1. By this application under section 256(2) of the Income-tax Act, 1961, the Commissioner of Income-tax seeks a direction to the Income-tax Appellate Tribunal, Ahmedabad Bench-B, Ahmedabad, to state the case and submit the following question of law said to be arising out of its order in Income-tax Application No. 3101.Ahd of 1997 for the assessment year 1994–95:
“Whether the Appellate Tribunal is right in law and on facts in holding that only the net profit rate can be applied in respect of admitted sales of goods outside the books of account?”
2. The facts giving rise to the present case are that during the course of survey conducted on the premises of the assessee on December 1, 1994, from the excise records found, inference was drawn by the Assessing Officer from the movement of finished goods from the premises of the assessee to godowns that sales amounting to Rs. 29,01,300 have not been disclosed in the books of account.
3. The Assessing Officer made the addition of the entire sum of the said undisclosed sales as income of the assessee for the assessment year 1994–95. The additions on account of undisclosed sales was affirmed by the Commissioner of Income-tax (Appeals) to the reduced sum of Rs. 28,35,883. On further appeal the Tribunal found that the entire sales could not have been added as income of the assessee for the assessment year in question but only to the extent the estimated profits embedded in the sales for which the net profit rate was adopted entailing addition of income on the suppressed amount of sales. The Tribunal also found that there is no material on the record to suggest that the assessee made any investment outside the books of account to make alleged unaccounted sales in respect of the aforesaid appellate order. The applicant made an application under section 256(1) for referring the aforesaid two questions said to be arising out of the Tribunal's order.
4. Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, we are satisfied that the Tribunal was justified in rejecting the application under section 256(1). It cannot be matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.
5. We are, therefore, of the opinion that no question of law which requires to be referred to this court arises out of the Tribunal's appellate order. The order of the Tribunal under section 256(1) is not erroneous in reaching such conclusion.
6. The application is rejected.