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2. Briefly, the facts of the case are that the assessee is a partnership firm engaged in the business of construction as civil contractor along with the business of transportation (truck plying) and return for the assessment year under appeal was filed on 31.10.97 declaring total income of Rs. 1,35,174/- along with copy of the audited accounts (Form 3CB and 3CD). The return was processed Under Section 143(1) (a) on 30th Dec, 98 and later after finding that assessee has declared less profit then the rate provided under provisions of Section 44AD (sic) the case was reopened. The assessee objected to the reopening of the case which as over-ruled by the AO relying upon decision of M.P. High Court in the case of Triple A Trading And Investment Pvt. Ltd. v. CIT 249 ITR 109, in which it was held that assessment made Under Section 143(1) could be reopened under the provisions of Section 147. According to the/AO, assessee did not produce books of account at the re-assessment stage Accordingly income was computed with the aid of Section 44AD by applying net profit rate of 8% on the gross receipt. The income was computed accordingly at Rs. 5,70,746/-. The assessee challenged the reopening of the assessment and invoking the provisions of Section 44AD and 44AE. The assessee contended before the CIT(A) that reopening of the assessment Under Section 147/148 is un-lawful and unjustified and AO is not justified in invoking the provisions of Section 44AE and 44AD. It was further submitted that the reasons mentioned in the assessment order did not warrant initiation of proceedings Under Section 147 because assessee had maintained detailed books of account and since the gross receipts from the business of the assessee exceeded the limit prescribed Under Section 44AB, it got audited the books of account and enclosed audit report along with the return. Therefore, net profit rate Under Section 44AD and 44AE is not applicable to the assessee's case as books of account were audited. The CIT(A), considering the above facts, found that the assessee prepared consolidated account for construction work and truck running receipts and that the gross receipts for the constn. work as stated earlier were Rs. 33,69,719/-, whereas in respect of truck running business, the gross receipts are Rs. 14,50,719.50 and the net profit is declared at Rs. 1,35,174/- as per profit and loss account after deducting the expenses. The CIT(A) found that the decision cited by the AO is clearly distinguishable because in the case referred to by AO it was found that lease rent was excessively paid in contravention of provisions of Section 40A. Therefore, reopening was held to be justified. The CIT(A), however, found in the present case that no such contravention has been brought on record by the AO and that reopening is made merely on the ground that net profit was not in accordance with the provisions of Section 44AD, which could not be considered as a valid ground for reopening the assessment unless the AO was in possession of information or material facts necessary for assessment or that income chargeable to tax has escaped assessment, The CIT(A) relied upon decision of Punjab & Haryana HighCourt in the case of Vipin Khanna v. CIT 255 ITR 221, in which it was held that subsequent enquiry Under Section 147 seeking information to verify return was not valid. The CIT(A), considering the reasons and facts of the case, agreed with assessee that AO had no justification to reopen the assessment. The CIT(A) accordingly annulled the assessment. The CIT(A) as regards addition on merit with regard to application of net profit rate Under Section 44AD referred Board circular No. 684 dt. 11.6.94 in which it was clarified that scheme Under Section 44AD and 44AE is optional.

7. Section 44AE of the I.T. Act provides special provisions for computing profits and gains of business of plying the hiring or leasing good carriages and provides notwithstanding anything to the contrary contained in Section 28 to 43C in the case of assessee, who owns not more than 10 good carriages in any previous year and who is engaged in business of plying, hiring or leasing suchgoods carriages, the income of such business chargeable to tax under the head 'profits and gains of business or profession' shall be deemed to be the aggregate of profits and gains from all the goods carriages owned by him in previous year, computed in accoreance with the provisions of Sub-section (2). Sub-section (2) provides profits and gains from each goods carriage being a heavy goods vehicle shall be an amount equal to Rs. 3,500/- for every month during which the heavy goods vehicle is owned by the assessee and in case of other than heavy goods vehicle, the amount equal to Rs. 3,150/- per month shall be income of the assessee. Sub-section (6) to Section 44AE provides:

8. In both the sections, the deduction allowable under the provisions of Section 30 to 38 shall be deemed to have been already given effect. But it is provided that where the assessee is a firm, salary and interest paid to partners shall be deducted from the income computed under Sub-section (1), subject to conditions and limits specified in Clause (b) of Section 40.

9. Considering the above provisions contained Under Section 44AD (5) and 44AE (6), it is clear that, in case assessee claims and produces evidence to prove that profits and gains from the aforesaid business commencing on 1.4.97 are lower than the profits and gains specified in Sub-section (1), the aforesaid provisions of Section 44AD(1) and 44AE shall not apply and thereupon the AO shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under Sub-section (3) of Section 143. In the case of the assessee, assessee has filed audited profit and loss account and balance sheet along with the return of income and claimed through this evidence to prove that profits and gains from the aforesaid business was lower than the profits mentioned in Sub-Section (1) to Section 44AD and 44AE. If the AO was not satisfied with the return of income and profit and loss account duly audited, then the AO should have proceeded to make assessment Under Section 143(3). The assessee, therefore, has rightly claimed the lower profit as compared to Section 44AD(1) and 44AE(1) on the basis of Sub-Section (5)/of Section 44AD and Sub-Section (6) of Section 44AE. The claim of the assessee was raised in accordance with the above provisions of law. The AO, therefore, cannot direct the assessee to disclose profit as per Section 44AD(1) and 44AE(1). The CIT(A) was, therefore, justified in referring to the Board circular No. 684 dt. 11.6.94 through which it was clarified that scheme Under Section 44AB and 44AE is optional. Ld. counsel for the assessee filed copy of the reasons recorded for issue of notice Under Section 148 of the I.T. Act dt. 26.7.2000 in the paper book. The same is reproduced as under:

10. Considering the above discussion and the reasons recorded for issue of the notice Under Section 148, it is clear that AO reopened the assessment Under Section 148 because the assessee has to be assessed at the rate of 8% of the gross receipts as per Section 44AD and similarly provisions of Section 44AE are to be examined with regard to truck plying. The AO in view of the provisions of Section 44AD and 44AE formed his opinion that income escaped assessment. This itself shows that AO has not applied his judicial mind to the relevant provisions of the law. The claim of the assessee in the return of income was on the basis of Section 44AD(5) and 44AE(6) because assessee claimed lower profits on the basis of evidence on record as compared to deeming provisions of computation of income under Sub-section (1) of Section 44AB and 44AE. The reasons given by the AO for reopening the assessment are, therefore, clearly incorrect and non-existent because these provisions referred to by the AO are not applicable in the case of the assessee. If the AO was not satisfied with the return of income filed on the basis of audit report on the strength of books of account, then it is provided in Section 44AD(5) and 44AE(6) to proceed for assessment Under Section 143(3), which the AO did not do in the matter. Hon'ble Punjab & Haryana High Court in the case of CIT v. Atlas Cycle Industries 180 ITR 319 considering the facts that for the AY 72-73, the accounting year of the assessee was the calendar year ending on Decemeber 31, 1971. The assessee paid advance tax of Rs. 19,30,000/- up to December 15, 1971, and paid Rs. 6,01,750/- in March, 1972, that is to say, after the expiry of its accounting year but before the end of the financial year. The Income-tax Officer charged interest on the assessee under Section 215. He also started reassessment proceedings on the grounds that benefit under Section 80G was granted in excess. In reassessment proceedings, the Income-tax Officer did not find any merit in the said two grounds but made addition on some other ground. The Tribunal (sic)ook into account the payment of advance tax after the end of the accounting year but before the end of the financial year and held that no interest was payable by the assessee Under Section 215. It also held that the grounds on which the reassessment notice was issued were non-existent and cancelled the reassessment, on a reference: