Law:

Section:

Section 254 of the Indian Income-tax Act, 1961 - Appellate Tribunal - Powers of - Assessment year 1947-48 - Whether ITO is not bound by any technical law of evidence and it is open to him to collect materials to facilitate assessment even by private enquiry - Held, yes - Whether, however, if ITO desires to use material so collected by him, assessee must be informed of material and must be given an adequate opportunity of explaining it - Held, yes - Whether, therefore, it is open to Tribunal in appreciating evidence to rely upon statements made by witnesses before ITO and to disbelieve statements made by them before AAC - Held, yes FACTS While completing the assessment of the assessee firm for the assessment year 1947-48, two entries in the assessee's books of account showing payments to 'M' and 'B' were noticed by the ITO. A partner of the assessee explained that these two parties were their constituents, and had entered into speculative transactions through them as brokers with 'BL' and 'J' and that the latter had suffered losses and that the payments to the assessee by the said two persons 'were passed on' to these two constituents. The ITO was not satisfied with the explanation and examined 'A', a partner of 'M', and 'P', a partner of 'B'. On a consideration of the material placed before him the ITO held that the entries made in the relevant account books maintained by the assessee were 'fictitious', and in computing their income disallowed the assessee's claim in respect of the amounts. On appeal, the AAC summoned both 'A' and 'J' to appear before him and permitted the assessees to cross examine them. The AAC held that the transactions in cotton which were entered in the books of account of the assessee were not genuine but the assessee had merely acted as brokers or 'mediators', 'J' and 'B' having directly 'bought losses' from 'M' and 'B'. He, therefore, directed that the amount be excluded in computing the assessee's total income. On appeal by the revenue, the Tribunal reversed the order of the AAC. On reference, the High Court after an exhaustive review of the evidence held that there was material on the record to support the findings of the Tribunal…

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