SUPREME COURT OF INDIA

Sudarshan Silks & Sarees

Commissioner of Income tax

ASHOK BHAN AND DALVEER BHANDARI, JJ.

CIVIL APPEAL NOS. 5204-5207 OF 2002

April 11, 2008

Section 271(1)(c) read with section 256 of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment years 1984-85 to 1987-88 - Pursuant to a search, assessee filed its revised return declaring additional income as estimated by search party - Assessing Officer accepted those returns in toto but levied maximum penalty under section 271(1)(c) upon assessee - However, Commissioner (Appeals) as well as Tribunal set aside penalty on finding that search merely led to certain clues to undisclosed income and it would not have been possible for department to assess undisclosed income over all years without assessee’s co-operation - On reference, High Court set aside order of Tribunal holding that findings recorded by Tribunal were perverse - Whether since frame of reference question was not as to whether findings recorded by Tribunal on facts were perverse, High Court was precluded from entering into any discussion regarding perversity of finding of fact recorded by Tribunal - Held, yes - Whether penalty under section 271(1)(c) was not exigible - Held, yes

Section 256 of the Income-tax Act, 1961 - High Court - Reference to - Assessment years 1984-85 to 1987-88 - Whether decision of Tribunal on facts can be gone into by High Court in reference jurisdiction only if a question has been referred to it which says that finding arrived at by Tribunal on facts is perverse, in sense that no reasonable person could have taken such a view - Held, yes

FACTS

A search was conducted on the premises of the assessee and incriminating documents evidencing concealment of income by the assessee were unearthed at the time of search. The assessee-firm filed its revised returns declaring such additional income as had been estimated by the search party. Though the income as per revised returns were accepted in toto but the Assessing Officer chose to levy the maximum penalty under section 271(1)(c) upon the assessee. While levying the penalty, the Assessing Officer repelled the contention of the assessee that a promise was made not to levy the penalty. On appeal, the Commissioner (Appeals) set aside the penalty holding that since assessee had offered the amount for taxation for purchasing peace, no case for levy of penalty was made out. On revenue’s appeal, the Tribunal upheld the order of the Commissioner (Appeals) on finding that the search merely led to certain clues to the undisclosed income and it would not have been possible for department to assess undisclosed income over all the years without the statement of assessee and, therefore, no penalty could be levied. On reference, the High Court held that the findings recorded by the Tribunal being perverse, which no reasonable person could have taken were liable to be set aside and, accordingly, accepted the reference and held that the Tribunal was not right in upholding the order of the Commissioner (Appeals) in canceling the penalty levied under section 271(1)(c).

In the instant appeal before the Supreme Court, the assessee contended that the High Court exceeded its jurisdiction in coming to the conclusion that the finding recorded by the Tribunal were perverse as no question of law to that effect had been either claimed or referred by the Tribunal to the High Court for its opinion.

HELD

In the instant case, the question of law referred to the High Court for its opinion was as to whether the Tribunal was right in upholding the findings of the Commissioner (Appeals) in canceling the penalty levied under section 271(1)(c). Question as to perversity of the findings recorded by the Tribunal on facts was neither raised nor referred to the High Court for its opinion. The Tribunal is the final Court of fact. The decision of Tribunal on facts can be gone into by High Court in reference jurisdiction only if a question has been referred to it which says that finding arrived at by the Tribunal on facts is perverse, in sense that no reasonable person could have taken such a view. In reference jurisdiction, the High Court can answer the question of law referred to it and it is only when a finding of fact recorded by the Tribunal is challenged on the ground of perversity, that a question of law can be said to arise. Since the frame of question was not as to whether the findings recorded by the Tribunal on facts were perverse, the High Court was precluded from entering into any discussion regarding the perversity of the finding of fact recorded by the Tribunal. [Para 16]

Accordingly, the order under appeal was to be set aside and that of the Commissioner (Appeals) and the Tribunal was to be restored. In the facts and circumstances of the case, penalty under section 271(1)(c) was not exigible. The appeals were to be accepted with costs. [Para 17]

CASE REVIEW:

Decision of High Court of Karnataka set aside.