2006 (8) TMI 250 - AT - Income Tax

Tribunal affirms annulment of assessment, rejects revenue's appeal, ruling sections 44AD and 44AE inapplicable.

The Tribunal upheld the CIT(A)'s decision to annul the assessment, confirming that the reopening of the assessment was unjustified and the provisions of ... Income Escaping Assessment Issues Involved:1. Validity of the reopening of the assessment under section 147/148 of the Income-tax Act, 1961.2. Applicability of the provisions of sections 44AD and 44AE for computing profits and gains of business.Issue-wise Detailed Analysis:1. Validity of the Reopening of the Assessment:The primary issue in this case was whether the reopening of the assessment under section 147/148 was justified. The assessee, a partnership firm engaged in construction and transportation, filed its return declaring an income of Rs. 1,35,174, which was processed under section 143(1)(a). The Assessing Officer (AO) later reopened the case, citing that the assessee declared less profit than the rate provided under sections 44AD and 44AE.The CIT(A) annulled the assessment, holding that the reasons recorded by the AO for reopening the assessment were inadequate. The CIT(A) found that the AO did not possess any information or material facts that justified reopening the assessment. The AO's reliance on the decision of the M.P. High Court in the case of Triple A Trading & Investment (P.) Ltd. was deemed distinguishable as no contravention of section 40A was found in the present case.The CIT(A) further relied on the decision of the Punjab & Haryana High Court in Vipan Khanna v. CIT, which held that subsequent enquiry under section 147 seeking information to verify the return was not valid. The CIT(A) concluded that the AO had no justification to reopen the assessment and annulled it.2. Applicability of Sections 44AD and 44AE:The AO invoked sections 44AD and 44AE, which provide special provisions for computing profits and gains of business of civil construction and transportation, respectively. The assessee contended that these sections were not applicable as it maintained detailed books of account and got them audited, with the audit report filed along with the return.Section 44AD(1) provides that in the case of an assessee engaged in civil construction, a sum equal to 8% of the gross receipts shall be deemed to be the profit and gains of the business. However, this provision does not apply if the gross receipts exceed Rs. 40 lakhs or if the assessee claims and produces evidence to prove lower profits, as per sub-section (5).Similarly, section 44AE provides for computing profits and gains from the business of plying, hiring, or leasing goods carriages. Sub-section (6) allows the assessee to claim lower profits if evidence is produced.The CIT(A) referred to Board Circular No. 684, which clarified that the scheme under sections 44AD and 44AE is optional. The assessee had filed audited accounts and claimed lower profits based on evidence, which was permissible under sub-sections (5) and (6) of sections 44AD and 44AE.The Tribunal agreed with the CIT(A) that the AO should have proceeded to make an assessment under section 143(3) if not satisfied with the audited accounts. The reasons given by the AO for reopening the assessment were found to be incorrect and non-existent, as the provisions of sections 44AD and 44AE were not applicable in the case of the assessee.Conclusion:The Tribunal upheld the CIT(A)'s decision to annul the assessment, confirming that the reopening of the assessment was unjustified and the provisions of sections 44AD and 44AE were not applicable. The appeal of the revenue was dismissed.