M.C. Jain, J. - (1.) THIS is an application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), presented by M/s. Fakhri Automobiles, Banswara. It arises under the following circumstances : The applicant-firm carries on business in petrol, diesel, kerosene, motor spare parts, etc., at Banswara. The accounting year of the applicant-firm for the assessment year 1971-72 ends on 30th October, 1970. On the 4th July, 1970, the applicant-firm debited in its cash book a sum of Rs. 14,025.75 against the purchase price of 18,000 litres of diesel. The quantity of diesel purchased was recorded in the stock book of diesel on 4th July, 1970, as under : "1,500, 1,000, 2,100, 1,500, 2,100, 1,800, 1,500, 2,100, 2,100, 1,500, 18,000 litres. "
(2.) IN the cash book, entry was made in respect of purchase of diesel in one lump sum. IN respect of these purchases, the firm did not obtain purchase voucher, but Shri Kalimuddin, partner of the applicant-firm, filed an affidavit to the effect that during samvat year 2026 the firm had purchased 18,000 litres diesel worth Rs. 14,025.75 from various private parties to meet the temporary scarcity in the area and the said purchases were recorded in one lump sum in the books of account of the firm on July 4, 1970 ; that no single purchase of diesel so recorded was of the value of Rs. 2,500 or more. The ITO did not accept the version of the assessee that the diesel was purchased by the firm in the manner indicated in the affidavit and observed that it has not been clarified by the assessee as to from whom the purchases were made and it was not possible in such a small locality as Banswara to get such a huge quantity of diesel, about 90 drums, from private parties. He further observed that the assessee's explanation was not at all convincing. It was further observed that the purchases are not verifiable. It was also observed that the assessee has inflated the purchase of diesel by introducing a fictitious entry while actually no purchase has been made. He, therefore, held that the assessee was in possession of diesel amounting in value to Rs. 14,026 on July 4, 1970, whose source of acquisition remained not explained. The ITO also invoked the provisions of Section 40A(3) of the Act and considered the payment to be an expenditure and as such it was taken as inadmissible under the aforesaid provision. On appeal by the assessee, the AAC affirmed the order of the ITO and further pointed out that no private party can deal in diesel unless licensed to do so and if the purchases were from the licensed dealers, there was no reason why the assessee should not get purchases verified from them. The evidence produced by the assessee was considered to be self-created evidence and it was taken that it did not prove the assertion of the assessee and the applicability of Section 40A(3) of the Act was also maintained. The assessee went in appeal before the INcome-tax Appellate Tribunal (hereinafter referred to as "the Tribunal"). The Tribunal vide its order dated October 22, 1974, found as under; " We are, therefore, of the opinion that the purchase in question on 4-7-70 has not been proved. The inference of the INcome-tax Officer that the stock of 18,000 litres of diesel sold is the suppressed stock in the circumstances is correct. It could not have been acquired in one day. From the evidence on record and having regard to human probabilities, it is also clear to us that it must have been built up gradually. The payment of Rs. 14,026 from cash book on 4-7-70 would not be the source of this gradual acquisition of this stock for it is the alleged outgoing of cash against the alleged purchases on 4-7-70 alone. Once the purchases are shown not to have been there on July 4, 1970, the source loses its value as explaining the acquisition of diesel. The authorities were, therefore, in our opinion right in adding the value of this diesel as the assessee's income from undisclosed sources as the timing and source of their acquisition remains unproved and unexplained." The Tribunal proceeded to consider the matter and gave its reasoning to arrive at the above findings in the following manner : "In our opinion, it is difficult to say on the basis of the evidence on record that the stock of 18,000 litres of diesel was not existing with the assessee on 4-7-70. Apart from the affidavit of Shri Kalimuddin, there is intrinsic evidence in the record of the assessee itself to show that the stock of 18,000 litres of diesel was there, for, without that, there could have been no sale of 18,000 litres of diesel. The subsequent sale which has not been denied, in fact, proves the stock. But the question is, was this stock purchased on July 4, 1970, as alleged by the assessee, or was it already lying with the assesseee as suppressed stock as presumed by the Income-tax Officer. There are throe pieces of evidence to support the version of the assessee: (i) entries in the stock book, (ii) entry in the cash book, and (iii) the affidavit of Shri Kalimuddin. The entries in the books are not only not supported by vouchers but do not indicate even the names of the sellers. The authorities below have indicated the factors which make the probability of purchase of 18,000 litres on one single day remote. The Appellate Assistant Commissioner points out that only a licence-holder could sell the diesel to the assessee and it is admitted by the assessee that the alleged purchases are not from the licence-holders. The Income-tax Officer has pointed out in his order that Banswara is such a small town that the procuring of 18,000 litres (i.e., 90 drams) from unlicensed sources is out of question. It was averred before the Appellate Assistant Commissioner that the purchases were made surreptitiously from the Government departments. But he pointed out, and rightly so, that there is no presumption of illegality of an act unless the fact is proved beyond any reasonable doubt. Then there are as many as ten separate purchases according to the assessee. Were they from ten different departments ? If so, are there ten different Government departments in Banswara which could have the requisite stock of diesel to sell it to the assessee after stealing it from the Government ? Or were there ten different persons selling from the same or a few departments ? Were all these departments and/or persons in a state of readiness to sell diesel to the assessee at the moment of its asking ? There is no admitted instance of such purchases earlier. How could then the assessee locate the source of such surreptitious sales all of a sudden ? All this is shrouded in mystery known only to the assessee and it does not want to throw any light on them for understandable reasons. Without such evidence, the occurrence of such event does not appear to us to be probable in the small town of Banswara. Does the affidavit add anything to the content of the evidence or its reliability ? In our opinion, it does not, because the affidavit is from a person who knows all the details of the alleged purchase and yet he is withholding the vital information. No reliance can be placed on the deposition of such a person unless he backs up the averment by acceptable evidence. " As regards the applicability of Section 40A(3), (as there is only one entry in respect of the payment of price of the diesel purchased) it was held that it was only one payment and the assessee's contention was repelled that the word "expenditure " does not include purchase. The applicant-firm thereafter moved an application under Section 256(1) of the Act requiring the Tribunal to state the case to this court on the following questions of law alleging that the same arise out of the Tribunal's order : "1. Whether the Income-tax Appellate Tribunal had any material to arrive at its conclusion that diesel of Rs. 14,026 (18,000 litres) recorded on July 4, 1970, in the cash book and stock register of the applicant-firm represented the suppressed stock ? 2. Whether the Income-tax Appellate Tribunal was, at any rate, justified in holding that the aforesaid sum of Rs. 14 026 was liable to be included in the total income of the applicant-firm as ' income from undisclosed sources' ? 3. Whether the provisions of section 40A(3) of the Income-tax Act, 1961, were at all applicable to the purchases of diesel worth Rs. 14,026 recorded on July 4, 1970, when no single purchase was admittedly of the value exceeding Rs. 2,500 ? 4. Whether there was any material before the Tribunal in arriving at its conclusion that the payment of Rs. 14,026 recorded on July 4, 1970, constituted only one payment so as to attract the provisions of sec. 40A(3) of the Income-tax Act, 1961 ? Whether the Income-tax Appellate Tribunal was correct in holding that the purchases of diesel worth Rs. 14,026 recorded on July 4, 1970, was ' an expenditure ' within the meaning of sec. 40A(3) of the Income-tax Act, 1961 ? " 5. The learned Tribunal, after hearing both the parties, rejected the application on February 14, 1975. Hence, the applicant-firm has presented this application under Section 256(2) of the Act praying for issuing a direction to the Tribunal to state the case and refer the same to this court on the question mentioned above for our answer. We have heard the learned counsel for the applicant and the learned counsel for the non-applicant.
(3.) IN this application, the main controversy centres round the question whether any question of law arises out of the order passed by the Tribunal. So far as question No. 5 is concerned, it is not in dispute that it is a question of law. The Tribunal too has opined and held that it is a question of law and both the parties have also conceded before us that it is a question of law, but the Tribunal did not refer this question on the ground that questions Nos. 1, 2 and 4, stated supra, do not involve any question of law but are based on findings of facts, and, therefore, referring of question No. 5 would be merely of academic interest and would serve no useful purpose. The Tribunal also found that question No. 3 raises a question of law, but on the basis of the same reasoning, the Tribunal declined to state the case on question No. 3. The reasoning given by the Tribunal for not stating the case on questions Nos. 3 and 5 appears to be sound ; so it would be proper that we may first examine as to whether questions Nos. 1, 2 and 4 are questions of law and whether it was obligatory for the Tribunal to state the case on these questions. The learned counsel for the applicant strenuously and vehemently urged before us that although the finding regarding the stock of diesel being the suppressed stock and represented the assessee's income from undisclosed sources, is a finding of fact, yet this finding is based on no evidence, and is mostly based on surmises and conjectures to arrive at this finding. It was submitted that from the order of the Tribunal, it would be clear that the Tribunal has not only drawn inferences of facts from the primary facts established on record, but has resorted to extraneous and irrelevant considerations. It was pointed out by the learned counsel that the Tribunal took into consideration the non-possibility of purchase of 18,000 litres of diesel in one single day at a small place like Banswara and also wrongly refused to accept the possibility of the sellers being in a state of readiness to sell the diesel to the assessee. The Tribunal also took into consideration that the assessee could not locate the source of surreptitious sales all of a sudden. Employing this reasoning, the Tribunal wrongly found that the occurrence of such an event does not appear to be probable in the small town like Banswara. It was submitted that it is difficult to say to what extent the Tribunal's mind was affected by the surmises taken into consideration and as such questions NOS. 1 and 2 raise questions of law. In support of his contention the learned counsel placed reliance on the cases: Dirajlal Girdharilal v. CIT [1954] 26 ITR 736 (SC), Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC), Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC), Lelchand Khagat Ambica Ram v. CIT [1959] 37 ITR 288 ; AIR 1959 SC 1295, Roshan Di Hatti v. CIT [1968] 68 ITR 177 (SC), CJT v. Daitlat Ram Rawatmull [1973] 87 ITR 349 (SC) and CIT v. S. P. Jain [1973] 87 ITR 370 (SC). ;