1995 (8) TMI 89 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 44AC of the Income-tax Act.
2. Validity of additions made by the Assessing Officer (AO).

Detailed Analysis:

1. Applicability of Section 44AC of the Income-tax Act

The primary issue in both appeals was the applicability of Section 44AC of the Income-tax Act. The assessee's counsel argued that the provisions of Section 44AC should not apply to the sales made under the L-14 license, as these were subsequent sales from the L-13 licensee.

The counsel cited several judicial precedents to support this argument, including:
- A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 178 ITR 31: This case upheld the constitutionality of Sections 44AC and 206C, emphasizing that these sections were anti-evasion measures and did not bar a regular assessment of business income.
- Sat Pal & Co. v. Excise and Taxation Commissioner [1990] 185 ITR 375: This case suggested reading down Section 44AC as an adjunct to Sections 28 to 43C.
- Gian Chand Ashok Kumar & Co. v. Union of India [1991] 187 ITR 188 (HP): This case held that L-13 licensees came under the proviso to Section 44AC(1)(a), making the provisions of Section 206C and other parts of Section 44AC(1) inapplicable to them.
- K. K. Mittal & Co. v. Union of India [1993] 203 ITR 201: This case concluded that income tax could not be deducted from sales made to L-13 licensees by distilleries under Section 206C.

The Tribunal noted that the AO and CIT(A) did not apply the 40% profit rate under Section 44AC to the L-13 licensee sales but applied it to the L-14 licensee sales. The Tribunal found that the L-14 licensee did not make direct purchases from the distillery but received stock from the L-13 licensee, making it a subsequent sale.

The Tribunal agreed with the assessee's counsel that the 40% profit rate specified in Section 44AC should not apply to L-14 licensee sales, as per the exception created in sub-section (2) of Section 44AC. The Tribunal also referred to the CBDT Circular No. 660 dated 15-9-1993, which clarified that Section 206C provisions apply only at the point of the first sale.

2. Validity of Additions Made by the Assessing Officer (AO)

The AO had made several additions due to discrepancies in the assessee's records, including:
- Rs. 2 lakhs for suppression of sales under L-2 license and Rs. 3 lakhs under L-14 license for M/s. Sarkaghat Wine Traders.
- Rs. 1,10,000 for sales under L-2 license and Rs. 1,90,000 for sales under L-14 license for the second firm.

The CIT(A) modified these additions, applying a 40% profit rate under Section 44AC, resulting in higher additions for L-14 licensee sales.

The assessee's counsel did not contest the additions made by the AO during the hearing, focusing solely on the applicability of Section 44AC. The Tribunal thus did not delve into the merits of the individual additions but concluded that the application of the 40% profit rate under Section 44AC was inappropriate.

Conclusion:
The Tribunal held that the 40% profit rate under Section 44AC should not be applied to the sales made under the L-14 license, as these were subsequent sales from the L-13 licensee. The orders of the CIT(A) were quashed, and the additions made by the AO were restored.