Appeals U/S 260A Of Income Tax Act Not Sustainable In Absence Of Perversity In Tribunal's Fact Finding: Allahabad High Court

“In the instant appeal the department has only challenged the fact finding off 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,” held the division bench comprising of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit.

Section 260A of the Income Tax Act, 1961 provides for an appeal against an order passed by an Appellate Tribunal, before the High Court.

Factual Background

An assessment order was passed by the Assessing Officer (A.O.) under Section 143(3) of the Income Tax Act, 1961. The Principal Commissioner of Income Tax (P.C.I.T.) then revised the order in his jurisdiction under Section 263 of the Act, stating that it was prejudicial to the interest of revenue. He further directed that the inquiry be redone.

The order passed by the Principal Commissioner was challenged before the Tribunal, which held that a proper inquiry had indeed been carried out by the Assessing Officer, only after which had the original order been given. Aggrieved, the Department filed an Income Tax Appeal before the High Court.

The Department approached the High Court, contending that the Tribunal had erred in holding that the Assessing Officer had actually conducted a proper inquiry, especially in light of its own findings in the order under Section 263. It also contested whether the Tribunal was justified in finding that the exercise of jurisdiction of the P.C.I.T. under Section 263 of the Act, was invalid and unsustainable in the eyes of the law.

High Court Verdict

Examining the impugned order, the Court held that the Tribunal had carried out a thorough examination before concluding that the Assessing Officer had not misstated facts or recorded false entries. It was held that the allegations levelled against the A.O. by the Principal Commissioner were not based on any evidence and were in fact contrary to the material on record.

The Court observed that the Tribunal had verified and found that the P.C.I.T. had not satisfied the twin conditions to invoke Section 263 of the Act, given that the A.O. had made all the necessary inquiries before passing his order.

Further, the Court examined Section 260A of the Act and held that the Tribunal was the final authority to adjudicate on an issue of facts. It was held that as per the judgment of the Supreme Court in Pr. CIT v. Bhadani Financiers Pvt. Ltd., the High Court could only intervene in the order passed if there existed a substantial question of law.

The Court relied on the decision in Chunilal V. Mehta and Sons Ltd. v. Century Spg. And Mfg. Co. Ltd. to show what constituted a substantial question of law.

“The proper test for determining whether a question of law raised in the case is substantial would in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views,” held the Apex Court in Chunilal.

In the present case, the Court stated that the department had only challenged the fact finding of the tribunal. It was held that as per the law laid down by the Supreme Court, no substantial question of law would arise in relation to facts, unless such findings were shown to be perverse.

The Court held that a decision could be said to be perverse when it is shown to have been made “without evidence or when it cannot be arrived at by a prudent man”. It placed reliance on a number of judgments to hold the same.

“The findings of fact recorded by a Court can be held to be perverse if the findings have been arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant/inadmissible material. The finding may also be said to perverse if its is “against the weight of evidence”, or if he finding is so outrageously defies logic as to suffer from the vice of irrationality,” held the Apex Court in S.R. Tewari v. Union of India.

The Court held that in the matter at hand, no substantial rights of the assessee were affected by the facts established by the Tribunal. Thus, there was no perversity in the impugned order.

Accordingly, the Income Tax Appeal was dismissed.

Case Title: Principal Commissioner of Income Tax, Bareilly, U.P. v. Dharam Singh [INCOME TAX APPEAL No. - 85 of 2024]