Bamboo supply not works contract, AO's inquiry valid. Revenue appeals allowed, CIT(A) orders set aside.

The Tribunal held that the mere supply of bamboo without associated services did not constitute a works contract but a contract for sale, rendering section 44AD inapplicable. The Tribunal emphasized that the assessment order's validity was independent of section 44AD's applicability, upholding the AO's right to conduct inquiries. The Tribunal allowed the Revenue's appeals, setting aside the CIT(A)'s orders and remanding the matter for merit consideration, while also deeming a CBDT circular inapplicable to the case.

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Issues:
Appeal against Dy. CIT(A) orders, Validity of assessment order under s. 44AD, Merit consideration by CIT(A), Interpretation of ss. 143(2) and 143(3), Applicability of CBDT Circular No. 1903.

Analysis:
The Revenue filed three appeals against the Dy. CIT(A) orders, relating to the assessment years 1994-95 and 1995-96. The appeals primarily questioned the validity of the assessment orders, specifically under s. 44AD of the Income Tax Act. The Departmental Representative argued that the AO rightfully selected the cases for scrutiny and made assessment orders, contending that the first appellate authority erred in canceling the orders based on the applicability of s. 44AD. It was emphasized that the AO's selection for scrutiny was legitimate, irrespective of the applicability of s. 44AD, as the AO has the statutory right to issue notices and conduct necessary inquiries.

The assessee, on the other hand, argued through a written submission that the supply of bamboo did not fall under the purview of s. 44AD as it was not related to civil construction or labor supply for civil construction. Additionally, it was highlighted that the tax effect in the case was below the specified threshold, exempting it from CBDT circular exceptions. The Tribunal analyzed the arguments and relevant material, including the written submission, to determine if the supply of bamboo qualified as a works contract under s. 44AD.

Referring to a Supreme Court case, the Tribunal concluded that mere supply of bamboo without associated services did not constitute a works contract but was a contract for sale. Consequently, s. 44AD was deemed inapplicable to the case. The Tribunal clarified that the selection for scrutiny was independent of s. 44AD's applicability, and the AO had the authority to conduct necessary inquiries to ensure accurate income assessment. Thus, the first appellate authority's decision to cancel the assessment orders was overturned, citing no fault in the AO's selection for scrutiny.

Regarding the merit consideration by the CIT(A), the Tribunal noted that the CIT(A) had not evaluated the case's substance but declared the assessment orders null and void. Following a precedent, the Tribunal remanded the matter back to the CIT(A) for a fresh consideration on merit. Additionally, the interpretation of ss. 143(2) and 143(3) was discussed, concluding that the case fell within an exception mentioned in a CBDT circular, making the circular inapplicable to the case. Consequently, all three appeals by the Revenue were allowed, setting aside the CIT(A)'s orders and remanding the matter for merit consideration.

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