1978 (9) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Whether the diesel purchase recorded on July 4, 1970, represented suppressed stock.
2. Whether the sum of Rs. 14,026 was liable to be included as income from undisclosed sources.
3. Applicability of Section 40A(3) of the Income-tax Act, 1961, to the diesel purchase.
4. Whether the payment of Rs. 14,026 constituted a single payment attracting Section 40A(3).
5. Whether the diesel purchase constituted "expenditure" under Section 40A(3).

Issue-wise Detailed Analysis:

1. Whether the diesel purchase recorded on July 4, 1970, represented suppressed stock:

The Income-tax Officer (ITO) did not accept the assessee's claim that the diesel was purchased from various private parties to meet temporary scarcity. The ITO observed that the purchases were not verifiable and considered the entry as fictitious, concluding that the assessee was in possession of diesel worth Rs. 14,026 whose source remained unexplained. The Appellate Assistant Commissioner (AAC) and the Tribunal upheld this view, with the Tribunal stating, "the purchase in question on 4-7-70 has not been proved." The Tribunal also noted that the stock must have been built up gradually and not acquired in one day.

2. Whether the sum of Rs. 14,026 was liable to be included as income from undisclosed sources:

The Tribunal concluded that the stock of 18,000 litres of diesel was suppressed stock and the payment of Rs. 14,026 on July 4, 1970, did not explain its acquisition. The Tribunal stated, "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."

3. Applicability of Section 40A(3) of the Income-tax Act, 1961, to the diesel purchase:

The ITO invoked Section 40A(3), considering the payment as inadmissible expenditure. The AAC affirmed this, stating that no private party can deal in diesel without a license, and the purchases were not verified from licensed dealers. The Tribunal upheld this view, rejecting the assessee's contention that the word "expenditure" does not include purchase.

4. Whether the payment of Rs. 14,026 constituted a single payment attracting Section 40A(3):

The Tribunal found that the payment recorded on July 4, 1970, constituted a single payment, thus attracting Section 40A(3). The Tribunal rejected the argument that no single purchase exceeded Rs. 2,500, stating, "there was only one single purchase of Rs. 14,026 which goes to show that there was only one payment."

5. Whether the diesel purchase constituted "expenditure" under Section 40A(3):

The Tribunal held that the diesel purchase constituted "expenditure" within the meaning of Section 40A(3). The Tribunal's decision was based on the interpretation that the word "expenditure" includes purchases, thus making the payment inadmissible under the said provision.

Conclusion:

The High Court examined whether the Tribunal's findings raised questions of law. The Court agreed that questions Nos. 1 and 2 raised questions of law due to the Tribunal's reliance on conjectures and surmises. The Court also acknowledged that question No. 5 raised a question of law, supported by the Supreme Court's decision in Janta Metal Supply v. CIT. Consequently, the High Court directed the Tribunal to state the case on questions Nos. 1, 2, and 5 and refer them to the Court.

The application was partly allowed, and the Tribunal was instructed to refer the case on the specified questions of law.