Case: Commissioner Of Income-Tax, Kerala Vs. M/S. Manick Sons

1. For the assessment yearrespondents M/s. Manick and Sons were assessed to tax in the status of a registered firm and their income was computed at Rs.15,331 inclusive of Rs. 15,000 being undisclosed Income. For the assessment yearthe respondents returned Rs. 40,887 as their income from business. TheOfficer discovered an aggregate amount of Rupees 74,692 as "cash credits" which, in his view, were not satisfactorily explained by the respondents. TheOfficer accordingly brought to tax a total income of Rs. 1,31,179 being Rs. 56,487 as income from business and Rs. 74,692 as income from "other sources" and assessed the respondents as an unregistered firm. The Appellate Assistant Commissioner in appeal reduced the income of the respondents from business to Rs. 38,420 and income from "other sources" to Rs. 46,620. In second appeal the Tribunal reduced the income from business to Rs. 28,820 and confirmed finding that the source of the cash credits aggregating to Rs, 46,620 had remained unexplained. But the Tribunal observed that "there were certain special features in the case which needed proper consideration in determining the final assessment." The Tribunal then aggregated the income for the assessment years54 for the two years, which he rounded off at Rs. 1,00,000 and apportioned in equal shares in the two years. For the assessment yearthe Tribunal recorded that the respondents had given an undertaking to file a voluntary return for assessment on the basis of total income of Rs. 50,000.2. At the instance of the Commissioner offour questions were referred to the High Court ofWhether it was not beyond the jurisdiction of the Appellate Tribunal to reopen the conclude assessment for assessment yearand to direct that the income should be revised in that year at Rs. 50,000 as against Rs. 15,331 already fixed?(2) whether on the facts and circumstances of the case and the evidence on record, the Tribunal was justified in directing that any portion of the cash credits be assessed toin any year other than the assessment yearWhether on the facts and circumstances of the case and evidence on record, the Tribunal was justified in finding that a portion of the cash credits was covered by the intangible additions made in54 assessment?(4) Whether on the facts and circumstances of the case and the evidence on record, the Tribunal was justified in directing that the income under the head business for the assessment yearbe reduced to Rs.High Court declined to answer questions (1) and (2) and answered questions (3) and (4) in the affirmative. The Commissioner appeals with special leave.

Court's reasoning:
3. The judgment of the Tribunal is not a reasoned decision on the questions arising before it: it is cryptic and in parts obscure, and gives no grounds for its conclusion. The judgment again lends countenance to a method of assessment which the IndianAct does not warrant.The appeal before the Tribunal raised a simple questionwhether the cash credits aggregating to Rs. 46,620 or any part thereof were liable to be taxed as income of the respondents in the yearFor that purpose the Tribunal had to consider whether the respondents furnished any explanation leading to a justifiable inference that the amount or a part thereof did not represent income of the respondents. In the view of the Tribunal the cash credits had remained unexplained. But the Tribunal still reduced the cash credits by Rs. 21,000, and then proceeded to amalgamate the income for the two years and to divide it equally.For reducing the cash credits by Rs. 21,000 no reasons have been given, and amalgamation of the income for the two years and apportionment is without authority of law.5. An assessment which has become final may be reopened in appeal by the Appellate Assistant Commissioner or the Tribunal or in revision by the Commissioner, or under an order of rectification of mistake, or pursuant to a notice of reassessment. The Tribunal hearing an appeal may give directions for reopening assessment of the year to which the appeal relates: it cannot give any directions to reassess in case of a period not covered by that year.There is no sanction in law to enforce the undertaking given by the respondent when urging his appeal in respect of the yearto make a voluntary return for the yearand even if the respondents carried out that undertaking the assessment ofcould not be reopened otherwise than in the manner prescribed by law.The undertaking must therefore be ignored. Under S. 33 (4) of theAct, 1922, theAppellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power conferred by thatis wide, but it is still a judicial lower which must be exercised in respect of matters that arise in the appeal and according to law. The Tribunal in deciding an appeal before it must deal with questions of law and fact which arise out of the order of assessment made by theOfficer and the order of the Appellate Assistant Commissioner. It cannot assume powers which are inconsistent with express provisions of the Act or its scheme.6. The Tribunal was entitled to enquire whether the source of the cash credits was explained: if it held that they represented capital or income of earlier years, it could exclude them from income liable to be taxed in the year to which the appeal related. But the Tribunal had no power to find on amalgamation of income an average of more years than one, or to give credit for what it called intangible additions, without explaining why credit was given.7. There is no warrant for the claim made by Counsel for the respondents that the order passed by the Tribunal was by consent. The Tribunal has not stated so, and if the order was made by consent of the departmental authorities and the respondents, the objection should have been prominently raised when the Commissioner asked for a reference to the High Court.The decision of this Court, Commr. ofMadras v. S. Nelliappan, (1967) 66 ITR 722 (SC) on which reliance was placed by Counsel for the respondents has little bearing in this case. In S. Nelliappans case, (1967) 66 ITR 722 (SC) it was held that the conclusion whether a cash credit in the books of account of an assessee is properly explained is one on a question of fact on which no reference can be made to the High Court under Section 66 of the IndianAct. The Court in that case did not lay down that it is open to the tribunal to make a consolidated assessment of tax in respect of the assessment of income for the two years and then divide the income in equalthe context in which the statement recording the undertaking occurs in paragraph 7 of the judgment of the Tribunal and the direction given in paragraph 8 leave no room for doubt that the Tribunal did give a direction to theOfficer to reassess the income for the yearOn the answer to the first question no further enquiry need be made on the second question.12. The Tribunal has given no reasons in support of the view that the "intangible additions" of Rs. 21,000 covered a part of the cash credits. Our attention has also not been invited to any evidence which establishes a connection between the cash credits for Rs. 21,000 and the additions of Rs. 15,000 made in the assessment forThe fourth question contemplates an inquiry whether the Tribunal was justified in directing that the income under the head "business" for the assessment yeare reduced to Rs.50,000. The question is somewhat misleading. The direction of the Tribunal was that the total income of the respondentsreduced to Rs. 50,000for the yearthe business income being Rs. 28,820 and the balance being income from other sources. For reasons already set out the Tribunal had no jurisdiction to proceed to combine the income for the two years54 and to divide it for the purpose of assessment between the two years equally. The Tribunal had to assess the incomefor the year