TMI Blog2006 (8) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... The return was processed under section 143(1)(a) on 30-12-1998 and later after finding that assessee has declared less profit then the rate provided under provisions of sections 44AD and 44AE, the case was re-opened. The assessee objected to the re-opening of the case which was over ruled by the Assessing Officer relying upon decision of M.P. High Court in the case of Triple A Trading Investment (P.) Ltd. v. Asstt. CIT [2001] 249 ITR 109, in which it was held that assessment made under section 143(1) could be reopened under the provisions of section 147. According to the Assessing Officer, the assessee did not produce books of account at the reassessment stage. Accordingly income was computed with the aid of section 44AD by applying net profit rate of 8 per cent on the gross receipt. The income was computed accordingly at Rs. 5,70,746. The assessee challenged the reopening of the assessment and invoking the provisions of sections 44AD and 44AE. The assessee contended before the CIT(A) that re-opening of the assessment under section 147/148 is un-lawful and unjustified and Assessing Officer is not justified in invoking the provisions of sections 44AE and 44AD. It was further subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal on the ground mentioned above. 4. Ld. DR submitted that sufficiency of the reasons for reopening the assessment could not be challenged. He has further submitted that books of account were not produced before the Assessing Officer at the reassessment stage. Therefore, re-opening was justified. He has further submitted that if Assessing Officer has reason to believe that income has escaped assessment, the Assessing Officer is justified in re-opening the assessment. Ld. DR submitted that even if return is processed under section 143(1)(a), re-opening is justified. Ld. DR further submitted that even if assessee has given all particulars in the return of income, reassessment could be directed in the matter. Ld. DR in support of his contention relied upon several decisions, which we shall take up later on in this order. 5. Ld. counsel for the assessee, on the other hand, supported the order of CIT(A) and filed paper book containing reasons for reopening under section 148 of the Income-tax Act and also referred to Board Circular No. 684 in which it was clarified that scheme under sections 44AD and 44AE are optional. Ld. AR submitted that assessee maintained proper books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than the profits and gains specified in sub-section (1), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143." 7. Section 44AE of the Income-tax Act provides special provisions for computing profits and gains of business of plying the hiring or leasing good carriages and provides notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of assessee, who owns not more than 10 good carriages in any previous year and who is engaged in business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head 'Profits and gains of business or profession' shall be deemed to be the aggregate of profits and gains from all the goods carriages owned by him in previous year, computed in accordance with the provisions of sub-section (2). Sub-section (2) provides profits and gains from each goods carriage being a heavy goods vehicle shall be an amount equal to Rs. 3,500 for every month during which the heavy goods vehicle is owned by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 44AD and sub-section (6) of section 44AE. The claim of the assessee was raised in accordance with the above provisions of law. The Assessing Officer, therefore, cannot direct the assessee to disclose profit as per sections 44AD(1) and 44AE(1). The CIT(A) was, therefore, justified in referring to the Board Circular No. 684, dated 11-6-1994 through which it was clarified that scheme under sections 44AD and 44AE is optional. Ld. counsel for the assessee filed copy of the reasons recorded for issue of notice under section 148 of the Income- tax Act dated 26-7-2000 in the paper book. The same is reproduced as under:- "Reasons recorded for issue of notice under section 148. - The assessee derives income from civil construction work. As per section 44AD of the Income-tax Act, 1961 the profit has to be assessed at 8 per cent of the gross receipts. The instant case the assessee's gross receipts from civil construction work amounted to Rs. 33,69,719. In addition the assessee has derived income from trucks running receipt and misc receipts etc. The income return by the assessee is Rs. 1,35,174. As per section 44AD the profit @ 8 percent on contract receipts works out to Rs. 2,69,57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer charged interest on the assessee under section 215. He also started reassessment proceedings on the grounds that benefit under section 80G was granted in excess. In reassessment proceedings, the Income-tax Officer did not find any merit in the said two grounds but made addition on some other ground. The Tribunal took into account the payment of advance tax after the end of the accounting year but . before the end of the financial year and held that no interest was payable by the assessee under section 215. It also held that the grounds on which the reassessment notice was issued were nonexistent and cancelled the reassessment. On a reference: "Held (i) that the Tribunal was right in cancelling the reassessment as both the grounds on which the reassessment notice was issued were not found to exist, and, therefore, the Income-tax Officer did not get jurisdiction to make a reassessment." 11. Hon'ble Punjab Haryana High Court in the case of Vipan Khanna v. CIT [2002] 255 ITR 220, at page 233 held: "From the letter dated 30-7-1998, it is evident that the Assessing Officer was seeking general information on other issues merely to verify the return. As already observed suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law." 13. Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34, held: "In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima facie some material on the basis of which the department could reopen the case." 14. Considering the above discussion and material on record, it is clear that Assessing Officer reopened the assessment only on the basis of application of provisions of sections 44AD(1) and 44AE(1) which are not applicable in the case of the assessee because assessee claimed lower profits on the basis of maintenance of books of account and audited profit and loss account and balance sheet. There was no material available with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, it is not necessary that there should be ample evidence on record to establish actual escapement. (10) Som Datt Builders (P.) Ltd. v. Dy. CIT [2006] 98 ITD 78 (Kol.), in which re-opening on the basis of substantial reasoning pointed out by revenue audit was held to be permissible under law. (11) Consolidated Photo Finvest Ltd. v. Asstt. CIT [2006] 151 Taxman 41, in which it was held by Delhi High Court that even if Assessing Officer gathered his reasons to believe from very same record which was subject-matter of the completed assessment - re-opening is permissible. (12) 101 ITD 90. No relevant case law was found. 16. We have considered the above case laws cited by ld. DR but none of them is applicable to the issue before us because the Assessing Officer in the present case has formed his opinion that income chargeable to tax has escaped assessment on incorrect and non-existent reasons and has no material whatsoever is in his possession showing that any chargeable income has escaped assessment. Therefore, the formation of the belief of the Assessing Officer has no nexus or rational connection with the reasons for re-opening. The assessee can challenge the exis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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