Stock valuation and unexplained credit additions may be treated as factual issues where the record supports the assessment.

A reference was declined where the addition of a credited amount was supported by recorded facts showing that the assessee had not proved the nature and source of the sum, making the issue one of fact rather than law. On stock valuation, the article states that an arbitrary basis for valuing opening and closing stocks is inconsistent with accepted accounting principles, which normally require valuation at cost or market value. The absence of express wording in the assessment order under the proviso to section 13 was treated as immaterial because the reasoning showed that profits could not properly be deduced from the method adopted. Both proposed questions were therefore treated as non-referable questions of law.

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Issues: (i) Whether the Tribunal was justified in refusing to refer the addition of Rs. 6,518 on the ground that no question of law arose; (ii) whether the Tribunal was justified in refusing to refer the issue relating to stock valuation and the applicability of the proviso to section 13 of the Income-tax Act.

Issue (i): Whether the Tribunal was justified in refusing to refer the addition of Rs. 6,518 on the ground that no question of law arose.

Analysis: The addition was sustained on the footing that the assessee failed to prove the nature and source of the credited amount. On the facts recorded by the income-tax authorities, there was material to support the finding that the amount did not belong to the alleged depositor. The question raised was thus one of fact and not of law.

Conclusion: The refusal to refer this issue was justified and no question of law arose.

Issue (ii): Whether the Tribunal was justified in refusing to refer the issue relating to stock valuation and the applicability of the proviso to section 13 of the Income-tax Act.

Analysis: The assessee adopted an arbitrary and incorrect basis for valuing both opening and closing stocks. The accepted principle is that stock must ordinarily be valued at cost or market value prevailing at the time of valuation, and an arbitrary figure cannot be treated as a proper method of accounting. The absence of an express finding in the assessment order in the precise language of the proviso was held to be immaterial, because the reasoning of the assessment order showed that profits could not properly be deduced from the method adopted and that the stocks were revalued on a proper basis.

Conclusion: The refusal to refer this issue was justified and no question of law arose.

Final Conclusion: The application failed because both proposed questions were held not to give rise to any referable question of law, and the assessee was not entitled to the reference sought.

Ratio Decidendi: Where the recorded facts disclose material supporting an addition, or where stock is valued on an arbitrary basis inconsistent with accepted accounting principles, the Tribunal may treat the matter as one of fact and decline reference if no referable question of law arises.

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