AMIT BAJAJ ADVOCATE

ORDER

Per: D Karunakara Rao, AM

These two appeals filed by the assessees are against the orders of the CIT(A), Aurangabad dated, 21.02.2008. In view of the connectivity of the issues in these two appeals, they were clubbed together and adjudicated by this consolidated order for the sake of convenience. The appeal-wise adjudication is given in the following paragraphs. First we take up the appeal by Anil Ramgopal Mali - HUF.

ITA No. 633/PN/08 A. Y. 2006-07 – Anil Ramgopal Mali – HUF

2.  The grounds raised in this appeal are as under:

1. The learned Assessing Officer erred in levying the Penalty U/s.2716 for non compliance of Section 44AB of the Income Tax Act, 1961.

2. The learned Assessing Officer erred in levying the Penalty U/s 271B without taking into consideration the Section 44A£ (5) of the Income Tax Act, 1961.

3. The learned Assessing Officer erred in levying the Penalty U/S.271B which is not reasonable, correct and justified by not taking into consideration of facts and circumstances and the cumulative interpretation of Section 44AE(5)f Section 44AB and Section 271B of the Income Tax Act, 1961."

3. Briefly stated facts of the case are that the assessee is a proprietor of M/s Shradha Road Lines and filed a return of income declaring the total income of Rs. 8,88,610/-. Assessee conducted transportation business not only with two light commercial vehicles (LCV) owned by the assessee but also hired the vehicles owned by the others. AO noticed that the annual gross receipts are Rs. 91,33,192/-. Further, the AO noticed that the accounts of the assessee were neither audited u/s 44 AB of the Income-tax Act nor the audit report in Form No. 3CB & 3CD. The brake-up of assessee's turnover is as follows, (a) On account of two LCV Owned: Rs. 63,93,234/- and (b) Other vehicles turnover; Rs. 27,39,958/-. Besides the above, assessee also earned commission income from LIC business amounting to Rs. 4,76,072/-. Considering the fact the annual turnover of the asessee exceeded Rs. 40 lakhs, the A.O, initiated the proceeding u/s 271(B) of the Act by issuing show cause notice dated 04.06.2007. Assessee replied by stating that the turnover of Ss.63,93,234/- should not be included for purpose of section 44AB limit of Rs. 40 lakh specified in the Act, in view of the specific provision of section 44AE(5) of the Act. As per the assessee, when the assessee invoked the provisions of section 44AE in respect of his own vehicles, relevant turnover should be excluded from the composite gross receipts of the assessee's business in view of the sub-section 5 of section 44 AE of the Act. In this regard, assessee explained that assessee owns two light commercial vehicles, which are the below 10 the specified number mentioned u/s. 44AE and offered the income higher than the minimum limit of Rs. 3150/- specified per LC vehicle per month while filing the return of income as per the provisions of section 44AE(2)(ii). AO rejected the assessee's contention and proceeded to levy penalty u/s 271B amounting to Rs. 45,666/-.

4. Aggrieved with the same, assessee filed an appeal before the CIT(A) and made various submissions which are basically repeated of the above. The assessee also filed a written submission which are extracted in the impugned order as seen paras 3 to 6 of the same. On considering the above submissions, the CIT(A) only approved the decisions of the AO. In the process, he held that the person engaged in the business of operating any truck taken on hire is not covered under the provision of this section and the assessee being the owner as well as hirer of the truck cannot be brought under the precincts of section 44 AE of the Act. CIT(A) is of the opinion that the assessee, who is engaged with the composite business employing both own as well as the hired vehicles from others, is outside the ambit of 44AE. C1T(A) also of the opinion that no scheme is provided in the Act like in the case of an omitted section 44AC of the Act for bifurcation of composite income. Intention of the legislature is not to cover the assessees who are engaged in the composite business u/s 44AE of the Act. Thus, the CIT(A) confirmed the penalty levied by the AO.

5. Aggrieved with the above, assessee filed an appeal before us. During the proceedings, the Ld. counsel summed up grounds by stating that the core issue for adjudication before the Tribunal revolves around the interpretation and applicability of the provisions of section 44AE(5) of the Act to the assessee's facts. Further, Ld counsel mentioned that the CIT(A) is entirely silent on the applicability of sub-section 5 of section 44AE to the assessee's case despite the specific submission made before him CIT(A) erroneously held that no scheme is provided for the cases like that of the assessee with composite business activities despite subsection (5) of section 44AE. The counsel argued that the combined interpretation of provisions of sections 44AE(5), 44AB and 271B of the Act, confirms that the turnover of the business activity covered by section 44AE is required to be excluded for the purpose of determining the limit of Rs. 40 lakhs given in section 44AB(1) of the Act. Further the counsel relied on the Circulars No.684 of 1994 dated 10/06/1994 & Circular No.3 of 2001 dated 09/02/2001 for the proposition that the assessee is not only entitled to the benefits of section 44AE but also to the exclusion of turnover relatable to the business with own LC Vehicles covered by section 44AE of the Act in view of its sub-section (5).

6. Further, the counsel relied on SMC Bench decision in the case of Paras Transport Co. vs. ITO, in ITA 198/AGRA/2001, (2005) 92 TTJ (Agra) 607 for the proposition that when the assessee carried a business of transportation with his own trucks as well as trucks belonging to others. Receipts relating to trucks belonging to other parties cannot be considered as assessee's turnover and in such circumstances section 271B is not applicable. Further, the counsel also relied on the judgment of the Punjab & Haryana High Court in the case of CIT vs. Anil Kumar Arya, 310 TTR 205, with the proposition that the section 44AE is rightly applicable to the assessee who owns the trucks not exceeding ten and inapplicable to those who do not own at least one goods carriage. On the other hand, the Ld. DR. for the revenue relied on the orders of the revenue and reiterated that the provisions of section 44AE are inapplicable to the cases where composite business involved. …

7. We have heard both the parties and perused the orders of the revenue as well as the paper book filed before us. We find there is no dispute on the facts relating to the assessee owning two LC Vehicles evidencing that assessee met the limit relating to number of vehicles as provided in subsection 44AE(1), declaration of higher income per vehicle per month in the return of income evidencing that assessee met the limit relating to higher income referred to in sub-section 44AE(2)(ii), the turnover figures, invoking of the provisions of section 44AE etc. The limited dispute is only with regard to the applicability of section 44AE to the assessee who has composite business receipts i.e. business using own vehicles and the vehicles of the others on hire, in general and the subsection (5) in particular.

8. The case of the revenue is that the provisions of section 44AE is not applicable to the assessee, which has both the turnover on own goods carriages as well as goods carriages outsourced by the assessee as these are special provisions meant for assesses low business turnover. As per the revenue, provisions of Section 44AE come into operation only when the assessee exclusively engaged in the business of plying, hiring or leasing goods carriages and nothing else. Per contra, as per the assessee, in view of the provisions of section 44AE(5) read with the contents of the Circular No.684 of 1994 dtd. 10.06.1994, the provisions of section 44AE are not applicable only when the assessee has no vehicles and has vehicles exceeding ten. Considering the above rival positions, we find it is necessary to examine the statutory provisions and material available before us for adjudicating the dispute. First, we take up the relevant provisions of sectin 44AE of the Act before we analyse the contents of the circular. In this regard, section 44AE reads as under:

Special provision for computing profits and gains of business of plying, hiring or Leasing goods carriages, 44AE. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged hiring or leasing in the business of plying, such goods 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 the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-section(2).
(2) For the purposes of sub-section (1), the profits and gains from each goods carriage, -
i) …
(ii) other than a heavy vehicle, shall be an amount equal to three thousand one hundred and fifty rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or, as the case may be, an amount higher than the aforesaid amount as declared by him in his return of income.
(3)…..
(4)…...
(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded……/

9. From the above it is evident that sub-section (1) provide.".; jurisdiction to the assessee who is in the business of plying, hiring or leasing goods carriages and who number does not exceed ten. Sub section (2) provides for both heavy goods carriages and other than heave goods carriages. Sub-section(2)(i) provides for what shall be the profits and gains from heavy goods carriages that shall be Rs. 3500/- or higher than for per carriage  for every month or higher as declared by the assessee in his return of income. Sub-section 2 (ii) provides for what shall be profits and gain in respect of vehicle other than heavy goods vehicle i.e. Rs. 3150/- or higher per vehicle for every month or part of as declared by the assessee in his return of income. Finally sub-section 5 provides for excluding the receipts attributable to the business mentioned in sub-section referred above for the purpose of section 44AA & 44AB of the Act. In other words, the provisions of section 44AB are not applicable in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

10.  Next we take up the analysis of the contents of the circulars relied on by the assessee. Paragraphs 32, 32.3 and 32.5 of the Circular No.684 of 1994 dated 10.06.1994 are relevant and they are reproduced.

“32. A new 44AE has been inserted in the IT Act with a view to providing the method of estimating income from the business of plying, hiring or leasing trucks owned by a taxpayer. The scheme applies to persons owning not more than ten trucks. It is not applicable to the persons who do not own any truck but operate trucks taken on hire. The income from each truck being a heavy goods vehicle, will be estimated at R$. for every month or part of a month during which the truck is owned by the assessee. The income from each truck, other than a heavy goods vehicle, will be estimated at Rs…..for every month or part of a month during which the truck owned by the assessee. In either case, the taxpayer can declare his income from trucks at a higher amount than that specified above,

32.3 An assessee who files the return, estimating income on the basis of the specified amount per truck or estimating a higher income, will neither be required to maintain books of account under the provisions of S.44AA, nor required to get accounts audited under the provisions of S.44AB, in respect of his income from the business of plying, hiring or leasing trucks, However, even such an assessee has to comply with the requirements of both ss 44AA and 44AB in respect of his businesses which are not covered by this scheme.

32.5 The scheme is optional A system of rebuttal has been provided. A person can claim that his income in respect of the abovementioned business is lower than the specified estimate of income. In such case, he must produce necessary evidence to prove his case. Such a case will be scrutinized for regular assessment under s. 143(3). "

11. The above paragraphs are self explanatory. However, it is necessary to make a special mention about a situation that the assessees with multiple 'businesses' referred to para 32.3 are not barred entirely from availing the benefits of the provisions of section 44AE. The list of prohibited assessees include: (i) the assessees who do not own a single goods carriage; (ii) the assessee who owns goods carriages exceeding ten in number, (iii) the assessee who did not declare the profits per carriage per month the amounts specified in sub-section (2) of section 44 AE of the Act and maintained the books of accounts. The provisions of sub section (5) of section 44AE read with the contents of para 32.3 of the above circular go to advance the interpretation that the assessee with multiple businesses, which include the business of plying etc with the own goods carriage, are not only entitled to the benefits of section 44AE but also for the exclusion of the relevant turnover from the total turnovers of all the business of the assessee for the purpose of computation of monetary limits for section 44AB of the Act in view of the existence of section 44AE(5) as discussed above.

12. Further, we have perused the case laws relied on by the assessee's AR. The conclusion part of this decision in the case of Paras Transport Co. (Supra) reads that 'Assessee carrying on the business of transportation using both own trucks as well as trucks belonging to others, only the receipts from the plying of own trucks are to be considered for determining turnover and the receipts from assessee's own trucks being less than Rs. 40 lakhs, there was no contravention of 5A4AB and penalty under section 271B was not leviable.' Prima facie, in our opinion, as seen above, the issue is entirely different in the instant case and the issue about the exclusion of receipts relatable to the own goods carriage. Further, the perusal of the judgment of the Punjab & Haryana High Court in the case Anil Kumar Arya, (Supra), we find that the conclusion of the said judgment is reads that Tribunal having found a fact that total number of tankers owned by the assessee did not exceed 10 at any point of time during the relevant previous year, section 44AE was rightly applied to the case of assessee and no substantial question of law arises/ Therefore, on facts this proposition is irrelevant to the facts of the instant case where the revenue held that the assessee is not entitled to the benefits of section 44AE as the assessee have multiple businesses, which include the business of plying etc using the goods carriages taken on hire. Therefore, the above cases relied on by the assessee's Counsel are distinguishable on facts as well the issues.

13. From the above, scope of the provisions of section 44AE and the circular, we find that the assessee with two numbers of light goods carriages referred to in 44AE(2)(ii) and when declared the income higher than the Rs. 3,150/- per vehicle per month as per the provision of sub-section 2(ii) of section 44AE, the assessee is rightly entitled to the benefits of section 44AE. Further, the fact that the provisions of section 44AE(5) expressly provided for the exclusion of the relatable turnover for the purposes of monetary limits provided in section 44AB(1) of the Act and the revenue authorities have not provided any specific reason on the applicability of provisions of sub-section (5) of section 44AE, we are of the considered opinion that the relevant turnover of Rs. 63,93,234/- should be excluded for the purpose of section 44AA and 44AB as per the provisions of section 44AE(5) of the Act. Consequently, we dismiss the Revenue's contention that the provisions of section 44AA are inapplicable to the assessees who are engaged in the composite business of own trucks as well as the trucks outsourced. Accordingly, the grounds are allowed.

14.  In the result, appeal of the assessee is allowed.
ITA No. 616/PN/08 - AY 2006-07 - Anil Ramgopal Mali -Indl

15. The issues raised in this appeal are the same as discussed above in connection with appeal in ITA No. 633/PN/20Q8. Considering the similarity of the case and commonness of arguments and submissions, we find that the decision taken in that appeal has direct relevance to these issues. Accordingly, the grounds are allowed.

16. In the resuit, appeal of the assessee is allowed.

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