JUDGMENT B.P. Jeevan Reddy, C.J.
1. These two references arise from a common order of the Tribunal. The assessee is common. Income-tax Reference No. 104 of 1983 arises from assessment proceedings, while Income-tax Reference No. 290 of 1981 arises from penalty proceedings. They pertain to the assessment year 1974-75. The question referred in Income-tax Reference No. 104 of 1983 reads :
"(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the allowance of business loss of Rs. 35,000 incurred in dacoity ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in treating the sum of Rs. 15,000 as unexplained investment of the assessee ?"
2. In Income-tax Reference No. 290 of 1981, the questions referred are :
"(1) Whether, in the facts and circumstances of the case, the Appellate Tribunal was justified in law in holding that the Income-tax Officer had jurisdiction to impose penalty under Section 271(1)(c) of the Income-tax Act, 1961, since the order was passed by him after April 1, 1976, the date with effect from which Section 274(2) was omitted from the Act ?
(2) Whether, in the facts and circumstances of the case, the Appellate Tribunal was justified in law in taking the view that the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, was attracted in this case ?"
3. We shall take up Income-tax Reference No. 104 of 1983 first. The assessee, Gopi Krishna and Co., is a registered firm. There is another firm, Bal Krishna and Co., operating from the same premises. Indeed, Gopi Krishna and Bal Krishna are brothers. Gopi Krishna died. His son, Vinod Kumar, is the main partner of the assessee-firm. The assessee-firm is a dealer in gold and silver ornaments and silver coins. In its return for the assessment year 1974-75, the assessee declared an income of Rs. 2,402. The assessment was, however, completed on a total income of Rs. 69,570. Three items were added, out of which two are relevant for the present purposes. One was the disallowance of the loss of Rs. 35,407 claimed by the assessee, being the value of the silver allegedly robbed from the munim of the assessee, and the other the disallowance of Rs. 15,000 alleged to have been paid by the assessee to Sri R.N. Mani, advocate, in lieu of 2,500 old silver coins handed over to the assessee for sale at Varanasi. The assessee's case was that Hari Narain Prasad was the munim of the assessee-firm. He was entrusted with silver bars weighing 3,092 bari and 2,500 old silver coins on June 18, 1973, for sale at Varanasi. While at the railway station at 9 p.m.,. he was robbed by three persons. An F. I. R. was lodged with the police in that connection. The silver bars were out of the assessee's stock, whereas the silver coins were entrusted by Sri R.N. Mani to the assessee-firm for sale. The Income-tax Officer examined the munim, Hari Narain Prasad, the main partner, Vinod Kumar, and the advocate, Sri R.N. Mani. On a consideration of their statements and other materials placed before him, the Income-tax Officer disbelieved the story of loss. He also disbelieved the payment of Rs. 15,000 to Sri R.N. Mani. It is on the said findings that he added the said two amounts to the income of the assessee.
4. On appeal, the Appellate Assistant Commissioner was of the opinion that Hari Narain Prasad was not an employee of the assessee-firm at all, nor did the assessee deal in sale and purchase of coins on commission basis. He also disbelieved the evidence of Sri R.N. Mani that he handed over old silver coins to the assessee for sale. The assessee carried the matter in further appeal to the Tribunal. On a consideration of the material before it, the Tribunal came to the conclusion that Hari Narain Prasad was not the munim of the assessee-firm, though he had been representing the firm before the Income-tax Officer in connection with assessment proceedings. He was an employee of the sister firm, Bal Krishna and Co. The Tribunal further referred to the statement of Vinod Kumar (main partner in the assessee-firm) that he did not do commission business. It was not inclined to believe the story that Sri R.N. Mani handed over old silver coins to the assessee for sale and that there was an agreement to charge commission in that behalf. It also referred to the fact that, on the date of the alleged robbery, the assessee's account books showed only 825 silver coins. It also disbelieved the statement of R.N. Mani and found that as the trend of silver price was declining, he would not have handed over the silver coins to the assessee for sale, and also because he had no need for money at that time. It also observed that, while handing over the coins, no receipt was taken and there was no settlement of commission to be charged, nor was any receipt taken from R.N. Mani acknowledging payment of Rs. 15,000 to him. No other material was produced by the assessee to prove the payment of the said amount. So far as the silver bars are concerned, the Tribunal observed that the assessee had alleged that they were out of its stock but it was not possible to believe it. It found that both the transactions were outside the account books and there were no good reasons to differ from the finding of the Appellate Assistant Commissioner in that behalf. Accordingly, the Tribunal dismissed the appeal. Thereupon, the present reference was obtained.
5. Sri V.B. Upadhyaya, learned counsel for the assessee, contended that the findings of the Tribunal are vitiated by taking into consideration irrelevant and inadmissible material. He submitted that, on the day of the robbery, the assessee had 39 kgs. of silver in stock with him and what was handed over to the munim was less than that stock. The Tribunal mixed up the cases relating to silver coins and silver bars and just because it chose to disbelieve the case with respect to the entrustment of the silver coins to the assessee, the same reasoning was extended to the silver bars as well. The case relating to the silver bars and the case relating to silver coins are different, though both were handed over to the said munim for being taken to Varanasi. The rejection of the assessee's case regarding the entrustment of silver bars to the said munim is totally without any relevant reason, He further pointed out that the controversy whether Hari Narain Prasad was the munim of the assessee is not of much consequence. Whether he was the munim of the assessee-firm or of its sister firm is equally irrelevant so long as it was established that the assessee had entrusted the silver and the coins to him for being taken to Varanasi and the same was robbed at the Railway Station. His contention is that the finding of the Tribunal, particularly with respect to silver bars, is vitiated by taking into consideration irrelevant and inadmissible circumstances and the finding of the Tribunal must, therefore, be rejected. He relied upon the decisions of the Supreme Court in Dhirajlal Girdharilal v. CIT [1954] 26 ITR 736 and CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349.
6. On the other hand, Sri Markandey Katju, learned standing counsel for the Revenue, urged that, in these references, the assessee cannot be allowed to question the finding of the Tribunal relating to the loss of silver or coins because the assessee had not chosen to raise a direct question disputing the correctness of the Tribunal's finding, nor has any such question been referred to this court. The question as framed does not take in or involve the correctness of the said findings. He further submitted that the findings of the Tribunal are factual in nature and are not vitiated in any manner.
7. On a perusal of the judgment of the Tribunal, we are not inclined to agree with learned counsel for the assessee that the finding of the Tribunal is vitiated on the principle enunciated in Dhirajlal's case [1954] 26 ITR 736 (SC). One must make a distinction between taking into consideration an irrelevant or inadmissible circumstance and an erroneous reasoning. It may be that the Tribunal's reasoning is erroneous, but that does not fall within the principle enunciated in Dhirajlal's case [1954] 26 ITR 736. Now let us look at the factual picture. The question before the Tribunal was whether the assessee had entrusted silver bars and old silver coins to Hari Narain Prasad for being taken to Varanasi for sale and whether he was robbed on the way, as alleged by the assessee. This in turn involved the question whether the silver bars were from out of the stock of the assessee and whether the silver coins were entrusted by R.N. Mani, advocate, to the assessee for sale on commission. Before the Income-tax Officer, statements of the three persons were recorded, namely, Hari Narain Prasad, Vinod Kumar and R.N. Mani. The F. I. R. lodged by Hari Narain Prasad was also produced. The Income-tax Officer perused the account books of the assessee. All the three authorities were not prepared to believe the statement of R.N. Mani that he entrusted 2,500 old silver coins to the assessee for sale. Several reasons were given in this behalf, namely :
(i) No receipt was taken by R.N. Mani while entrusting the said coins ;
(ii) No receipt was taken by the assessee when it paid Rs. 15,000 to R.N. Mani in lieu of the said coins after they were allegedly lost by robbery ;
(iii) It was not the business of the assessee to sell silver or silver coins on commission ;
(iv) At that time, as the price was falling and also because R.N. Mani was not in need of money, he would not have entrusted the coins to the assessee for sale.
8. None of these reasons can be said to be perverse, nor can the finding in this behalf be attacked as based on no evidence. No such argument could be nor was indeed addressed before us.
9. Now, coming to the silver bars, the authorities under the Act were not prepared to believe the story, spoken to by Vinod Kumar and Hari Narain Prasad that it was being taken to Varanasi and that Hari Narain Prasad was robbed on the way. While discussing the assessee's case, both the Appellate Assistant Commissioner and the Tribunal pointed out that the services of Sri. R.N. Mani, advocate, were indented upon by the assessee to buttress its case with respect to silver coins, but it was not necessary to set up any such case with respect to silver, bars as the assessee had 39 kgs. of silver bars in its stock on that day. This reasoning is seized upon by learned counsel for the assessee ; he points out that once it is found that it had 39 kgs. of silver, there was nothing improbable in handing over over 309 bars of silver, which is less than 39 kgs. in weight, to the munim. In our opinion, however, it is not a case of taking into consideration irrelevant or inadmissible material, but may be, at the worst, an erroneous reasoning, though, as a matter of fact, we are not prepared to say that it was an erroneous reasoning. All that we wish to point out is the distinction between an erroneous reasoning and taking into consideration inadmissible or irrelevant material. The Tribunal's judgment shows that it had given full consideration to the entire matter and has agreed with the findings of the Income-tax Officer and the Appellate Assistant Commissioner in that behalf.
10. Since substantial reliance is placed upon the decision of the Supreme Court in Dhirajlal's case [1954] 26 ITR 736, it would be appropriate to refer to the same. It was an appeal against an order of the Bombay High Court dismissing an application under Section 66(2) of the Income-tax Act, 1922 (corresponding to Section 256(2) of the present Act). The issue before the Supreme Court was whether a question of law arose from the order of the Tribunal within the meaning of Section 66(2). In that connection, it was held that where the finding of the Tribunal is arrived at on material which is irrelevant, or which is partly relevant and partly irrelevant and it is not possible to say to what extent its mind was affected by the irrelevant material used by it in arriving at its finding, it must be held that the finding is vitiated. It was also observed that where the Tribunal draws upon its imagination and makes use of a number of surmises and conjectures in reaching a finding, such finding should also be held to be vitiated, though it is true that where the satisfaction is arrived at subjectively, courts have said that, if such satisfaction is arrived at partly on relevant and partly on irrelevant material, it is not possible for the court to predicate to what extent the mind of the authority has been influenced by irrelevant material and, therefore, the entire satisfaction is vitiated, and this proposition is not generally applied to cases where the satisfaction is objective. But this discussion is of no consequence inasmuch as the Supreme Court has enunciated the said principle which is binding upon us. At the same time, it is necessary to point out that it has been observed by the Supreme Court in its subsequent decision in Homi Jehangir Gheesta v. CIT [1961] 41 ITR 135 and Bhaichand Amoluk and Co. v. CIT [1962] 44 ITR 511, that the order of the Tribunal must be read as a whole and that a piecemeal approach is not proper. As pointed out hereinabove, firstly, the case before us is not one of taking into consideration inadmissible or irrelevant material, nor is it a case where the finding of the Tribunal is vitiated by "a number of surmises and conjectures" as in the case of Dhirajlal [1954] 26 ITR 736 (SC). Secondly, reading the judgment of the Tribunal as a whole, we are not satisfied that its finding regarding silver bars is vitiated for any of the reasons suggested.
11. For the above reasons, question No. 1 is answered in the negative, that is, against the assessee and in favour of the Revenue. Question No. 2 is answered in the affirmative, that is, against the assessee and in favour of the Revenue. No costs.
12. We shall now take up Income-tax Reference No. 290 of 1981, arising from the penalty proceedings against the assessee. The penalty was levied under Section 271(1)(c) on the above facts. Though the Income-tax Officer had imposed a penalty of Rs. 80,000 it has been reduced to Rs. 50,500 by the Tribunal. At the relevant time, the Explanation to Section 271(1)(c) was in force, which created a presumption of concealment where the returned income was less than 80% of the assessed income. It was for the assessee to rebut the said presumption. Another provision in force which has been subsequently deleted is Sub-section (2) of Section 274. This sub-section provided that where the amount said to have been concealed is in excess of Rs. 25,000, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner for imposing penalty. The assessee's case was referred to the Inspecting Assistant Commissioner under this sub-section. However, by the date he passed orders, the said sub-section was deleted and an argument was raised that the Inspecting Assistant Commissioner had lost the jurisdiction. This argument has been rightly rejected inasmuch as the matter was referred to the Inspecting Assistant Commissioner prior to the deletion of the said sub-section. Similarly, the deletion of the Explanation to Section 271(1)(c) with effect from April 1, 1976, also does not make any difference because it would be applicable to the assessment years during which it was in operation. The Tribunal has found that the assessee has failed to rebut the presumption arising from the said Explanation, and we cannot say that the finding of the Tribunal is either perverse or is vitiated by any misdirection in law.
13. Reliance is placed upon the decision of this court, in CIT v. G.L. Textiles [1977] 109 ITR 37 in this behalf. But that was a case where the Explanation was not invoked or relied upon before the Tribunal and was invoked for the first time at the stage of reference. The Bench held that the said Explanation comes into play only if the assessed income is recalculated for the purpose of the Explanation by reducing it by the expenditure incurred bona fide by the assessee for the purpose of earning the income and included in the total income which has been disallowed as a deduction by the Income-tax Officer. No such plea has been put forward here. There is no occasion to apply the said principle in the facts of the present case.
14. Both the questions are accordingly answered in the affirmative, that is, against the assessee and in favour of the Revenue. No costs.