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TMI Blog1995 (8) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... d country liquor under L-13 licence from the distillery and, thereafter, the stock was transferred to self, as L-14 business. The following purchases and sales were disclosed : ---------------------------------------- Licence Purchase Sales ---------------------------------------- Rs. Rs. L-2 78,09,512 1,22,56,766 L-13 39,26,472 42,16,343 L-14 42,15,831 1,43,22,178 ---------------------------------------- The Assessing Officer noticed during the assessment proceedings that day-to-day sale vouchers as well as the sale register had not been maintained by the assessee. There was no day-to-day stock register. Certain figures were not reconciled in respect of the stock transferred from L-13 licensee business to L-14 licensee business. Therefore, section 145(2) was held to be applicable. The Assessing Officer took the view that the system adopted by the assessee in showing the sales was not authentic and depended on the sweet will of the salesmen. Therefore, it was found that no reliance could be placed on the book version. The AO estimated the suppression of sales at Rs. 2 lakhs in respect of the sale of IMFL under L-2 licence and suppression of sales at Rs. 3 lakhs under L-14 lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d second addition of Rs. 1,90,000 was made for sales under L-14 licence. The CIT(A) reduced the addition from Rs. 1,10,000 to Rs. 50,765 in respect of L-2 business of the assessee. She adopted the profit rate of 1% on the total sales shown at Rs. 50,762 under L-2 licence. Profit from sales under L-14 licence was, however, increased from Rs. 1,90,000 to Rs. 4,46,776. Here also, profit rate of 40% was adopted on the purchase price of Rs. 11,16,942. This is how section 44AC was applied. 6. The following purchases and sales had been shown by the assessee under different licences :- --------------------------------------- Licence Purchases Sales Rs. Rs. --------------------------------------- L-2 22,57,270 50,76,562 L-13 11,76,942 11,50,074 L-14 11,30,389 46,13,632 --------------------------------------- The assessee had shown the entire stock lifted from the distillery under L-13 licence as having been transferred to self under L-14 licence. The licence fee at Rs. 57,40,000 was, however, not included in the purchases. 7. After we have given the details of purchases and sales disclosed by the two assessees before us, we shall now take up the issues raised in the two appeals. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 44AC of the Income-tax Act. Our attention has also been drawn to another decision of the Punjab and Haryana High Court in the case of K. K. Mittal & Co. v. Union of India [1993] 203 ITR 201. There also, application of section 44AC was under examination and it was held that income-tax cannot be deducted from sales made to L-13 licensees by the distilleries under section 206C of the Income-tax Act. The ld. counsel has argued that the CIT(A) did not take a correct view of the matter and, therefore, application of the profit rate of 40% as specified in section 44AC was uncalled for and invalid. 9. The ld. D.R. has, in reply, submitted that neither the AO nor the CIT(A) has determined the profit in respect of sales made by the assessee under L-13 licence by applying the rate of 40%. The AO has clearly observed in his order that section 44AC was not applicable to the assessee's sales made under L-13 licence. Similar view has been taken by the ld. CIT(A). The question precisely relates to the application of the provisions of section 44AC to the sales made under L-14 licence. It is, therefore, stated that the judicial pronouncements cited by the ld. counsel for the assessee were not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such goods obtained in pursuance of such sale, or (iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act ; ". The ld. counsel for the assessee has submitted that as per sub-clause (ii) in the Explanation, the case of the assessee stood exempted. It has been made clear that in the said Explanation, the term "buyer" did not include a buyer in the further sale of goods obtained in pursuance of such sale. It is stated that the assessee in the capacity of L-14 licensee did make a purchase in the second sale from L-13 licensee. Though it may be a transfer from one account to the other or from self to self but it would definitely be called a subsequent sale in the hands of L-14 licensee. Our attention has also been drawn to the CBDT Circular No. 660 dated 15-9-1993 reproduced in 204 ITR 19 (Statutes). Para 5 of the said circular is relevant and it reads as under :--- " 5. It may be noted that the provisions of sub-section (1) of section 206C in relation to a buyer will not apply to a public sector company and to any other buyer who obtains the said goods at a second or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haryana High Court in the case of Sat Pal & Co. are relevant : " ...It cannot be said that every country liquor contractor was evading income-tax or was running the business in benami names and had set up fictitious firms/associations. There is no basis for assessing the profits and gains of every liquor licensee at the rate of 40 per cent of the purchase price. In the very nature of things, there may be many persons who may actually earn less profits than specified or may incur losses. In the Bill, the profits and gains were proposed to be assessed at the rate of 60% of the purchase price. It has not been explained why it was reduced to 40% in the Act. " It would be thus clear that the rate of 40% was specified for the purposes of collection of tax at source and there was no mandatory requirement to determine the income by adopting the rate of 40% in all cases. In that view of the matter, we are unable to agree with the learned CIT(A) that the rate of 40% was a mandatory requirement of law for working out the income in the case of a country liquor trader. 13. Since the ld. counsel for the assessee has stated during the course of hearing that he would not contest the additions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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