ORDER R.C. Lahoti, J.
1. By this petition under Section 256(2) of the Income-tax Act, 1961 the Revenue has sought for a direction in the nature of mandamus being issued to the Income-tax Appellate Tribunal to draw up a statement of the case and refer the following questions for the opinion of the High Court arising out of the assessment year 1988-89 :
1."Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has erred in law in deleting the impugned addition of Rs. 1,41,368/- on the ground that the assessee's own trading results for following year were accepted by the Revenue u/s 143(1)(a), in view of the Hon'ble Tribunal's own finding that the results disclosed by the assessee are not open to verification in absence of books of accounts and especially when claimed purchases of Rs. 3,31,851/- from M/S Kapur Plywood Agency were proved to be bogus on records ?
2. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT has erred in law in holding that acceptance of trading results by the Assessing Officer u/s 143(1)(a) amounts to acceptance of trading results after scrutiny as contemplated u/s 143(3), when scrutiny of trading results is not legally permissible or contemplated u/s 143(1)(a) ?"
2. The assessee is an individual who started business of furniture in Kirti Nagar, New Delhi. The assessee declared receipt of Rs. 9,42,452/- and net profit of Rs. 57,244/- which comes to 6.07%. During the course of assessment the assessing officer called for details of purchases of Rs. 6,45,254/-. Out of the details furnished by the assessee, one purchase was of Rs. 3,31,857/- stated to have been made from M/S. Kapoor Plywood Agency, H-169, Shakkar Pur Laxmi Nagar, Delhi. On enquiries having been made it was revealed that the said M/S. Kapoor Plywood Agency was non-existent. The ITO issued notice under Section 142(1) asking the assessee to produce the account books as also the account books of the said M/S. Kapoor Plywood Agency along with its proprietor/partner for verification. The notice remained uncompleted with. Notices were also issued under Section 143(2) and 142(1) whereupon the assessee reported loss of account books in respect of which FIR was also lodged with the police.
3. For several reasons the assessing officer arrived at a finding that there was no firm by the name of M/S. Kapoor Plywood Agency and the claim of the assessee that he made purchases of Rs. 3,31,897/- from the said firm was not believable. The said purchase was disallowed. He also formed an opinion that looking to the nature and extent of job work and possible margin of profit in this line the net profit of the assessee was liable to be calculated @ 15% of job work receipts and not at 6.07% as claimed by the assessee.
4. The assessee went in appeal. The CIT (Appeals) maintained the order of the assessing officer, rejecting the assessee's claim regarding purchase of goods worth Rs. 3,31,897/- from M/S. Kapoor Plywood Agency. As to the rate of net profit, the CIT (Appeals) formed an opinion that there was no basis for applying the rate of 15% and it would meet the ends of justice if the net profit rate of 12.5% was applied. To that extent the order of the assessing officer was modified.
5. The assessee went in second appeal to the ITAT. Initially the appeal was disposed of by order dated 7.2.1995 in the absence of the assessee. The only relief allowed to the assessee was that the net profit rate was reduced from 12.5.% to 10%. The assessee having assigned reasons for his previous absence sought for a re-hearing of the appeal which was allowed. By order dated 31.5.1995 the Tribunal held as under :
"2.4 As regards merit of the case we may say that even though the results disclosed by the assessee are not open to verification in the absence of books of accounts, we have not been shown the basis on which the learned CIT (Appeals) applied a net profit rate of 12.5% when the AO had estimated at 15%. Obviously the rule of thumb has been applied by the AO as also by the learned CIT (Appeals) without bringing on record any comparable case. the assessee's own results as declared in the following assessment year stand acceptable by the revenue, the same having been found accepted, inasmuch as the revenue did not consider it necessary even to call the assessee when it chose to frame the assessment under Section 143(1). Therefore, on a consideration of all the relevant facts and circumstances we are of the view that the result declared by the assessee deserve to be accepted when admittedly there are no obviously disallowable items debited to profit and loss account.
6. In substance the Tribunal has set aside the order of CIT (Appeals) who had applied net profit rate of 12.5% as also the order of the assessment officer who had applied net profit rate of 15% and accepted the net profit as declared by the assessee, resulting into deleting the addition of Rs. 1,41,368/-.The Tribunal has also set aside the disallowance of deduction of Rs. 3,31,897/- claimed as purchase from M/S Kapoor Plywood Agency.
7. The learned counsel for the Revenue has sought for statement of case being called from the Tribunal so as to put forth the questions of law for the opinion of the High Court touching all the three issues decided against the Revenue. The prayer has been vehemently opposed by the assessee -respondent.
8. The question No.1 suggested on behalf of the department actually consists of two parts: one relates to deleting of addition of Rs. 1,41,368/- and the other relates to disallowing the deduction of Rs 3,31,851/-. In our opinion the question is composite one and hence needs to be dealt with in two parts touching the two aspects involved therein in as much as different considerations would be germane to the two.
9. So far as the deleting of the addition of Rs. 1,41,368/- is concerned, it was submitted by the learned counsel for the Revenue that the finding of fact recorded by the Tribunal was that there was no material such as comparable cases,available on the record of the assessment officer or the CIT (Appeals) wherefrom the rate of profit applicable to the business carried on by the assessee could be determined and applied to the assessee then the Tribunal should have remanded the case to the assessing officer instead of simply deleting the addition.
10. In our opinion, the High Court cannot by exercising jurisdiction under Section 256(2) of the Income-tax, 1961 allow the relief in the manner in which it is sought for by the Revenue.
11. In State of Orissa v. Mahraja BP Singh Deo, dealing with a case where the assessment was enhanced without disclosing the basis on which it was so enhanced, their Lordships have held that the mere fact that the material placed by the assessee before the assessing authority is unreliable does not empower that authority to make an arbitrary order. The power to levy assessment on the basis of the best judgment is not an arbitrary power; it is an assessment on the basis of the best judgment. In other words, that assessment must be based on some relevant material.
12. The Tribunal is the final fact finding authority and the High Court cannot go beyond the statement of facts made by the Tribunal in its appellate order. The High Court has jurisdiction to disturb a findings of fact but only in a very limited category of cases such as perversity. There also the question framed in a reference must lay a specific challenge to the authenticity of such findings on the ground that there was no evidence to support them or they are the result of mis-direction in law. (see-Patnaik & Co Ltd vs CIT Orissa, (1986) 161 ITR 365).
In the case at hand it is not the case of the Revenue that though material was available before the assessment officer or the CIT (Appeals) for forming an opinion as to the applicability of correct rate of net profit yet the Tribunal has wrongly recorded a finding of fact that there was no such material available. The question as suggested by the Revenue does not lay a specific challenge to the finding of fact recorded by the Tribunal. The Revenue has not in its application under Section 256(1) of the Act sought for a question being framed on the jurisdictional obligation of the Tribunal to have made an order of remand pursuant to the conclusion drawn by it. It was not even urged before the Tribunal that in the event of the Tribunal disagreeing with the rate of net profit applied by the two authorities below, it should remand the matter for assessment afresh. A plea not raised before the Tribunal and not covered by the question framed cannot be made subject matter of a question under section 256(2) of the Act. (See. Lakshmiratan Cotton Mills vs. CIT , T.D.Kumar & Bros (P) Ltd v. CIT , CIT v. Scindia Steam Navigation Co Ltd , CIT A.P. V. Kotrika Venkataswamy & Sons 1972 Tax LR 448 SC).
13. We are therefore, definitely of the opinion that no statement of case can be called for so far as deleting the impugned addition of Rs. 1,41,368/- is concenred.
14. So far as deleting of disallowance of the deductions of Rs. 3,31,851/ is concerned, in our opinion, a case for calling for a reference is made out.
15. The Tribunal was passing an order of reversal and not of affirmance. A Division Bench of Allahabad High Court has held in CIT v J.K. Synthetics Ltd, (1988) 169 ITR 267 after referring to the law laid down by the Supreme Court in T.D. Gopalan v. Commissioner of HR and IE and Siemens Engineering & Mfg Co of India v UOI, , para 6, that the Tribunal while reversing a finding recorded by the authorities below must meet the reasons recorded by the said authorities in support of their finding. If the Tribunal does not consider the reasons which weighed with the subordinate authorities in arriving at the finding and sets it aside, a question of law arises out of the order of the Tribunal. The court is not being called upon to go into the question of sufficiency or reprisal of evidence; it is scrutinising the manner of exercise of jurisdiction by the Tribunal as reflected in its order. [See CIT vs. Raza Textile Ltd (1988) 169 ITR 258 All.] We find ourselves in respectful agreement with the view taken by the two Division Benches of the Allahabad High Court in the cases referred to hereinabove.
16. So far as question No.2 is concerned, the same does not arise from the order of the Tribunal and no reference is called for thereon.
17. The application is allowed in part. The Tribunal is directed to draw up a statement of the case and refer the following question for the opinion of the High Court :-
"Whether the Tribunal has committed an error or law in reversing the finding recorded by the two authorities below as to disallowance of the purchase of Rs. 3,31,897/- by the assessee from M/S Kapoor Plywood Agency without going into the reasons recorded by them for arriving at the finding."
18. No order as to costs.