Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following question of law to this court under Section 256(2) of the I.T. Act, 1961 : "Whether, on the facts and in the circumstances of the case and having regard to the provisions of Section 3 read with Section 28(1) of the I.T. Act, 1961, the Tribunal was right in holding that the amount of opening stock of Rs. 3,03,000 could be considered in arriving at the result in the manufacturing and trading account relating to the assessment year 1965-66 ?"
(2.) The assessee, M/s. Incheck Tyres Ltd., is engaged in the business of manufacture of tyres. The relevant previous year of the assessee ended on 30th June, 1964, corresponding to the assessment year 1965-66.
(3.) The assessee-company had been incorporated on April 1, 1960. In the proceedings for assessment to tax for the accounting year relevant to the assessment year 1965-66, the ITO added Rs. 3,03,000 for the following reasons: "On examination of various details it was further found that the cost of the materials debited to manufacturing a/c. consumed during the course of pre-production period has not been excluded. Assessee had, of course, capitalised a sum of Rs. 49,646 on account of fuel power charges pertaining to pre-production period. It is not denied that raw materials and stores were not consumed during the experimental stage prior to commercial production. After taking into account the expenditure incurred on power and fuel, in my opinion, 121/2% of the total raw materials and stores and spare parts consumed can be estimated to have been consumed for experimental purposes and thereby the cost of manufacturing account has been inflated to that extent. This would mean an addition of Rs, 3,02,855 or say Rs. 3,03,000. By making this addition the gross profit rate would go to reasonable figure.";