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2007 (8) TMI 483 - AT - Income Tax


Issues Involved:
1. Applicability of Section 44AD of the Income-tax Act, 1961.
2. Quantum of addition upheld by CIT (Appeals) and relief granted.
3. Binding nature of CBDT instructions on the tax authorities.

Issue-wise Detailed Analysis:

1. Applicability of Section 44AD of the Income-tax Act, 1961:
The primary issue in the appeal was whether the CIT (Appeals) erred in holding that the provisions of Section 44AD were not applicable. The Assessing Officer had applied Section 44AD to estimate the income, but the CIT (Appeals) found that Section 44AD was not applicable, even as per the order passed by the Assessing Officer for the assessment year 2001-02. The Tribunal upheld the CIT (Appeals)'s decision, indicating that the provisions of Section 44AD were rightly not applied.

2. Quantum of Addition Upheld by CIT (Appeals) and Relief Granted:
The second issue was regarding the quantum of addition upheld by the CIT (Appeals). The CIT (Appeals) upheld the addition only to the extent of Rs. 51,945 out of the total addition of Rs. 2,51,945 made by the Assessing Officer by applying a net profit rate of 9 percent on gross receipts of Rs. 38,90,564 earned by the assessee from executing contract work. The CIT (Appeals) allowed a relief of Rs. 2,00,000. The Tribunal found no reason to interfere with the CIT (Appeals)'s order, as the detailed submissions of the assessee were considered, and the addition was retained to the extent of Rs. 50,000.

3. Binding Nature of CBDT Instructions on the Tax Authorities:
The third issue was whether the appeal should have been filed by the revenue given the tax effect was less than Rs. 2 lakhs. The Tribunal referenced CBDT Instruction No. 2, dated 24-10-2005, which states that the department should not file appeals if the tax effect is less than Rs. 2 lakhs. The Tribunal cited several precedents, including the Hon'ble Bombay High Court in CIT v. Pithwa Engg. Works [2005] 276 ITR 519 and the ITAT Rajkot Bench in Asstt. CIT v. Rajoo Engineers Ltd. [2006] 100 ITD 555, which supported the view that the CBDT's instructions are binding on the revenue authorities.

The Tribunal emphasized that these instructions are issued after considerable deliberation and are aimed at reducing unnecessary litigation, especially in cases involving small tax effects. The Tribunal also noted that the instructions are binding as per Section 119 of the Income-tax Act, which mandates that all income-tax authorities must observe and follow such orders, instructions, and directions of the Board.

The Tribunal further supported its decision by referencing the ITAT Special Bench in ITO v. Bir Engg. Works [2005] 94 ITD 164 (Asr.) and the observations of the Hon'ble Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706, which stressed the importance of following CBDT instructions to avoid unnecessary litigation.

Conclusion:
In conclusion, the Tribunal dismissed the appeal by the revenue, noting that the tax effect was less than the prescribed limit of Rs. 2 lakhs, and upheld the CIT (Appeals)'s decision on the merits. The Tribunal reiterated the binding nature of CBDT instructions on the tax authorities and emphasized the need to follow these instructions to reduce litigation and support small assessees. The appeal of the revenue was therefore dismissed.

 

 

 

 

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