Tribunal findings must rest on material, not conjecture, and appeals must be reheard after a reference ruling.

An appellate tribunal must base its estimate of undisclosed income on material and rational inference; it cannot reduce an addition on conjecture, surmise or an unsupported figure, so the reduction was unjustified. Where a reference is answered against the assessee, the Tribunal must then dispose of the appeal conformably to that judgment and after hearing both parties; the High Court's answer does not by itself confirm the earlier appellate order. The appeal therefore failed, but the matter had to be reheard and decided afresh according to law in the light of the High Court's opinion.

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Issues: (i) Whether the Tribunal was justified in reducing the addition of income from undisclosed sources from Rs. 1,37,000 to Rs. 50,000 on the materials before it. (ii) Whether, after the High Court answered the reference against the assessee, the Tribunal was bound to dispose of the appeal conformably to that judgment after hearing the parties.

Issue (i): Whether the Tribunal was justified in reducing the addition of income from undisclosed sources from Rs. 1,37,000 to Rs. 50,000 on the materials before it.

Analysis: The Tribunal had disbelieved the assessee's explanation for the cash credit, yet reduced the addition by relying on inconclusive inferences and the assessee's offer to be assessed on Rs. 50,000. The record did not show any rational basis for fixing that amount. An appellate tribunal must decide on the materials and may draw reasonable inferences, but it cannot rest its conclusion on conjecture, surmise or speculation. A finding unsupported by reasons or material cannot stand.

Conclusion: The reduction to Rs. 50,000 was not justified and the High Court was right in holding that the Tribunal's estimate was based on no evidence.

Issue (ii): Whether, after the High Court answered the reference against the assessee, the Tribunal was bound to dispose of the appeal conformably to that judgment after hearing the parties.

Analysis: Section 66(5) required the Tribunal to pass such orders as were necessary to dispose of the appeal conformably to the High Court's judgment. That obligation included giving both parties an opportunity of being heard and deciding the appeal afresh in the light of the High Court's ruling where the earlier order was vitiated. The High Court's answer did not automatically confirm the appellate order already passed below.

Conclusion: The Tribunal was required to rehear and dispose of the appeal in accordance with the High Court's judgment and after hearing the parties.

Final Conclusion: The appeal failed, but the Tribunal was directed to proceed afresh in conformity with the High Court's opinion and according to law after giving the parties an opportunity of hearing.

Ratio Decidendi: An appellate tribunal may draw reasonable inferences from the record, but its decision must rest on material and reasons, not on conjecture or surmise; where a reference is answered by the High Court, the Tribunal must thereafter dispose of the appeal conformably to that judgment after hearing the parties.

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