2006 (7) TMI 111 - HC - Income Tax

Once the books of accounts are accepted by AO then it is wrong on the part of AO to rectify the assessment by making further additions and estimate income u/s 44AE Assessment u/s 44AE by invoking rectification proceeding u/s 154 was not justified.

Summary

Issues:
Rectification of assessment under Section 154 of the Income Tax Act, 1961 regarding compliance with Sec.44AE.

Analysis:
The case involved an appeal by the Revenue against an order passed by the Income Tax Appellate Tribunal, Madras, regarding the rectification of assessment under Section 154 of the Income Tax Act, 1961. The key question was whether the Tribunal was correct in allowing the rectification under Sec.154 to ensure compliance with Sec.44AE or if it amounted to redoing the assessment. The relevant assessment year was 1994-95, and the assessee, a registered firm, filed a return declaring a total loss. The Income Tax Officer accepted the total loss but made an addition by estimating business income from lorries under Sec.44AE. Subsequently, the Officer sought to rectify the assessment, leading to a series of notices and responses from the assessee.

The Commissioner of Income Tax (Appeals) allowed the appeal filed by the assessee, leading to the Revenue appealing to the Income Tax Appellate Tribunal, which upheld the decision of the first appellate authority. The Revenue contended that the Assessing Officer's failure to follow statutory provisions constituted a mistake apparent on the face of the record justifying rectification under Sec.154. However, the assessee argued that the estimated addition was accepted to avoid conflict with the Department due to the small amount involved.

The Court analyzed the provisions of Sec.44AE, which provide for the estimation of income from plying, hiring, or leasing trucks owned by the assessee. It noted that the scheme is optional, and if the assessee can prove lower profits and gains, the Assessing Officer should proceed to make the assessment based on the evidence. The Court emphasized that rectification under Sec.154 is meant for correcting obvious and non-debatable mistakes on the face of the record, citing a Supreme Court decision on the matter.

Ultimately, the Court held that the issue of whether Sec.44AE applied was debatable, and the Assessing Officer had no jurisdiction to rectify the assessment under Sec.154. It distinguished a judgment relied on by the Revenue, stating that the facts of the present case were different. Consequently, the Court upheld the Tribunal's decision, ruling in favor of the assessee and dismissing the tax case without costs.