Commissioner of Income Tax, Bihar and Orissa, Patna v. S. P. Jain

334 COMMISSIONER OF INCOME TAX, BIHAR AND ORISSA, PATNA _v._ S. P. JAIN A _September_ 19, 1972 B [K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. K1JANNA, JJ.] _Income rax--Tribunal-Findings_ _>f_ _fact-Circwnsrances_ _justifying_ _imerference._ The Income Tax Officer included 'II sum of Rs. 10,80,000/- found invested in shares in the name of R as rtie assessee's income from updisclosed sources.. The income tax offic.er had· informed the asse see tba~ on the basis of information available with him he had reason to believe thnt R ms the assessee's benamidar. The assessce took no r-teps to produce R for examination by the Income Tax Officer. The source not having beetn explained the income tax officer assessed the sum as tho assessee's income from unoisc [1] osed sources. The Appellate Assistant Commissioner confirmed this order. In the appeal the Tribwial declined to consider cenain dociunents on record. After rejecting these documents, the Tribunal fowid that the purchase of shares was :not a benami transaction and was legally valid. The High Court confirmed the Tribunal's conclusions.. In this Court it wac contended on behalf of the Revenue that Tribunal based its conclusions on inadmissible evidence and on wrong facts, gave no cogent reasons for rejecting the findings of the inoome tax Officer, failed to take into account the relevant material or record and based its conclusions on mere conjectures and surmises. Allowing the appeal, HELD : (i) Before rejecting the findings of the tribwial the Court must be satisfied that there are ground· recognised by law which empower the court to interfere with those findings. ' (ii) The High Court and this Court have always the jurisdiction to intervene if it appears that either the Tribwial has misUinderstood the statutory language or it has 'llrrived at a finding based 011 no evidenc.e, or where the finding is inconsistent with the evioonce or contradictory of it or it bas acted on 'l!aterial partly releva:i;t and partly irrelevant, or where the Tribwial draws updn its own imagination, imports facts **and circumstances n6t apparent from** **the** **record, or bases its conclusions** **on mere conjectures or surmises or where no person judicially acting and** properly instructed as to the relevant law could have come to the determination reached. In all nuch cases the findings arrived at are vitiated. Unless the Tribunal has been asked to refer a question im?Ugoir>g the validity of the findings sustainable or any principle of law, the facts stated in the statement of the case would form the basis on which th. legality or otherwise of the assessment would alone require to be con· sidered by the High Coun. · What has to be safeguarded ugainst is that 'lllY erystallizz.tion of the views of this Court and its reluctance to interfere with the findings of fa~! should not make the tribunals or the Incorne0 tax authori•ies smug in the belief that a the courts do not interfere with the findings which form the bed-rock upon which the law will be based, they can act on that assumption in finding facts, or, by their mere _ipsi dixit_ that they are findings of 'fact, wish it to be so assumed irrespective ,C I> E F G **H** A B c I) E F G H c.J.T. _v._ s. P. JAIN _(Jaganmohan Reddy,_ J.) 335 of whether they are sustainable in law or on the materials on record. In number of case3 t'1is Court has set out the principles upon which it will interfere with the findings of fact arrived at by the Tribunal. [344G, 3460] _Korna11i_ _P1•operties_ _Ltd._ v. _C.I.T. West Bengal,_ 82 I.T.R. 547 at 554, _Edwards (Inspector_ _of_ _Taxes)_ v. _Birstow,_ 28 I.T.R. 579 _at_ 594, _Mehta_ _Parikh_ & _Co._ v. _Commission<V"_ _of_ _Income-tax, Bombay,,_ 30 I.T.R. 181, _Omar Sa/av Mohamad Sail_ v. _Commissioner_ _of Income-tax, Madra8,_ 37 I.T.R. 151 at 170, _Lalchand Bhagat Ambica_ _Ram_ v. _Commissioner_ _of_ _Income-tax, Bihar and_ _Orissa,_ 37 I.T.R. 288 at 295 and _Meenakshi Mills,_ _Madurai_ v. _Commissioner_ _of_ _Income-tax,_ 31 J.T.R. 28 at 50, referred to. (iii) Jn the present case the Tribunal failed to take into account the relevant material on record in arriving at its findi:ng, Further it acted **on inadmissible evidence,** **based** **its** **conclusions** **on** **conjectures, surmises** and wrong facts, and failed to consider the probabilities of the c- on which the lncome-taic Officer and the Appellate Assistant Commissioner placed a great deal of emphasis. On the basis of the material on record the lricome·taic Officer a1nd the Appellate Assistant Commhsioner were fully justified in drawing inference that R was a name lender for the assessee. Neither the Tribunal nor the High Court has given good reasons for displacing the conclusions reached by the Income-tax Officer or the Appellate Assistant Commissioner.. They had a duty to examine the reasons given by thi!se wthorities before rejecting them. [359 BJ CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 320 to 322 of 1969. Appeals by special leave from the judgment and order dated February 29, 1968 of the Patna High Court in Tax Cases Nos. 16, 17 and _18_ of 1965. _F._ _S._ _Nariman, Additional_ _Solicitor-Ge11eral_ _of_ _India,_ _S._ _K._ _Aiyar, R._ _N._ _Sachthey_ and _S._ _P._ _Nayar,_ for the appellant. _V._ _S._ _Desai, M. Natesan, Neel Rattan_ _Khairan,_ _D._ _P._ _Mohantv_ and _S._ _Gopalkrishnan,_ for the respondent. The Judgment of the Court was delivered by . JAGANMOHAN REDDY: J. These appeals are by he Commiss10ner. of Income Tax, B1har and Orissa, against the judgment of the High Court of Patna in references under s. 66 ( 2) of the Income-tax Act, 1922 (hereinafter called the 'Act') which answered the quesiions referred to it in favour of the assessee and aga.ihst the appellant. We shall presently set out the questions called for by the High Co~rt, but before. we do so, it is necessary to state the facts on which those questlons have to be detennined. . The assessee,i~ an individual having income from salary, mtere.;t on secun11es, rents from house properties, dividends etc. In the year 1954-55 for which the previous year is 1st November 1_952 to 31st October: 1953, the assessee filed a return on 28th February 1955 declanng a total income of Rs. 2,60,737/-. On 336 SUPREME COURT REPORTS (1973] 2 S.C.R. 24th February 1958 a revised return was filed including therein property income amounting to Rs. _550/-._ The Income Tax Officer completed the assessment on 30th Septembe~. 1958 on a total income of Rs. 21,15,845/- which included a sum of Rs. 10,80,000;'- treated as the assess~·s income frilm undisclosed sources "for investment in shares in the name of Sri Kalyan Shum Shere **J.** **B.** Rana" (hereinafter referred to as 'the Rana'). The •t~sessee disputed the inclusion of this amour.I of Rs. 10,80,000/~. The Income-tax Officer treated this amount as income fronl undisclosed sources for· the folloiving reasons : From the statement of case, it would appear that on July 1, 1952 the assessee sold 50,000 ordinary shares of Rhotas Industries Limited (R. I. Ltd.) to Dalmia Jain Collieries Ltd. **(D.J.C.** Ltd.). Another 10,000 shares of R. I. Ltd. were sold on the same day to Maheshpur Collieries ( M. C. Ltd.). He also sold 40,000 and 35,000 ordinary shares of S. K. G. Sugar Ltd. the former to D. J. C. Ltd. and the latter to M. C. Ltd. on the same day, _vi::.,_ 31st July, 1952. Thereafter, in the year 1953, the two vendor companies are alleged to have sold these shares for a sum of Rs. 10,80,000/- to one Rana as follows : (a) On 30th May 1953 the **D.** J.C. Ltd. sold 40,000 ordinary shares to S. K. G. Sugar Ltd. for Rs. 3,20,000/-; Again on 28th August 1953, the D. J. C. Ltd. sold 50,000 ordinary shares to **R.** I. Ltd., for Rs. 4,00,000/-; (b) On 30th May 1953, M. C. Ltd. sold 35,000 ordinary shares of S. K. G. Sugar Ltd. for Rs. 2,80,000/-; and on 28th August 1953, the same company sold another 10,000 ordinary shares to R. I. Ltd. for Rs. 80,000.'-. The shares which were delivered allegedly to Rana by Mr. J. F. Wood, General Manager of the Allahabad Bank after collecting the sale price of Rs. 10,80,000/- in cash paid on 30th May 1953 and 28th August 1953 and that the sum so received was given as loan to one Sri Durga Prasad of Tumsar through Sri **J.** F. Wood who paid to him the two amounts aggregating to Rs. 10,80,000/- on the respectiv" dates against two promissory notes and receipts., Though the Rana is shown to have purchased the shares in May and August 1953, he got them transferred to his own name only in April, 1955. **A** c **D** E **F** On the material on record the Income-tax Officer came to the following conclusions :- **H** "(i) The Rana could not be contacted at 22, Circus Avenue, Calcutta. The Inspector of the D~partment found that the tenant ,\ B c D F II C.I.T. 1'. s. P. JAIN _(Jaganmohan Reddy,_ J.) of the first floor of 22, Circus A venue, Calcutta was some one else and that the flat had never been let out to the Rana. (ii) The Income Tax Officer's own personal enquiries showed that the Rana could never have 'been in a position to invest a sum nf over Rs. 10 lakhs in the shares in question. (iii) Neither the two vendor companies nor the Rana nor Sri Durga Prasad of Tumsar had any account with the Allahabad Bank at that time and the shares were not in the Bank's custody. The letter of Mr. J. F. Wood confirming the transaction did not appear in the Issue No. of the Bank and no office copy of the letter was forthcoming in the bank. A person with sufficient financial influence with the Bank alone could have brought about such a transaction and the Rana should therefore be a benamidar. (jv) Though the Rana is alleged to have purchased shares in May and August, 1953 the Rana had never attended any general meeting of the shareholders nor appointed any proxy to attend in the general meeting on his behalf. (v) R. I. Ltd. declared dividends on 2nd June 1954 and S. K. G. Ltd. on 23rd April 1954. The dividends in all amount· cd to Rs. 21 lakhs but the Rana did not take steps to have the same recorded as the registered shareholder and to collect the dividends. (vi) The Rana opened a current account in Allahabad Bank in April, 1955 with a cash deposit of Rs. 500 and the dividends were then collected by the bank. During April to December, 1955 deposits were over Rs. 22 lakhs and withdrawals Rs. 20 hums. During April to December, 1955 deposits were over Rs. 22 Iakhs and withdrawals Rs. 20 lakhs. During the calendar year 1955 the deposits were Rs. 14.97 lakhs and withdrawals Rs. 16.85 lakhs; in the calendar year 1957 there was one deposit of Rs. 1,30,125 and withdrawal of Rs. 1,41,000/-. All these deposits were by cheques and withdrawals involving over Rs. 38 lakhs in the three years were all by bearer cheques and endorsed in favour of Ananta Chandra Das. Along with the cheques, letters of authorisation were also issued in his favour. Excepting for the signatures of the Rana, the other entries in the cheques were in different handwriting and the authorisation letters were all typed in identical form. Ananta Chandra Das was found to be a representative of Sri B. D. Dujari, Accountant of Ashoka Marketing Ltd. and one of the lieutenants of the assessee. (vii) The vendor companies and the companies whose shares were sol~, namely, of R. I. Ltd. and S. K. G. Ltd. all belonged to Sahu Jam Group and under the complete control of the assessee who is the head of Sahu Jain Group. Since it was not likely that 338 SUPREME COURT REPORTS [ l 973] 2 S.C.R. the assessee could afford to allow these shares pass out of his control to an outsider, the transaction of purchase of the shares from the vendor companies would have been by the assessee in the name of the Rana. On 28th February, 1968 the Income-tax Officer informed the assessee that on the basis of information available with him, he had reason to believe that the Rana was the assessee's benamidar in the transaction of purchase of the shares in question for Rs. 10,80,000/- from the two vendor companies and called upon the assessee to state his objections, if any, and also to adduce evidence in support of his contentions and also to produce the Rana before him. On 13th March 1958 the assessee denied the purchase of the shares by him through the alleged benamidar. On 3rd September 1958 the assessee's accountant forwarded to the Income-tax Officer a statement or letter by the Rana, dated 26th August 1958 confirming the purchase of share~ by him. Since the assessee took no steps to produce the Rana for examination by the Income-tax Officer in view of "the utter uselessness" of the Rana's letter and in the absence of "necessary evidence and conclusive proof" about the Rana's financial capacity, the Incomctax Officer treated the source of investment of Rs. 10,80,000/- as belonging to the assessee. The source not having been explained, the Income-tax Officer assessed the sum as the assessee's income from undisclosed sources. In appeal against the assessment, the Appellate Assistant Commissioner remanded the case to the Income-tax Ofllcer as he found that the evidence of Sri Durga Prasad had been taken without giving any opportunity to the assessee to cross-examine him and that Anant Chandra Das was not examined, nor was any evidence of the officers of the two vendor companies recorded The Appellate Assistant Commissioner further directed the Income-tax Officer to examine the assessee and also to investigate the physical movement of the shares in question during the period covered by the transactions and the subsequent history including their ultimate disposal. It would appear from the Appellate Assistant Commissioner's order that the Income-tax Officer submitted two remand reports in which he made out the following salient points : (I) The assessee did not avail of the opportunity of producing the Rana. ( 2) The Income-tax Officer visited Nepal and found that the present position and ante~edents of the Rana were modest. . .-\ B c D E F G II _r_ A II c c.r.T. _v._ s. P. JAIN _(Jaganmohan Reddy,_ _I.)_ . 339 (3) Ananta Chandra Das was found to be an employee of Ashoka Marketing Ltd. Later, the Income-tax Officer succeeded in contacting Ananta Chandra Das whose statement was also recorded . ( 4) The statement of Onkarmal Dalmia recorded on 9th December 1958 showed that the share scrips of the two companies involved, which were stated to have been purchased by **D.** J. C. Ltd. and Mahespur Collieries Ltd. were found to have been in the custody of the Accountant of the Ashoka Marketing Ltd. (5) The Principal Officer of the two. companies Shri **H.** **D.** Bisoni, did not know about the transactions in question. . ' ( 6) Sri Durga Prasad changed his earlier statement and said that the loans received by him w.ere from the two companies concerned. (7) The sale to Rana was made at Patna below the market **D** - rates. ( 8) Some details regarding the movement of the shares were noted by the Income-tax Officer but their subsequent. history was - not traced out . E F G II (9) The statements of Sarvashree Onkarmal Dal!nia, **H. D.** Bisoni the appellant, Ananta · Chandra Das and Thakur Das Dujari were enclosed." After the receipt of the remand reports, the Appellate Assistant Commissioner was of opinion that if the cumulative picture was visualised and considered not in isolation but generally as a whole, great weight has to be attached to the Income-tax Officer's conclusion that the investment of Rs. 10,80,000/- was the assessee's income from undisclosed sources. An appeal against this order was taken to the Income-tax Appellate Tribunal. The Tribunal declined to consider certain documents in Annexure **D-1** to D-33 of the statement of the case. After rejecting these documents, the Tribunal found that "the purchase of shares by Rana was not a benami transaction" and '"'.as legally valid. The conclusions of the Accountant Member which will be referred to as that of the Tribunal so· far as they are relevant fot the disposal of this appeal have been stated by him as under : ( **1)** At the relevant time in 1953, it was not in dispute that the two vendor companies were the actual owners of 75,000 ordinary shares of S. K. G. Ltd. and 60,000 ordinary shares of R. I. Ltd. The shares, whit:h the companies purchased were 340. SUPREME COURT REPORTS [ 1973] 2 S.C.R. pledged with the Commissioner of Income-tax by the assessee and with his permission subsequently sold to- the above companies. (2) The transactions of sale by the vendor companies· have been establi,hed according to the entries in the account books of the companies and by the factum of actual advance of loans amounting to Rs. 10,80,000/- to Durga Prasad who executed the requisite promissory notes iri favour of the two companies. According to the evidence of Sri Durga Prasad and the letter of Sri J. · F. Wood, General Manager of the Allahabad Bank the sale proceeds were received by him on behalf of the vendor companies from the Rana and paid over to Sri Durga Prasad after obtaining the promissory notes. It was not the department's case that Sri S. P. Jain had adv:inced Rs. 10,80,000/- · to Sri Durga Prasad. The vendor companies did not have cash to make the advances except after the sale of the shares. From the facts recorded it followed that the two vendor companies effected the actual. sale· of shares in question and made the loans aggregating to Rs. 10,80,000/- to Shri Durga Prasad. ( 3) Rana did not claim to be a tenant of 22, Circus Avenue, Calcutta. . He had given his address as "Thapathali Darbar Nepal C/o Smt. Pooku .Maiya Saheba, 22, Circus Avenue, Calcutta". In 1956, Rana seems to have been present at Calcutta and this A c ' #### • ##### • fact had been confirmed in a letter to the Income-tax Officer dated 27th July 1956 by General Baber Shamshir J. B. Rana who 'tated th:it the Rana left his home (Nepal) some months back for treatment in India but he did not know Rana's address. The department had commenced its enquiries early in 1956 .and af that time the Rana had substantial cash balances left in the Allahabad Bank. Since Rana never claimed to be a· tenant and the departmental enquiries did not result in a positive finding that the · Rana never stayed at No. 22, Circus Avenue, Calcutta, no adverse F inference could be drawn against the assessee from the failure to contact the Rana. If it was a fact that the Rana had given a bogus address, his financial standing and credit could be assailed. As the facts stood the fact that the. Rana could not be contacted - at 22 Circus Avenue could not warrant an inference that the Rana was a benamidar. G G ( 4) That the assessee had produced at the remand stage a letter dated 15th March 1959 from the Indian Ambassador, Nepal to the affect that the Rana was a person of large means and resources and enjoyed respectable position. The department did not take further action by seeking any clarification from the Indian Ambassador. He held that there was no material to hold ll that the Rana was not financially in a position. to· make the investment in question of over Rs. 10 lakhs. _r_ ,.. __ ' ll c D E p G II c.I.T. _v._ s. P. JAIN _(Jaganmohan Reddy, J.)._ 341 ( 5) The Income-tax Officer drew an· adverse inference that the Rana was a benamidar from the fact that the Rana did not get himself registered as a shareholder for nearly a year and did not promptly collect . the dividends - declared. The Tribunal thought that this was possible if Rana possessed sufficient means whereas if he was weak financially he would have tried to collect the dividends immediately on declaration. - ( 6) A nan ta Chandra Das was ultimately located by the Income-tax Officer as an employee working in New Central Jute Mills. · He was subjected to prolonged cross-examination by the Income-tax Officer in November and December 1962. It was not elicited from Anania Chandra Das that the moneys collected by him from Allahabad Bank Ltd. against the cheques of the Rana were paid to the cashier or accountant of. the Ashoka Marketing Ltd. or of any other concern under the assessee's control. Ananta Chandra Das, on the other hand, specifically stated that the Rana utilised his services for getting the moneys from the Bank and the moneys were duly handed over to the Rana. Ananta Chandra Das's evidence failed to establish that the moneys collected from Allahabad Bank were for the assessee's benefit. The Judicial Member though he agreed with the main conclusions arrived at by the Accountant Member however addec! : "The following circumstances of this · case have caused serious doubts in my mind as to the _bona fides_ of the transactions of the purchases or sales of these shares· by the· Rana (I) that there was no evidence· of any negotiation for the sale of this huge lot, of shares by the two colliery companies to the Rana. Certainly no brokers were involved; (2) That the two large sums of Rs. 6 lakhs and Rs. 4,80,000/- were handed over in cash by the Rana on 30th May 1953 and 28th August 1953 though admittedly the Rana had no bank account and no residence of his own in Calcutta where the cash could be kept in safety; (3) That though neither of the two colliery companies nor the Rana were constituents of the Allahabad Bank, yet the General Manager of the Bank actually handed over the purchase price and the share scrips respectively to the vendors and the pur. chaser and no reference could be found in the official records of the bank; _(_ 4) The unsatisfactory nature of the evidence given by Nandlall Poddar and (5) Lastly, the manner of withdrawal of nearly Rs. 37 lakhs in cash from the Allahabad Bank. Although the depart-· ment has been able to point out the circumstances which raise an element of doubt as to the genuineness of the transaction of the purchases of these shares in 342 SUPREME COURT REPORTS [ 1973] Z S.C.R. 1953 by the Rana, in _iny opinion, the assessee has successfully rebutted any positive evidence produced by the depart~ent: I ~ave a feeling that if the department bad a.cted m ttm~, it could possibly have unearthed matenals an~ evidence to strengthen and support this case. In spite of the serious misgivings in my mind I am constramed to hold that the departtnent bas failed to establish beyond reasonable doubt that the Rana acted merely as a benamider in the purchase of these shares and also that he so acted on behalf of the assessee, Sri S. P. Jain. I, therefore, concur with the order made by the Accountant Member." On the Tribunal's findings, the following questions were referred to the High Court :- - . (I) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in declining to consider the documents which were already on· record and which the Department wanted to adduce as evidence ? (2) Whether on the facts and in the circumstances of the case, the Tribunal's finding that the purchase of the shares by the Rana was not a benami transaction was legally valid ? - ( 3) Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the sum of Rs. 10,80,000/ from the total income of the assessee by holding that the Rana was not the benamidar of the assessee ? The. High Court confirmed the Tribunal's conclusions on more or less similar reasoning which formed the basis of those conclu ~ions. On behalf of the revenue, it is contended by the learned Additional Solicitor General that the Tribunal based its conclusions on inadmissible evidence and on wrong facts. It gave no cogent rea sons for rejecting the findings of the Income-tax Officer. It disregarded and failed .to take into account the relevant material on record and has based its findings on mere conjectures and surmises. For these reasons he invites us to ignore the bases of the Tribunal's conclusion and hold that on the findings given by the Income-tax Officer, Appellate Assistant Commissioner and 1he materials on record, the sale by the two vendor companies to Rana was a sham and bogus transaction, that in fact Rs. 10,80,000/- alleged to have been paid for the price of those shares was the assessee's income from undisclosed sources. What has to be considered in this case is, whether the sale of shares by the vendor companies to Rana on the date when it is :alleged to have taken place was a sham and bogus one; and if it A ll c D E F G ll A ll \ c I> E F G H c.I.T. _v._ s. P. JAIN _(Jaganmohan Reddy, J.)_ 34 3 was and that Rana was m~rely a name-lender, whether the loan alleged to have been advanced by the vendor companies to Durga Prasad of Tumsur was in fact advanced by the assessee. Both are inter-linked and unless the connection of the assessee with the loan is established, the assessment in respect of that amount as income from undisclosed sources cannot be sustained. The two primary questions that arise for decision in these (lppeals are :1. Whether the findings of fact reached by the Tribunal are liable to be interfered with on any of the grounds recognised by law, and 2. Whether the department ha> been able to establish that the shares alleged to have been purchased by the Rana were actually purchased by the assessee and that the Rana was a mere bcnamidar for the assessee. The findings reached by the Tribunal are _prima facie_ findings of fact. Before rejecting those findings, we must be satisfied that there are grounds in this ca5e recoginsed by law which empower us to interfere with those findings. If the Department succeeds in crossing this hurdle, it has to further establish not merely that the Rana was not the real purchaser of those shares but that he was the bcnamidar of the assessee. The question which naturally (Irises on the very threshold is, whether it is permissible for this Court to go behind !he findings of fact as found by the Tribunal upon which it had come to the conclusion that the Rana was the real purchaser. In _Kerna11i_ _Properties Ltd._ v. _C.l.T._ _Wew Benga/(_ _[1 ]_ _)_ this Court (consisting of one of us (Hegde, J.) and Grover, J. had indicated the limi·tations imposed on the High Court and this Court from interfering with the findings of fact arrived at by the Tribunal. The assessee in. that case owned a number of residential fhts and was providing various services and ameni•ies. It claimed that its income should be assessed under the head "business". The Income-~ax Officer split the receipts into two parts, one part being treated as rent and. the other as "income from other sources" taxable under s.12 of the Act. The Appellate Tribunal however held that the second part was assessable as income from the business under s.I 0. Neither the department nor the asses~ee contended that that part was assessable under s. ?· The High Court thought that some of the facts found by the Tnbu11al were not correct and on a re-aonraisal of the material on record came to the conclusion that the income was assessable under s. 9 of the Act. This. the High Court could not do as it had no jurisdiction to go behind or question the statements of fact (!) 82 I. T. R. 547 at 554. 344 SUPREME COURT REPORTS ! 1973] 2 S.C.R. made by the Tribunal unless a reference challenging the finding' of fact arrived at by the Tribunal were made to it. It appears in that case the question whether the findings of fact urged by the Tribunal were vitiated for any reason was not before the High Court. In those circumstances '!his Court pointed out. (seep. 551) ,\ B c D E F G II "The jurisdiction of the High Court in dealing with a reference under section 66 is a very limited one. It must take the fact as ~lated in the statement of the case unless the question whether the findings of the Tri· bunal are vitiated for one or the other of <the reasons recognised by law is before it."' In our view there can b.~ no doubt that unless the Tribunal has been asked to refer a question impugning the validity of the finding,c; sustainable on any principle of Jaw, the facts stated in the statement of the case would from the basis on which the legality or otherwise of the assessment would alone require to be considered by the High Court. In this case the revenue had in tis application under s.66 of the Act asked for specific reference on the question : "Whether on the facts and in the circumstances of the case the findings of the Tribunal that a sum of Rs. 10,80,000 paid for the purpose of the shares was not assessee's own income was a preverse finding having regard lo the evidence on the record?" This question was repealed in its application under s.66(2) but perhaps the High Court thought that questions 2 and 3 on which it directed the Tribunal to state a case would cover the scope and ambit of question 3 on which the revenue had asked for reference. We think that the two questions on w}).ich the reference has been made impugn the finding,s and the validity of This question was repealed in its application under s.66(2) but perhaps the High Court thought that questions 2 and 3 on which it directed the Tribunal to state a case would cover the scope and ambit of question 3 on which the revenue had asked for reference. We think that the two questions on w}).ich the reference has been made impugn the finding,s and the validity of the Tribunal's conclusion that Rs. I 0,80,000 was not an income from undisclosed sources, but was the product of a genuine sa!C by the vendor companies. Though this question does raise the validity of the finding given qy the Tribunal, we have to ask ourselves the question, in what circumstances will this Court interfere with the finding given by the Tribunal or arrive at a different conclusion to that arrived by it. In our view, the High ·Court and this Court have always the jurisdiction to intervene if it appears that either the Tribunal bas misunderstood the statutory language, because the proper construction of the statutory language is a matter of Jaw, or it bas arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination imports facts and circumstances not apparent from the record or bases its conclusions on mere conjectures or surmises or where no person judicially ,\ II c D E F G II c.I.T. r. s. r . .JAIN _(Jaga11111ohan_ _Reddy,_ _J.)_ 34s acting and properly instructed as to the relevant law could have come 10 the determination reached. In all such cases the findings arrived at are vitiated. The learned Additional Solicitor General reiferred to certain observations of Lord Radcliffe in _Edwards (Inspector_ _of_ _Taxes)_ v. _Bairsrow_ (') and wishes us to adopt that basis for interference with questions of fact found by the Tribunal. The passage to which we were referred is stated at p.594 thus : "I •think it possible that the English ·courts have been led to be rather over-ready to treat these questions as "pure questions of fact" by .some observations af Warrington and Atkin L.JJ. in _Cooper_ i'. _stubbs_ (1925-2 K.B. 753 ). If so, I would say, with very great respect, that I think jt is a pity that such a tendency should persist. As I see it, the reason why the courts do not interfere with commissioners' findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the commissioners of greater experience in matters of business or any other matters. The reason is simply that by the system that has been set up the commissioner are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only be upset on appeal i£ they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the .first. But 1here is no reason to make a mystery about the subjects that commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are dealing with cases that arise out _of_ acts found by commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion the facts found is inconsistent with the determination come to, to say so without more ado." This statement goes farther than what has been adopted by this Court. On the other hand Viscount Simonds confined the inter ference to the view which has so far been prevailing in reference under the tax laws. At p. 586 he observed :~ "For it is umversally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the court should take (I) 28 1.T.R. 579 at 594. 346 SUPREME COURT REPORTS (1973] 2 S.C.R. that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained. It is for this reason tliat I thought it right to set out the whole of the facts as they were found by the Commissioners in this case. For, having ·set them out and having read and reread them with every desire to support the determination if it can reasonably be supported, I find myself quite unable io do so. The primary facts, as they are sometimes called, do not, in my opinion, justify the inference or conclusion which the Commissioners have drawn : not only do they not justify it btrt they lead irresistibly to the opposite inference or conclusion. It is therefore a case in which, whether it be said of the Commissioners that their finding is perverse or that they have misdirected themselves in law by a misunderstanding of the statutory language or otherwise, their determination cannot stand." Whether we adopt the extended view advanced by Lord Radcliffe or the view of Lord Simonds, what has to be safeguarded against is that any crystallization of the views of this Court and its reluctance to interfere with the findings of fact should not make the Tribunals or the Income-tax authorities smug in the belief that as the courts do not interfere with the findings which form the l:>ed-rock upon which the law will be based they can act on that assumption in finding facts or by their more _ipsi dixit_ that they are findings of fact wish it to be so assumed irrespective of whether they are sustainable in law or on the materials on record. In a number of cases this Court has set out the principles upon which it will interfere with the findings of fact arrived at by the Tribunal. We need not in this case travel beyond the scope of those principles. In _Mehta Parikh_ _&_ _Co._ v. _Commissioner of lllcome-tax, Bom-_ _bay(')_ two Hon'ble Judges of this Court after referring to _Edward's_ case (supra) s.aid that the Court would be ertitled to intervene if it appears that the fact finding authority acted without any evidence which cannot reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. One of the learned Judges, Venkatarama Ayyar, J. did not express his opinion in that case. It w1s again pointed out by Bhagwati, J. in _Omar Salay Mo-_ _hamad Sait_ v. _Commissioner_ _of_ _Income-tax, Madras(_ _[2 ]_ _)_ : "We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its (I) 30 l.T.R. 181. (2) 37 l.T.R. 151 at 170. A c D F G II A B c D E F G c.r.T. _v._ s. P. JAIN _(Jaganmohan Reddy; J.)_ 347 own conclusions of fact after due consideration of the evidence before it this court will not interfere: It is necessary, howeve(, that every fact for and against the assessee must have been considered with due care and the Tribunal must ·have given its finding in a manner which wo!!ld clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circumstances which required to be ex plained by the asses~ee, the assessee should be given an opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surntises nor should it act on no evidence at all or on improper rejec.. tion of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings, even though on questions of fact, will be liable to be set aside by this e,ourt." These observations were again referred to and adopted in _LaJchand Bhagat Ambica_ _Ram_ v. _Cmomisispner ·of_ _Income-tax, Bihar and Orissa(')._ See also _Meenakshi Mills, Madu-_ _rai_ v. _Commissioner of Income-tax(')_ where Venkatarama Ay5'ar; _.T._ summed up the position emerging on the several decisions re- fr;r"d to by him : "It appears .to us that apart from the circumstances to which we have referred justifying an iutcrfcrence with the finding:; set out in th<l> statemen't of the case. what has to be considered in all those cases is, whether on the materials on record, the true and the only r~asonable conclusion is the one \\ hich is contrary to ihat _found_ by the Tribunal." The Tribuhal in .. our view has "failed to take ·into account the relevant material on record in arriving at its findings. It has further acted on inadmissible evidence and also based its conclusion en ~onjectures, surmises and wrong facts. rt had further foiled to consider the probabilities of the case on which the IncomeH tax Officer and the Appellate. Assistant Commi"ioner placed a great deal of emphasis. It seems to have fieen influenced .~reatfy (I) ~~37~~ ~~T.T.R.~~ 288 at 295 S-498S.,pCl/7.1 (::!) **31** **T.T.R.** 28 ar .... o. 348 SUPREME COURT REPORTS J 1973]-'S.C.L .A by the fact thar the sale of the shares by the vendor companie, "'' Rana toOK place in the Allahabad Bank in the presence of Woou .. the General Manager, without taking the probabililles ot the cas•!' into consideration m support of which tour Jetter-s ot Wood pru · <.luced by the assessee were relied upon. lt m11y be noted that 11u material is placed on the record to show as to how Wood cumc into the picture. At the time tho impugned transactions took. H place, neither the companies that sold the shares nor the Rana wer·; the customers of Allahabad Bank. The share scrips were not in the 'possession .of the Bank nor the sale transactions were p,1: through the Bank. The name of Wood was either dragged to giw it an air of credibility to the transaction or Wood was a busy body who was willing to tend his name to appargitly spurious transac- c tion. The letters said to have been sent by Wood are not proved: Wood was not examined. No explanation is forthcoming for his non-examination. The curious thing is that the Tribunal after rejecting the statement of the present General Manager of the Bank as inadmissible, relied on a portion of that statement for the proo~ of Wood's signature. It may be noticed that there is no official. D record of the transaction, no prior correspondence, no broker, no receipt for the cash money of Rs. 10,80,000/- nor is there any valid reason given for the unusnal procedure adopted of routing the money through Wood when neither the vendor company nor Rana nor Durga Prasad had any bank accounts with the Allahabad Bank, Calcutta. The force of this omission was felt by the Tribu E nal which was also of the view that "there should have been some kirid of correspondence before the Rana a)!reed to purchase the block of shares from the two collieries." It however slurred over the lacuna by seeking to put the blame for the omission on the Income-tax Officer who it thought ought to have questioned the assessee and called on the vendor companies •o explain how the transactions were actually finalised. When as we will see, an F official of the vendor companies was called, he said that they were kept in the dark about the transactions for nearly two years, wh<' else could the Income-tax Officer examine ? Jt was the dut,· of the assessee to produce correspondence if there was any. bui for that omission no blame can attach to the Income-tax Officer. That apart, Wood was not produced and there is nothing to show that G these letters were written by him. It is also apparent that these letters though written on the official note paper of the Allahabad Bank Ltd. Calcutta give no reference number nor are there any office copies of thpse letters in the bank. In fact the case of the assessee is that the sales on behalf of the vendor companies were effected in May and August 1953. In respect of the transaction<. H on each of these occasions it is said that there are two letters ()f Wood dated the 30th May, 1953 and 28th August. 1953. One letter of 30th May, 1953 is addressed to M. C. Ltd., intimatins H c D E F G H A c D E F G H c.1.T. _v._ s. P. JAIN _(Jagantnohan Reddy,_ _J.)_ 349 to them that 35,000 ordinary shares in S. K. G, Sugar Co., Ltd. were duly delivered to Rana against payment of Rs. 2,80,000/ • which amount has been paid to Durga Prasad. The other ltttet· on the ~ame day was addressed to D. J. C. Ltd. in respect of whkh 40,000 ordinary shares in S. K. G. Sugar Co. Ltd. wer~ uuly delivereu to Rana against payment of Rs. 3,20,000/ - which umount was also said to have been paid to Durga Prasad. It may be observed that these two letters are with reference to the letters of the vendor companies of thC day before· _i.e.,_ the 29th May, 1953 but the letters re!erred to have not been produced by the assessee. If such letters were actually written to Wood by the vendor companies on 29th May 1953 the assessee could have produced or got them to be produced in the same way as he has produced the letters of Wood from the custody of the respectiv.: vendor companies. It may also be noticed that in the two letten of 30th May, 1953 of Wood there is no mention of Durga Prasad having executed any promissory notes and receipts in favour of the vendor companies in respect of the money said 'to have been paid to him. In the two letters of the 28th August 1953 addressed to the vendor companies, there is no reference to any prior· correspondence with them, but there is a reference to the- pronote and receipts which are said to have been handed over by Durga Prasad to the respective companies in respect of Rs. 80,000/ • received from the Rana against the delivery of 10,000 ordinary shares of R. I. Ltd. belonging to M. C. Ltd. and Rs. 4,00,000/ - in respect of 50,000 ordinary shares of the same company belonging to D. J. _C._ Ltd. The promissory notes and receipts mentioned in these letters were again not produced by the assessee nor did he cause them to be produced from the vendor companies. In spite of these serious infirmities, the Tribunal has strongly relied on these letters assuming wrongly that they were either admitted or proved. The letters of the General Manager Wood say that the casll received from Rana on the two oc~asions on account of thb vendor companiees was paid to Durga Prasad at the bank counter by him. The Tribunal states that the department has not questioned the fact that the share scrips were handed over to Rana against the receipt of cash or that when the cash was received, it was advanced as loan to Durga Prasad. In fact it asserts that "where the factum of sale of shares by the two companies has not been challenged the fact that they took place in the presence of Mr. J. F. Wood cannot be questioned irrespective of whether the Rana was acting ')n his own behalf or as name lender of anybody else". It further states : "once the signature is genuine and the letters are found to have been typed from the bank's typewriter we cann0t cast any douht on the genuineness of the letters in the absence of evidence to establish· any fraud or forgery." There is abs<>lutely no evideilCe or suggestion to justify the statement that 'the four letters of Wood 350 SUPREME COURT REPORTS (1973] 2 S.C.R. were typed on the Bank's typewriter. An example of the i;nanner in which the Tribunal' speculated is illustrated by the followmg : "The two colliery companies were also not called upon to explain how the transaction was actually finalised. In these circumstances we can only speculate on how the Rana came to make a definite offer, and actually purchased the shares across the counter of Allahabad Ba:ik Ltd. We must assume that having promised to arrange the loan of Rs. 10,80,000/- to Sri Durga Pras~d. the assessee might have explored the .means of keepmg up the promise. Evidently he should have suggested to the two C'O!liery companies to dispose of their holdings to R. I. Ltd. and S. K. G. Ltd. especially when the companies would be making a profit of nearly Rs. 3,00,000/by the sale of the shares at the market price. Ir i:; •11•'': conceivable that if the assessee had met th" l{a;Fi before the Rana might have talked to the a'v _,:,ce_ about his intention to make some investment;, to the tune of Rs. I 0 Iakhs, and the Rana ultimately might have expressed his willingness to invest the sum in the purchase of S. K. G. Ltd. and R. I. Ltd. shar~s. Having regard to the purchase of the sale of the shares, and tha fact that one single individual was prepared to take over the shares at the market price, we are of opinion that no importance could be attached to the absence of any broker for effecting the transaction." In our view there is ample justification f::Jr the comment of the learned Additional Solicitor General that the Tribunal was misreading the evidence anJ was indulging in conjectures and surmises. The Income-tax Officer after refening to the fact that neither the vendor companies nor the alleged vendee or burga Prasad of Tumsar had any account with the Allahabad Bank at that time, that the shares were not in the. custody of the bank, that neither the Bank nor Wood has given any explanation as to how the General Manager of the Bank came into the picture observed that obviouslv such a transqction could not have taken place through the Bank unless some person having sufficient influence on the Bank was behind it. Shri Kalyan Shum Shera J. B. Rana kad no relations with the Bank at that time., It is thus clear that some one else was behind the transaction and that the Rana was merely acting as a benamidar. Even after the remand report. the Income-tax Officer observed that the sale to the Rana was nnreal. The Anoellate Assistant Commissioner nointed out in his 0rder that the Income-tax Offic"1' had treated the letter of Wood aR a ouestionable document. _ThP°"_ findings and observationi; amolv demonstrate the error the Tribunal had committed in thinking that the department had not questioned either the letters of A B 0 F G H t A B c D E F G H c.1.r. _v._ s. P. JAIN _(Jaganmohan Reddy,_ ).) JS I Wood or the fact that the share scrips were handed over to the Rana against the receipt of cash or that when the cash was received, it was advanced as a Joan to Durga Prasad. In fact, it was stated that Durga Prasad had admitted to have received the money in the Bank. This would imply that Durga Prasad received Rs. 10,80,000/- on two occasions once on the 30th May and the other on 28th August 1953 and both the times at the Allahabad Bank. According to the first statement of. Durga Prasad dated 21st December 1956 which was produced before us it appears that before going to Calcutta on some business he had already had a talk in Delhi with the assessee about securing a Joan to expand his business and the assessee assured him that he would help him. When he went to Calcutta, he met the assessee there and the assessee granted him the Joan of Rs. 10,80,000/-. He says that the sum was received by him in currency notes at the counter of Allahabad Bank Ltd., Calcutta and that he took the cash in person, travelled to Sumsar in the Calcutta Mail and handed it over to his munshi, Kasheorao who entered it in the cash book. He admits that he did. not deposit it in any bank. Later, after the remand. he changed his statement and said that the assessee never agreed to arrange for the loan and it was not true that he promised to grant the Joan to him personally and that the loan was arranged from the D. J.C. Ltd. and M. C. Ltd. from out of the sale proceeds of shares, that there were two Joans in May and August 1953, that the sums were disbursed by the General Manager of the Bank on behalf of the companies and that the Nepali Rana was present in the General Manager's room. Even so. the statement that he received Rs. 10,80,000 at the counter of the Allahabad Bank, that he got the whole amount in one day :::nd took it to Tumsar would itself belie the transaction because it' is difficult to explain away the statement that he took Jhe money personally to Tumsar in the Calcutta Mail. If he received the amount in two instalments, he does not say when again he came to Calcutta and how he took the second instalment. The positive. statement on the first occasion and the incongruities in the second should have been sufficient for the Tribunal. if it had cared to consider the evidence in a reasonable manner it would have come to a different and opposite conclusion. The Tribunal further states that admittedly the vendor companies had no casli' and found the money only on the sale of the shares. There is absolutelv no evidence for this finding. A ea in the Tribunal held that the Incometax Officer did not izive a findiniz that the assessee had advanced Rs. 10.80.000/- as 'a loan from out of his secrete<l moneys. This statement is inr.orrect. The Income-tax Officer in his order of 30th Aul'ust 19~8 did sav that that amount was advanced by the assessee. The attemnt of the assessee to rive resnectability to the transactions hv nutting forward the General Mana11er of the Allahabad Bank as the man through whom the transaction took 352 SUPREME COURT REPORTS [1973) 2 S.C.R. i;>lace cannot succeed as the letters produced are inadmissible in evidence. It is further contended that the sale of the shares was entered in the books of the respective vendor companies on 30th May and 28th August 1953. This by itself doeS not show tha~ the entries were contemporaneous and have not been entered subsequently. This doubt is further strengthened by the admission of Onkar Mal Dalmia, Secretary-cum-Accountant of M. C. Ltd. and D. J. C. Ltd. that he went to Calcutta in August or September 1953 and obtained the shares from Mr. B. D. Dujari, Accountant of Ashoka Marketing Ltd. and took them for inspection to the auditors after which he returned the shares to Mr. B. D. Dujari. The - shares which were alleged to have been sold to Rana and delivered to him in May and August 1953 were in fact lying in Ashoka Marketing· Ltd. which is a concern of the assessee and his family. This company is debited with not only the personal expenses and the salaries of domesiic servants etc. but also with the assessee's salary of Rs. 8,000 a month. The statement of Onkar Mal Dalmia was recorded on 9th December 1958 and 50 days thereafter even though he admitted that he received copies of his statement tried as an after thought to explain away his previous statement saying that the shares of R. I. Ltd. and S. K. G. Sugar Ltd. were not shown to the auditors at that time and that evidently what he stated was a ;nistake as by August or September the respective companies had already sold away those shares. The Income-tax Officer had rejected this latter statement of Dalmia and the Tribunal has not taken this fact into consideration. It cannot be said that the Income-tax Officer or the Appellate Assistant Commissioner were not justified in rejecting the expl'anation and acting on his first statement. According to the Accountant Member the statement of Dalmia of his having seen the share scrips in the Ashoka M&rketing Co., was one among those he considered irrelevant. But such a conclusion appears to us to be incomprehensible and totally unwarranted. It is an import;mt s;ircumstance if established and in our view it ·had been so held to have been established. The further observations that Dalmia's statement was due to some confusion is merely to have recourse to special pleadings for neutralising a vital circumstance. The Tribunal has also not taken into consideration another circumstance adverted to by the Income-tax Officer which is that according to Bishnoi, the Director and Princioal Officer of D.J.C. Ltd. and M. C. Ltd. he had no knowledge of the transactions till they were confirmed in the meeting of the Board of Directors. It has however been urp;ed that Bishnoi could not have any knowledge of the transaction earlier. until the share transfer matten A c E F H C.I.T. v. s. P. JAIN _(laganmohan_ _Reddy,_ /.) 353 A B ###### c D E G JI came up for confirmation in the meeting of the Board of Directors. This is a rather surprising contention becaUSe if the ass~. as tbe Tribunal stated, had no controlling interest in the vendor companies and had in fact sold these shares to Rana, the Director and Principal Officer of the Company would certP.inly be expected to have knowledge of the transactions. The fact is that though Rana is ~aid to have purchased the shares in May and August 1953 these shares were in the custody of the Ashoka Marketing Ltd. lrom September 1953 to April 1955 when they were transferred in the name of Rana. The Income-tax Officer had also pointed out that dividends were declared in April and June l 9S4 aggre· gating to Rs. 2.09,0CJO/. bu_t .no attempt was made by Rana ti~l April 1955 to claim these_ d1v1dends. We cannot accept the Tribunal's explanation as reasonable when it says : "If Rana was not of sufficient means it could be said that he would be in haste to cdlect the dividends amounting to about Rs. 2 lakhs". The Tribunal further states that Rana could not collect the dividends till he got himself registered as a shareholder "which he did in April 1955". The question, however, is, why did not Rana get the ~h.1res transferred in his name and why were they allowed to remain in the possession of Ashoka Marketing Company when such a large sum of Rs. 2,00,000/ - which even a rich man. assuming faat Rana was a substantial person would not take steps to receive immediately and would forego a substantial income from interest ~hJres at all to Rana and that the real purchaser is the assessee. The non-examination of Rana is also a significant fact and a ~reat many excuses have been given for the omission to examine him. Whether Rana was a person who had substantial means or rr•t need not be considered but his evidence was essenfo1l for the 1955". The question, however, is, why did not Rana get the t~re'Jn for a whole year. Dealing with the earlier statement of Onkar Mal Dalmia, the Tribunal states that if the Income-tax Officer wished to adhere 1'· that statement, which would imply that D. J.C. Ltd. and M. C. Ltd. advanced Rs. I 0.80,000./. to Durga Prasad fron1 out of their (W•n secreted profits on the footing that there was no sale of shares 10 R. I. Ltd. and S. K. G. Ltd. held by them. no question would ari.sc of treating the Rana as the benamidar of the nsse;sees. Beddes. according to _it:_ that statement would be irrelevant once it is admitted that there has been a real sale by the two companies in M.1y and August l 953. In this connection it further observed that 1lle factum of sale of the shares by the two companies has not been challenged nor the fact that the sale took place in the presence of Wood been questioned, irrespective of whether the Rana was acting on his own account or as name lender of anybody else. This tmire conclusion is based on an unwarranted assumntion and a wrong reading of the Income-tax Officer's findin~. The case of the department throu~hout has been that there was no sale of The non-examination of Rana is also a significant fact and a 354 SUPllEMB COUllT REPORTS [1973) 2 S.C.lt. assessee's case. The Department g11ve every opportunity LO tlte assesseo to examine him. The assessee as well as Podar with whom the assessee was concerned, gave at least two different addresse> at which not only was Rana not found but the evidence was that he never stayed at any of those places. The statement that the assessee could not be expected to produce Rana and that the incometax Officer had even gone to Nepal to ascertain his whereabouts and having traced him and met him, it should be inferred that he must have informed the Income-tax Officer that he had purchased the shares, is also without substance. If the assessee could n<)t produce him, he was at any rate able to get a letter dated :6th August, 1956 from him which was wrongly described as an ~lli­ davit. It was on a plain paper and neither attested by anyone authorised to attest affidavits nor marked or stamped bv anv judicial authority. When the Rana was willing to oblige the a;se,se~. he could have easily expressed his willingness either to give evidence before the Income-tax Officer or made hi' statement on affidavit. Neither of which was done. Another important factor to be considered is that after the shares were transferred in the name of Rana in 1955, Rana is said to have opened an account in his name in the Allahabad Bank and was said LO be selling them in the market in lots and whenever their sale proceeds accumulated he would withdraw it by cheques. Nandan Lal Po<lar said he introduced Rana to the Bank. lt also appears that Podar was a Director and a close associate of the assessee. There is no discussion of this person's evidence by >he Accountant Member though Judicial Member thought that it wa' unsatisfactory. In the course of one year _i.e.,_ from April 1955 to 1956 Rana is alleged to have withdrawn large amounts by nine cheques aggregating to Rs. 38 lakhs. These cheques were said to have been sent for by Rana sitting at 11 Clive Row, Calcutta, which is the address of the assessee and also of the Sahu Jain concerns. These cheques were bearer cheques for lakhs of rupees and encashed through one A. C. Das, peon of Ashoka Marketing Ltd. The letters of authorisation given to Das were tyred in identical form bearing only the signature of Rana. the other entries having been filled up by someone else. These large amounts brought by A. C. Das in cash were handed over in the office of Sahu Jain concerns. A. C. Das states that he was directed to render this service for the Rana by T. D. Dujari. Dui:tri said that when he had gone to Jain (assessee) for office work, the htte" introduced him to Rana and asked Dujari to assiit Rana if the latter so desired and that some days later Rana came to him with a request for a bearer to fetch money from the bank and that Rana himself handed the cheques to A. C. Da~. The Judicial Member thought that this raises some doubt on the genuineness of Rana's transactions. The Accountant Member thou.ght that the state1Nnt A B c D E F G H c.1.T. _v._ s. P. JAIN _(Jaganmohan Reddy,_ J.) 355 of A. C. Das was positive evidence and the Department had not produced any material to show that the moneys were actually . withdrawn from the Bank and collected on behalf of the assessee. This again was an unreasonable assumption for the only way that fact could have been proved is to establish primary facts from which an inference that it was the assessee to whom the amount was paid. It cannot be expected of A. C. Das, an employee of assessee's concern and who was reluctant to appear before the · Income-tax Officer to state that he in fact gave the money to the assessee. The Accountant Member however would have relied on that evidence for he says "if it had been established that A. C. Das was in the employ of Ashoka Marketing Ltd. in 1955-56, it would have cast a serious doubt about the acceptability of the evidence of A. C. Das." This observation overlooks the fact that _A:c._ Das in his deposition made on 18th December 1962 stated that he used to receive pay from M/s. Ashoka Marketing Ltd. and in the Remand Report of I.T.b. ·dated 12th April 1963 it was observed that there was documentary proof that A. C. Das was an employee of the Ashoka Marketing Ltd. None of the contradictions in A. C. Das's evidence mentioned in the remand report dated 12th-April 1963 were adverted to or discussed by the • Tribunal. It also did not notice that A. C. Das was really the assessee's witness which is borne out by what was stated in that rem.and report that A. C. Das continued to be an employee of Sahu Jain Group of Companies, that he was ultimately found in the house of Sahu Jain at 11 Clive Row, Calcutta when a notice under s. 37 was served on him on 9th November 1962 asking hini to appear on 12th November, 1962 and that he actually turned up on 17th November, 1962. Dealing with this aspect, the Income-tax Officer observed "this period of absence was rather 'meaningful'." This has not been discussed or' commented upon by the Tribunal nor has it considered any of the adverse circumstances referred to by the Income-tax Officer in his remand report in which he discussed the improbability of the story of the withdrawal of the moneys byA. C. Das as an agent of Rana. . · - · We have already. pointed out the improbability of the story of Durga Prasad that he received Rs. 10,80,000/- at the counter <Jf the Allahabad Bank. · Tlie positive statement that the loan was given to him by the assessee and that he took this amount personnally to Tumsar travelling in the Calcutta Mail, though retracted, was relied upon by the Income-tax Officer for the conclusion that this amount was lent by the assessee and it was income from undisclosed sources., From the above discussion it .is clear that the findings reached by the Tribunal are wholly vitiated. No judicial tribunal properly instructed could have arrived at those findings. We are therefore # r ##### A__ _>-_ A B c 0 E F G H 356 SUPREME COURT REPORTS (1973] 2 S.C.R. constrained to ignore those findings and re:examine the issues A arising for decision on the basis of the material on record. The question then· is, whether the depariment has satisfactorily established that Rana was not the real purchaser of the shares and that he was a mere name lender. We have broadly stated the relevant facts earlier. We will now summarise the facts and B circumstances--everi at the risk of some repetition-which go to establish that the Rana was a mere name-lender. They are·: !. There is not evidence to show that the Rana's financial position was such that he was in a position to purchase the shares in question. It is not shown that he had any bank balance either in this countrY or in any o\her countfY. 2. The Rana has not cared to appear before the authorities under the Act though several opportunities were afforded to him to do so for explaining the· circumstances under which he purchased these shares. ' #### • ' 3. The purchase price of the shares amounting to several lakhs of rupees was not paid by cheque or cheques. · The same is said to have been paid in cash. This is a wholly improbable circum**stance .** .+. The Rana had not entered into any correspondence with th~· companies concerned for the purchase of the shares. He had not engaged the services of any brokers for making purchases. It is not shown how the Rana came to know that the companies in question were wanting to sell the shares. · 5. It is not shown why the transactions in the said shares should have taken place in the presence of Wood. Wood had nothing to do with the transactions. Neither the Rana nor the companies which sold the shares had any dealings with the· Allahabad Bank at the relevant time. The share scrips were not in the possession of the Allahabad Bank. The money was not paid through the Allahabad Bank. The letters of Wood on which considerable reliance was placed did not bear any office serial number. No copies of those letters were available in the Allahabad Bank. It is not explained how Wood came into the picture .. - ·6. ·If Rana was the purchaser of the shares, he should have been in possession of the share scrios. They were his documents of title. We have earlier oointed out that the share scrios were in the possession of Ashok Marketing Co. It is not exolained how those scrios haooened to be in the possession of the Ashoka Marketing Co. 7. Even after the alJeg-ed sale of the shares in favour of the Rana, Rana did not take any steos to have the shares registered D & F _ _)..._ G H c.I.T. _v._ s. P. JAIN _(Jaganmohan Reddy,_ J.) 357 in his name for nearly 1 t years. This circumstance again is not explained. 8. The Rana did not care to collect the huge dividends that v.ere declared in respect of those shares totalling about Rs. 2 lakhs · fer a year and half. 9. The Rana. never cared to attend any general meeting of .the company nor did he appoint any proxy on his behalf. 10. It was only when the price of those shares went up in the market and that when they had to be sold the Rana is said to have opened an account in the A11ahabad Bank in which were credited sums of about Rs. 38 lakhs got by the sale of those shares. Practically all these amounts were said to have been realised by the Rana by issuing bearer cheques in favour of a peon of Ashok Marketing Co. who had been casually introduced to him. The Rana could not have been too big to go to the bank to collect these huge amounts, if he was the real owner of the money. He is said to have waited in the premises belonging to Sahu Jain Co. and sent these bearer cheques through the said peon. It is further said. that with a view to see that the peon did not miseppropriate the money, Rana used to send his own driver with him. If that was so, it is not explained why Rana did not give 1he bearer cheques to his driver himseU if the driver was so trustworthy and it is not explained what the Rana did with the money so collec_ted. - ' The above enumerated circumstances are tell-tale. The only . reasonable inference that can be drawn from. those circumstances is that the Rana was a mere name lender. The conclusion reached by the Income-tax Officer and the Appellate Assistant Commis £ioner that the Rana \vas a mere' name-lender is a reasonable con-· clusion. Neither the Tribunal nor the High Court has given any go0d reasons for rejecting those conclusions. The next question is, whether 'the department has established that the Rana was a benamidar·for the assessee. As mentioned earlier, it is not sufficient if the department establishes ·that the Rana was the benamidar for somebody. It must go further and establish that the Rana was the benamidar of the assessee. There are good reasons to come·fo a conclusion that the Rana was the - benamidar of the assessee. These are, as have been noted already:!. The close association of the assessee with the Rana, which is evident from the record. It was the assesee who introduced the Rana to Nandlal who was a close associate of the assessee and it was Nandlal who introduced the Rana to the Allahabad Bank. . A B c D E F ## .. G 11 358 SUPREME COURT REPORTS [1973) 2 S.C.R •. -Rana did not go to collect the money from the Allahabad Bank, but is said to have stayed in the premises of Sahu Jain Co., a com.pany with which the assessee was closely associated and further .a peon who gets the money from the bank was.residing in the -house of Sahu Jain, 11 Clive Row when the notice under s. 37 ·-Of the Act was served on him. According to this'peon, A. C. Das, _it_ was Dujaria who asked him to render that service to Rana. -According to Dujaria it was the assessee Jain who introduced him to Rana and asked him to assist the Rana. It also appears from •the evidence adduced on behalf of the assessee that the huge amount ·of about Rs. 38 lakhs collected by the Allahabad Bank was rea' -lised by the Rana by issuing bearer cheques to the above mention .ed peon of Ashoka Marketing Co., an assessee's concern. Further, it was the asscssee who produced the so-called affidavit of the Rana but at the same time would not produce· the Rana for examicnation for obvious reasons. 2. The D. J. C. Ltd. and M. C. Ltd., would not have sold ·suddenly the shares without any previous correspondence or. with,out even informing the company's secretary or.Director, unless of -course, there was intercession by some one who had influence ·over those companies. 3. There is no admissible evidence to establish that Raqa _brought a bagful of currency notes and gave it to the companie,. -Even if the Rana had paid the price in cash to the companies, the ·companies would have deposited those amounts in some bank. ·On the other hand, those companies are said to have given the ·entire price realised by the sale of the shares immediately as a :Joan to one Durga Prasad on the basis of the two promissory notes. In discussing this aspect we had pointed out the incongruity in the first and the second statement of Durga Prasad to show that the loan of Rs. 10,$0,000/- was said to have been given to him ·by the vendor companies in one lumpsum, that he carried this :huge amount from Calcutta to Nagpur and gave it to his Munim 0 and that he never' deposited that amount in any bank. There is . ·also a total absence of any material to show how Durga Prasad 1iad spent these amounts. All these circumstances would clearly ·indicate that the story is a fictitious one and that the· alleged loan to Durga Prasad is a pure fabrication. .It is therefore clear that Durga Prasad is no other than a mere puppet of the assessee. 4. The 'shares alleged to have been purchased by the Rana ··were found to be in po,ssession of Ashoka Marketing Co., a con-. cem practically owned by the assessee. Unless the assessee was the purchaser of those shares, the shares could not have been in the possession of the Ashoka Marketing Co. It is reasonable to assume that after the alleged sale, the assessee was in possession of the shares through Ashoka Marketing Company: · A B c D E G ·• ##### -### " A B ###### c C.I.T, _v._ s. P. JAIN _(laganmohan Reddy,_ _J.)_ 359 5. After the shares were sold the money was collected and br!Klght from the bank as pointed out above by the peon A. C. Das of the Ashoka Marketing Co. on nine bearer cheques and according to A. C. Das he paid thOSe amounts to the Rana in the premises of the assessee Sahu Jain at 11 Clive Row. From the circumstances above enumerated, the Income-tax Officer and the Appellate Assistant Commissioner were fully justified in drawing an inference that the Rana was a name lender for the assessee. Neither the Tribunal nor the High Court has given good reasons for displacing the conclusions reached by the Incomet11x Officer and the Appellate Assistant Commissioner. They had a duty to examine the reasons given by those authorities before rejecting them. For the reasons stated above, we answer questions Nos. 2 and· 3 1eferred to the High Court'in the negative and in fa•our of the Revenue. The answer to question No. 1 has not been pressed' and hence we need Rot answer it. In the result these appeals are I.> ·allowed with costs both in this Court as well as in the High Court kB.N. App~als _allowed._ ##### 1