Agro Engineering (MP) (P) Ltd. vs Commissioner of Income Tax

S.K. Kulshrestha, J.—This appeal u/s 260A of the IT Act, is directed against the order of the Tribunal, Indore, dt. 6th Aug., 2004, in ITA No. 1035/Ind/1998, relating to the asst. yr. 1995-96. The appeal has been admitted on the following substantial questions of law:

Whether the Tribunal was justified in applying the provisions of Section 44AD in the facts of the case when admittedly the gross receipts of the assessee for the year in question exceeded Rs. 40,00,000 thereby attracting the proviso appended to Section 44AD(1)?

When admittedly the gross receipt of the assessee for the year in question was determined at Rs. 69,26,049 whether the Tribunal was justified in applying 8 per cent GP as provided u/s 44AD thereby ignoring the proviso to the section ?

On going through the record and on hearing the learned senior counsel, we find that in substance, the following question of law arises:

Whether, in the facts and circumstances of the case, the Tribunal erred in deciding the appeal of the Department, after the declaration under the Kar Vivad Samadhan Scheme was accepted by the Revenue ?

The assessee is engaged in the business of securing contracts from the Government Departments for tube well boring. For the asst. yr. 1995-96, the assessee filed the return of income indicating total income of Rs. 77,451, out of gross receipts of 6,92,06,049. The books of account of the assessee were duly audited. The AO, however, rejected the books of account of the assessee and proceeded to determine the income u/s 144 of the Act. The AO, therefore, estimated the net profit at the rate of ten per cent on gross receipts and determined the income at Rs. 69,02,605. Against the framing of the assessment by the AO, the assessee preferred an appeal to the CIT(A), Indore, who partly allowed the appeal of the assessee and brought down the percentage of net profit to 7.75 per cent. He also allowed the claim of the assessee for reduction of the amount of depreciation on plant and machinery. The parties, not satisfied with the decision of the CIT(A), appealed to the Tribunal. Learned Counsel submits that during pendency of the appeal, the Kar Vivad Samadhan Scheme (KVSS) was introduced and in order to buy peace, the appellant assessee made a declaration, which was accepted.

The contention of the learned Counsel is that once the declaration under the said Scheme was accepted, the effect was that the appeals abated but the Tribunal, unmindful of the said legal consequence of the Scheme, decided the appeal of the Revenue and increased the net profit from 7.75 per cent to 8 per cent. The benefit of depreciation was also declined by referring to the provisions of Section 44AD. The learned Counsel has made reference to Section 44AD in which the proviso limits the applicability of the said provision to the gross receipts upto Rs. 40 lakhs.

Learned Counsel, therefore, submits that once the effect of the acceptance of the declaration under the Kar Vivad Samadhan Scheme was abatement of the appeals, the Tribunal should have refrained from deciding the appeal of the Revenue. Reference has been made to a decision of this Court in Nishit Construction Co. (P) Ltd. v. ITO (2006) 204 CTR (MP) 310. In the said decision, it was held that once a valid declaration has been made by the assessee, the Department''s appeal cannot survive till the declaration continues to be valid. The proviso to Section 92 of the Finance (No. 2) Act, 1998 was struck down by the Delhi High Court and later by the Supreme Court in All India Federation of Tax Practitioners Vs. Union of India and Others, , therefore, the Department''s appeals pending before the Tribunal could not survive, once a valid declaration had been made.

The position that emerges from the above discussion is clearly that in the case of the acceptance of declaration under the Kar Vivad Samadhan Scheme, the appeals, whether by the assessee or by the Revenue, before the Tribunal do not survive till the declaration continues to be valid and, therefore, the Tribunal had no jurisdiction to proceed with the appeal filed by the Department and reject the appeal of the assessee after the declaration under the Kar Vivad Samadhan Scheme was accepted and the same was in force. Thus, the question No. 3 is answered in favour of the assessee.

Coming to the question Nos. 1 and 2, it would be useful to reproduce the proviso to Section 44AD(1). The said proviso reads as follows:

(1) Notwithstanding anything to the contrary contained in Sections 28 to 43C, in the case of an assessee engaged in the business of civil construction or supply of labour for civil construction, a sum equal to eight per cent of the gross receipts paid or payable to the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession":

Provided that nothing contained in this sub-section shall apply in case the aforesaid gross receipts paid or payable exceed an amount of forty lakh rupees.

From the above proviso it is manifest that the applicability of Section 44AD is restricted to cases where the gross receipts of the assessee for the year in question are below Rs. 40 lakhs.

In the present case, since the gross receipts were apparently 6,92,06,049, the said provision was clearly not applicable. However, since the Tribunal had no jurisdiction to proceed with the appeal of the Revenue after the declaration filed under the Kar Vivad Samadhan Scheme was accepted, the question Nos. 1 and 2 formulated hereinabove, do not require any answer.

Consequently, this appeal is allowed and the order of the Tribunal passed in the appeal preferred by the Revenue is set aside.

There shall be no order as to the costs.