: S. S. Sidhu, J. - The petitioner has filed this petition u/s 256(2) of the Income Tax, 1961, praying for a direction to be issued to the Income Tax Appellate Tribunal, hereinafter referred to as the Tribunal, to state the case and refer the question of law involved in the same.
2. The facts of the case, in brief, are that M/s. Hardeep Hosiery Mills Ltd., Ludhiana, assessee respondent. which is a registered firm, carried on business in manufacture, sale and export of hosiery goods and export of sports articles during the year 1965-66. For the accounting year 1965-66 and assessment year 1966-67, the assessee-firm declared a total income of Rs. 1,12,803/-. With regard to business; of hosiery goods, it declared its sales to be of Rs. 10,34,051/-. The value of the exported hosiery goods which were got manufactured at Ludhiana was Rs. 2,91,216/-for which the assessee-firm paid wages to the tune of Rs. 47,430/-. While examining the wages register, the Income Tax Officer noted that the manufacturing was done only upto the end of September, 1965 though payments of wages which actually became payable to the wokers for the work done upto 30th September, 1965, continued till 31st March, 1966. He also noticed that the assessee-firm had made purchases of yarn weighing 1,855.5 kg. in all valuing Rs. 63,679.17 from five different parties namely, M/s. Pearl Woollen Mills, Ludhiana, and four others, between 27th October, 1965 and 27th January, 1966. The Closing stock of yarn was shown at 50 1bs. Valuing at Rs. 450/- only, and since none of the after 30th September, 1965, was of the value of Rs. 9/- per 1b., the closing stock probably was out of purchases made on 25th May, 1965. The Income Tax Officer further noted that the purchases of yarn of the value of Rs. 63,679/- were not accounted for either in the closing stock or in the sales. The assessee-firm explained to the Income-Tax Officer that the aforesaid yarn purchased from the above-stated five parties was in fact received earlier but the bills were received later and, as such, that yarn was used in the process; of manufacturing. This contention was, however, not accepted by the Income Tax Officer. He also noticed that against the consumption of yarn weighing 15,679.96 1bs, the hosiery goods exported weighed 5,921 Kg. and wastage of yarn was of 1,184 Kg. This wastage was considered excessive. Since the purchases of the yarn valuing Rs. 63,679/- remained unaccounted for, the Income Tax Officer made an addition of Rs. 64,000/- to the income of the assessee-firm on the assumption that the hosiery goods made of that yarn, which were sold, remained unaccounted for in the books of account. Thus, he computed the total income of the assessee at Rs. 1,84,500/-. The assessee-firm filed an appeal against the addition of Rs. 64,000/- in their total income before the Appellate Assistant Commissioner of Income Tax who, after considering the facts of case, vide his order dated 2nd March, 1971, sustained an addition of Rs. 50,000/- and thereby gave the assessee-firm a relief of Rs. 14,000/-.
3. Both the assessee-firm and the Revenue appealed to the Revenue appealed to the Tribunal against the said order of the Appellate Assistant Commissioner of Income Tax. The Tribunal upheld the order dated 2nd March, 1971, of the said Appellate Assistant Commissioner by accepting the explanation of the assessee firm that at least yarn valuing to the extent of Rs. 14,000/- was utilized for manufacturing the hosiery goods actually exported and gave the assessee-firm benefit of 700 Kg. of yarn valuing at the rate of Rs. 20/- per Kg. which was approximately the difference between the goods purchased upto 30th September, 1965, weighing 5,291 Kg. as reduced by 30th July, 1973.
4. The revenue made an application u/s 256 (1) of the Income-tax Act, 1961, before the Tribunal requesting it to state the case and refer to the High Court the following question of law arising out of its above-mentioned order dated 30th July, 1973 :-
'Whether on the facts and in the circumstance of the case, the Appellate Tribunal was right in law in sustaining the relief of Rs. 14,000/- in the items of yarn purchased after the closure of the manufacturing activity of the assessee on 30-9-1065 ?'
The Tribunal dismissed that application vide its order dated 3rd November, 1973, by observing as under :
'In our opinion, however, no question of law arises as the question decided in this appeal is a question of fact. The application for reference is, therefore, rejected.'
It has been contended by Shri D. N. Awasthy learned counsel for the petitioner, that the Tribunal held that from the information which had been collected by the Income-Tax Officer, it stood proved that yarn worth Rs. 63,679/- was purchased after the end of September, 1965, and that it was also an admitted fact that even though wages were paid after 30th September, 1965, there was no manufacturing done by the assessee-firm after that date but in spite of that it endorsed that wrong finding given by the Appellate Assistant Commissioner of Income-tax in its order dated 2nd March, 1971 that the explanation of the assessee-firm that the yarn at least worth Rs. 14,000/- out of the above mentioned yarn worth Rs. 63,679/- was purchased prior to 30th September, 1965, and no the basis of that it held that than yarn was utilized for manufacturing hosiery goods even after 30th September, 1965, and, thus, it upheld the said order of the Appellate Assistant Commissioner of Income-tax. He has also argued that the said finding of fact given by the Tribunal is not sustainable because it is based on no legal evidence or material and therefore, that conclusion of fact drawn by the Tribunal is perverse and is not rationally possible. He has further argued that that being so, the said conclusion of fact drawn by the Tribunal becomes a question of law. It is also argued by him that on the basis of the evidence mentioned above, only one conclusion could be drawn which is that the entire yarn worth Rs. 63,679/- was purchased after the closure of manufacturing activity on 30th September, 1965, by the assessee-firm and, therefore, that yarn an a whole or even a part thereof was not utilised either prior to 30th September, 1965, or after that dated uptil 31st March, 1966, the last date of the accounting year 1965-66, and, therefore, the Tribunal was not justified in accepting the explanation of the assessee-firm even in part as was done by the Appellate Assistant Commissioner of I.T. and giving finding on the basis of the same that at least yarn worth Rs. 14,000/- out of the yarn worth Rs. 63,679/- was purchased prior to 30th September, 1965, and the same utilised for manufacturing hosiery goods even after that date. What he means to contend is that the learned Tribunal has given contradictory findings on the basis of the same evidence which only goes to show nothing else but that yarn worth Rs. 63,679/- was purchased by the assessee-firm after the end of September, 1965, and that even though wages were paid by the assessee-firm after 30th September, 1965, but there was no manufacturing of the hosiery, goods done by the assessee-firm after that date.
5. We find a goods deal of force in the above arguments of the learned counsel for the petitioner. After going through the order of the Tribunal, we are of the opinion that a question of law does arise in this case. The findings recorded by the Tribunal appear to be contradictory which could not be rationally possible. That being the situation, the question of law would certainly arise. This view finds support from the judgment of the Supreme Court in Oriental Investment Co. (P) Ltd. v. CIT, Bombay in which it has been held as under :-
'In some cases, the point sought to be raised in a reference may turn out to be a pure question of fact and if that be so, the finding of fact recorded by the Appellate Tribunal must be regarded as conclusive in a proceeding under section 66(1) of Income Tax Act, 1922. But it would be open to challenge the conclusion of fact drawn by the Appellate Tribunal on the ground that it is not supported by any legal evidence or material or that the conclusion of fact drawn by the Appellate Tribunal is perverse and is not rationally possible. It is within these narrow limits that he conclusions of fact by the Appellate Tribunal can be challenged under section 66(1).'
6. For the reasons given above, we feel that a point of law does arise in this case and, therefore, we require the Tribunal to state the case and refer the following question of law to this Court for decision :-
'Whether on the fact and in the circumstances of the case, the Appellate Tribunal was right in law in sustaining the relief of Rs. 14,000/- in the item of yarn purchased after the closure of the manufacturing activity of the assessee on 30-9-1965.
No order as to costs of these proceedings.