Income-tax

----Reference---High Court---Tribunal partly sustaining addition made by I.T.O. on basis of documents seized during a search---Findings of fact by Tribunal based on material on record and not perverse---High Court will not disturb findings of fact of Tribunal---Indian Income Tax Act, 1961, S.256.

In hearing a reference under section 256 of the Income Tax Act, 1961, the Court does not exercise any appellate or revisionary or supervisory jurisdiction of a Civil Court. It gives the Tribunal advice which undoubtedly has a binding force. In exercising its advisory jurisdiction the Court is neither required nor expected to disturb such findings of fact which are based on material on record and are not perverse.

The ratio of any decision must be understood in the background of that case

In the course of a search a bundle of documents were found and seized. Additions made on that basis in the assessment were sustained partly by the Commissioner of Income-tax (Appeals) and the Tribunal:

Held, that the findings recorded by the Tribunal were found and seized. Additions made on that basis in the assessment were sustained partly by the Commissioner of Income-tax (Appeals) and the Tribunal.

Ambica Quarry Works v. State of Gujarat AIR 1987 SC 1073; CIT v: Lakshman Swaroop Gupta and Brothers (1975) 100 ITR 222 (Raj.); CIT v. Noorjehan P.K. Sint. (1980) 123 ITR 3 (Ker.) and Sree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28 (SC) ref.

T.C. Jain for the Assessee

G.S. Bafna for the Commissioner,

JUDGMENT

M.A.A. KHAN, J.---The Income-tax Appellate Tribunal Jaipur Bench, Jaipur for short, "the Tribunal", has referred under section 256(1) of the Income-tax Act, 1961 (for short, "the Act"), to this Court for its opinion, the following questions, viz.,:

"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the addition of Rs.11,500 made by the Income-tax Officer and also the addition of Rs.39,000 enhanced by the Commissioner of Income-tax (Appeals), which represented notings on a piece of paper titledJakad'?

(2)Whether the Tribunal was justified in sustaining the addition on the basis of a piece of paper having notings of date and amount only without proving the ownership or investment in terms of section 69 or section 59-A of the Income-tax Act, 1961?

(3)Whether the Tribunal could in law presume from Jakad slip that the assessee had made investments which are not recorded in the books

of account, in spite of the fact that 'Jakad' represented the goods on approval and as per practice of the trade these were not entered in books of account unless the goods are approved and transactions arc finalised?"

The assessee is an individual dealing in rough, precious and semi-precious stones in local and foreign markets. The assessment year involved is 1979-80 relevant to the assessee's previous year ending on Diwali S.Y.2035.

In the course of a search conducted under section 132 of the Act at the residential and business premises of the assessee in May, 1979, a bundle of incriminating documents was found and was seized, vide Panchnama dated May 20. 1979. Page 19 of this bundle contained the following entries:

The total of the amounts mentioned in this seized paper considered to be falling within the accounting period ending on Diwali S.Y. 2035 1978 came to Rs.1,63,888. The Income-tax Officer summoned the assessee under section 131 of the Act and asked him to explain the entries. The assessee, admitting his ownership to the seized document and also admitting that the relevant entries were written in his handwriting, stated that the figures represented the cost of the goods which was given by him on approval basis to various brokers to be sold to prospective buyers. However, on being called to tally the entries with the entries in the stock register, the assessee stated that no "Jakad Bahi" was maintained by him and that it was difficult for him to tally the entries in the document with those in the stock register. By his letter, dated March 17, 1982, the assessee contended that no entries were made in the stock register as the goods given on "Jakad" simply represented movement of goods out of stock-in-trade. The assessee further appears to have contended before the Income-tax Officer and the Inspecting Assistant Commissioner that the first entry did not bear any date and, therefore, the same did not pertain to the accounting period under consideration. Both the assessing authorities dismissed such contention of the assessee. After deciphering the entries in the light of the assessee's statement under section 131 and his other contentions, the Income-tax Officer concluded that the amount of Rs.1,63,888 represented the investment made by the assessee in the purchase of goods as well as the earned profit during the year under consideration and that such transactions were effected out of books. He, therefore, made an addition under section 69 of the Act to the income of the assessee.

In appeal, the learned Commissioner of Income-tax (Appeals) accepted the assessee's contention that the first entry of Rs.1,52,388 stood explained in view of the position of opening and closing stocks and also as on August 25, 1978, when the assessee had received a lot of rough emeralds weighing about one lakh cts from Messrs. Indian Trading Corporation for grading and sorting. But the remaining addition of Rs.11,500 did not stand so explained. At the same time, the learned Commissioner of Income-tax (Appeals) accepted the contention of the Income-tax Officer also and which was the effect that by mistake the entries in the Jakad were considered up to October 31, 1978, only whereas such entries should have been considered upto March 31, 1979, and when so considered the investment out of the books was required to be enhanced by Rs.39,000. The learned Commissioner of Income-tax (Appeals) thus upheld the additions of Rs.11,500 and Rs.39,000.

In the second appeal, the Tribunal confirmed the additions as made and sustained by the Commissioner of Income-tax (Appeals).

Mr T.C. Jain, learned counsel for the assessee vehemently that the Income-tax Authorities as well as the Tribunal have not appreciated the facts of the case and evidence on record in the right perspective and, therefore, their findings stand vitiated. Referring to the principles enunciated in certain cases particularly in CIT v. Lakshman Swaroop Gupta & Bros. (1975) 100 ITR 222 (Raj) and CIT v. Sint. P.K. Noorjehan (1980) 123 ITR 3 (Ker.) Mr. Jain submitted that no inference on the basis of the entries in the seized paper could have been made against the assessee and that no addition could be made or sustained under section 69 of the Act on the sole basis of unsatisfactory explanation of the assessee.

The learned Departmental Representative, on the other hand, submitted that the findings recorded by the Tribunal on the issue involved in the three questions referred to this Court were essentially findings of fact and since such findings do not give rise to any question of law the referred questions need not be answered.

It is well-settled position of law that in hearing a reference under section 256, this Court does not exercise any appellate or revisionary or supervisory jurisdiction as a Civil Court. It acts purely in an advisory capacity on a reference which validly and properly comes to it. It gives the Tribunal advice which undoubtedly has a binding force. In exercising its advisory jurisdiction, this Court is neither required nor expected to disturb such findings of fact which are based on material on record and are not perverse. If the Tribunal is found to have taken a reasonable view of the evidence on record and has then recorded the findings of fact this Court would not interfere with such findings.

In the case of Sree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28; AIR 1957 SC 49, the apex Court ruled that in the determination of a question of fact no application of any principle of law is required in finding either the basic facts or arriving at the ultimate conclusion; in a mixed question of law and facts the ultimate conclusion has to be drawn by applying the principles of law to basic findings. In fact, the issues of fact are to be decided on the basis of the appreciation of relevant facts and the evidence and other material brought on the record of the case in support of the existence or non-existence of such facts. The appreciation of such facts and evidence results in recording certain findings which would undoubtedly have the character of findings of fact. The findings of fact would give rise to questions of fact only and not to questions of law.

In the instant case the question which arose for consideration and adjudication by the Income-tax Authorities and the Tribunal was whether any addition can be made on the basis of the entries made in the paper found in possession of the assessee. The Income-tax Officer conducted enquiries into the nature and effect of such entries. The assessee, on being called upon to state his case, admitted not only the ownership of the incriminating document but also the writing thereon in his handwriting. The entries made in the document were undisputedly related to the business activities of the assessee. The learned Commissioner of Income-tax (Appeals) at his stage even considered the explanation of the assessee with reference to the position of opening and closing stocks and also as on August 25, 1978, and it was on consideration and appreciation of such facts and material before him that he recorded his findings. At its stage, the Tribunal examined the correctness of the findings recorded by the learned Commissioner of Income-tax (Appeals) and after reappraisal of the relevant evidence recorded its own findings giving rise to the questions referred to us. The Tribunal is found to have taken a reasonable view of the evidence on record and has drawn legitimate inferences from the facts found established by it. In our considered opinion, the findings recorded by the Tribunal are purely findings of fact and such findings do not give rise to any question of law. Since the findings recorded by the Tribunal are based on good evidence and are not at all perverse this Court should not and would not disturb such findings.

The cases mentioned above and other similar cases lay down certain well-established principles of law regarding burden of proof and appreciation of evidence. There is no dispute about such principles. The question is one of applicability of the principles to the facts in a given case. It has been a well-settled view that the ratio of any decision must be understood in the background of that case. What is of essence in a decision is its ratio and not every observation found therein nor what legally follows from the various observation made in it. It is not a profitable task to extract a suitable sentence here and there from a judgment and to build upon it (vide Ambica Quarry Works v. State of Gujarat, AIR 1987 SC 1073). In our opinion, the principles enunciated in the cited cases do not render any help to the assessee in the facts and circumstances of the present case.

In view of the above discussion, we hold that since the questions referred to us by the Tribunal have arisen out of findings of fact which findings cannot be disturbed by us in exercise of the powers under section 256 of the Act, we decline to answer any of the three questions. Let, the record of the Tribunal, if requisitioned be returned to the Tribunal alongwith our opinion, as aforesaid.

M.B.A./1194/FCOrder accordingly.