2010 (8) TMI 255 - HC - Income Tax

Partnership firm / Association of persons (AOP) - Status u/s 184(5) - The assessee is a civil contractor and claimed the status as a partnership firm. During the course of assessment proceeding the assessee has not complied with the requirement of the notice and has not produced the books of account and therefore the assessment has been completed under Section 144 of the Income Tax Act. The assessing authority has taken the status of the appellant as an association of person (AOP) and applied net profit rate at 10% on the gross receipt - Held that - In our considered view since the assessment order was passed under Section 144 of the Act the assessing authority has rightly adopted the status of AOP in view of Section 184 (5) of the Act as it existed at the relevant time.

Summary

Issues:
1. Assessment of status as AOP under Section 144 of the Income Tax Act without serving notice under Section 143(2).
2. Correctness of setting aside the order of the Commissioner of Income Tax (Appeals) without considering relevant case law.
3. Dispute over the status of the appellant as a partnership firm or AOP.
4. Application of net profit rate on gross receipts under Section 44AD.

Analysis:
1. The appeal arose from the Tribunal's order for the assessment year 2001-2002, questioning the correctness of assessing the appellant's status as an AOP under Section 144 without serving a notice under Section 143(2). The assessing authority applied a net profit rate of 10% on gross receipts due to non-compliance by the appellant during assessment proceedings.

2. The Commissioner of Income Tax (Appeals) partially allowed the appeal, determining the appellant's status as a partnership firm. The CIT (A) directed applying an 8% net profit rate on gross receipts under Section 44AD and allowed deductions as per Section 40(b)(5) of the Income Tax Act. The Tribunal later dismissed the appellant's appeal and partly allowed the department's appeal, upholding the 8% net profit estimation under Section 44AD.

3. The dispute centered on the appellant's status as a partnership firm or AOP. The Tribunal maintained the AOP status based on Section 184(5) of the Act, as the assessment was conducted under Section 144 due to the appellant's non-compliance with notice requirements. The Tribunal's decision was supported by the provision that firms failing to comply with Section 144 procedures are assessed as AOPs.

4. The appellant contested the Tribunal's decision, arguing that the assessment was not made under Section 144 as Section 44AD was used for profit estimation. However, the Court upheld the Tribunal's decision, emphasizing that the assessment order was indeed under Section 144 and justified the AOP status under Section 184(5) based on the relevant provisions at the time.

In conclusion, the Court found no error in the Tribunal's order and dismissed the appeal, affirming the correctness of assessing the appellant as an AOP under Section 144 in line with the provisions of the Income Tax Act.