# 70Q COMMISSIONER OF INCOME·TAX, KERALA v. MIS. MANICK SONS

- **Citation:** [1969] 3 S.C.R. 708
- **Court:** Supreme Court of India
- **Decided:** 1969-02-14
- **Case number:** Civil Appeal No. 2459 of 1966
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/70q-commissioner-of-income-tax-kerala-v-mis-manick-sons-4631
- **Pages:** 7

## Headnote

70Q
COMMISSIONER OF INCOME·TAX, KERALA
v.
MIS. MANICK SONS
February 14, 1969
). C. SH,l\H, V. RAMASWAMI AND A. N. GROVER, JJ.j
Income-tax Act,
1922, s. 33-Tribunal's Jowers-Tribunal cannot
amalgamate income of two assessment years an divide It equally betwe•n
them-Cannot take undertaking from
a:rsessee fo file
fresh return for
earlier year and direct Jncotne~uu Officer to make assessment accordingly-Cannot make
<rllowance for 'Intangible additions'
without giving
reasons.
For the asse.sment year 1952-53 the
Income-tax
Officer
added a
certain ntnount to the assessec's returned incotnc. as income from undis·
closed sources.
For the 05'C>.sment year 1953-54 a still larger amount
was added on account of unexplained
cash credits. The Income-tax
Appellate Tribunal when considering the appeal for 1953-54 took the view
that since the income assessed in 1952-53 was much less than in earlier
years some of the undisclosed income of that year must have gone into the
cash credits disclosed in 1953-54, It therefore calculated the income for
both the assessment years 1952-53 and 1953-54 together and after making
some allowance for 'intangible
additions' in each year, determined the
amalgamated income for the two years at Rs. 1,00,000 as a round figure.
On this basis the assessment for 1953-54 was reduced to Rs, 50,000 from
the higher figure determined by the Appellate Assistant Commissioner. In
respect of the year 1952-53 an undertaking was taken from the assessee
to file a fresh voluntary return for Rs. 50,000 in place of the much lower
inoome originally assessed.
At the instance of the department a reference
was made to the High Court, and 'failing there, the department appealed
to this Court.
HELD : The appeal must be allowed.
Under s. 33(4) of the Income.tax Act, 1922, the Income-tax Appellate
Tribunal may after giving both parties to the appeal an opportunity of
being heard, pa" such orders thereon as it thinks fit.
The power confer'
red by that sub-section is wide, but it is still a judicial power which must
be exercised in respect of matters that arise in the appeal and according
to law.
The Tribunal in deciding
an appeal before it must deal with
questions of law and fact which arise out of the order <if assessment made
by the Income-tax Officer and the order of the Appellate Assistant Commissioner.
It cannot assume powers which
are inconsistent with the
c:xprc'>r;; pro\·i1;ion'i of the Act 0r its schen1e. r1 I:'.!. R·Fl
In the present case the Tribunal
was entitled
to enquire whether the
source of cash credits was
explained : if it held
that they represented
capital or income of earlier years it could exclude them from inc()me liable
to be taxed in the year to which the appeal related.
But the Tribunal had
no .power to find on amalgamation
o'f income an average of more yea·rs
than one, and to divide it for the purpose of asse:1sment ·between the two
years 1952-53 and 1953-54-equally, [712 G: 714 DJ
In \vorking out the amalgamated income for the two assessment years
in question the Tribunal could not without giving any reasons, and without supporting evidence, make
allowanc~ as it did (or "intangible. add!..
lions", [714 GJ
·
A
B
c
D
E
F
G
"
A
B
c
D
E
F
G
II
C.l.T. V. MANIC!':: SONS (Shah, J.)
709
The Tribunal hearing an appeal may give directions •for reopening
assessment of the year to which the appeal relates : it cannot give any
directions to reassess in case of a period not covered by that year. There
was no sanction in law to enforce the undertaking given by the respondent
when urging his appeal in respect of the year 1953-54, to make a voluntary return for the year 1952-53; and even if the respondent carried out
that undertaking the assessment of 1952-53 could not be reopened otherwise than in the manner prescribed by ·the Act. The undertaking must
therefore be ignored.
The implied direction given by the Tribunal to the
Income-tax Officer to re-assess the income for year 1952·53 was without
jurisdiction. [712 D-E; 714 A]
The qu

## Text

70Q
COMMISSIONER OF INCOME·TAX, KERALA
v.
MIS. MANICK SONS
February 14, 1969
). C. SH,l\H, V. RAMASWAMI AND A. N. GROVER, JJ.j
Income-tax Act,
1922, s. 33-Tribunal's Jowers-Tribunal cannot
amalgamate income of two assessment years an divide It equally betwe•n
them-Cannot take undertaking from
a:rsessee fo file
fresh return for
earlier year and direct Jncotne~uu Officer to make assessment accordingly-Cannot make
<rllowance for 'Intangible additions'
without giving
reasons.
For the asse.sment year 1952-53 the
Income-tax
Officer
added a
certain ntnount to the assessec's returned incotnc. as income from undis·
closed sources.
For the 05'C>.sment year 1953-54 a still larger amount
was added on account of unexplained
cash credits. The Income-tax
Appellate Tribunal when considering the appeal for 1953-54 took the view
that since the income assessed in 1952-53 was much less than in earlier
years some of the undisclosed income of that year must have gone into the
cash credits disclosed in 1953-54, It therefore calculated the income for
both the assessment years 1952-53 and 1953-54 together and after making
some allowance for 'intangible
additions' in each year, determined the
amalgamated income for the two years at Rs. 1,00,000 as a round figure.
On this basis the assessment for 1953-54 was reduced to Rs, 50,000 from
the higher figure determined by the Appellate Assistant Commissioner. In
respect of the year 1952-53 an undertaking was taken from the assessee
to file a fresh voluntary return for Rs. 50,000 in place of the much lower
inoome originally assessed.
At the instance of the department a reference
was made to the High Court, and 'failing there, the department appealed
to this Court.
HELD : The appeal must be allowed.
Under s. 33(4) of the Income.tax Act, 1922, the Income-tax Appellate
Tribunal may after giving both parties to the appeal an opportunity of
being heard, pa" such orders thereon as it thinks fit.
The power confer'
red by that sub-section is wide, but it is still a judicial power which must
be exercised in respect of matters that arise in the appeal and according
to law.
The Tribunal in deciding
an appeal before it must deal with
questions of law and fact which arise out of the order <if assessment made
by the Income-tax Officer and the order of the Appellate Assistant Commissioner.
It cannot assume powers which
are inconsistent with the
c:xprc'>r;; pro\·i1;ion'i of the Act 0r its schen1e. r1 I:'.!. R·Fl
In the present case the Tribunal
was entitled
to enquire whether the
source of cash credits was
explained : if it held
that they represented
capital or income of earlier years it could exclude them from inc()me liable
to be taxed in the year to which the appeal related.
But the Tribunal had
no .power to find on amalgamation
o'f income an average of more yea·rs
than one, and to divide it for the purpose of asse:1sment ·between the two
years 1952-53 and 1953-54-equally, [712 G: 714 DJ
In \vorking out the amalgamated income for the two assessment years
in question the Tribunal could not without giving any reasons, and without supporting evidence, make
allowanc~ as it did (or "intangible. add!..
lions", [714 GJ
·
A
B
c
D
E
F
G
"
A
B
c
D
E
F
G
II
C.l.T. V. MANIC!':: SONS (Shah, J.)
709
The Tribunal hearing an appeal may give directions •for reopening
assessment of the year to which the appeal relates : it cannot give any
directions to reassess in case of a period not covered by that year. There
was no sanction in law to enforce the undertaking given by the respondent
when urging his appeal in respect of the year 1953-54, to make a voluntary return for the year 1952-53; and even if the respondent carried out
that undertaking the assessment of 1952-53 could not be reopened otherwise than in the manner prescribed by ·the Act. The undertaking must
therefore be ignored.
The implied direction given by the Tribunal to the
Income-tax Officer to re-assess the income for year 1952·53 was without
jurisdiction. [712 D-E; 714 A]
The questions raised on behalf of the revenue clearly flowed from the
contentions raised before the Tribunal and enquiry into those questions
was not barred. [712 J)..E; 714 A]
Commissioner of Income-tax, Madras v. S. Ne/liappan, 66 I.T.R. 722,
distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2459 of
1966.
Appeal by special Jeave from the judgment and order dated
August 2, 1965 of the Kerala High Court in Income-tax Referred
Case No. 20 of 1964.
Sukumar Mitra and B. D. Sharma, for the appellant.
S. Swaminathan and R. Gopalakrishnan, for the respondent.
The Judgment of the Court was delivered by
Shah, J. For the assessment year 1952-53 respondents M/s.
Manick & Sons were assessed to tax in the status of a registered
firm and their income was computed at Rs. 15,33.1 inclusive of
Rs. 15,000 being undisclosed income. For the assessment year
1953-54 the respondents returned Rs. 40,887 as their income
from business. The Income-tax Officer discovered an aggregate
amount of Rs. 74,692 as "cash credits" which, in his view, were
not satisfactorily explained by the respondents. The Income-tax
Officer accordingly brought to tax a total inc.ome of Rs. 1,31,179
being Rs. 56,487 as income from business and Rs. 74,692 as
income from "other sources" and assessed the respondents as an
unregistered firm.
The Appellate Assistant Commissioner in appeal reduced the income of the respon3ents from business to
Rs. 38,420 and income from "other sources" to Rs. 46,620. In
second appeal the Tribunal reduced the income from business to
Rs. 28,820 and confirmed the finding that the source of the cash
credits aggregating to Rs. 46,620 had remained unexplained. But
the Tribunal observed that "there were certain special features in
the case which needed proper consideration in determining the
final assessment." The Tribunal then aggregated the income for
710
SUPREME COURT REPORTS
[!969] 3 s.c.R.
the assessment years 1952-53 and 1953-54 fur the two years,
which he rounded off at Rs. 1,00,000 and apportioned in equal
shares in the two years. For the assessment year 1952-53, the
Tribunal recorded that the respondents had given an undertaking
to file a voluntary return for assessment on the basis of total income
of Rs. 50,000.
At the instance of the Commissioner of Income-tax, four
questions were referred to the High Court of Kerala :
"( 1) Whether it was not beyond the jurisdiction of
the Appellate Tribunal to reopen the concluded assessment for assessment year 1952-53 and to direct that the
income should be revised in that year at Rs. 50,000 as
against Rs. 15,331 already fixed?
(2) Whether on the facts and circumstances of the
case and the evidence on record, the Tribunal was justified in directing that any portion of the cash credits be
assessed to income-tax in any year other. than the assessment year 1953-54?
( 3) Whether on the facts -and circumstances of the
case and evidence on record, the Tribunal was. justified
in finding that a portion of the cash credits were covered
by the intangible additions made in 1952-53 and 195354 assessment ?
( 4) Whether on the facts and circumstances of the
case and the evidence on record, the Tribunal was justified in directing that the income under the head 'business' for the assessment year 1953-54 be reduced to
Rs. 50,000 ?"
The High Court declined to answer questions (I) & (2) and
answered questions (3) & (4) in the affirmative.
The Commissioner appeals with special leave.
Tile judgment of the Tribunal is not a reasoned decision on
the questions arising before it : it is cryptic and in parts obscure,
and gives no grounds for its conclusion.
The judgment again
!ends contenance to· a method of assessment which the Indian
Income-tax Officer aggregated to Rs. 74692 which amount was
the Tribunal observed that the cash credits discovered by the
Income-tax Officer aggregated to. Rs. 7 4692 which amount was
reduced by the Appellate Assistant Commissioner to Rs. 50,620.
(It is common ground that the correct figure should be Rs. 46,620.)
The Tribunal then observed that on the evidence on record "these
residuary items must remain unexplained."
But the Tribunal
thought that because in the assessment year 1952-53 the total
income of Rs. 15,331 was compartively small compared to the
A
B
c
D
E
F
G
H
,
A
B
c
C.I.T. v. MANICK SONS (Shah, J.)
711
income of the earlier years "some of that year's profits must have
come into the profits of the next year". The Tribunal then set
out a consolidated statement of account for two years :
"!. Trade profits assessed for assessment
Rs.
year 1952-53
15,331
2. Trade profits on the basis of books and
without the estimates and additions impugned
in this appeal (Rs. 56,487 less Rs. 45,600) . .
40,887
3. Trading deficiency :
(a) Palluruthy branch 1,000
(b) Pavaratty branch 5,000
4. Unexplained cash Credits 50,620
Less set offIntangible addition for 1952-53
Rs. 15,000
Intangible addition for 1953-54 as above.
6,000
D
Rs. 6,000
21,000 29,620
E
F
G
H
Assessable for both the year
91,838"
and observed :
''The assessee has undertaken to file a voluntary return for assessment year 1952-53 on the basis of a total
income of Rs. 50,000.
In these circumstances, the
total business income of the assessee for the year under
appeal is reduced to Rs. 50,000 only."
The unexplained cash credits found by the Appellate Assistant
Commissioner an<l accepted by the Tribunal were Rs. 46,620.
The total income of the two years on the basis adopted by the
Tribunal was therefore Rs. 87,838. But the income of the two
years was rounded off at Rs. 1,00,000 and divided equally between the two years. For making up a consolidated statement of
account the Tribunal gave no reasons nor did it give any reasons
"for debiting the intangible additions" of Rs. 15,000 and Rs. 6,000
against the cash credits. Counsel for. t)le respondents suggested
that the Tribunal was presumably of the view that Rs. 15,000
brought to tax as business income in the assessment in 1952-53
must have been entered in the books of account of the next year
and that Rs. 6,000 called "trading deficiency" in the two branches
was entered as cash credit.
The appeal before the. Tribunal raised a simple question-·
whether the cash credits aggregating to Rs. 46,620 or any part
thereof were liable to be taxed as income of the respondents in
712
SUPREME COURT REPORTS
[1969] 3 S.C.R.
the year 1953-54. For that purpose the Tribuna! had to .consider
whether the respondents furnished any explanation leadm~ to a
justifiable inference that the amount or a part thereof ~hd not
represent income of the respondents. In the view of. the !ribunal the cash credits had remained unexplained. But the 'Tnbunal
still reduced the cash credits by Rs. 21,000, and then proceeded
to amalgamate the income for the two years and to divide it
equally. For reducing the cash credits by Rs. 21,000 no reasons
have been given, and amalgamati~ of the income for the two
years and apportionment is without authority of law.
An assessment which has become final may be reopened in
appeal by the Appellate Assistant Commissioner or the Tribunal
or in revision by the Commissioner, or under an order of rectification of mistake, or pursuant to· a notice of reassessment. The
Tribunal hearing an appeal may give directions for reopening
assessment of the year to which the appeal relates : it cannot give
any directions to reassess in case of a period not covered by
that year. There is no sanction in law to enforce the undertaking
given by the respondent when urging his appeal in respect of the
year 1953-54, to make a voluntary return for the year 1952-53;
and even if the respondents carried out that undertaking the assessment of 1952-53 could not be reopened otherwise than in the
manner prescribed by law.
The undertaking must therefore be
ignored. Under s. 33(4) of the Income-tax Act, 1922, the Income-tax Appellate• Tribunal may, after giving both parties to
the appeal an opportunity of being heard, pass such orders there·
on as it thinks fit.
The power conrerred by that sub-section is
wide, but it is still a judicial power which must. be exercised in
respect of matters that arise in the appeal and according to law
The Tribunal in deciding an appeal before it must deal with
questions of law and fact which arise out of the order of assessment made by the Income-tax Officer and-tlfe order of the Appellate Assistant Commissioner. It cannot assume powers which are
inconsistent with' the express provisions of the Act or its scheme.
The Tribunal was entitled to enquire whether the source of the
cash credits was explained: if it held that they represented capital
or income of earlier years, it could exclude them from income
lia~le to be taxed in the year to which the appeal related. But the
Tnbunal had no power to find on amalgamation of income an
average of more years than one, or to give credit for wjrnt is called intangible additions. without explaining why credit w~ given.
There is no warrant for the claim made by. counsel for. the
respondents that the order passed by the Tribunal was by consent. The Tribunal has not stated so, and if the order was made
l>y consent of the departmental ·authorities and the respondents,
\
A
B
c
D
E
F
G
H
'
B
c
D
F
G
H
c.1.T. v. MAN!CK SONS (Shah, J.)
713
the objection should have been prominently raised when the Commissioner asked for. a reference to the High Court.
Counsel urged that the final order passed by the Tribunal
operates to the prejudice of the respondents, and the Commissioner
is not aggrieved by that order. Counsel said that even though
the Tribunal has found that the total income for the two years
in question was approximately Rs. 91,838 (wlllch if a correctioo
account had been made would have been Rs. 87,838), the Triblljlllll
has directed assessment of Rs. 50,000 in the year 1952-53 and
another Rs. 50,000 in the year 1953-54. But this is only a superficial way of looking at the. matter. In the assessment year 19525 3 the respondents were assessed ill the status of a registered firm
and the income of the firm had to be distributed amqngst the
partners, and the shares of the partners could be assessed to tax
in their hands. The rate of tax on this income unless ·the
partners have large individual income, would be comparatively
low. In the year 1953-54 the respondents were an unregistered
firm and the total income of the unregistered firm was liable to
be taxed._
It was also cointended that the arguments raised before this
Court were never set up either before the TnbunaJ or before the
High Court and should not be permitted to be raised. The
question raised clearly flow from the contentions raised before the
Tribunal· and contemplate an enquiry into matters urged by counsel
by the Commissioper.
The decision of this Court Commissioner of Income-tax,
Madras v. S. Nelliappan(') on which reliance was placed by
counsel for the respondents has little bearing in this case.
In
S. Neiliappan's case(') it was held that the conclusion whether
a cash credit in the books of account of an assessee is properly
explained is one on a question of fact on which no reference can
be made to the High Court under s. 66 of the Indian Incometax Act. The Court in that case did not lay down that it is open
to .the Tribunal to make a consolidated assessment of tax in respect of the assessment of income for the two years and then divide
the income in equal shares.
Turning then to the questions : counsel for the respondents
conceded _that the Tribunal had no jurisdiction to direct the
Income-tax Ofi!.cer to re-open the assessment tor the year 19.5253.
He submitted however that the Tribunal did not give any
such directiCl!DS : it merely recorded an undertaking given by the
respondents that they_ will voluntarily submit a return for
Rs. 50,000 for the year 1952-53. But the context in which the
statement recording the undertaking occurs !a p'•.r>:;raph 7 of the
(1) 66 I.T.R. 722.
714
SUPREME COURT REPORTS
[1969] 3 S.C.R.
judgment of the Tribuna.l and the direction given in paragraph 8
A
leave no room for doubt that the Tribunal did give -a direction to
the Income-tax Officer to re-assess the' income for the year 1952-53.
On the answer to the first question no further enquiry need be made
on the second question.
The Tribunal has given no reasons in support of the view
that the "intangibfe additions" of Rs. 21,000 covered a part of the
B
cash credits. Our attention has also not been invited to any
evidence which establishes a connection between the. cash credits
for Rs. 21,000 -and the additions of Rs. 15,000 made in tbe assessment for 1952-53 aaid Rs. 6,000 added in 1953-54.
The fourth question contemplates an inquiry whether tlie
Tribunal was justified in directing that tbe income under the head
C
"business" for the assessment year 1953-54 be reduced to
Rs. 50,000. The question is somewhat misleading. The direction
o.f the Tribunal was that the total income of the respondents be
reduced to Rs. 50,000 for the year 1953-54, the business income
being Rs. 28,820 and the balance being income from other
sources. For reasons already set out the Tribunal had no jurisD
diction to proceed to combine the income for the two years 195253 and 1953-54 and to divide it for the purpose of assessm~t
between the two years equally.
The Tribuna! had to assess the
income for the year in question.
The appeal is allowed, and the answers to the questions reE
corded by the High Court are discharged.
The answers to the
questions will be as follows :
Q. ( 1 )-Tribunal had no jurisdiction.
Q. (2 )-Tribunal had no jurisdiction.
Q. ( 3 )-in the negative.
Q. ( 4 )-in the negative.
F
There will be no order as to costs in this appeal.
G.C.
Appeal allowed.