MUHAMMAD AMIN Burr, J.-This is a reference application at the instance of assessee who is a manufacture of art silk cloth.
2. The brief facts of this case are that for the assessment year 1971-72 the assessee declared a loss of Rs. 1,17,679. In the course of assessment under section 23(3) of the Income-tax Act the Income- tax Officer found that the assessce bad consumed 21,188 Lbs. Yarn while production of cloth was 20,040 Lbs. Which disclosed the wastage of 5.41 % as against 5.24 % shown in the preceding year.
The Officer further found that no day to day production record had been maintained. Describing the claimed wastage of 5.41 % as excessive he allowed it at only 2 % and disallowed the balance of 3.41 as "excessive unexplained wastage" and thus added Rs. 21,860, to the returned income of the assessee.
2. On appeal before the Income-tax Appellate Tribunal the action of the learned Income-tax Officer was questioned on the ground that he had not disclosed any basis for the wastage allowed by him.
3. Before the Appellate Tribunal the following grounds were taken:
(i) that the order of the learned Income-tax Officer in making ,an addition of Rs. 21,860, to the cloth account on account of shortage is unjustified, improper, wrong and arbitrary.
(ii) that the wastage is proper compared to the earlier year's wastage. Besides it is in order in view of the items manufactured this year.
A perusal of the order of the Income-tax Appellate Tribunal also shows that the assessee did not dispute the rejection of accounts nor did he dispute the fact that no day to day record of production and wastage was maintained. The Tribunal disposing of the appeal observed that the assessee had questioned the addition of Rs. 21,860, on the ground that the Income-tax Officer -had not disclosed any basis for the wastage allowed by him and on that score the addition should be deleted.
The Tribunal, however, agreed with the learned counsel for the assessee that the Income-tax Officer's estimate of wastage was arbitrary and the allowance at 2 % was without any basis. Thus while the Tribunal maintained the rejection of the book-version the case was remitted to the Income-tax Officer with the following observation : "Thus although the accounts have been properly rejected the addition made by the Income-tax Officer cannot be maintained and the matter requires reinvestigation in order to determine properly whether the declared wastage is reasonable which merits acceptance or it should be curtailed and if so to what extent."
4. The petitioner feels aggrieved by- the order of the Tribunal and has approached this Court under section 66(1) of the Income-tax Act, 1922 and has referred the following questions for consideration and decision by this Court :
(a) Whether in the facts and circumstances of the case the Taxation Authorities could assess the applicant under section 23(3) of the Income-tax Act without specifically recording its finding under section 13 of the Income-tax Act?
(b) Whether in the facts and circumstances of the case, there was any material to reject the account version of the assessee? And
(c) Whether on the facts and circumstances of the case the percentage of wastage declared for the year under consideration could be reduced by the Income-tax Authorities when it was in accordance with the declared wastage of the previous years and accepted by the Income-tax Appellate Tribunal."
5. From the fats stated above it will appear that the question o! Applicability or otherwise of the proviso of section 13 of the Income-tax Act, 1922 was not agitated before the Appellate Tribunal. The sole ground on which the judgment of the Income-tax Officer was sought to be assailed was that the I. T. O. Curtailed the allowance for wastage arbitrarily and without any basis.
6. Now, it is a well-settled principle of law that unless a question has, been "raised" before the Appellate Tribunal or "arises" out of its order the' same cannot be raised for the first time before the High Court. There is nothing on record to show that before the Tribunal the assessee had attacked as illegal or improper the application of the proviso of section 13. The order of the Tribunal and the grounds of appeal go to show that the questions at Nos. 1 and 2 were not "raised" before the Appellate Tribunal and cannot be said to "arise" out of the order of the Appellate Tribunal.
7. It is by now well settled that a question would be said "to arise" only if
(i) it has been urged before the Tribunal and discussed and decided by it; or
(ii) it has been urged before the Tribunal but the Tribunal has not for any reason decided it;
(iii) that it has not been urged before the Tribunal but the Tribunal has nevertheless decided it suo moto;
(iv) the order is attacked as being without jurisdiction; and
(v) the only other situation in which the question may be said to arise is where the validity of the order of the Appellate Tribunal is itself questioned. Thus when the Tribunal misdirects itself in law whether as a result of misconstruction of a document or by recording a finding ignoring crucial facts or acting in violation of fundamental principles of natural justice.
Questions Nos. 1 and 2, therefore, do not fulfil the test laid down above and do not "arise" out of the order of the learned Tribunal.
8. As to the question No. 3, allowance for wastage declared by the assessee claimed by him as being at or about the accepted level of the past years, the assessee's plea was considered by the Appellate Tribunal and allowed. The Appellate Tribunal, it may be added, has not made any concession in favour of the revenue. In fact, extracts from the judgment quoted in para. 4 above would show that the Tribunal has clearly left it open for the Income-tax Officer to accept the wastage of 5.4 % upon re-investigation if he considers it reasonable.
9. The third question raised by the assessee even if it were assumed to be a question of law which "arises" out of the Appellate Tribunal's order, the question was decided in favour of the assessee for reconsideration of the assessee's plea in this behalf. At any rate, this question would not enable the assessee to set up the plea that the books of accounts could not be rejected on the basis of defects like the non-maintenance of day-to-day production register or the wastage register.
10. We have no doubt that. Question No. 3 was not decided by the Tribunal against the assessee and that objection is wholly misconceived. The assessee cannot be aggrieved of the Tribunal's decision in this behalf. He is entitled to approach the Income-tax Officer with the order of the Appellate Tribunal and assert that having regard to the past history of 5.24 --; wastage and the peculiar facts of this year the wastage merits acceptance.
11. We feel that the Tribunal has consciously left this question of allowance of wastage wide open and objections raised on behalf of the assessee are misconceived.
12. This application is disposed of with the observations that questions Nos. 1 and 2 do not arise out of the Tribunal's order and the third question having been decided in his favour, the assessee cannot be said to be aggrieved by the decision on this score.
13. In the result this application fails and is dismissed with no order as to costs.