9911796707
TMI Blog2007 (1) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 1995-96, 1997-98 and 1999-2000 which is as under: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee fulfils all the conditions laid down under section 44AD, without appreciating the facts brought on record by the Assessing Officer." 4. Shri Ravindra Kumar, departmental representative appeared for the revenue and Shri Ajay Singh, learned counsel appeared for the assessee and put forward their rival submissions. 5. The brief facts of the case are that the assessee is a Civil Contractor and the total turnover of the assessee firm for all the years under consideration was below Rs. 40 lakhs. The total turnover of the assessee firm for the years under consideration and the profit declared on such turnover for the years are as under: Assessment year Total turnover Income declared 1995-96 14,64,372 1,17,840 1996-97 1,45,210 1997-98 8,31,839 76,541 1998-99 Nil Nil 1999-2000 24,46,399 1,95,720 6. The assessee admits to having not maintained reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and make additions on that account. The learned AR further stated that in case the assessee had declared profits at less than 8 per cent of its turnover, such a case could be scrutinized for regular assessment under section 143(3) of the Income-tax Act. 9. The CIT(A) noted that the case of the assessee was within the purview of section 44AD of the Income-tax Act as it was engaged in the business of Civil Construction with turnover less than Rs. 40 lakhs. The assessment was re-opened by the Assessing Officer on the ground that certain information was received from the Assessing Officer of Shri Vasant A. Patel, that another partner of the firm Mrs. Ramaben Patel was a benami of Shri Vasant A. Patel, as she did not know about the business of the firm. The CIT(A) held that the assessment of the assessee-firm had not been re-opened on valid ground as the provisions of section 147 of the Income-tax Act deals with escapement of income. The CIT(A) noted that the assessment had been re-opened for the verification and investigation of genuineness of the firm which is not permissible under the provisions of the Income-tax Act. Relying on the decision of Rajasthan High Court in Gulab D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of information and its correctness is not to be considered. 11. Reference was made to the provision of sections 184 and 185 (provi-sions before amendment) of the Income-tax Act for the proposition that in case of non-compliance of provisions of section 184 of the Income-tax Act firm can be assessed in the status of AOP. It is pointed out by the Ld. DR for the revenue that in the present case the assessee had not complied with the provisions of section 184(1)( i ) of the Income-tax Act. In respect of the merit of provisions of section 44AD of the Income-tax Act, it was stated by the Ld. DR for the revenue that to the extent of assessability of income in question, the same cannot be questioned, but the Assessing Officer can question unproved loans raised during the year. It was fairly admitted by the Ld. DR for the revenue that the Assessing Officer could not ask for the production of books of account while assessing the income under section 44AD of the Act, but the queries could be raised in respect of loans under sections 68 and 69 of the Income-tax Act. Reliance was placed on the decision of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC) that though the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Vijaykumar M. Hirakhanwala (HUF) v. ITO [Writ Petition Nos. 1355 to 1358 of 2006]. 13. We have heard the rival submissions and perused the records. The assessee is engaged in the business of Civil Construction. The annual source of income of the assessee is income from construction business. The total turnover of the assessee firm for the years under consideration was less than Rs. 40 lakhs. Under the provisions of section 44AD of the Income-tax Act, person carrying on the business of Civil Construction or supply of labour for Civil Construction work have an alternate method of estimating the income from their respective business. As per the provisions of section 44AD of Income-tax Act the persons having gross receipts less than Rs. 40 lakhs may estimate the income at the rate of 8 per cent or more of the gross receipts. 14. The first issue in the present appeal is whether the re-opening of the assessment under section 147 of the Income-tax Act is valid. The basis for re-opening the assessment in the present case was that one of the partners of the firm Mrs. Ramaben Patel did not know anything about the business of the firm and she was treated as benami of Shri V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars that the explanation given by the assessee is accepted by the revenue because neither in the order rejecting the objections raised by the assessee, nor in the affidavit in reply and not even before this Court, the revenue has pressed the ground for re-opening the assessment on account of excess depreciation. Thus, the only ground on which the assessments are sought to be re-opened in all the years in question is that the expenditure/loss incurred at the Bombay office cannot be allowed as there is hardly any activity from the Bombay office of the assessee. In our opinion, the re-opening of the assessments based on the above ground which is totally vague and devoid of any substance cannot be the basis for re-opening the assessments. 17. In the result, all the petitions are allowed by quashing and setting aside the notices all dated 30-3-2004 issued under section 148 of the Income-tax Act, 1961." [Emphasis supplied] 16. Under the provisions of sections 184 and 185 of the Act, for the purpose of assessing a firm as a firm, the requirements are: ( i )the partnership is evidenced by an instrument; and ( ii )the individual shares of the partners are specified in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anything about the business of the firm is not a valid ground for re-opening of the assessment and treating the firm as AOP. 20. The fact whether one of the partners is aware about the nature of business or not is not a consideration for assessing a firm under the provisions of section 184 of the Income-tax Act, even if we do not take cognizance of concept of sleeping partners . 21. Before invoking the provisions of section 147 of the Act, the Assessing Officer should have a reason to believe that the income has escaped assessment. The requirement of the section is that at the time of issuance of notice under section 147 of the Act, there is a reasonable belief, the sufficiency of those reasons though cannot be called in question but the belief of the Assessing Officer should be reasonable. Merely because a partner is not aware about the business activities of the firm, under no circumstances will render the firm as a non-genuine firm under the provisions of section 184 of the Income-tax Act, where requirements are that the partnership should be evidenced by an instrument in writing specifying individual shares of partners and the certified copy of such instrument should a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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