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Facts
The assessee, an individual engaged in the transportation business, filed his income for AY 2016-17 under Section 44AE. The Assessing Officer (AO), however, recomputed the income under Section 44AD, adding Rs.5,16,380/-, and rejected the assessee's rectification application under Section 154, a decision upheld by the First Appellate Authority (FAA). The core dispute revolves around the applicability of Section 44AE versus Section 44AD for presumptive taxation of income.
Held
The Tribunal determined that the issue of applying Section 44AD instead of Section 44AE was not debatable, rendering the rejection of the Section 154 application invalid. It held that since the assessee is in the business of plying, hiring, or leasing goods carriage vehicles and owns less than 10 such vehicles, the income should prima facie be computed under Section 44AE. The case is remanded to the AO to re-examine if the assessee satisfies all conditions under Section 44AE and to recompute the income accordingly.
Key Issues
1. Whether income for a goods transport business owning less than 10 vehicles should be computed under Section 44AE or Section 44AD of the Income Tax Act. 2. Whether the rejection of a rectification application under Section 154 was valid when the underlying issue was not debatable.
Sections Cited
250, 44AD, 44AE, 143(2), 142(1), 154, 143(3), 44AD(6), 44AE(2), 44AE(7)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi dated 23.10.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
2 -: 2. There is a delay of 170 days in filing this appeal. The assessee has filed a petition for condonation of delay and also a supporting affidavit. On perusal of the reasons stated in the condonation petition, we are of the view that there is sufficient cause for late filing of this appeal and no latches can be attributed to the assessee. Hence, we condone the delay in filing this appeal and proceed to dispose off the appeal on merits.
The solitary issue that is raised is whether tax is to be computed on presumptive basis u/s.44AD or 44AE of the Act. The assessee’s case is that, the presumptive tax is to be calculated as per section 44AE of the Act instead of section 44AD of the Act computed by the AO.
Brief facts of the case are as follows: The assessee is an individual engaged in the business of transportation under the trade name ‘Sri Ram Transport’. For the assessment year 2016-17, assessee had filed his return of income on 07.03.2017 declaring total income of Rs.3,50,610/-. The assessment was selected for limited scrutiny and notice u/s.143(2) of the Act was issued on 11.07.2017. The reason for selection of assessment for
During the course of assessment proceedings, in reply to the notice issued u/s.142(1) of the Act, assessee submitted that he was in the business of transportation of LPG goods and for the relevant year, he had owned four LPG goods vehicles. It was submitted that since he is not an owner of more than 10 vehicles at any time during the relevant previous year, he has offered the income u/s.44AE of the Act of Rs.3,60,000/-. The assessee had also submitted RC copy of four vehicles. Assessee was further directed to provide copy of the work order in support of his claim. The assessee vide submissions dated 11.12.2018 provided the work order. The details of the work order, contract period, issuing date and vehicle numbers are detailed at page 2 of the impugned assessment order. The AO held that in the submissions of the assessee vide letter given on 11.12.2018 did not match with the earlier submissions even with regard to ownership of the vehicle, hence the assessment is to be completed by taking 8% of the total receipts as per 26AS u/s.44AD of the Act. The AO after extracting the provisions of section 44AD estimated the net profit at 8% of the total turnover for the relevant assessment year and 4 -: computed the income of Rs.8,76,380/-. The AO after reducing a sum of Rs.3,60,000/- declared by the assessee u/s.44AE of the Act, made an addition of Rs.5,16,380/- vide his order dated 13.12.2018.
Aggrieved by the assessment order, assessee filed a rectification application u/s.154 of the Act on 31.12.2018 (within 18 days from the date of order of assessment passed u/s.143(3) of the Act). The AO rejected the rectification petition on 11.06.2020 by holding that there is no mistake apparent from record warranting his interference u/s.154 of the Act.
Aggrieved by the order of the AO rejecting the rectification application, assessee filed appeal before the First Appellate Authority (FAA). The FAA confirmed the view of the AO. The relevant finding of the FAA reads as follows:- “3.4 I have gone through the assessment order which was sought to be rectified, however, I found that there is no apparent mistake in the assessment order. The issue sought to be rectified is debatable and can not be rectified u/s 154 of the IT Act. The appellant should file the appeal against the assessment order as the same is not rectifiable u/s 154 of the IT Act as there is no apparent mistake in the assessment order. After seeing the entire matter, I don’t find any merit in the appeal filed by appellant. In view of these facts, this appeal is dismissed.”
5 -: 8. Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal raising the following grounds:-
1. The order of the NFAC, Delhi dated 23.10.2024 vide DIN & Order No. ITBA/NFAC/S/250/2024-25/1069893361(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case.
2. The NFAC, Delhi erred in sustaining the action of the Assessing Officer in rejecting the rectification petition filed under Section 154 of the Act on the premise of the disputed issue being a "debatable" / outside the purview of the scope of rectification proceedings without assigning proper reasons and justification.
3. The NFAC, Delhi failed to appreciate that issue of non applicability of the provisions in Section 44AD of the Act in contra distinction to the reported income in terms of Section 44AE of the Act on the facts of the present case could not be reckoned as a "debatable issue" and ought to have appreciated that the assessment of 8% of the total receipts Rs. 1,09,54,760/- as income of the appellant should be reckoned as wholly unjustified and not sustainable in law.
4. The NFAC, Delhi failed to appreciate that the reporting of the appellant in terms of Section 44AE of the Act to the tune of Rs. 3,50,610/- was correct on various facets and ought to have appreciated that the re-computation of business income by invoking the provisions in Section 44AD of the Act should be reckoned as bad in law
5. The NFAC, Delhi failed to appreciate that in any event the quantification of the income of the appellant at 8% of the total turnover was arbitrary and wholly unjustified and further ought to have appreciated that having note taken on record the nature of the business pursued by the appellant, the mechanical action in adopting the rate at 8% of the total turnover should accordingly be reckoned as nullity in law.
6. The NFAC, Delhi failed to appreciate that the findings in relation there to forming part of the impugned order were wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
7. The NFAC, Delhi failed to appreciate that the entire re-computation of taxable total income including the fixing the estimated income at 8% of the total turnover was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law.
6 -: 8. The NFAC, Delhi failed to appreciate that having not adhered to the prescription of faceless appellate regime, the consequential appellate order passed should be reckoned as bad in law.
9. The NFAC, Delhi failed to appreciate that there was no effective/proper opportunity given before passing the impugned order including non granting of personal hearing and any order passed in violation of the principles of natural justice is nullity in law.
10. The Appellant craves leave to file additional grounds/arguments at the time of hearing.
The Ld.AR submitted that the issue raised is not debatable. It was submitted that assessee has filed his return of income u/s.44AE of the Act on income received from plying of goods carriage vehicle. It was further submitted that the AO without assigning any specific reason had mechanically computed the income u/s.44AD of the Act, which is impermissible in view of Explanation ‘B’ to section 44AD sub-section (6) of the Act.
The Ld.DR supported the orders of the AO and the FAA.
We have heard rival submissions and perused the material on record. The AO and the FAA has rejected the assessee’s application u/s.154 of the Act solely for the reason that the issue raised is debatable. According to us, the issue raised is not debatable or beyond the scope of section 154 of the Act. The assessee has filed his return of income by calculating presumptive taxation u/s.44AE of the Act. The AO in the impugned order 7 -: dated 13.12.2018 passed u/s.143(3) of the Act, had calculated the presumption taxation u/s.44AD of the Act. The reasoning for the AO to invoke the provision of section 44AD of the Act is the assessee’s submission dated 05.10.2018 and his later submissions dated 11.12.2018 is inconsistent. In the impugned order of the AO, it has been clearly mentioned that assessee is not the owner of more than 10 vehicles. The primary condition for application of Section 44AE of the Act is assessee should be in the business of plying, hiring or leasing of goods carriage vehicles and should not own more than 10 such goods carriage vehicles. If the primary conditions are satisfied then the presumptive taxation is to be calculated as per section 44AE(2) of the Act. Section 44AD(6) Explanation (b) defines the ‘eligible business’ as any business except the business of plying, hiring or leasing of goods carriage vehicles referred in section 44AE of the Act.
Therefore, from the ambit of section 44AD of the Act, plying, hiring or leasing goods carriage gets excluded provided assessee has less than ten such good carriage vehicles. Hence, the AO estimating assessee’s income u/s.44AD of the Act is not legally tenable. It is admitted fact assessee is in the business of plying of goods carriage vehicles and is not owning more than 10 8 -: goods carriage vehicles. Hence, prima facie, assessee’s business income from such eligible business is to be computed as per provisions of section 44AE of the Act. If assessee wants to claim income below what has been prescribed under sub-section (2) to section 44AE of the Act, then necessary as per section 44AE(7) of the Act, assessee has to maintain books of accounts and same needs to be audited. We are of the view that matter needs to be examined by the AO afresh. The AO is directed to examine whether assessee has satisfied all the conditions mentioned u/s.44AE of the Act. If the AO is satisfied that assessee has complied with all said conditions, then necessary assessee income from business of plying of goods carriage needs to be computed u/s.44AE of the Act. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.