1996 (9) TMI 190 - AT - Income Tax

Summary

Issues:
1. Estimation of sales at a higher figure and trading addition.
2. Grant of registration to the assessee-firm.

Detailed Analysis:
1. Estimation of Sales and Trading Addition:
The case involved a partnership firm dealing in Indian made foreign liquor (IMFL) and beer appealing against the estimation of sales at a higher figure and the trading addition for the assessment year 1987-88. The Assessing Officer (AO) estimated total sales at Rs. 4,60,00,000 and applied a gross profit (G.P.) rate of 4.5%, resulting in an addition of Rs. 2,22,875. The CIT(A) upheld the estimation of sales but restricted the addition to Rs. 1,50,000. The appellant argued that the addition was unreasonable, citing a previous case with similar circumstances where a lower addition was made. The Tribunal found the estimation arbitrary, emphasizing the need for a basis to estimate suppressed sales. It noted that the AO's approach lacked precision and justification, ultimately reducing the addition to Rs. 1,00,000 to address adverse circumstances like non-recording of sales or underpricing.

2. Grant of Registration to the Assessee-Firm:
The second issue pertained to the grant of registration to the assessee-firm. The AO raised concerns regarding discrepancies between the partners listed in the partnership deed and those authorized by the State Excise authorities to deal in IMFL. The AO contended that changes in partnership without excise permission rendered the partnership illegal under excise laws, thus challenging its eligibility for registration under the IT Act. The CIT(A) supported the AO's decision, referencing a High Court case related to country liquor trade. The appellant argued that the cited case was not applicable to IMFL trade due to differing licensing rules. The Tribunal examined excise rules and relevant decisions, ultimately upholding the cancellation of the firm's registration based on the binding authority of the High Court decision and the consistency in licensing conditions for country liquor and IMFL. The appeal was partly allowed, sustaining the cancellation of registration.