INCOME TAX

INSTRUCTION NO. 1956/1998

 Dated: November 19, 1998

Subject: Option under section 44AD and 44AE to declare profits lower than the deemed profits--assessment year 1997-98--regarding.

Sections 44AD and 44AE of the Income-tax Act, 1961 provide a presumptive basis to bring to tax the profits and gains arising from the business of civil construction or supply of labour for civil construction and the business of plying, hiring or leasing of goods carriages respectively. Sub-section (5) of section 44AD and sub-section (6) of section 44AE allowed an option to an assessee to offer a lower profit to tax than the profit determined on presumptive basis, subject to the condition that evidence in support of the profits so declared was furnished by him and thereupon the assessment would be completed under section 143(3).

2. By the Finance Act, 1997, sub-section (5) of section 44AD and sub-section (6) of section 44AE were deleted with effect from 1.4.1997. The effect is that for the assessment year 1997-98, an assessee has no option to declare a lower profit by producing evidence for the same. The amendments made to section 44AA and section 44AB requiring compulsory maintenance of books of account and audit thereof, which were made effective from 01.04.1998, indicate that it was not the intention of the legislature to deprive the assessees of the benefit of options provided under sub-section (5) of section 44AD and sub-section (6) of section 44AE for the assessment year 1997-98. The Board is considering appropriate measures in order to remove the anomaly caused by the omission of sections 44AD(5) and 44AE(6) with effect from 1.4.1997. In the meanwhile, the tax-payers coming under this category are not to be put to inconvenience for the assessment year 1997-98. The assessments for the assessment year 1997-98 may, therefore, be kept pending and in completed cases, additional demand attributable to denial of such option may not be enforced till 31.3.1999.

3. These instructions may be brought to the knowledge of all the officers of your region.

F.No. 150/94/95-TPL

(B.D. VISHNOI)
Deputy Secretary (TPL-III)