1973 (2) TMI 39 - HC - Income Tax

Tribunal arrived at a finding ignoring the material evidence - whether the Findings Of Fact is vitiated in law giving rise to a question of law - this mandamus application is allowed - Tribunal is directed to draw up the case and refer the questions to this court for decision along with the questions referred

Issues Involved:
1. Authenticity of the sauda nakal (book of prime entry) produced by the assessee.
2. Compliance with the notice under section 22(4) and the validity of ex parte assessment under section 23(4).
3. Legality of the return filed under section 22(3) being considered as filed under section 22(1).
4. Justification for the issuance of notice under section 22(4).
5. Validity of the assessment despite procedural issues in issuing and serving the demand notice.
6. Legality and validity of the assessment under section 23(4).
7. Justification for disallowance of the loss of Rs. 58,722 in speculative transactions.

Detailed Analysis:

1. Authenticity of the Sauda Nakal:
The primary issue was whether the sauda nakal produced by the assessee was genuine. The Tribunal found that the dasawar nakal book produced did not contain the entries at its page 1, which should have been found there according to the ledger. The Tribunal noted that the mistake could be clerical but was widespread across various transactions, suggesting the existence of another book. The Tribunal upheld the view that the entries in the ledger were fictitious and made at the instance of one of the coparceners of the assessee-family.

2. Compliance with Notice Under Section 22(4) and Ex Parte Assessment:
The Tribunal concluded that the assessee committed default in compliance with section 22(4) by not producing the real dasawar nakal book, justifying the ex parte assessment under section 23(4). The Appellate Assistant Commissioner and the Income-tax Officer both held that the nakal produced was not genuine, and the assessee's explanation for the discrepancies was not satisfactory.

3. Legality of the Return Filed Under Section 22(3):
The Tribunal followed the Supreme Court's judgment in Commissioner of Income-tax v. Ranchhoddas Karsondas, concluding that a return filed under section 22(3) in response to a notice under section 22(1) could be considered as filed under section 22(1). This justified the issuance of notice under section 22(4).

4. Justification for Issuance of Notice Under Section 22(4):
The Tribunal held that the notice under section 22(4) was legally issued because the return filed under section 22(3) was pursuant to a notice under section 22(1). The Tribunal remanded the case to the Appellate Assistant Commissioner to decide on merits, who upheld the disallowance of the loss claimed by the assessee.

5. Validity of Assessment Despite Procedural Issues:
The Tribunal found that the procedural issues in issuing and serving the demand notice did not vitiate the assessment. The Tribunal's decision was based on the fact that the assessee had not placed all its cards on the table to prove the resultant loss from speculative transactions.

6. Legality and Validity of Assessment Under Section 23(4):
The Tribunal upheld the legality and validity of the assessment under section 23(4), stating that the assessee's failure to comply with the notice under section 22(4) justified the ex parte assessment. The Tribunal dismissed the assessee's appeal against the order under section 27.

7. Justification for Disallowance of Loss of Rs. 58,722:
The Tribunal disallowed the claim of loss of Rs. 58,722, stating that the assessee had not been able to establish that the ultimate result of all its speculative transactions was a loss to the tune of Rs. 58,722. The Tribunal noted that the assessee had proved the payment to M/s. Sagarmal Ganeshilal of Hapur but failed to establish the overall loss.

Conclusion:
The Tribunal was directed to refer two specific questions of law to the High Court for opinion:
1. Whether there was any basis or material for the finding that the sauda nakal produced was not the real one.
2. Whether there was any material to warrant the finding of default in compliance with the notice under section 22(4).

The High Court allowed the mandamus application, directing the Tribunal to refer these questions along with the questions already referred in I.T.R. No. 10 of 1971.

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