Appeal U/S. 260A Income Tax Act Can Only Be Sustained If There's Perversity In Tribunal's Finding: Allahabad HC

The Allahabad High Court has held that an Appeal filed under Section 260A of the Income Tax Act can only be sustained if there was perversity in the findings of the Tribunal which would have amounted to a substantial question of law. 

The Court was considering an appeal under Section 260A of the Income Tax Act, 1961 wherein the revenue was challenging an order passed by the Income Tax Appellate Tribunal.

The division-bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit observed, "...we do not find any perversity in the impugned order and there exists no reason to admit this appeal as there is no substantial question of law involved. The appeal filed under Section 260A of the Act can only be sustained if there was perversity in the findings of the Tribunal which would have amounted to a substantial question of law."

The Appellant was represented by Advocate Manu Ghildyal while the Respondent was represented by Advocate Ambleshwar Pandey.

The factual matrix of the case was that the assessment order was completed by the Assessing Officer under Section 143(3) of the Act. Subsequently, the Principal Commissioner of Income Tax exercised his jurisdiction under Section 263 of the Act and revised the order passed by the Assessing Officer on the ground that the assessment carried out was prejudicial to the interest of revenue and thereby set aside the assessment order and directed for de novo assessment . The said order was challenged before the Tribunal, which upon examination in great detail of the inquiries carried out by the Assessing Officer especially in respect of the cash deposit of Rs.91 lakhs came to the conclusion that proper inquiry was carried out by the Assessing Officer and only thereafter assessment order was passed.

The Court at the outset observed that the Tribunal has gone into the details of the questionnaire issued by the Assessing Officer, examined the inquiry carried out by the Assessing Officer in detail and also examined the replies given by the assessee. It pointed out that it is only after having carried out the said examination, the Tribunal has came to the finding that it was not possible under any circumstances to conclude that the Assessing Officer has misstated the fact or had recorded false order sheet entries.

"The Tribunal further held that the only conclusion one can reach is that the allegation made by the Principal Commissioner of Income Tax that the Assessing Officer has not recorded any finding with regard to cash deposit during demonetization period, is not based on the material on record or rather contrary to the material on record. The Tribunal further went ahead and held that the twin conditions of the assessment order being erroneous and at the same time prejudicial to the interest of the revenue in order to invoke the power of Principal Commissioner of Income Tax under Section 263 of the Act was not fulfilled as the Assessing Officer had made all inquiries and verifications as required under the law," the Court observed.

The Court while examining the scope of jurisdiction of this Court under section 260A of the Act noted that it is a settled proposition that the Tribunal is the final authority to decide on the issue of facts. It stated that the High court can only interfere in the order of Tribunal if there exists a substantial question of law and cited Supreme Court's ruling in Chunilal V. Mehta and Sons Ltd. v. Century Spg. and Mfg. Co. Ltd. wherein the test to determine whether a substantial question of law was involved or not was laid down. 

"In the instant appeal the department has only challenged the fact finding of the Tribunal. A catena of Supreme Court judgments have concluded that in relation to facts, no substantial question of law would arise unless the finding of fact is perverse. A factual decision is perverse when it is without any evidence or when it cannot be reasonably arrived at by a prudent man. Finding based upon surmises, conjectures or suspicion or when they are not rationally possible, have to be struck down. One may therefore examine the interpretation of ‘perversity’ by various Courts including the Supreme Court," the Court observed. 

The Court discussed Supreme Court's ruling in Arulvelu v. State whereby it defined 'perversity, S.R. Tewari v. Union of India whereby it laid down 'attributes of perversity' and Delhi High Court's ruling in CIT v. Ajay Kapoor whereby it further elaborated as to what constitutes ‘perversity’.

"In light of the judgments of the Supreme Court and High Courts cited above, we are of the view that unless there is any perversity in finding of facts, no substantial question of law would arise. Furthermore, for the Tribunal’s fact finding to be perverse, it would have be established that the finding of fact by the Tribunal directly or indirectly affects substantial rights of the assessee in the sense that it is such as could not have been reasonably arrived at on the material placed on record before the Tribunal. In the present factual matrix, it is crystal clear that the Tribunal has examined the facts in great detail, and only thereafter, held in favour of the assessee," the Court observed.

The Appeal was accordingly allowed.

Cause Title: Pr. City Bareilly UP vs. Dharam Singh (2024 AHC: 183417-DB)

Appearances: 

Appellant- Advocate Manu Ghildyal

Respondent- Advocate Ambleshwar Pandey, Advocate Ramesh Kumar

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