- Bookmark
- Share
- CaseIQ
Cit, Andhra Pradesh, Hyderabad v. Kotrika Venkataswamy And Sons .
Factual and Procedural Background
The assessee filed a return declaring an income of Rs 34,560 for Assessment Year 1943-44. Upon scrutiny, the Income-tax Officer (ITO) detected (i) inflated purchases, (ii) spurious cash credits, (iii) diversion of sales, and (iv) bogus speculation losses. He therefore added various amounts under these four heads and assessed total taxable income at Rs 1,43,433.
The assessee’s appeals to the Appellate Assistant Commissioner (AAC) and thereafter to the Income-tax Appellate Tribunal (Tribunal) were unsuccessful in relation to the assessment.
Separately, the ITO initiated penalty proceedings under Section 28(1)(c) of the Indian Income-tax Act, 1922 and imposed a penalty of Rs 24,500. The AAC confirmed the penalty. On further appeal, the Tribunal found concealment proved only in respect of certain cash credits and suppression of sales in partners’ accounts and reduced the penalty to Rs 2,000.
The Commissioner of Income-tax (CIT) sought a reference under Section 66(1) of the Act on the question whether the Tribunal was justified in holding that the Department had not proved concealment in respect of (i) inflated purchases (Rs 21,500) and (ii) bogus speculation losses (Rs 26,789). The Tribunal declined to refer, holding that no question of law arose. An application to the High Court under Section 66(2) also failed. The CIT obtained special leave and filed four appeals before the Supreme Court; Civil Appeal No. 631 of 1967 was treated as the lead matter.
Legal Issues Presented
- Whether the Tribunal’s finding that the Department had not proved concealment of income on certain items raised a question of law warranting a reference to the High Court under Section 66(1) of the Indian Income-tax Act, 1922.
- Whether, in penalty proceedings, the Tribunal lacked jurisdiction to arrive at conclusions inconsistent with its findings in the earlier assessment proceedings.
- Whether the High Court, under Section 66(2), was bound to direct the Tribunal to state a case on a question that had not been specifically raised in the Section 66(1) application.
Arguments of the Parties
Appellant’s Arguments (Commissioner of Income-tax)
- The Tribunal was legally bound to adhere to its findings in the assessment proceedings and could not reach contrary conclusions in penalty proceedings; this raised a substantial question of law.
- Even if not expressly framed, the jurisdictional issue was subsumed within the question submitted for reference, and the Tribunal ought to have drawn up a statement of case on it.
- The High Court erred in declining to exercise its power under Section 66(2) to compel a reference.
Respondent’s Arguments
The opinion does not contain a detailed account of the respondent’s legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court held that the Tribunal’s conclusion regarding absence of concealment was founded entirely on appraisal of evidence. Such a finding is purely factual, and no question of law arose to justify a reference under Section 66(1).
Regarding the alleged jurisdictional error, the Court noted that the CIT had never asked the Tribunal to refer that specific question. Under Section 66(2), the High Court can intervene only if the Tribunal wrongly refuses to state a case on a question actually requested. Since no such request had been made, the High Court’s refusal could not be faulted.
The Court also rejected the submission that the original question was broad enough to include the jurisdictional issue, interpreting the framed question as confined to the factual sufficiency of proof of concealment.
Holding and Implications
Appeals dismissed with costs.
The Supreme Court affirmed the Tribunal’s discretion to decline a reference where only factual issues are involved and clarified that High Courts cannot compel a reference on un-asked questions under Section 66(2). The decision leaves the reduced penalty of Rs 2,000 intact and sets no new legal precedent beyond reinforcing the fact-law distinction in reference jurisdiction.
J.C Shah, C.J— The facts in these four appeals are substantially common. We will deal with the facts in respect of only one appeal (Civil Appeal No. 631 of 1967) relating to the assessment of income tax for Assessment Year 1943-44. The decision will govern the other appeals.
2. The assessee declared in his return for Assessment Year 1943-44, an income of Rs 34,560. On examination of the accounts produced by the assessee the Income Tax Officer found that there was inflation in purchase, spurious cash credits, diversion of sales, and bogus speculation losses were claimed. In assessing the income the Income Tax Officer made additions under four heads of different items of income and brought to tax an income of Rs 1,43,433. The order passed by the Income Tax Officer was substantially confirmed in appeal by the Appellate Assistant Commissioner and by the Tribunal. The Income Tax Officer also commenced a proceeding under Section 28(1)(c) of the Indian Income Tax Act and imposed a penalty of Rs 24,500 upon the assessee. Against the order passed in proceedings for levying penalty, appeals were taken to the Appellate Assistant Commissioner who confirmed the order passed by the Income Tax Officer. The Income Tax Appellate Tribunal was of the view that there was concealment only in respect of cash credits and in suppressing sales in the partners' accounts and reduced the penalty to Rs 2,000 only. The CIT then applied under Section 66(1) of the Act for referring the following question:
“Whether on the facts and in the circumstances of the case, and on true appreciation of the material on record, was the Appellate Tribunal justified in coming to the conclusion that the Department did not prove concealment of income in respect of the following additions viz. (1) inflation of purchases—transaction in the name of K. Venkataseshiah Chetty Rs 21,500, (2) speculation losses in the names of seven persons Rs 26, 789.”
The Tribunal declined to make a reference holding that no question of law arose out of its order. An application under Section 66(2) of the Act calling for a statement of case from the Tribunal on the same question filed before the High Court also did not succeed. With special leave this appeal has been preferred.
3. In our judgment the question raised was purely one of fact. On the materials and in the circumstances of the case if the Tribunal reached the conclusion that it did, that there was no suppression of sales on the facts disclosed, no case could be referred to the High Court under Section 66(1) seeking to upset that conclusion. We do not think that any question of law arose which would justify the Tribunal in making a reference under Section 66(1) to the High Court for calling for a statement of case from the Tribunal on that question.
4. Mr Desai, appearing for the appellant, contends that even if the Tribunal's findings in the appeal relating to levy of penalty were based on appreciation of evidence the Tribunal had no jurisdiction to disagree with its own findings reached in the assessment proceeding; that, Mr Desai contends, is a question of law and the Tribunal was bound to draw up a statement of case and refer that question, and if the Tribunal did not refer that question the High Court was entitled and was indeed bound to order that a statement of case on that question be submitted. But there no such question was included in the application for reference under Section 66(1). The appellant could not ask the High Court to call for a statement of case on a question on which the Tribunal was not asked to submit a statement. Under Section 66(2) of the Act the High Court may call for a statement of case if the High Court is not satisfied about the correctness of the decision of the Tribunal refusing to state a case to the High Court. The High Court cannot obviously be satisfied that the decision of the Tribunal in not submitting a Statement on a question is incorrect when the Tribunal was never asked to submit a statement of case on that question. The tribunal in the present case was not requested to submit a case on the question whether it had no jurisdiction to arrive at a conclusion different from the one which it had reached in the proceeding for assessment.
5. Mr Desai contends, in the alternative, that the question which was submitted to the Tribunal for reference to the High Court was itself wide enough to include the question about the jurisdiction of the Tribunal to reach a conclusion different from that which it had reached in the assessment proceeding. We are unable to agree with Mr Desai. The frame of the question submitted clearly shows that what the Tribunal was asked to do was to submit a case to the High Court on the question whether the Tribunal was justified in coming to the conclusion on the facts and circumstances of the case that no concealment was proved by the Department. That question cannot, in our judgment, include an inquiry whether the Tribunal had jurisdiction to reach a conclusion different from the conclusion it had reached in the proceeding for assessment.
6. The appeals therefore fail and are dismissed with costs. There will be one hearing fee in all the appeals.
Alert