Reference — Penalty — High Court cannot go into facts in the absence of the question that the finding of the Tribunal was perverse.

[Sudarshan Silks and Sarees v. CIT, (2008) 300 ITR 205
(SC)]

A search was conducted on the premises of the assessees on
October 14/15, 1987, and incriminating documents evidencing concealment of
income by the assessee were unearthed apart from cash and jewellary found at the
time of search. It was found that the appellant was maintaining double set of
books and was accounting for only 50% of sales in the regular set of books. This
fact was admitted by Shri J. S. Ramesh, a partner of the firm in the statement
recorded u/s.132(4) of the Act. Shri J. S. Ramesh was the person-in-charge of
the entire group. The total turnover suppressed by the assessee for the A.Y.
1987-88 was found to be to the tune of Rs.44,07,783. The AO estimated that the
sales of the assessee were Rs.50,000 per day, whereas the accounted sales were
not found even 50% of the total sales. Apart from this, it was found that
certain purchases were also not being accounted for. Similarly, certain payments
made were not being accounted for. All these were pointed out to the assessee.
The assessee filed a revised return on March 31, 1989, declaring a total income
for the A.Y. 1987-88 at Rs.3,74,226 as against the earlier amount of Rs.43,650.
This was accepted and after verification the assessment was completed on
December 29, 1989. During the course of recording the statement u/s.132(4) of
the Act, Shri Ramesh agreed to declare such additional income as had been
estimated by the search party in the office of the appellant and its sister
concerns. On the basis of these calculations, revised returns were filed by the
appellant for A.Ys. 1984-85, 1985-86 and 1986-87. The incomes as per revised
returns were also accepted in toto. In the course of assessment proceedings,
penal action u/s.271(1)(c) of the Act was initiated and after considering the
reply filed by the appellant, the AO chose to levy maximum penalty u/s.
271(1)(c). On appeal the CIT(A) noticed that no books of account or other
documentary evidence was discovered that proved any concealment for the earlier
years. The CIT(A) held that no penalty is leviable when unproved income is
offered to purchase peace, particularly considering that the additional income
returned, has only been on the basis of the appellant’s own estimates and the
appellant’s own admission, unsupported by the discovery of any other documentary
evidence relevant to years for which higher incomes were returned. The Tribunal
upheld the findings recorded by the CIT(A). The High Court on consideration of
the matter concluded that the findings recorded by the Tribunal and the CIT(A)
being perverse, which no reasonable person could have taken, were liable to be
set aside and accordingly accepted the reference and held that in the facts and
circumstances of the case, the Tribunal was not right in upholding the order of
the CIT(A) in cancelling the penalty levied u/s.271(1)(c). It was held that in
the facts of the case the penalty u/s. 271(1)(c) is clearly exigible. On appeal
the Supreme Court held that 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 of Income-tax (Appeals) in cancelling the penalty levied
u/s.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 the Tribunal
on the facts can be gone into by the High Court in the reference jurisdiction
only if a question has been referred to it which says that the finding arrived
at by the Tribunal on the facts is perverse, in the 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, in the
sense set out above, that a question of law can be said to arise. Since the
frame of the 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 findings of fact recorded by the
Tribunal. Accordingly, the orders under appeal were set aside by the Supreme
Court and that of the Commissioner of Income-tax (Appeals) and the Tribunal
restored.