1. This is an application under Section 256(2) of the I.T. Act, 1961, seeking a direction to the Income-tax Appellate Tribunal, Indore, for stating the case and referring it to this court for deciding the following questions :
'(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in applying the proviso to Section 145 ?
(2) Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the addition by estimating the G. P. rate and sales unwarranted by law ?'
2. Assessment year is 1974-75 for which the accounting year was year ending Diwali 1973. The assessee carries on the business of selling iron hoops and bardana strips. For the assessment year in question he showed sales of Rs. 10,41,203 with a gross profit of Rs. 1,15,000. The ITO while framing the assessment noted certain omissions in the account books including the valuation of the closing stock. In view of the facts mentioned by him he applied the proviso to Section 145(1) of the I.T. Act and made an addition of Rs. 1,05,967 in the gross profit shown by the assessee. The assessee went up in appeal before the Commissioner (Appeals). The Commissioner was of the view that the ITO, instead of investigating further into the trading results shown by the assessee, wrongly applied the proviso to Section 145(1) of the I.T. Act. He, therefore, deleted the addition.
3. The Department went up in second appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal noted in para. 3 of its order as follows:
'It was conceded on behalf of the assessee that the day-to-day stock of the raw and finished goods and consumption was not maintained by it and, therefore, prima facie the proviso to Section 145(1) could be applied to its case but it was contended that the results shown as a whole were satisfactory and, therefore, the accounts should have been accepted.'
4. The Appellate Tribunal while holding that though undervaluation of the stock by itself did not justify rejection of the trading results, observed that 'since the proviso to Section 145(1) is applicable, an addition can be made if the results as a whole are not satisfactory and there is no justification for the low G. P.' After making this observation the Tribunal examined the past history of the assessee's case and came to the conclusion that the results shown by the assessee in the relevant assessment year were not satisfactory. However, the G. P. rate estimated by the ITO was reduced from 14.9% to 13% and addition to the extent of Rs. 21,501 only was maintained.
5. Learned counsel for the assessee contended, firstly, that there was no concession as has been referred to in the Tribunal's order and, secondly, that the material on record did not warrant action under the proviso to Section 145(1) of the I.T. Act. On behalf of the assessee an affidavit of the I.T. consultant who appeared before the Appellate Tribunal was filed stating that he did not concede that the proviso to Section 145(1) could be applied but had only conceded that day-to-day stock of the finished goods and consumption was not maintained by the assessee.
6. Proviso to Section 145(1) of the I.T. Act empowers the ITO to compute the income on such basis and in such manner as may be determined if the method employed by the assessee is such that in the opinion of the ITO the income cannot properly be deduced therefrom. In the instant case the ITO had noted various grounds on the basis of which he applied the proviso to Section 145(1) of the Act, According to him, the assessee purchased unprocessed material at different rates and then after converting them into saleable baling hoops, sold at a much higher price. However, the assessee could not explain whether the closing stock was of processed material or unprocessed material. He further noted patent inconsistencies in the valuation of the closing stock. Thirdly, he found that sales made by the branch to the head office were at no profit and in case those materials have been sold, the entire profit will have to be accounted for by the head office. The same applies to the closing stock of bardana strips.
7. The Tribunal held that a mere undervaluation of the closing stock may not warrant rejection of the trading results particularly because the ITO did not investigate further into the matter, yet, after tracing the history of earlier assessments of the assessee and the additions made to the G.P. from time to time, it had come to the conclusion that there was no justification for a lower G.P. rate.
8. This was clearly a finding of fact which took into consideration the state of accounts of the assessee in the past and the G.P. rate shown by him in the assessment year in question. The finding being one of fact no question of law could arise therefrom.
9. Further, the observation of the Appellate Tribunal about the concession in respect of non-maintenance of day-to-day stock of raw material and the finished goods and the application of the proviso to Section 145(1) of the Act by the assessee has also to be kept in mind and the affidavit of the counsel does not fully rebut the observation made by the Tribunal. In the circumstances, we do not agree with the contention of the learned counsel that the aforesaid questions of law arise out of the Tribunal's order.
10. The application under Section 256(2) of the I.T. Act is, therefore, dismissed. There will be no order as to costs.