Payments made for purchase of stock-in-trade fall within the meaning of 'expenditure' under Section 40A(3) of the Income-tax Act, 1961.

1. - In compliance with the order dated September 12, 1978, of this court passed in D.B. Income-tax Case No. 2 of 1976, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (" the Tribunal " herein), has referred the following three questions for our opinion :

"(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 the 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 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 Section 40A(3) of the Income-tax Act, 1961 ? "
The assessee-petitioner carries on business in petrol, diesel, kerosene, motor parts, etc., at Banswara. The accounting year of the assessee-firm for the assessment year ended on October 30, 1970. On July 4, 1970, the assessee debited in its cash book a sum of Rs. 14,026 against the purchase price of 18,000 litres of diesel. The quantity of diesel purchased recorded in the stock register on July 4, 1970, is 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, the assessee made an entry in respect of purchase of diesel in one lump sum. The assessee did not obtain purchase voucher. However, Kalimuddin, partner of the assessee-firm, submitted 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. According to the assessee-firm, the said purchases were recorded in one lump sum in the books of account on July 4, 1970. The case of the assessee-firm was that no single purchase of diesel so recorded was of the value of Rs. 2,500 or more. The Income-tax Officer by his order dated December 15, 1972, held that the assessee was in possession of diesel amounting in value of Rs. 14,026 on July 4, 1970, whose source of acquisition remained not explained. He, therefore, invoked the provisions of Section 40A(3) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short "the Act" herein), and considered the payment to be an expenditure. It was taken as inadmissible under the aforesaid provision. On appeal by the assessee, the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer, vide his order dated April 30, 1983. He opined that no private party can deal in diesel unless licensed to do so. If the purchases were from the licensed and established dealers, there is no reason why the assessee should not get purchases verified from them. He did not place reliance on the " self-created evidence " and it was taken that it did not prove the assertion of the assessee. He also maintained the applicability of Section 40A(3) of the Act. The assessee went up in further appeal before the Tribunal. The Tribunal in its order dated October 20, 1974, observed as under :

" We are, therefore, of the opinion that the purchase in question on July 4, 1970, has not been proved. The inference of the Income-tax Officer that the stock of 18,000 liters 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 bulit up gradually. The payment of Rs. 14,026 from the cash book on July 4, 1970, 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 July 4, 1970 alone. Once the purchases are shown not to have been there on July