- (1.) AN application for reference under Section 256(2) of the Income-tax Act, 1961, has been filed by the Commissioner of Income-tax, Jaipur, against Ganganagar Sugar Mills Ltd., in respect of the assessment year 1980-81 arising out of the Income-tax Appeal No. 482/JP of 1987, dated June 27, 1990. The Tribunal rejected the application of the Commissioner of Income-tax under Section 256(1) of the Income-tax Act vide its order dated April 25, 1991, which was communicated to the petitioner, vide diary No. 30, dated June 3, 1991.
(2.) HENCE, this application under Section 256(2) of the Income-tax Act, 1961. The case of the petitioner, inter alia, is that during the course of assessment proceedings for the year 1980-81 the assessing authority found that the rate for supply of country liquor to the Government for the period July 1, 1978, to June 30, 1979, was Rs. 1,24 per litre. The assessee, Ganganagar Sugar Mills Ltd. which was a Government company, claimed that the Government has allowed the payment at the rate of Re. 1 per litre only. On going through the accounts, the assessing authority found that the amount of Rs. 1.24 was bifurcated and the amount of Re. 1 per litre was paid by the Government as the cost of liquor and the balance of 24 paisa per litre was paid to the company in the shape of share capital. According to note No, 76, dated November 8, 1979, recorded by the Financial Controller of the company it was observed ; "On the other side, the Finance Department has also held up sanction for issue of share capital of Rs. 24 lakhs as promised by Ex-PC in lieu of accepting the rate of country liquor at Re. 1 per L. P. S. in place of Rs. 1.24," The general manager, after the said note, has further recorded on December 21, 1979, and mentioned that : "We have requested the Government to allow payment of Rs. 1.24 per LP litre. This was on the basis of cost structure during the preceding year during which period the Government had allowed only Re. 1 per LP litre, but at that time our profits on account of country liquor retail shops was fairly good and we did not mind the payment which was below our manufacturing cost." There was yet a third relevant entry in the records of the company in the shape of a note by the Financial Controller, dated January 2, 1980, which reads as under : "I have noted that Government has been sanctioning the rate of country liquor on the basis of last years finalised accounts which is not a correct policy because in case there was slump in last year, the company has to bear the loss for the current year as would appear from the fact that during the period July 1, 1978, to June 30, 1979, the company had supplied 87.31 lakhs of L. P. L. of country liquor to the Government licensees. The actual cost of production for this country liquor on the basis of actual expenditure incurred on purchase of material, labour wages during the period July 1, 1978, to June 30, 1979, comes to Rs. 1.58 per L. P. L. whereas the Government had allowed the rate of Rs. 1.24 (actual rate allowed Re. 1 and 0.24 paisa was given in the form of share capital). Thus in fact the company has been put to a loss of Rs. 33 lakhs (calculated at the rate of Rs. 1.58 (-) Rs. 1.24 = 34 paisa for 97-31 lakhs L.P. L.). We may, therefore, request the Government to reimburse the loss of Rs. 33 lakhs." The Financial Controller also prepared a brief in support of his note, dated January 2, 1980, and para 2 of the said note reads as under : "The company had suggested reduction in rate in the year 1978-79 to reduce the profits in order to save income-tax which it had earned from retail trade of country liquor at Jaipur, Kota and Alwar amounting to Rs. 1 crore."
(3.) ACCORDING to the contention raised by the petitioner, the cost price in the assessment year 1978-79 was Rs. 1.30 per litre and the issue price was fixed at Rs. 1.51 per litre. In the assessment year 1979-80, the cost was Rs. 1.22 and the issue price was fixed at Rs. 1.37 per litre. In the present assessment year, the cost was 0.99 paisa per litre and 25 paisa were demanded as issue rate of Rs. 1.24. From the letter written by the Director In-charge to the Secretary to the Government, Finance (Excise Department), Government of Rajasthan, dated October 8, 1979, it revealed that : "it was recommended by this company that a final rate of Rs. 1.24 per L. P. litre may be sanctioned for sale of country liquor 78-79" but later on a meeting was held between the ex-Director In-charge and the ex-Financial Commissioner and it was decided that looking to the heavy profits of the company the rate of country liquor be sanctioned finally at Re. 1 per L. P. L. instead of Rs. 1.24. The assessing authority came to the conclusion that the amount received at the rate of 24 paisa per litre is actually the price of the liquor and the amount of Rs. 24 lakhs was added as an income by way of undisclosed sale proceeds of country made liquor. The assessee was directed to produce the complete record relating to fixation of the issue price for the assessment years 1976-77 to 1979-80 on March 2, 1983. On March 3, 1983, it was found that one of the files which were produced on March 2, 1983, was not produced and, therefore, the rest of the files were impounded by the assessing authority on March 3, 1983, after recording the reasons. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals) and the said addition was upheld as per order of the appellate authority. The assessee preferred an appeal before the Tribunal, which held that the price was fixed at Re. 1 per litre. It, accordingly, directed the Department to bring the relevant material or the file about the note of the Financial Controller for getting the file which was in the possession of the assessee and it was contended by the Revenue that it was the assessee's burden to prove what actual consideration was received by it and that it was at the rate of Re. 1 per litre and not at the rate of Rs. 1.24 per litre, The contention of the assessee was that all the documents have been impounded and the records were lying with the Revenue Department and not with it. The Tribunal ultimately deleted the addition of Rs. 24 lakhs. It was contended by the Revenue that the Tribunal did not take note of the fact that the price of the previous year was more than Re. 1 and that the cost itself was 99 paisa which was around Re. 1 and the amount of Re. 1 was not the real price and the assessing authority had the jurisdiction to determine the real price/income. It was the further case of the Revenue that the amount which was received by the company to the tune of Rs. 24 lakhs, has not been properly explained so as to indicate for what consideration the said amount was received. It was the further contention of the Revenue that as to why the price in the current assessment year was agreed to be reduced by the assessee-company when in the previous year the prices were charged at a higher amount was not determined and in the cost the profit element was not clearly clinched. ;