IMPORTANT POINT
Reconsidering finding of fact by final fact finding authority by reappraising evidence is not permissible under Reference jurisdiction.

JUDGMENT :

Ranjan Gogoi, J.

1. The High Court of Karnataka by the impugned order dated 3rd July, 2007 had answered the questions referred to it for its opinion under Section 256(2) of the Income Tax Act, 1961 (as it then existed) against the assessee and in favour of the revenue. Aggrieved, the assessee has filed this appeal upon grant of leave under Article 136 of the Constitution of India.

2. At the outset, the questions of law on which the High court had rendered its opinion may be set out as below.

“i. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the disallowance of service charges paid to M/s Universal Trading Company made under Section 40A(2)?

ii. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss shown by the assessee in the film business amounting to Rs.31,48,670/-was allowable?

iii. Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing the assessee's claim for deduction under Section 35(2A) in respect of donation to Aparna Ashram?”

3. The necessary discussions can best be unfolded by taking up each of the claims of deduction made by the assessee which were decided against the assessee by the High Court by the order under challenge.

4. Disallowance of Service charges For the Assessment Year in question i.e. 1984-1985, the assessee claimed the benefit of disallowance of the service charges paid to one M/s Universal Trading Company (“UTC” for short). The Assessing Officer disallowed the said claim on the ground that in the proceedings arising out of the Assessment Order for the previous year i.e. 1983-1984 the said claim had been negatived by the C.I.T. in appeal. The Assessing Officer, in addition, also took note of the fact that the membership in the asseessee-firm and UTC is common and one K.L. Srihari had a sizeable holding in each of the two firms. The Assessing Officer also had regard to the fact, while disallowing the said claim, that the assessee had failed to provide proof of service rendered by UTC in the period covered by the Assessment Year in question. He also took note of the advice of a Chartered Accountant contained in a Note which was found in the course of a search proceeding. The said Note contained an advise to the assessee to include service charges to UTC as one of the methods to reduce the incidence of Income Tax. The aforesaid conclusions of the Assessing Officer were upheld in Appeal by the CIT. Aggrieved, the Revenue filed an appeal before the Income Tax Appellate Tribunal (“ITAT” for short) which reversed the findings and conclusions of the Primary and First Appellate Authority primarily on the ground that the order of the CIT (Appeals) in the earlier assessment proceeding, relied upon by the Assessing Officer, was reversed in appeal by the ITAT and also that in the course of said earlier assessment proceeding the legal effect of the advice tendered by the Chartered Accountant to reduce the incidence of Income Tax was found to be permissible in law. The High Court reversed the said conclusion of the ITAT which has been challenged by the assessee in the present appeal.

A reading of the order of the ITAT in favour of the assessee which has been reversed by the High Court would indicate that the learned ITAT did not address itself to a very fundamental issue that had arisen before it, namely, effect of the failure of the assessee to produce evidence in support of the services claimed to have been rendered by UTC during the Assessment Year in question i.e. 1984-1985. The answer given by the assessee in response to a specific query made by the Assessing Officer in this regard was that explanations in this regard had already been submitted for the previous Assessment Year i.e. 1983-1984. If service had been rendered to the assessee by UTC during the Assessment Year in question and service charges had been paid for such service rend