TMI Blog1995 (7) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... the gross profit of Rs. 80,503 from IMFL business may be treated as net profit. The Assessing Officer (AO) was of the opinion that the profits from assessee's businesses were required to be worked out as per provisions of s. 44AC of the IT Act, 1961 (the Act). Therefore, he worked out the profit of the assessee from country liquor business at Rs. 39,32,838 in the following manner: . Rs. Purchase price 35,52,499 Sealing exp. 41,26,491 Bottle purchases 21,27,655 Total 98,07,655 40% of Rs. 98,07,655 39,22,838 3. Since the profit as worked out under s. 44AC was more by Rs. 51,961 than the net profit shown by the assessee, the AO computed the profit of the assessee from country liquor business, at higher figure. In the IMFL business, the AO accepted the declared net profit at Rs. 80,505. 4. The assessee M/s Bhadar Khan Pukhraj (ITA No. 909/Jp/940 is also an AOP constituted by 27 persons. This assessee too was granted a licence for purchase and sale of country liquor and IMFL for the district of Bareilly in U.P. for asst. yr. 1990-91. This assessee also did the same business and returne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause against the proposed modification of the assessments in their respective cases. The assessees opposed the proposed action of the learned CIT on several grounds. It was submitted that the assessments as made by the AO in the cases of both the assessees were not at all erroneous as well as prejudicial to the interests of Revenue inasmuch as those were made in accordance with the relevant provisions of law, circulars and instructions issued by the CBDT for liquor contractors, in U.P. and pronouncements made by the High Courts and the Tribunal. In that behalf, reference was made to AP High Court decision in A. Sanyasi Rao Anr. vs. Govt. of A.P. Ors. (1989) 77 CTR (AP) 40 : (1989) 178 ITR 31 (AP) assessee's replies dt. 4th Aug., 1992, and 11th Aug., 1992, 12th Sept., 1992, filed before the AO, Chief CIT's letter No. 4215, dt. 9th March, 1993, CBDT Circular No. 572, dt. 3rd Aug., 1990, and Instruction dt. 27th Nov., 1990, under Secy.'s letter dt. 20th July, 1992 to Chief Commissioner, Kanpur, Board's DO No. 133/SOI/88 TPL dt. 30th Nov., 1988 to Excise Commissioner, Kanpur and Tribunal's order in the case of Bhadar Khan Pukh Raj Party vs. Dy. CIT (1992) 44 TTJ (Jp) 140 for ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. In that behalf, the legal position of s. 44AC as laid down by several High Courts and allowed at by the Tribunal was highlighted. The learned Departmental Representative on the other hand heavily relied upon the orders under appeal and particularly submitted that the Expln. of s. 44AC inserted w.e.f. 1st April, 1991 was applicable to the present year also and in view of the said Explanation, the Nirgam Mulya should have been worked out. The learned Departmental Representative submitted that in the case of A. Sanyasi Rao the A.P. High Court had declared the provisions of s. 44AC as unconstitutional but the operation of that decision was stayed by the Supreme Court in Union of India vs. A. Sanyasi Rao Ors. (1992) 106 CTR (SC) 371 : (1993) 202 ITR 584 (SC). It was also submitted that whereas the A.P. and P H High Courts have, in effect held that the provisions of s. 44AC should be read down the Kerala High Court in P. Kunhammed Kutty Haji Ors. vs. Union of India Ors. (1989) 76 CTR (Ker) 138 : (1989) 176 ITR 481 (Ker) had upheld the constitutional validity of the said provision and the decision of the Indore Bench in Sita Ram Parita vs. Asstt. CIT (1994) 49 TTJ (Ind) 295 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue price will not form part of purchase price and consequently, it will not be taken into account for determining the profit under s. 44AC for collection of tax at source under s. 206C of the Act. By their subsequent DO Nos. 133/501/88 TPL, dt. 30th Nov., 1988, the Board had repeated the same position. In the case of Bhadar Khan Pukhraj for this very year (ITA No. 799/Jp/92) this Bench had considered the above letters and instructions of the Board as also another Circular No. 586, dt. 27th Nov., 1990 [(1990) 90 CTR (St) 26] issued by the Board explaining the position and application of s. 44AC. Following such instructions by the AO in the making of the impugned assessments was, therefore, not at all bad in law and the assessments made were not erroneous. 11. Here it may be pointed out that the legal position of s. 44AC was considered by the AP High Court in Sanyasi Rao's case and by the Allahabad High Court in Civil Misc. Writ Petition No. 892 of 1987 on reference in the cases of Sh. Suresh Bhaskra Ors. vs. State of U.P. and the character or the Nirgam Mulya was explained. The AP High Court had opined in favour of unconstitutionality of the provisions of s. 44AC. The stay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made were also not erroneous and prejudicial to the interests of Revenue in this respect. 15. The inclusion of income from sale of empty bottles does not appear to have been appreciated by the learned CIT in right perspective. The audited P L a/c filed by the assessees along with the returns showed the credits of those amounts in the trading account under the head empty bottles and the expenses shown under the head of filling expenses of debit side included the amounts received from the sales of empty bottles and as credited to the trading account. The income from sale of empty bottles had thus been well accounted for. Apart from that the computation of purchase price included the sum spent on purchase of empty bottles. If computed under s. 44AC no income from sale of empty bottles would be separately includible as profits were required to be computed at 40%. Moreover, the assessees were purchasing liquor in bottles supplied by the Govt. distillery @ 1.45 per bottle and not earning any profit on sale of empty bottles. 16. To sum up, we find that the assessments as made by the AO in the cases of the two assessees were not erroneous and prejudicial to the interests of Revenue ..... 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