Decided on August 02,1994



Ram Swarup, Judicial Member - (1.) THE assessee derives income from Saw Mill business. He also sells unprocessed logs and timber. Under Section 44AC, if the logs as such are sold without applying any process, a presumptive profit at 15 per cent on the purchase price has to be taken for the computation of the profit out of such income. Section 44AC of the Act was inserted in the Act by the Finance Act, 1988 with effect from 1-4-1989 and later amended by Direct Tax Laws Amendment Act, 1989 with effect from 1-4-1990. THE accounting period of this assessee for this year consisted of more than 12 months that is to say from 23-10-1987 (Diwali) to 31-3-1989. THE assessee disclosed an income of Rs. 63,810 for the year. As per option given under the provisions of the Income-tax Rules, the assessee chose not to file a certificate in Form No. 27C. THE Assessing Officer was of the opinion that a seller had to deduct tax under Section 206C of the Act at the rate fixed on the purchases under such circumstances. As the provisions of Section 206C of the Act came into effect from 1-6-1988 the assessee's counsel contended that the purchase and sale made before 1-6-1988 though falling within the accounting year were not hit by Section 44AC. THE Assessing Officer was, however, of the opinion that as the provisions of Section 44AC are applicable for the assessment year 1989-90 the sale made during the accounting year will fall within the purview of the provisions of Section 44AC. He held that as Sections 44AC and 206C are separate Sections, Section 44AC is applicable for the accounting year relevant to the assessment year 1989-90 and Section 206C from 1-6-1988. He accordingly proceeded to make assessment on presumptive basis. He found that in the accounting period the assessee had sold logs worth Rs. 1,92,320. As the assessee was unable to state the purchase price of the item sold the Assessing Officer estimated 75 per cent of such sales as purchases. Thus the purchase price was worked out to be Rs. 1,42,240 on which 15 per cent profit was taken for the purposes of taxation. As the assessee had shown 9 per cent net profit, the Assessing Officer added the difference between 15 per cent and 9 per cent amounting to Rs. 8,660 to the total income. He further proceeded to make an addition of Rs. 20,000 in the hands of the assessee on account of low withdrawals made by the partners of the firm.
(2.) When the assessee went in appeal, the first Appellate Authority accepted the plea of the assessee that the provisions of Section 44AC were applicable for purchases and sales made after 1-4-1988. He accordingly directed the Assessing Officer to bifurcate the purchases made by the appellant prior to 1-4-1988 and apply the provisions of Section 44AC to the purchases of the later period only that is to say after 1-4-1988. He further proceeded to delete the addition of Rs. 20,000 made by the Assessing Officer on account of low withdrawals. The Department has come in appeal only with regard to the presumptive assessment under Section 44AC. We have heard the Departmental Representative and the assessee's counsel. The assessee was following Diwali year as his accounting year. As with effect from assessment year 1989-90 the Income-tax Act provided that the financial year ending on 31 st March of every year had to be treated as accounting period for all the assessees, the assessee chose to close the account for this year on 31-3-1989. The Finance Act, 1988 had introduced a new Section 44AC in the Income-tax Act which is a special provision for computing the profit and gains in case of persons engaged in the trading of (1) Country liquor; (2) Timber obtained under forest lease; (3) Timber obtained by any mode other than forest lease; and (4) any other forest produce not being timber. The rates for working out the profits in respect of trading in each of these items for computing income chargeable to tax under the head "Profits and gains of business or profession" from such business have been enumerated in the section itself. It is notable that Section 206C was also introduced by the Finance Act, 1988 and it provides for collection for tax at source at the time of purchase of any of the goods specified in Section 44AC of the Act. As per CBDT Circular No. 528, dated 16-12-1988 the object of the introduction of the new provisions for working out the profits on the presumptive basis was to get over the problems faced in assessing the income and recovering the taxes in the cases of persons dealing mainly in liquor, timber and forest produce. Thus this section was introduced in the Act with a view to help the Assessing Officer in framing assessments in special cases only. It is notable that the amendments later on made relating to Section 44AC of the Act came into force with effect from 1-4-1989 and has to apply in relation to assessment year 1989-90 and subsequent years. The provisions relating to collection of tax under Section 206C of the Act came into force with effect from 1-6-1988. It is, therefore, obvious that the two sections have to be read together and a harmonious construction has to be given to them to make them effective. At the same time an interpretation which creates some factional meaning to the section cannot be accepted. We are, therefore, of the opinion that as this section has been brought in the Act with effect from 1-4-1988 only, the transactions made by the assessee up to 31-3-1988 have to be excluded. Any other interpretation would be against law and cause unintended hardship to the assessee. Accordingly, we uphold the order of the Dy. CIT (Appeals).
(3.) IN the result, the departmental appeal is dismissed.;

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