Badri Prasad Bhagwandas and Co. vs Commissioner of Income Tax

Rajeev Gupta, J.—This order shall govern the disposal of Misc. Civil Case No. 203 of 1985 and the case of Badri Prasad Bhagwandas & Co. v. CIT also. These two petitions are u/s 256(2) of income tax Act, 1961 (''the Act''). The assessee/petitioner filed an application before the Tribunal Bench ''A'' Delhi, u/s 256(1) for referring the following questions of law to this Court for decision :

"1. Whether, on the facts and in the circumstances of the case, the application u/s 145(2) proviso is unjustified ?

Whether, on the facts and in the circumstances of the case, there was any basis for determining sales of two and half times of licence money as justified ?

Whether, on the facts and in the circumstances of the case, determination of sales is not against the principles of accountancy ?

Whether, on the facts and in the circumstances of the case, the profit percentage on the so-called sales @ 5 per cent is justified ?

Whether, on the facts and the circumstances of the case, the certificates (p. 5) filed stating the issue and rates applicable has discharged his burden ?"

The Tribunal rejected the reference applications on 13-8-1985 by order Annexure-A. Hence these petitions. The admitted facts of the case are that the petitioner-firm was, during the period, relevant for the assessment years 1978-79 and 1979-80, engaged in the business of retail sale of country liquor in district Shivpuri. The firm had licence for the business, which was granted under the provisions of M.P. Excise Act. The ITO, during the assessment proceedings for the relevant period, found that the sales of the assessee were not vouched and the quantitative tallies could not be made. As such, applying the provisions of section 145(2) of the Act, the ITO estimated the sales of the assessee of 2.5 times of licence fee and the net profit was estimated at 6 per cent of the above estimated sales. In appeal, the Commissioner (Appeals), Bhopal, confirmed the estimated sales of 2.5 times of licence fee but, however, net profit was estimated at 5 per cent of the sales. The Tribunal affirmed the order of the Commissioner (Appeals).

We have heard Shri Alok Dhingra, the learned counsel for the petitioner, and Shri R.D. Jain, the learned counsel for the department.

The main contention of Shri Alok Dhingra, the learned counsel for the petitioner, is that the ITO, the Commissioner (Appeals) and the Tribunal should not have taken the licence fee as the basis for estimating the sales of the assessee for the relevant period. According to him, the purchases should have been made the basis for estimating the sales. He further submitted that there is no nexus between the licence fee and the sales.

The order of the Tribunal - Annexure B - contains the following contention of the learned authorised representative of the assessee :

"The learned authorised representative of the assessee fairly conceded that in this line of business, and in the case of all other assessees, Tribunal, Jabalpur, Indore Benches and as also Delhi Benches have been upholding the working out of net profit as has been worked out in the case of this very assessee for both the years, viz, by estimating the sales at 2.5 times of the licence money paid and by application of 5 per cent net profit rate."

The learned counsel for the petitioner could not point out any provision of law in the Act to the effect that the licence money cannot be made the basis for estimating the sales. We are of the opinion that the licence money has direct nexus with the expected sales.

As it was open to the ITO and the appellate authorities to take the licence money or the purchases as the basis for estimating sales u/s 145(2), and if, in their discretion, they took licence money as the basis, in view of the prevalent trend in the State, we do not see any illegality in their approach. The learned counsel for the petitioner placed reliance on a Division Bench decision of this Court in the case of Lalluram & Co. v. CIT [Misc. Civil Case No. 11 of 1983]. The decision in Lalluram''s case, (supra) is of no help to the petitioner for two reasons. Firstly, in that case, the accounts of the assessee were accepted as correct (as is apparent from question No. 2 of para 9 of the judgment) and secondly, only a passing reference has been made in para 8 about the estimation of sales on the basis of licence money. For the above-mentioned reasons, we do not find that any question of law arises out of the order of the Tribunal and we are satisfied about the correctness of the decision of the Tribunal. As such, both the petitions u/s 256(2) are dismissed. No order as to costs. Let a copy of this order be placed on record of Misc. Civil Case No. 203 of 1985.