ORDER
J.K. VERMA, A.M. :
Both these appeals have been filed against the same order of the learned CIT(A) and hence they are being disposed of by a common order for the sake of convenience.
2. The assessee-firm is a contractor of country liquor and had taken the licence from the Excise department of U.P. for the city of Allahabad and its suburban areas. The main dispute in the appeal filed by the assessee is regarding an amount of Rs. 2,39,527 which is challenged in five of the six grounds of appeal of the assessee. The brief facts in this regard are that the assessee was required to pay to the Excise department, apart from licence fee and the price of the country liquor which was to be lifted, an amount of Rs. 80,15,872 as “issue price”. This amount was to be paid in 12 monthly instalments. Since according to the assessee and also according to detailed explanations and material submitted by the learned counsel for the assessee, this issue price means the price of country liquor calculated at the rate modified by the Excise Commissioner for the exclusive licence of selling country liquor in a particular area, the assessee claimed that it should be allowed a rebate of Rs. 2,39,527 on account of the fact that the country liquor shops had to remain closed on account of curfew during this year. While the assessee did not pay this amount to the Excise department, it claimed it to be a liability and a deduction from its income. The Assessing Officer did not mention this fact so clearly in his assessment order but only mentioned it to be excise duty because according to him it had been debited in the excise duty account and had been credited to the Excise department. He further mentioned that since the payment of this demand had been stayed by the Honble Allahabad High Court and since the assessee had not actually paid the amount, according to the Assessing Officer it was covered by the provisions of S. 43B of the IT Act and since he disallowed assessees claim and added the amount of Rs. 2,39,527 to the income of the assessee.
3. When the assessee came in appeal before the learned CIT(A), although he held that this amount was not duty yet it was a tax and hence was covered by the provisions of S. 43B and, thus, on a different basis upheld the disallowance.
4. In the appeal filed before us, the learned counsel for the assessee had advanced various alternative arguments and has filed copies of judgments of several decided cases including copies of the orders of the Honble Allahabad High Court in a writ petition in which the assessee is one of the parties and in which the Honble Court had granted the stay of recovery of the “issue price” from the petitioners and the copy of another judgment of the Honble Allahabad High Court in which the Honble Court had dealt with the constitutional validity of charging of issue price from the country liquor contractors. In the latter decision the Honble Court has also dealt with the question as to what is the nature and meaning of “issue price”. The learned counsel has also filed before us a copy of a Notification No. 15795/Lic. 3, dt. 22nd March, 1985, through which rules under the UP Excise Act, 1910, have been framed. Since according to us, for reasons to be discussed in the following paragraphs, the disallowance of this amount cannot be made under S. 43B and the assessee is entitled to the relief, we are not dealing with the various alternative arguments advanced by the learned counsel for the assessee.
5. In the first instance we would like to clarify that the assessment year before us is asst. yr. 1987-88 and for this year the scope of the provisions of S. 43B extended only to “any sum payable by the assessee by way of tax or duty under any law for the time being in force.” Hence, the disallowances for this year could be made only in respect of tax or duty and not of other items like “cess or fee by whatever name called” which terms were added by Finance Act, 1988, w.e.f. 1st April, 1989 only. We have, therefore, to consider strictly whether the term “issue price” was tax or duty or not, we have taken note of the fact that the definition of “issue price” as given in r. 2(g) of UP Excise Rules published by the Notification dt. 22nd March, 1985, to which we have referred earlier, is as under :
“Issue price means the price of country liquor calculated at the rate notified by the Excise Commissioner from time to time and payable by the licences of country liquor shop or group of shops as part of sum under S. 30 r/w S. 24 of Act, for the entire minimum guaranteed quantity.”
We have further taken note of the observations of the Honble Allahabad High Court in the case of Suresh Chandra & Ors. vs. State of UP in Civil Misc. WP No. 892 of 1987 (Tax), dt. 26th April, 1988 a copy of which has been filed before us as already mentioned. The observations are us under on page 3 of the judgment :
“….. licence fee according to these Rules is a sum payable in consideration of grant of licence for exclusive privilege under S. 2 and is besides the issue price payable for the minimum guaranteed quantity for the shops or group of shops…..”. And issue price is the price calculated by Excise Commissioner for the minimum guaranteed quantity.
Again on page 7 of the judgment, the Honble Court has observed as under :
“In Andhra Pradesh case issue price included not only duty but cost and sales-tax yet it was held by Honble (Supreme) Court that merely because element of excise duty entered the price it could not be held that what was levied was duty.”
Again on page 8, it is held whereas issue price is, no more and no less than the price which the contractors agree to pay for the grant of privilege to sell liquor drawn or undrawn (referring to Prabhakar Reddys case AIR 1987 SC 1933).
6. It is further observed “Although the issue price fixed by Commissioner is equivalent to duty but it is not duty but a sum payable instead of duty for parting with privilege, therefore, it cannot be urged either that it is nothing but duty or that it cannot be changed once licence fee has been determined as auction”.
Again finally it is held by the Honble Court as under :
“Issue price is the price payable on minimum guaranteed quantity. It is fixed in advance of the excise year by the Commissioner on the guidelines issued, namely, the populations, consumption, etc. and announced at time of auction.”
These observations of the Honble Allahabad High Court under whose jurisdiction the assessee had taken the contract, make it absolutely clear that the issue price is neither a part of the excise duty as considered by the Assessing Officer nor is a tax as considered by the learned CIT(A) but is a part of the price payable by the contractor and merely because that amount is paid to the Excise department cannot automatically make that amount excise duty or a tax. We also do not agree with the arguments of the learned Departmental Representative that merely because the assessee had made entries in his books of account by terming these payments as excise duty, it becomes excise duty for the purposes of S. 43B of the IT Act.
7. Taking all these facts into account we hold that the issue price in the instant case was neither a duty nor a tax. We further hold that merely because the Honble Allahabad High Court has stayed the payment of this demand against assessees furnishing of bank guarantee would not mean that the liability to pay has ceased. We hold that under the mercantile system of accounting the liability exists notwithstanding the fact that the assessee is contesting it. However, in case at a later point of time the issue is decided in favour of the assessee by the Court and there is a cessation of liability the amount may be taxed according to the provisions of the IT Act. However, so far as the present appeal is concerned, the disallowance of Rs. 2,39,527 is directed to be deleted.
8. Next objection of the assessee is regarding an addition of Rs. 25,000 to the trading results. We find that the assessee had effected sales to the tune of more than Rs. 3.38 crores and although the G.P. rate is about 5.41%, both the lower authorities have held that all the trading results are not fully verifiable. In this view of the matter, we agree with the learned CIT(A) that an addition of Rs. 25,000 is more than reasonable and does nor require any interference. This objection of the assessee is, therefore, dismissed.
9. In the appeal filed by the Revenue objection has been raised against reduction of disallowance of Rs. 64,000 made by the Assessing Officer out of “Paid Expenses” to only Rs. 10,000. As already mentioned, the assessee is a liquor contractor and holds exclusive privilege for selling country liquor in the specified area. However, certain unauthorised persons sell either illicit liquor or liquor brought from other areas in the territory allotted to the assessee and this adversely affects the business of the assessee. In order to stop these illegal activities the country liquor contractors have to maintain some force to prevent unauthorised persons from selling liquor in assessees territory and also to persuade and render help to the Excise department to stop such persons from carrying on their illegal activities and to conduct raids on such parties. These are called raid expenses. The assessee had made a claim of Rs. 1,60,412. Out of this learned Assessing Officer has disallowed only Rs. 64,000 and the learned CIT(A) reduced it to Rs. 10,000. This would mean that even the Assessing Officer had conceded that such expenses have to be incurred by country liquor contractors. However, in the appeal filed by the Revenue the reduction given by the learned CIT(A) has been challenged on the ground that such expenses are not fully vouched and no details are available and the excise officials have denied reimbursement of such expenses by the licensees to them. If what the Revenue has contended were to be accepted, even the amount allowed by the Assessing Officer should not have been allowed but we agree with the observation of the learned CIT(A) that looking to the nature of the assessees business and the general social conditions and conditions of the law and order such expenses have got to be incurred by persons who are in this type of trade. It is, therefore, merely a question of estimate as to how such expenses could have been allowed and we have no reason to hold that the estimate made by the Assessing Officer was superior to the estimate made by the learned CIT(A). We, therefore, dismiss the objection of the Revenue.
10. Accordingly, while the appeal filed by the assessee is partly allowed, appeal filed by the Revenue is dismissed.