Optional presumptive taxation under section 44AD upheld; challenge to assessment method and circular rejected as unsustainable.

A presumptive taxation scheme under section 44AD was treated as optional because sub-section (5) allows an assessee to claim lower profits and produce evidence, after which assessment proceeds in the ordinary manner. The contention based on section 40(b) was rejected because that provision is restrictive and does not itself create a deduction. The challenge to the vires of section 44AD and Circular No. 737 failed, and the grievance that the assessee's case fell within section 44AD(5) was held to arise from the assessment order and was to be pursued in appellate proceedings, not writ jurisdiction.

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Issues: Whether section 44AD of the Income-tax Act and Circular No. 737 dated 23.02.1996 were liable to be struck down as arbitrary or invalid, and whether the assessee's grievance that assessment should have proceeded under sub-section (5) of section 44AD could be examined in writ proceedings.

Analysis: Section 44AD was held to be optional in view of sub-section (5), which permits an assessee to claim and produce evidence that profits are lower than the presumptive rate, in which event the Assessing Officer is to make assessment in the ordinary manner. The contention based on section 40(b) was rejected on the ground that the provision is restrictive and does not itself confer a deduction. The complaint that the petitioner's case was covered by sub-section (5) was treated as a matter arising from the assessment order and therefore capable of being pursued in appeal.

Conclusion: The challenge to the vires of section 44AD and the impugned circular was rejected, and the petition was dismissed in limine.

Ratio Decidendi: A presumptive taxation provision that remains optional and allows the assessee to prove lower profits is not arbitrary merely because it applies a statutory profit presumption; objections to the manner of assessment under such a scheme are to be pursued in appellate proceedings.

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