NARINDER JAIN Vs. CENTRAL BOARD OF DIRECT TAXES

JUDGEMENT

(1.) THIS order shall dispose of Civil Writ Petition Nos. 15278, 15287 and 15411 of 1996, as common questions of law and facts are involved in all these petitions.

(2.) FACTS , as stated below, are taken from CWP No. 15278 of 1996 : The petitioner, a partnership concern, is engaged in the business of civil construction/supply of labour for civil construction. It filed its return for the asst. yr. 1995-96 on 23rd June, 1995. The income was computed as per the provisions of S. 44AD of the IT Act, 1961 ('the Act'). The petitioner claimed deduction of salary and interest paid to the partners out of the income computed as per S. 44AD, which was admissible as per cls. 31 and 32.2 of Circular No. 684, dt. 10th June, 1994, issued by the CBDT. Clauses 31.3 and 32 of the said circular, copy of which has been attached as Annexure P-1 with the writ petition, read as under :

(3.) THE ITO, respondent No. 2 who was the AO, issued notices to the petitioner under ss. 143(2) and 142(1) of the Act, on 22nd April, 1996, 20th May, 1996 and 4th July, 1996. In the notice dt. 4th July, 1996, the AO directed the petitioner to produce the complete set of account books, i.e., cash book, all vouchers, bank pass books and post office pass books. The petitioner produced the relevant material asked for. The AO, thereafter passed the assessment order, Annexure P-4, and raised a demand of Rs. 62,766. The demand was created primarily on account of disallowance of deduction of salary and interest under S. 40(b) of the Act from the profits worked out under s. 44AD. This was done in view of the Board Circular No. 737 dt. 23rd Feb., 1996, Annexure P-2.