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TMI Blog1991 (7) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... 61, to revise the order of the Income-tax Officer which was passed by him after obtaining the approval of the Inspecting Assistant Commissioner under section 144B of the Act? (iii) Whether for invoking the provisions of section 263 of the Income-tax Act, 1961, it is necessary for the Commissioner of Income-tax to point out specific error and not only a possibility of an error in the Income-tax Officer's order ? (iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in quashing the Commissioner of Income-tax's order under section 263 of the Act ?" Messrs. Associated Garments Maker, M. I. Road, Jaipur, the assessee, consists of two partners. It derives income from stitching of clothes. It observes Deewali year as its accounting year. For the assessment year 1981-82, the assessment was completed under section 143(3) read with section 144B of the Income-tax Act on September 26, 1984, on a total income of Rs. 41,010. The Commissioner of Income-tax, on examining the record of the assessee, noticed that, against the liabilities of Rs. 36,133 details of which have been given in the table in the order of the Commissioner, under section 263 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax was not competent to initiate proceedings under section 263 of the Income-tax Act, and all the liabilities were genuinely incurred for the purposes of business of the firm and Payments were made by cheques which were encashed in the subsequent year. Therefore, there was no justification for making any disallowance on this account. The Commissioner of Income-tax considered the aforesaid objection and, under his order dated September 25, 1986, made under section 263 of the Income-tax Act, set aside the assessment order and observed that, after giving the assessee an opportunity of being heard and allowing him to place any evidence to substantiate its contention, a fresh order in accordance with the directions given in the earlier paragraphs of the Commissioner's order shall be made. The assessee preferred an appeal before the Tribunal and the Tribunal, by its order dated August 19, 1988, allowed the appeal and the view taken by the Tribunal was that the Commissioner cannot get jurisdiction, that the Explanation to section 263 of the Income-tax Act was not retrospective and that the assessment order dated September 26, 1984, having been made after receiving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Commissioner of Income-tax under section 263 of the Income-tax Act, and, therefore, but for the view of the Tribunal on question No. 1, the Tribunal could not have and should not have refused to make a reference to this court for its opinion. It was contended by Mr. N. M. Ranka, learned counsel for the assessee, that, even if a question of law is there, if it is of academic interest, the Tribunal could have declined to make a reference and, therefore, no interference in the order of the Tribunal is called for. The question whether there was no error in the Income-tax Officer's order and no such error was pointed out by the Commissioner of Income-tax in his order under section 263 of the Income-tax Act is based on the evidence on record. Mr. Ranka, learned counsel for the assessee, in support of his contention, has referred to the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC). The Supreme Court, in the aforesaid case, said that when the question referred to the High Court speaks of "on the facts and in the circumstances of the case", it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is for the party who applied for reference to challenge the finding and if the finding is not challenged, even if it may be defective and unreasonable or perverse, there being no evidence in support thereof, it could not be challenged but dealing with the argument of learned counsel for the assessee that the order of the Appellate Tribunal itself was defective in law inasmuch as there was no clear finding recorded by the Appellate Tribunal that the termination of the managing agency was not bona fide or made with ulterior or oblique motive, the court said that there is considerable justification for the aforesaid argument and the order of the Appellate Tribunal is highly unsatisfactory as it has not taken into account all the relevant material adduced by the parties in the case on the question in controversy and the finding of the Appellate Tribunal is not clear and, therefore, defective in law. The Supreme Court reached the conclusion that the question of law referred to the High Court cannot be answered in view of the defective finding by the Appellate Tribunal which is recorded without consideration of all the evidence. It was left open to the Appellate Tribunal to rehear the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to it under section 256(1) or even under section 256(2) of the Income-tax Act, unless the party who applies for reference challenges the finding of facts by raising a question, this court has to take the finding of fact as arrived at by the Tribunal as final. But, if, in a given case, this court comes to the conclusion that, in arriving at the finding of fact, the last court of fact, namely, the Appellate Tribunal, has not taken into account all the relevant material adduced by the parties in the case on the question in controversy or the finding of fact is not clear and is defective in law and, therefore, it is highly unreasonable or unsatisfactory, and, with such a defective finding, the question of law arising out of the order of the Tribunal cannot be answered by this court, it will be open to this court, in exercise of its power under section 260(1) of the Income-tax Act, to leave the matter open to the Appellate Tribunal to rehear the appeal and then to record a clear finding after rehearing the parties on the question in controversy and to direct the Appellate Tribunal to dispose of the appeal. Let us examine the order of the Tribunal to see whether the Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were issued at the fag end of the accounting year ; (ii) they were not encashed up to the end of the year or for another six months ; (iii) they were revalidated after the expiry of six months ; (iv) though the assessee claims that payments were made through crossed cheques, but on verification, the cheques issued in favour of Shri Siddique Karigar (Rs. 3,300), Messrs. Stitch Well (Rs. 4,798.60) and Rattan Tailors (Rs. 4,684) were payee's cheques/bearer cheques by cancelling the marking "and Co." by Shri S. M. Saraf, partner of the firm, and thereby the provisions of section 40A(2) of the Income-tax Act were flouted and the encashment of the cheques proved to be a fishy one ; (v) cheques issued in the names of alleged karigars were subsequently endorsed in favour of some other persons and the persons taking the payments happened to be the persons either directly or indirectly connected with the business of the assessee-firm, i.e., relations, partners, sister concerns or employees ; (vi) there was no document/evidence found to show that the assessee had in fact got the above job work done from the above parties or that any amount was due to them for the alleged work done in earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X
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