M.A.A. Khan, JM - Since common grounds on identical facts were raised in both these appeals, these were heard together and are now being disposed of by this consolidated order.

2. Assessee M/s Badruddin & Party (ITA Nos. 905/Jp/95) is an Association of Persons (AOP) constituted by 23 persons. For the year under consideration, the assessee was granted a licence by the Excise authorities in Uttar Pradesh (U.P.) to carry on the business of purchasing and selling country liquor and Indian made foreign liquor (IMFL) for Agra and Kireculi groups in U.P. The assessee carried on such business in these areas during that period and returned a total income of Rs. 40,03,343 for assessment year 1990-91. On total sales of country liquor at Rs. 8,70,58,306, the assessee had declared gross profit of Rs. 38,50,877 on total sales of IMFL at Rs. 23,06,973 gross profit of Rs. 80,508 was declared and taken to the P&L A/c. However, the assessee allegedly agreed that 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 price35,52,499

Sealing exp.41,26,491

Bottle purchases21,27,655

3. Since the profit as worked out under section 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 assessment year 1990-91. This assessee also did the same business and returned its total income at Rs. 50,05,190. Common trading and profit and loss accounts were maintained for both the types of businesses and a profit of Rs. 81,87,048 was declared. On total sales at Rs. 7,71,07,589 inclusive of sales of IMFL at Rs. 3,54,072 net profit of Rs. 45,66,955 was shown. The IMFL business and shown loss of Rs. 6,20,092 the correct book profits from country liquor business thus came to Rs. 51,87,048 (Rs. 45,66,955 + Rs. 6,20,092). The AO worked out the profits under s. 44AC at Rs. 45,48,026 in the following manner:

Rs.

Purchase price48,68,871

Sales-tax3,35,544

1,13,70,742

The AO took the view that since the books of accounts of the assessee were subjected to statutory audit and the same had shown higher profit than that computed under s. 44AC the book profit at Rs. 51,87,048 be brought to tax in country liquor business. Therefore, after making an addition of Rs. 25,000 in the IMFL business, the AO computed assessee’s income accordingly.

5. On going through the assessments as made by the AO in the cases of the two assessees for asst. yr. 1990-91 the CIT considered them erroneous and prejudicial to the interests of Revenue for the reasons that their incomes were required to have been worked out as per provisions contained in s. 44AC read with Explanation inserted w.e.f. 1st April, 1991 but the same were not so correctly worked out. In that behalf, the learned CIT was of the view that the amounts of bid money (Nirgam Mulya) at Rs. 2,08,37,078 and octroi expenses at Rs. 2,71,331 in the case of M/s Badruddin & Party (ITA No. 905/Jp/95) and the sums of Rs. 2,57,46,884 on account of bid money (Nirgam Mulya) and at Rs. 21,05,920 on account of octroi expenses in the case of M/s Bhadar Khan Fukhraj (ITA No. 909/Jp/95) should have been considered as components of the ‘Purchase Price’. He was further of the view that the incomes from sale of e