Sale versus approval supply turns on cogent evidence; unsupported rejection plea and ignored findings made the order unsustainable.

A transaction may be treated as a sale where the assessee fails to prove that goods were supplied on approval basis and later rejected by the purchaser. The absence of account books, correspondence, defect details, or movement records for returned goods weakened the approval-and-rejection plea, while receipt of 95% of the price and dispatch of goods from Uttar Pradesh to Gujarat supported sale treatment. A finding that the goods were not in a deliverable state could not stand without supporting material. The appellate authority also had to meet the reasons recorded by the authority below before reversing its conclusion; failure to do so rendered the order unsustainable.

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Issues: Whether the transaction could be treated as a sale and denied exemption on the plea that the goods were sent on approval basis and subsequently rejected by the purchaser.

Analysis: The assessee failed to substantiate the claim that the goods were supplied on approval basis or that they were rejected by the purchaser. No account books, correspondence, details of defects, or movement particulars for the returned goods were produced to support the plea. The Tribunal relied on an irrelevant observation in income-tax proceedings and did not meet the reasons recorded by the first appellate authority. In determining whether a sale had taken place, the surrounding circumstances, including receipt of 95 per cent of the sale price and dispatch of goods from Uttar Pradesh to Gujarat, supported the conclusion that the transaction was a sale. The finding that the goods were not in deliverable state was unsupported by the record.

Conclusion: The transaction was a sale, and the assessee was not entitled to exemption on the asserted approval-and-rejection theory.

Final Conclusion: The Tribunal's order was unsustainable for failure to consider the relevant material and to meet the reasons of the first appellate authority; the revision was therefore allowed.

Ratio Decidendi: A finding that a transaction is not a sale cannot be sustained unless the plea of approval supply and subsequent rejection is supported by cogent evidence on record, and the appellate authority must deal with the material and reasons recorded by the authority below before reversing its conclusion.

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