1966 (9) TMI 33 - SC - Income Tax

Whether the Income-tax Appellate Tribunal had evidence or material for the finding that there was deliberate fabrication of the accounts by the assessee-company in order to claim the loss in the return and the imposition of penalty upon the company under section 28(1)(c) of the Act is proper and valid ? Whether in view of the finding of the Tribunal, in the appeal against the assessment, that the transaction was not a trading transaction of the company, the company could be made liable for penalty under section 28(1)(c) of the Act ? Held that - The question on which a reference to the High Court was sought was a limited question and the Tribunal declined to refer the question because it did not arise out of its order, the question not having been raised before or decided by the Tribunal. The question sought to be raised before the High Court in a reference under section 66(2) was not an aspect of a question raised before the Tribunal it was a new question which was never raised before the Tribunal. The High Court was, therefore, right in rejecting the prayer for an order under section 66(2) of the Act. Appeal dismissed.

Summary

Issues:
1. Assessment of loss in purchase and sale of shares.
2. Imposition of penalty under section 28(1)(c) of the Income-tax Act, 1922.
3. Consideration of deliberate fabrication of accounts.
4. Application under section 66(2) of the Income-tax Act, 1922.
5. Interpretation of the word 'income' in section 28(1)(c) of the Income-tax Act, 1922.
6. Rejection of questions raised before the Tribunal and High Court.
7. Comparison with the Scindia Steam Navigation Company's case.

Analysis:
The case involved the assessment of a claimed loss by a company in the purchase and sale of shares. The Income-tax Officer disallowed the claim, which was confirmed by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal held that the transaction was not part of the company's business and classified it as a loss in the nature of capital. The Tribunal, however, did not express an opinion on the genuineness of the transaction. Subsequently, penalty proceedings were initiated under section 28(1)(c) of the Income-tax Act, 1922, based on alleged deliberate fabrication of accounts. The Tribunal reduced the penalty imposed but rejected the company's application to refer questions to the High Court, emphasizing that the issue was whether the company concealed income particulars or furnished inaccurate details. The High Court rejected the company's petition under section 66(2), stating that the questions raised did not arise from the Tribunal's order. The company's argument on the interpretation of 'income' in section 28(1)(c) was also dismissed by the High Court.

The company appealed to the Supreme Court, arguing that the Tribunal's conclusion on the transaction not being part of the trading activity should preclude penalty under section 28(1)(c). However, the Court found that this argument was not raised before the Tribunal, thus not forming part of the reference. The Court emphasized that only questions raised or decided by the Tribunal could be considered in a reference. Drawing a parallel with the Scindia Steam Navigation Company's case, the Court highlighted that new questions not raised before the Tribunal could not be referred to the High Court. Ultimately, the Court dismissed the appeal, upholding the decisions of the lower authorities and emphasizing the importance of adhering to the questions raised and decided during the proceedings.

In conclusion, the Supreme Court's judgment reaffirmed the principle that only questions raised and decided by the Tribunal could form the basis of a reference to the High Court. The Court emphasized the need for parties to adhere to the issues raised during proceedings and highlighted the limitations on introducing new questions at later stages. The appeal was dismissed, affirming the decisions of the lower authorities regarding the assessment of loss and imposition of penalty under the Income-tax Act, 1922.