Concept of Perversity

Perverse :

§  Contrary to accepted/ expected standards and practices

§  Showing deliberate & obstinate desire to behave in an unreasonable/ unacceptable way

Perversity, as is too well known, is a factor which vitiates any exercise, legal or otherwise, determinative of the rights and obligations of the parties. Broadly understood, the concept of perversity, would mean all the facts possibly leading to one inference/conclusion, and if an opposite inference/conclusion is drawn, then any such exercise can be called as a result of perversity. Further, upon considering the same material, if no reasonable body of men would have reached such a conclusion, then the concept of perversity would spring up. 

It is well settled that a finding or conclusion not supported by evidence brought on record or are against the law or suffer from the vice of procedural irregularity are perverse findings. The expression "perverse findings" would mean a finding which is not only against the weight of evidence but is altogether against the evidence itself. A deliberate departure from what is normal and reasonable is also termed a perverse. It is further well settled that a finding/conclusion/verdict arrived at that no reasonable person could have arrived on the basis of the material before him is also termed as perverse. Thus, a finding/conclusion arrived at by the quasi-judicial authorities/ Courts by considering irrelevant evidence or ignoring relevant evidence or against not properly weighing the evidence or against the evidence would be perverse and the order would be liable to be set aside on this ground alone.

Test and benchmark of perversity is far stringent and strict

A finding of a Tribunal on fact does not become perverse merely because another finding or conclusion was possible. Test and benchmark of perversity is far stringent and strict. Factual findings can be only interfered with when they are patently unreasonable, not supported by any evidence or are based upon extraneous and irrelevant material. Interference may be justified when the conclusions are based upon mere conjectures and surmises or where no person acting judicially and properly instructed under the relevant law could have come to the same decision and conclusion.

The only jurisdiction of the High Court in a reference application is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is challenged as being perverse, in the sense set out above, that a question of law can be said to arise. 

The Hon’ble Supreme Court in Sudarshan Silk & Sarees v. CIT (2008) 300 ITR 205 : 169 Taxman 321 (SC) has laid down the attributes of perversity by holding that an order or finding is perverse on facts if it falls under any of the following categories:

(a)  The finding is without any evidence.

(b)  The finding is contrary to the evidence.

(c)  There is no direct nexus between the conclusion of fact and primary fact upon which that conclusion is based?

(d)  When an authority draws a conclusion which cannot be drawn by any reasonable person or authority on the material and facts placed before it. 

High Court justified claim of Section 80-IC deduction as finding that printing & binding of books is question of fact; Dismisses Revenue’s appeal since fact-finding w.r.t. ‘Section 80-IC undertaking’ not challenged as perverse

Assessee was engaged in business of printing and binding of books. It claimed deduction under section 80-IC. Assessing Officer disallowed claim of assessee on ground that neither paper nor printed material reached eligible unit for printing, cutting and binding etc. and no manufacturing activity had actually taken place in said premises. Commissioner (Appeals) observed that Assessing Officer had not disallowed deduction under section 80-IC on ground of violation of prescribed conditions. He, thus held that since claim of deduction under section 80-IC in respect of publishing activity carried out from premise of eligible undertaking was found to be genuine, same was to be allowed. 

Where Assessing Officer had disallowed deduction under section 80-IC claimed by assessee, since Assessing Officer had not disallowed deduction on ground of violation of prescribed conditions but based on finding that assessee did not actually carry out any operation at premise of eligible undertakingand Commissioner (Appeals) on fact observed that publishing activity carried out from premise of eligible undertaking was found to be genuine, thus claim of deduction under section 80-IC was to be allowed. Question as to whether exercise of printing and binding of books was carried out at eligible undertaking of assessee was a question of fact, on which findings of Commissioner (Appeals) in favour of assessee were confirmed by Tribunal. Therefore, no substantial question of law arose for consideration. [In favour of assessee] (Related Assessment years : 2011-12 and 2012-13) - [PCIT v. Nirja Publishers & Printers (P) Ltd. (2024) 158 taxmann.com 403 (Del.)] 

Absent question of perversity, ITAT’s ‘fact-finding’ final

Delhi High Court upholds the ITAT ruling holding that the Assessee’s gains on redemption of mutual funds shall be chargeable to tax as capital gain, and not as business income; Relies on Supreme Court judgment in K. Ravindranathan Nair v. CIT (2001) 247 ITR 178 : 114 Taxman 53 : 2001 (1) SCC 135 (SC) wherein it was held that, “A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal.”; Finds that the ITAT, after appreciating the material on record, held that the transactions concerning mutual funds were in the nature of investment and not motivated by trade, thus the gains from the same shall be chargeable to tax as capital gains and not as business income; Further, High Court upholds ITAT ruling holding that the capital contribution received by the Assessee from its partners was in the nature of a commercial transaction and would not fall within the category of loans and advances that could be construed as deemed dividend under Section 2(22)(e); Concurred with ITAT’s view that it could not treat CIT(A)’s observations on charging the contributions to tax in the hands of the shareholders of the investor companies and remarks that the addition in the hands of the said shareholders can only be made after affording a hearing. [In favour of assessee] - [PCIT v. Wig Investment [TS-23-HC-2024(DEL)] – Date of Judgement : 15.01.2024 (Del.)]

Arm’s Length Price (ALP) determined by ITAT can be challenged before High Court for perversity & non observance of transfer pricing rules

Supreme Court held that while determining the arm’s length price, the Tribunal has to follow the guidelines stipulated under Chapter X of the IT Act, namely, Sections 92, 92A to 92CA, 92D, 92E and 92F of the Act and Rules 10A to 10E of the Rules. Any determination of the arm’s length price under Chapter X de hors the relevant provisions of the guidelines, referred to hereinabove, can be considered as perverse and it may be considered as a substantial question of law as perversity itself can be said to be a substantial question of law. Therefore, there cannot be any absolute proposition of law that in all cases where the Tribunal has determined the arm’s length price the same is final and cannot be the subject matter of scrutiny by the High Court in an appeal under Section 260A of the Income Tax Act. The Hon’ble Apex Court after considering the rival submissions held that 

“7. Any determination of the arm’s length price under Chapter X de hors the relevant provisions of the guidelines, referred to herein above, can be considered as perverse and it can be considered as substantial question of law as perversity itself can be said to be a substantial question of law. Therefore, there cannot be any absolute proposition of law that in all cases where the Tribunal has determined the arm’s length price the same is final and cannot be the subject matter of scrutiny by the High Court in an appeal under Section 260A of the Income Tax Act. When the determination of arm’s length price is challenged before the High Court, it is always open for the High Court to consider and examine whether the arm’s length price has been determined while taking into consideration the relevant guidelines under the Act and the Rules. Even the High Court can also examine the question of comparability of two companies or selection of filters and examine whether the same is done judiciously and on the basis of the relevant material/ evidence on record. The High Court can also examine whether the comparable transactions have been taken into consideration properly or not, i.e., to the extent non-comparable transactions are considered as comparable transactions or not. Therefore, the view taken by the Karnataka High Court in the case of PCIT v. Softbrands India (P) Ltd. (2018) 406 ITR 513 (Karn.) that in the transfer pricing matters, the determination of the arm’s length price by the Tribunal is final and cannot be subject matter of scrutiny under Section 260A of the Income Tax Act cannot be accepted.

8. Thus, in each case, the High Court should examine whether the guidelines laid down in the Act and the Rules are followed while determining the arm’s length price. Therefore, we are of the opinion that the absolute proposition of law laid down by the Karnataka High Court in the case of Softbrands India (P) ltd. (supra) that in the matter of transfer pricing, determination of the arm’s length price by the Tribunal shall be final and cannot be subject matter of scrutiny and the High Court is precluded from examining the correctness of the determination of the arm’s length price by the Tribunal in an appeal under Section 260A of the Income Tax Act on the ground that it cannot be said to be raising a substantial question of law cannot be accepted. As observed hereinabove, within the parameters of Section 260A of the Income Tax Act in an appeal challenging the determination of the arm’s length price, it is always open for the High Court to examine in each case whether while determining the arm’s length price, the guidelines laid down under the Act and the Rules, referred to hereinabove, are followed or not and whether the determination of the arm’s length price and the findings recorded by the Tribunal while determining the arm’s length price are perverse or not” – [Sap Labs India (P) Ltd. v. ITO (2023) 149 taxmann.com 327 (SC)]

Absent question of perversity, dismisses Revenue’s appeal on Section 69A addition

Delhi High Court upholds ITAT order wherein addition under Section 69A on account of unexplained cash deposit by a non-resident Assessee was deleted, holding that Section 69A has no applicability on non-resident Assessee’s whose only source of income in India is interest on bank account and interest on income tax refund; Observes that Revenue failed to discharge its onus and that in absence of Revenue’s failure to propose any question of law on ITAT finding being perverse, the power under Section 260A cannot be exercised into the arena of appreciation of facts and document; Further notes that ITAT meticulously examined and elaborately discussed the documentary records in support of the explanation of the money ingress in the bank account of the Assessee; Distinguishes Revenue’s reliance on Kerala High Court judgement in K. V. Mathew v. ITO (2014) 42 taxmann.com 571 (Ker.) by observing that in the said judgement it was also held that interference under Section 260A cannot be made wherein the question of fact raised by the aggrieved party has been clinched by ITAT. [In favour of assessee] (Related Assessment year 2017-18) - [CIT(international Taxation) v. Hersh Washesher Chadha [TS-756-HC-2023(DEL)] – Date of Judgement : 12.12.2023 (Del.)]

Absent question of perversity on Rs. 100 Cr. loss from receivables-sale; Dismisses Revenue’s appeal

Delhi High Court dismisses Revenue’s appeal, holds that no substantial question of law arises for consideration wherein Delhi ITAT allowed the loss of Rs. 103.87 Cr. arising on sale of financial receivable being revenue in nature on the premise that the same was crystallized in the relevant Assessment year; Observes that Revenue failed to propose any question of law on ITAT’s finding to the extent that full sale value of loan portfolio crystallized in the relevant Assessment year and the loss was crystallized in the said Assessment year and allowable being ‘revenue’ in nature is perverse; Observes that issue pertaining to allowability of loss on sale of financial receivable being revenue or capital in nature does not arise from order passed by the statutory authorities;

During Assessment year 2010-11, pursuant to an assignment agreement with Shriram Transport Finance Company Ltd. (STFCL) for outright sale of financial receivables, Assessee claimed loss of Rs. 103.87 Cr on sale of financial receivables, which was disallowed by Assessing Officer on the premise that loan facilities were not transferred in totality and the loss was not crystallised in the relevant Assessment year, therefore, the loss incurred is ‘capital’ in nature; DRP dismissed Assessee’s objection; ITAT relied on coordinate bench ruling in Assessee’s own case for Assessment year 2004-05 and held that perusal of the assignment agreement executed with STFCL clearly evidence that transaction took place in the relevant Assessment year and accordingly, the loss was crystallized in the year under consideration, therefore, loss of Rs. 103.87 Cr arising on sale of financial receivables was on revenue account;

High Court observes that it is undisputed fact that loan portfolios concerning 45000 borrowers were sold to STFCL in pursuance to an assignment agreement and the difference between the value of financial receivables and consideration received was claimed as revenue loss; Observes that ITAT after detailed examination of facts categorically held that loss crystallised in the relevant AY and the Assessee is entitled for claim of loss of Rs. 103.87 Cr in the year itself; Observes that Revenue has not proposed any question to the effect that ITAT’s finding is perverse and accordingly the appeal cannot be entertained; On the issue of disallowance of Rs. 7.94 Cr under Section 14A read with Rule 8D, High Court relies on coordinate bench ruling in Cheminvest Ltd. v. CIT (2015) 378 ITR33 (Del.) wherein it was held that Section 14A will not apply if no exempt income is received or receivable during relevant previous year, accordingly, holds that no substantial question of law arises for consideration. [In favour of assessee] – [Clix Capital Services (P) Ltd. (Formerly Known as Ge Money Financial services (P) Ltd.) [TS-740-HC-2023(DEL)] – Date of Judgement : 02.11.2023 (Del.)]

Absent separate cash-payment vouchers, confirms Section 40A(3) disallowance; Rejects ‘perversity’ plea

During Assessment year 2004-05, Assessee claimed deduction of expenditure on account of payments made to truck drivers for material purchases in excess of Rs. 20,000 in cash. During assessment, Revenue issued show cause notice as to why 20% of the expenditure incurred in excess of Rs. 20,000 towards payment to truck drivers in cash should not be disallowed under Section 40A(3) read with Rule 6DD to which Assessee replied and contended that books of accounts including cash book and daybook evidences separate payments not exceeding Rs. 20,000 in cash were made to individual truck drivers who brought material in different trucks, accordingly, disallowance cannot be made. Revenue rejected Assessee’s contention and held that Assessee failed to produce bills or vouchers to substantiate separate transaction with truck drivers, accordingly, made disallowance under Section 40A(3). CIT(A) partly allowed Assessee’s appeal. ITAT dismissed Assessee’s appeal.

Before High Court, Assessee relied on coordinate bench judgment in Sunil Kumar as well as Orrisa High Court judgment in CIT, Orissa v. Aloo Supply Co. (1980) 121 ITR 680 (Ori.) as well as Madhya Pradesh High Court judgment in CIT v. Triveniprasad Pannalal (1997) 228 ITR 680 (MP) and contended that amendment to Section 40A(3) were made with effect from 01.04.2009 to include the payment made other than by account payee cheque/draft ‘to a person in a day’, accordingly, the amended section is not applicable for the relevant Assessment year specifically in context of day book which stipulates bifurcated payments. Also relied on Supreme Court judgment in Indore Malwa United Mills Ltd. v. State of Madhya Pradesh & Others (1966) 60 ITR 41 (SC) and contended that erroneous finding of fact bordering on perversity would be a substantial question of law in terms of Section 260A.

High Court distinguished Assessee's reliance on Orrisa High Court judgment in Aloo Supply and observed that the principle enunciated in the said case that Section 40A(3) applies to payments made to party at a time and not to aggregate of payment made to a party in course of a day as recorded in cash book is not applicable in the present case since the Revenue specifically found that Assessee’s contention of payment to truck drivers on delivery of goods at different work sites is not supported by any bills or vouchers. Rejected Assessee’s contention on perversity on fact would come within the ambit of question of law and observed that there is no perversity in ITAT order. Observed that CIT(A) order restricting the disallowance on the premise that disallowance made by Revenue was on estimate basis is incorrect since Section 40A(3) mandate such disallowance to the percentage indicated therein on there being no evidence to indicate payment exceeding Rs. 20,000 by account payee drawn cheque. Distinguished Assessee’s reliance on Sunil Kumar judgment and observed that in the present case, Assessee failed to produce vouchers in support of claim of separate payments having been made on a single day at the work spots where the delivery of the goods supplied were made. Referred to cash book produced by Assessee and observed that there is nothing on record to suggest that payment were made separately and not together.

Patna High Court holds that no substantial question of law arises wherein ITAT upheld the disallowance under Section 40A(3) on deduction of expenditure incurred in excess of Rs. 20,000 other than by an account payee cheque/draft on the premise that Assessee failed to provide the bills/vouchers to substantiate the claim of separate payments been made in a single day to exclude from the ambit of Section 40A(3); High Court distinguishes Assessee's reliance on Orrisa High Court judgment in CIT, Orissa v. Aloo Supply Co. (1980) 121 ITR 680 (Ori.) and observes that the principle enunciated in the said case that Section 40A(3) applies to payments made to party at a time and not to aggregate payment made in course of a day as recorded in cash book is not applicable in the present case since the Revenue specifically found that Assessee’s contention of payment to truck drivers on delivery of goods at different work sites was not supported by any bills or vouchers. Thus, dismissed Assessee's appeal. [In favour of revenue] (Related Assessment year : 2004- 05) – [Mahendra Prasad Singh & Bros v. CIT [TS-788-HC-2023(PAT)] – Date of Judgement : 04.12.2023 (Patna)]

High Court quashes perverse Section 148A(d) order as passed without application of mind

By this writ petition, petitioner has challenged the impugned order under Section 148A(d) of the Income Tax Act, 1961, dated 29.07.2022 and all subsequent proceedings, on the ground that the aforesaid impugned order is perverse and in total non-application of mind by recording that no response was given to the letter in question issued by the Assessing Officer nor any supporting document was attached while it appears from record at page 41 of the writ petition that petitioner had filed the response along with supporting documents. The aforesaid impugned order under Section 148A(d) of the Act, in view of the fact which appears from record, is perverse and is in total non-application of mind and on this ground alone, the aforesaid impugned order is not sustainable and is liable to be quashed. However, quashing of the aforesaid impugned order under Section 148A(d) of the Act and all subsequent proceedings, will not be a bar on the part of the Assessing Officer to pass a fresh order under Section 148A(d) of the Act after considering the objection/ response of the petitioner dated 15.06.2022 in accordance with law and by passing a reasoned and speaking order after giving an opportunity of hearing to the petitioner or his authorised representatives, within a period of eight weeks from the date of communication of this order. With this observation and direction, this writ petition being WPA 4123 of 2023 stands disposed of. – [Dobby Media (P) Ltd. v. ITO - WPA 4123 of 2023 - Date of Judgement : 21.03.2023 (Cal.)] 

High Court can interfere in the order of the ITAT only if there is substantial question of law or there is manifest illegality or it suffers from perversity

A search and seizure operation under section 132 was carried out on assessee-company. Assessing Officer found unexplained cash credit in assessee’s bank account and thus made additions under section 68. Commissioner (Appeals) in order to ascertain authenticity of assessee’s return of income and identity and creditworthiness of such cash credit addressed a letter to DIS and obtained a report. It was found that assessee had received certain amount from four entities, namely, MTC, TIDCO, TM and VC and out of these four entities, assessee was promoter director of TIDCO and TM. Thus, creditworthiness of amount received from TIDCO and TM was confirmed and additions made in respect of same were deleted - In regards to MTC and VC, assessee submitted copies of returns, computation sheet and balance sheet of partners of these entities however creditworthiness of few partners were still doubtful. Commissioner (Appeals) thus partially allowed amount credited from MTC and VC. Tribunal upheld order passed by Commissioner (Appeals). 

The scope of jurisdiction in Section 260A is very well settled. It is a settled proposition that ITAT is the final arbiter of the facts. High Court can interfere in the order of the ITAT only if there is substantial question of law or there is manifest illegality or it suffers from perversity. The general rule is that High Court should be slow in interfering into the findings of ITAT, unless it suffers from any of the grounds mentioned hereinabove. In this case tribunal has minutely examined the case and marshaled the facts well. It may be noted that the ITAT is final arbiter of the facts and appeal can be entertained by the High court only if there is a substantial question of law. High Court consider that there is no substantial question of law in the present case. We also do not find any perversity in the order passed by the tribunal. The order passed by Tribunal was to be upheld. [In favour of assessee] (Related Assessment year : 2008-09) – [PCIT v. Madhur Mittal (2022) 142 taxmann.com 404 (Del.)] 

Upholds commission disallowance, ITAT’s finding not perverse merely because another finding / conclusion possible

Delhi High Court upholds ITAT order disallowing expenditure of Rs. 1 crore paid as commission by assessee-company (agent of Korean based company) to its sub-agent during Assessment year 2010-11, observes that ITAT's conclusions were based on exhaustive examination of the material; During the relevant Assessment year assessee’s sub-agent had failed to describe and elucidate on the nature and manner in which the services were rendered against which commission was received from assessee, therefore ITAT disallowed the same ; Observes that ITAT had highlighted that crucial evidence in relation to four aspects were missing i.e. details of service rendered by the sub-agent , details of expenses incurred by the sub-agent, persons whom the sub-agent had contacted and letters, report or document submitted by the sub-agent in the process of rendering services ; Rejects assessee's contention that since similar payment of Rs. 1.25 crores in Assessment year 2009-10 was not disallowed , ITAT's decision was perverse, remarks that , As rightly observed by the Tribunal, rule of consistency could not be extended to presume that the sub-agent must have rendered services in the year in question.”; States that ITAT’s finding on fact does not become perverse merely because another finding or conclusion was possible, remarks that, Test and benchmark of perversity is far stringent and strict ”, thus clarifies that interference with factual findings can be justified only when the conclusions are based upon mere conjectures and surmises or where no person acting judicially and properly instructed under the relevant law could have come to the same decision and conclusion. [In favour of revenue] (Related Assessment year : 2010-11) – [Alpasso Industries (P) Ltd. v. ITO [TS-465-HC-2018(DEL)] – Date of Judgement : 23.07.2018 (Del.)]

Neither in the questions of law as urged by the Revenue nor in the grounds in the memorandum of Appeal is there a specific plea that the conclusions of the ITAT are perverse. In any event, the ground of perversity is not to be casually urged without proper pleading, untenable

Delhi High Court dismisses Revenue's appeal for Assessment year 2006-07 challenging ITAT order on comparables selection, notes Revenue's submission that ITAT order was perverse and incomplete as it dealt with only one of the several grounds considered by DRP in support of its conclusion; ITAT had directed inclusion of one loss making comparable which was functionally similar to assessee and exclusion of 2 comparables on ground of functional differences; High Court notes that ITAT order gave detailed reasons in support of its conclusion, further the memorandum of appeal filed by Revenue and a question of law raised for its consideration did not mention a specific plea that the ITAT order was perverse; High Court observes that 'the ground of perversity is not to be casually urged. It has to be supported by a proper pleadingwhich again has to be on the basis of a detailed study of the impugned order of the ITAT pointing out to the High Court in what manner the ITAT’s conclusions can be said to be perverse. This condition is not met in the present case'; Remarks that exclusion/inclusion of comparables is by and large an exercise of analysis of facts and if there has to be a substantial question of law framed on such issue, the Revenue should come up with a proper plea based on a detailed study of ITAT order; Thus, dismisses Revenue’s appeal holding that no question of law arose for its consideration. [In favour of assessee] (Related Assessment year : 2006-07) – [PCIT v. Sojitz India (P) Ltd. [TS-391-HC-2017(DEL)] – Date of Judgement : 04.09.2017 (Del.)]

Reference jurisdiction High Court should not act as an appellate Court to review such findings of fact arrived at by the Tribunal by a process of reappreciation and reappraisal of the evidence on record, unless disputed before the High Court

While findings of fact found by the Tribunal are final and the High Court cannot reappraise the same, the High Court can take note of facts on record which are lost sight of by the Tribunal and also construe certain facts to be of significance as against the different view of the Tribunal 

The legal position in this regard may be summed up by reiterating that it is the Tribunal which is the final fact finding authority and it is beyond the power of the High Court in the exercise of its reference jurisdiction to reconsider such findings on a reappraisal of the evidence and materials on record unless a specific question with regard to an issue of fact being opposed to the weight of the materials on record is raised in the reference before the High Court. 

The Court held that it is well settled that issues of fact determined by the Tribunal are final and the High Court in exercise of its reference jurisdiction should not act as an appellate Court to review such findings of fact arrived at by the Tribunal by a process of reappreciation and reappraisal of the evidence on record. Unless a specific question with regard to an issue of fact being opposed to the weight of the material on record is raised in the reference before the High Court. On merit dismissed the appeal of assessee. (Related Assessment year : 1984-85). –[Ganapathy & Co. v. CIT( 2016) 381 ITR 363(SC)] 

The findings of fact and the appreciation of evidence by the Assessing Officer, the Commissioner (Appeals) and the Tribunal cannot be faulted on any ground. They are by no means perverse or unreasonable. The relevant facts were taken into consideration and analysed. In the appreciation of facts no question of law arises. – [Subhash Chander Malik v. DCIT, Chandigarh (2015) 57 taxmann.com 180 (P&H)] 

Associate Builders v. Delhi Development Authority, wherein the Supreme Court held that a decision would be perverse if it was based on no evidence or on evidence which was unreliable and no reasonable person would depend on it. – [Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 (SC)] 

NOTE : The observations of the Hon’ble Supreme Court clearly assert that 'perversity' in an order or verdict stems from a factual error which may arise on account of several factors, including, but not limited to, incorrect appreciation and consideration of relevant material and evidence. All things said, the scope of ‘perversity’, as is well-understood, is confined to the factual determination of a dispute or challenge before the Court. 

A factual decision is perverse if the authority has acted without any evidence or on view of facts, which cannot be reasonably entertained. A perverse finding is one, if it is arrived at without any material or if it is arrived at or inference is made on material, which would not have been accepted or relied upon by a reasonable person conversant with the law

This Court while exercising appellate jurisdiction under Section 260A of the Act is not an appellate Court for facts reprise. Factual findings can be challenged only on the ground that the factual findings recorded are perverse or relevant evidence has not been considered or irrelevant material has been relied. In such cases, pleadings in this regard have to be specific, erudite and the should indicate clearly the error or mistake. This Court in CIT versus Sunaero Ltd. (2012) 345 ITR 163, at page 187, regarding perversity of a decision of the Tribunal, has observed:- “A factual decision is perverse if the authority has acted without any evidence or on view of facts, which cannot be reasonably entertained. A perverse finding is one, if it is arrived at without any material or if it is arrived at or inference is made on material, which would not have been accepted or relied upon by a reasonable person conversant with the law. If the finding is based upon surmises, conjectures or suspicion and is not rationally possible. A factual conclusion is regarded as perverse when no person duly instructed or acting judicially could act upon the record before him, have reached the conclusion arrived at by the tribunal/authority” (Related Assessment years : 2000-01 to 2004-05 and 2006-07) - [CIT v. Rama Krishna Jewellers – ITA 455,456,457 & 458/2014 Date of Judgement : 26.11.2014 (Del.)] 

Issue of perversity of findings could by itself come within the ambit of a substantial question of law; Perversity of findings of facts becomes a substantial question of law, High Court can set-aside appeal

A division bench of Calcutta High Court held that if a finding of fact was perverse and was based on no evidence, it could be set aside in appeal by the High Court. The High Court observed that orders by Assessing Officer, CIT(A) and ITAT were not passed based on evidence produced by the assessee but on the basis of guesswork. The High Court observed that the perversity of the finding itself becomes a substantial question of law. The High Court remanded the matter back to the Tribunal for consideration of all factual details. [In favour of assessee] (Related Assessment year : 1992-93) – [Chevoit Company Ltd. v. CIT [TS-167-HC-2011(CAL)] – Date of Judgement : 25.04.2011 (Cal.)] 

The import of “perversity” was explained by the Hon’ble Apex Court in PSEB, in the following terms:

“28. If a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then the finding is rendered infirm in the eyes of law. If the findings of the Court are based on no evidence or evidence which is thoroughly unreliable or evidence that suffers from the vice of procedural irregularity or the findings are such that no reasonable person would have arrived at those findings, then the findings may be said to be perverse. Further, if the findings are either ipse dixit of the Court or based on conjecture and surmises, the judgment suffers from the additional infirmity of non-application of mind and thus, stands vitiated.” (See also, Punjab & Sind Bank v. Daya Singh (2010) 11 SCC 233, Prem Kaur v. State of Punjab (2013) 14 SCC 653) – [Municipal Committee, Hoshairpur v. Punjab State Electricity Board (2010) 13 SCC 216

Perversity is a Substantial Question of Law

The Apex Court has stated that in grounds of perversity appeal would lie. In the instant case, the question of law referred to the High Court for its opinion was as to whether the Tribunal was right in upholding the findings of the Commissioner (Appeals) in cancelling the penalty levied under section 271(1)(c). Question as to perversity of the findings recorded by the Tribunal on facts was neither raised nor referred to the High Court for its opinion. The Tribunal is the final court of fact. The decision of the Tribunal on facts can be gone into by the High Court in reference jurisdiction only if a question has been referred to it which says that findings arrived at by the Tribunal on facts are perverse, in sense that no reasonable person could have taken such a view. In reference jurisdiction, the High Court can answer the question of law referred to it and it is only when a finding of fact recorded by the Tribunal is challenged on the ground of perversity, that a question of law can be said to arise. In the instant case, since the frame of question was not as to whether the findings recorded by the Tribunal on facts were perverse, the High Court was precluded from entering into any discussion regarding the perversity of the findings of fact recorded by the Tribunal. Accordingly, the order under appeal was to be set aside and that of the Commissioner (Appeals) and the Tribunal were to be restored. In the facts and circumstances of the case, the penalty under section 271(1)(c) was not exigible. - [Sudarshan Silks & Sarees v. CIT (2008) 300 ITR 205 : 216 CTR 12 : 169 Taxman 321(SC)] 

A decision of Tribunal on facts can be gone into by High Court only if a question has been referred to it which says that finding of Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before Tribunal

The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision of the Tribunal on facts can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In the instant case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it. 

The only jurisdiction of the High Court in a reference application is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is challenged as being perverse, in the sense set out above, that a question of law can be said to arise. (Related Assessment year : 1972-73) – [K. Ravindranathan Nair v. CIT (2001) 247 ITR 178 : 114 Taxman 53 : 2001 (1) SCC 135 (SC)] 

It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the substantial question of law. The perversity of the finding itself becomes a substantial question of law. – [Kulwant Kaur v. Gurdial Singh Mann, AIR 2001 SC 1273]

In Kuldeep Singh v. Commissioner of Police, it was held:

“A broad distinction has, therefore, to be maintained between the decisions which are perverse and those which are not. If a decision is arrived at on no evidence or evidence which is thoroughly unreliable and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, howsoever compendious it may be, the conclusions would not be treated as perverse.” – [Kuldeep Singh v. Commissioner of Police, (1999) 2 SCC 10]

In Triveni Rubber & Plastics v. CCE, the Supreme Court held that a ‘perverse’ finding is one that is not only against the weight of the evidence but is based on no evidence. The standard of a ‘perverse’ finding is thus, very strict. – [Triveni Rubber & Plastics v. CCE AIR 1994 SC 134 (SC)]