Income-tax estimation is vitiated when the fact-finding authority ignores material evidence and proceeds on an error of record.

The Tribunal's estimate of amounts allegedly retained for family income-tax and marriage expenses was vitiated because it ignored material evidence already before it, including assessed tax liability and proof of actual tax payment. Although the Tribunal, as final fact-finding authority, could accept or reject the assessee's explanation, it was required to consider all important evidence before making an estimate. Its failure to do so, coupled with an error of record, amounted to an error of law and invalidated the finding. The question was therefore answered in favour of the assessee.

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Issues: Whether the Tribunal's order was vitiated by an error of record and failure to consider material evidence while estimating the amount allegedly retained for payment of family income-tax and marriage expenses.

Analysis: The reference arose under section 66(2) of the Indian Income-tax Act. The Tribunal had accepted the assessee's explanation only in part and estimated the amount set apart at a figure that ignored material facts already known to it, including the assessed tax liability of the Hindu undivided family for the relevant years and the evidence of actual tax payment. As the final fact-finding authority, the Tribunal was entitled to accept or reject the explanation, but it was required to consider all important evidence before making an estimate. Its omission to do so amounted to an error of law vitiating its finding.

Conclusion: The question was answered in the affirmative in favour of the assessee.

Final Conclusion: The Tribunal's estimate could not stand because it was based on a material factual error and incomplete consideration of the evidence, and the reference succeeded.

Ratio Decidendi: A finding of the income-tax fact-finding authority is vitiated where it ignores material evidence and proceeds on an error of record in making an estimate.

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