S.C. Sen, J. - (1.) The Tribunal has referred the following three questions of law under s. 66(2) of the Indian IT Act, 1922. The relevant assessment year involved is 1952 -53 for which the relevant accounting period ended on 30th June, 1951 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal had ignored relevant materials and had relied on irrelevant materials in holding that no manipulations were resorted to by the assessee in claiming inflated price in respect of purchase of raw jute and that no addition was called for in view of such inflation and whether such finding of the Tribunal was otherwise unreasonable and/or perverse ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in deleting the addition of Rs. 11,00,000 ? 3. Whether, on the facts and in the circumstances of the case and in view of the fact that the opening stock of the year was valued at the same figure as the closing stock of the proceeding year and such valuation of the closing stock of the preceding year had not been disturbed for the purpose of the assessment to Income Tax of the profits, the Tribunal was correct in law in holding that a revaluation of opening stock of the year under consideration had to be made in view of the revaluation of the closing stock of the year -
(2.) The relevant facts as narrated by the Tribunal in the statement of case are as under : "The facts relate to the asst. yr. 1952 -53, relevant accounting year having been the year ending on 30th June, 1951. The assessee is M/s. Bengal Jute Mills Company Limited, a manufacturer of jute goods. The assessee had claimed to have purchased raw jute through the commission agency of one M/s. Durgadutt Chandiprosad during the months of March and April 1951. For the reasons stated briefly as below the ITO held that these purchases could not have been genuinely made through the above party and that the purchase prices adopted in the accounts stated to have been made through the party were highly inflated : (i) The assessee had its own raw jute purchasing centres at various places in Bihar where the purchases were regularly made through the assessees own employees. Although there was no suggestion that the assessee was experiencing any difficulty in this regard, the assessee suddenly discontinued buying jute directly in March 1951 and claimed to have purchased jute through a commission agency M/s. Durgadutt Chandiprosad. (ii) The prices at which the jute was alleged to have been purchased through M/s. Durgadutt Chandiprosad were abnormally high. (iii) It was in the second week of March, 1951, that there was a decontrol over jute which resulted in an initial spurt in the jute prices. It was characteristic of the case that the switch over to the new method of purchase took place only at this time. (iv) Even though prices started rising they never reached the level at which the assessees purchases were alleged to have been made. This fact was supported by the Jute Bulletin published by Indian Central Jute Committee which are the prices ruling in Bihar. The assessees representative supported the purchase prices by producing quotations from a Calcutta firm, A. M. Mayer and Co. Ltd. but these quotations were of prices ruling at Calcutta and were rejected by the ITO as inadequate evidence. (v) The report of the Indian Central Jute Committee further showed that during April, 1951, transactions in Bihar were confined to only an interior quality of jute fibre, known as Mesta Enquiries from other merchants disclosed that prices during March and April, 1951 were quite low. (vi) The assessee confirmed that even in respect of jute alleged to have been purchased through the commission agency (a) selection of the raw jute and the rate at which the raw jute was purchased were settled by the assessees employees (b) the raw jute purchased was stored in the assessees own godown at the respective centres and consigned to Calcutta by the assessees own employees (c) M/s. Durgadutt Chandiprosad were not the owner of the jute purchased at any stage and had no right, title or interest in this jute so purchased and that the commission paid to the agent was only for contracting the finance on our behalf. (vii) Account of the commission agent showed that the purchases through them were completed in April, 1951 and the account was settled by payment to them of a sum of Rs. 11 lakhs on 29th June, 1951. (viii) With regard to the claim that the commission agent was appointed for arranging finance for the purchase, the ITO found that all the money required by M/s. Durgadutt, Chandiprosad was advanced by the assessee and that even with regard to the final payment of Rs. 11 lakhs, this was really not an outgoing of the assessee. The assessee withdrew the money from the bank and paid it to Durgadutt Chandiprosad but accounts showed that the same amount was received back by the assessee from an allied concern Madaripur Trading Co. Ltd. which in its turn received the sum from M/s. Durgadutt Chandiprosad. (ix) The voucher produced in respect of purchase alleged to have been made through Durgadutt Chandiprosad did not inspire any confidence. They appear to have been written at a stretch. They did not contain any particulars regarding the quality of jute purchased. This further indicated that the so -called agent had no transactions except with the assessee and possibly with some other concerns of the group. According to the ITO inflation in the raw jute purchases price ranged from Rs. 25 to Rs. 35 per md. Considering this aspect and the nature of the transactions relating to the sum of Rs. 11 lakhs, the ITO added back a sum of Rs. 11 lakhs as excess purchase price claimed. The ITO also found that the closing stock of the assessee had not been correctly valued. It had neither been valued at cost price or at market price put had been valued at an arbitrary rate of Rs. 9.10 per maund which was absurdly low and there was no explanation for adopting this valuation. The ITO revalued the closing stock at the average cost price which was below the market price. The average cost price was calculated by him at Rs. 56.14 per mound with the result that the undervaluation of closing stock was calculated at Rs. 56,85,273. He accordingly added back the above amount to the disclosed profit of the assessee. The assessee appealed against the ITOs order. The AAC after hearing the assessee remanded the case to the ITO. There was considerable delay in the submission of the remand report. Subsequently, however, two remand reports were submitted to the AAC. The case was thereafter again heard by the AAC who after considering the remand reports agreed fully with the conclusion drawn by the ITO that addition of Rs. 11,00,000 was called for in view of the manipulations adopted by the assessee in inflating the purchase cost of jute. As regards the addition by revaluation of the closing stock, the AAC accepted the view taken by the ITO that a revaluation at the average cost price at Rs. 43.12 per maund and thereby reduced the addition made on this account to Rs. 40,28,588 as against Rs. 56,85,273 added by the ITO. The assessee contended before the AAC that if the closing stock was to be revalued at the average cost price, same method of valuation should be applied in respect of the opening stock of the year and to the extent the opening stock was undervalued, the assessee should be given a deduction. The AAC rejected the above contention. He found that the figure of the opening stock was the same as the figure of the closing stock as disclosed by the assessee for the preceding year and that the said figure of the closing stock was accepted in the assessment of the proceeding year. He held that in these circumstances, there could not be any deviation in the value of opening stock. He further observed that the opening stock of the jute for the year under consideration was 1,11,133 maunds, whereas the assessee had purchased 6,36,087 maunds, sold 2,24,434 maunds and consumed 4,02,206 maunds in manufacture during the year and that it declared a closing stock of 1,20,530 maunds. These figures according to the AAC showed that the opening stock had either been sold or consumed during the relevant year and the sale proceeds and the value of jute consumed had got merged in the trading account itself. The AAC held that the stock available at the close of the year itself and that in a case like that of the assessee the method first -in first -out had to be adopted. For these reasons also the AAC held that there was no case for holding that the change in value of the closing stock would in any way affect the value of the opening stock. Against the above order of the AAC the assessee appealed to the Tribunal. For the various reasons stated in its order the Tribunal held that there was no justification for the addition of Rs. 11,00,000 on account of the inflation in the purchase cost of jute. As regards the point, the assessee reiterated the contention that the opening stock should be revalued on the same basis as the closing stock and necessary relief should be allowed to the assessee. It was stated by the assessee before the Tribunal that such revaluation of the opening stock should be made at the rate of Rs. 29 per maund. The Tribunal accepted the contention and directed the ITO to revalue the opening stock at Rs. 29 per maund and allow appropriate relief to the assessee."
(3.) The Tribunal in its order has noted that the case related to the asst. yr. 1952 -53. The order of the Tribunal was passed on 12th September, 1977. The disputed questions of fact were involved. The Tribunal commented that after a lapse of 25 years the facts were very difficult to ascertain. Since then another 12 years have gone by. The case could not be taken up because the Paper Book had not been filed on behalf of the Commissioner in time. Now that the case has been taken up, we find that there is some basis on which the Tribunal came to its decision on the first two questions, which are basically of fact.;