2007 (2) TMI 352 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the assessment order under section 147 and issuance of notice under section 148 of the Income-tax Act, 1961.
2. Applicability of section 44AD of the Income-tax Act, 1961 to the assessee's case.
3. Justification of not relying on the book results and upholding the application of an 8% net profit on gross receipts.

Issue-wise Detailed Analysis:

1. Legality of the assessment order under section 147 and issuance of notice under section 148 of the Income-tax Act, 1961:

The assessee challenged the reopening of the assessment, arguing that the return and all materials were already before the Assessing Officer (AO). If the AO was not satisfied with the returned income, he could have scrutinized the case under section 143(3). The assessee contended that section 147 cannot substitute for scrutiny assessment. The CIT(A) upheld the AO's action, stating that post-amendment, section 147 allows reopening if the AO believes income has escaped assessment for any reason. The Tribunal found that the AO lacked legal authority to initiate proceedings under section 147 as the assessee was not engaged in civil construction but was a builder. Thus, the reassessment was quashed.

2. Applicability of section 44AD of the Income-tax Act, 1961 to the assessee's case:

The AO applied section 44AD, presuming an 8% profit on gross receipts, as the returned income was less than 8% and not accompanied by an audited statement. The CIT(A) agreed, stating that the assessee's repetitive actions of buying plots, constructing, and selling houses indicated a business of civil construction. The Tribunal disagreed, emphasizing that the assessee's business as a builder, involving buying land, constructing houses, and selling furnished units, did not fall under civil construction as per section 44AD. Therefore, section 44AD was not applicable.

3. Justification of not relying on the book results and upholding the application of an 8% net profit on gross receipts:

The CIT(A) partially accepted the assessee's plea, estimating the cost of furnishings at 10% of total receipts and applying the book profit percentage to this portion. For the remaining receipts, an 8% profit was applied. The Tribunal found that since the assessee was not engaged in civil construction, the application of section 44AD and the 8% profit estimation were unjustified. The Tribunal noted that the assessee maintained proper books of account, which were not found defective by the AO. Therefore, the book results should have been accepted.

Conclusion:

The Tribunal concluded that the reassessment proceedings were neither valid nor proper. The business of the assessee as a builder did not fall under the purview of section 44AD, and there was no requirement for an audit report under section 44AB. Consequently, the appeal was allowed, and the reassessment framed under section 147 read with section 143(3) was quashed.