submissions made on behalf of the department by Shri B. Pal, the learned counsel. However, with a view to rectify the position, we hereby proceed to rectify the said order of the Tribunal dated 6th February, 1976, as under:
'(1) The words 'in his opinion' are hereby inserted in line 3 on p. 4 after the word 'because' and before the word 'neither '.
(2) The words ' he urged' are hereby inserted in line 6 on p. 4 after the word 'instance' and before the words 'it was'.
(3) The words 'he urged ' are hereby inserted in line 12 on p. 4 after the word' similarly ' and before the words 'it was'.
(4) The words ' he further pointed out that' are hereby inserted in line 17 on p. 4 in the sentence, starting with the word 'Even the dates'.
The order of the Tribunal dated 6th February, 1976, shall stand modified as indicated above.'
9. The order of the Appellate Tribunal which is at p. 77 of the paper book is the correct order after allowing the miscellaneous application.
10. Now, the question in these circumstances that arises mainly is whether the Tribunal was justified on the basis of these facts to remand the matter to the AAC. Finding the facts as indicated in the order of the Tribunal, it cannot be disputed, in our opinion, that the Tribunal has discretion in appropriate cases to remand the matter to the appropriate authorities if it is necessary for a proper disposal of the appeal before the Tribunal. In this connection, we make it clear that this is a discretion which must be exercised in an appropriate manner and judicially. This view was expressed by the Division Bench of the Patna High Court in the case of Maharani Kanak Kumari Sahiba v. CIT : 28ITR462(Patna) . The Division Bench of the Patna High Court observed that though Section 33(4) granted a very wide statutory discretion to the Income-tax Appellate Tribunal in disposing of an appeal, the discretion given under this section to the Income-tax Appellate Tribunal was a judicial discretion which should be exercised in accordance with legal principles, and not in an arbitrary or capricious manner and it must be exercised within the limit to which an honest man competent to discharge his office ought to confine himself. The Division Bench further observed that where all the evidence had been produced and the Assistant Commissioner had, after a full investigation of the evidence and examination of the accounts, come to a definite finding in favour of the assessee, but the Appellate Tribunal remanded the case to the ITO directing him to come to a finding on the same point after bringing on record further evidence, making a further investigation and examining the accounts, it was held that, on the facts and circumstances of the case the order of remand was not legally valid, and that the appeal preferred to the Appellate Tribunal should be treated as still pending before the Tribunal and should be disposed of by the Tribunal in accordance with law. On behalf of the Revenue it was contended that the I.T. authorities were entitled to gather information from whatsoever source it was available to them even though the assessee did not produce that evidence, provided due opportunity was given to him. Though this is a very well settled proposition and cannot, in our opinion, be disputed, on behalf of the Revenue reliance was placed on the case of Dhakeswtri Cotton Mills Ltd. v. CIT  26 ITR 775 . Reliance was placed on behalf of the Revenue on this decision because in that case though the Supreme Court found that the order of the ITO and the order of the Tribunal were arbitrary and not in accordance with law, even then the Supreme Court directed the Tribunal to remand the case to the appropriate authority to find fresh facts.
11. The Supreme Court observed that it was not possible to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in the Supreme Court by the constitutional provision made in Article 136 of the Constitution of India. The Supreme Court observed that in making an assessment under Section 23(3) of the Indian I.T. Act, 1922, the ITO was not fettered by technical rules of evidence and pleadings and he was entitled to act on material which might not be accepted as evidence in a court of law, but the ITO was not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The Supreme Court reiterated the principle laid down by the Lahore High Court in the case of Seth Gurmukh Singh v. CIT . On the facts, it was held that both the ITO and the Appellate Tribunal in estimating the gross profit rate on sales by the assessee did not act on any material but acted on pure guess and suspicion and, therefore, it was a fit case for the exercise of the power of the Supreme Court under Article 136 of the Constitution of India. Holding that the Tribunal had violated the fundamental rules of justice, in reaching the conclusion, the Supreme Court observed as follows (p. 783 of 26 ITR):
'In the result we allow this appeal, set aside the order of the Tribunal and remand the case to it with directions that in arriving at its estimate of gross profits and sales it should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the material on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private enquiries made by the Income-tax Officer if it is intended to make the estimate on the foot of these enquiries. It will also be open to the department to place any evidence or material on the record to support the estimate made by the Income-tax Officer or by the Tribunal in its judgment. The Tribunal if it thinks fit may remit the case to the Income-tax Officer for making a fresh assessment after taking such further evidence as is furnished by the assessee or by the department.'
12. It has to be borne in mind that the decision of the Supreme Court was rendered by the Supreme Court in disposing of an appeal under Article 136 of the Constitution from the order of the Tribunal. There, the Supreme Court was really exercising the appellate jurisdiction over the order of the Tribunal. In these circumstances, for the disposal of the matter, the Supreme Court directed the finding of further facts because the Supreme Court felt that the essential facts had not been found by the lower authority. In this case, firstly, we are not sitting as an appellate authority but as advisory authority. Secondly, quite apart from that while the Tribunal's power of remanding an appropriate case to investigate fresh facts cannot be disputed, it must be borne in mind that the power must be exercised with proper discretion. It should not be exercised if all the basic facts required for a disposal of the matter are already on record and these appear from the order of the ITO and the AAC and if on these facts found by the ITO and the AAC, the conclusion for which the revenue authority was contending cannot be accepted, then in such circumstances, there cannot be any question of remand. On behalf of the Revenue, it was stressed that the assessee was not able to produce the books. That is true. For that the ITO was entitled to draw adverse inference and come to his own conclusion. As a matter of fact, he did in this case and the AAC had observed that even assuming that there was any contravention of the provisions of the Foreign Exchange Regulation Act, no income had been derived by the assessee thereby and, therefore, there was no justification for bringing to tax any amount. Unfortunately, the Tribunal has not held or considered whether this was justified or not. If that is the position, there was no need for a fresh finding of facts. Learned advocate for the Revenue further drew our attention to the decision of the Supreme Court in the case of Rampyari Devi Saraogi v. CIT : 67ITR84(SC) . There, the Supreme Court was dealing with the provisions of Section 33B of the Indian I.T. Act, 1922, and the question arose whether in passing an order under that provision there was any violation of the principles of natural justice. In our opinion, the ratio of the said decision has no application to the facts of this case or the controversy with which we are confronted. In this background, in our opinion, the appropriate order should be, as was passed by the Patna High Court in the case of Maharani Kanak Kumari Sahiba v. CIT : 28ITR462(Patna) and, for the reasons aforesaid, we will answer question No. 2 by saying that the Tribunal was not justified in passing the remand order and, therefore, it is answered in the negative and in favour of the assessee.
13. So far as question No. 1 is concerned, we will answer the question by saying the, as the appeal has not been disposed of by the Tribunal in view of the fact that the Tribunal has not decided about the conclusion arrived at by the AAC, as we have indicated before, the question is answered in the negative. The Tribunal will now be entitled to dispose of the appeal in the light of the observations made herein.
14. In the facts and circumstances of the case, the parties will pay and bear their own costs.
C.K. Banerji, J.
15. I agree.