Om Prakash, J. - (1.) THIS petition is filed by the petitioner, a partnership firm, engaged in the business of alcoholic liquor for quashing the impugned notice dated August 14, 1995, issued under Section 148 of the Income-tax Act, 1961 (referred to as "the Act"), and for restraining the Assessing Officer, Ward-I, Farrukhabad, from taking up further proceedings pursuant to the impugned notice.
(2.) FOR the financial year ending on March 31, 1989, relevant to the assessment year 1989-90, the petitioner obtained an excise licence in auction for purchasing and selling country liquor through nine shops as specified in the licence dated May 26, 1988. It is averred that the petitioner paid Rs. 31,55,000 towards licence fee and Rs. 16,01,098 as issue price before purchasing the liquor from time to time during the financial year 1988-89. The total cost price of the liquor purchased during the said year is said to be Rs. 1,95,538.35. The petitioner filed a return for the assessment year 1989-90 on October 27, 1989, showing the taxable income at Rs. 63,900. With the return, the balance-sheet, trading and profit and loss account duly audited were enclosed. The Assessing Officer assessed the taxable income at Rs. 7,87,789 instead, meaning thereby, making an addition of Rs, 7,23,889 after making adjustments under Section 143(1)(a) of the Act. As per the adjustments, explanatory sheet, appended to the intimation, the Assessing Officer recomputed the taxable income at the rate of 40 per cent, of the purchase price, applying the provisions of Section 44AC discarding the profits as worked out by the petitioner taking recourse to Sections 28 to 43C of the Act. The petitioner then made an application dated February 2, 1990, under Section 154 of the Act for rectification before the Assessing Officer (annexure-4 to the writ petition) raising a serious grievance against the adjustments being made under Section 143(1)(a) and that too without an opportunity of being heard. The application was rejected by the Assessing Officer on February 16, 1990, reiterating that Section 44AC was applicable to the case of the petitioner.
(3.) THE petitioner then carried the dispute in appeal before the Commissioner of Income-tax (Appeals). Referring to the case law relevant on the issues raised before the appellate authority, the appeal was allowed observing as under : " In the instant case, it is seen that that adjustment made by the Assessing Officer for determining the appellant's income by applying the provisions of Section 44AC is not covered by the proviso to Section 143(1)(a). THEre was no arithmetical error involved and there was no prima facie inadmissible claim for deduction, allowance or relief made by the assessee. As such I have no hesitation in holding that the Assessing Officer was not justified in applying the provisions of Section 44AC while sending intimation in terms of Section 143(1)(a). It is also pertinent to note that the provisions of Section 44AC have been considered by the Andhra Pradesh and Orissa High Courts in A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 178 ITR 31 and Sri Venkateswara Timber Depot v. Union of India [1991] 189 ITR 741, respectively. THE decisions given therein make the applicability of Section 44AC debatable and as such they could not have been invoked under Section 143(1)(a). THE appeal is, therefore, allowed." The appellate authority thus ordered the deletion of the addition of Rs. 7,23,889.;