2012 (9) TMI 934 - AT - Income Tax

Summary

Issues involved: Determination of income from contract business u/s 44AD, rejection of books of account, estimation of profit rate, allowance of depreciation.

Determination of income from contract business u/s 44AD:
The Revenue appealed against the CIT(Appeals) order directing the Assessing Officer to adopt 5% of gross contract receipts as income, arguing that each assessment year was distinct and res judicata did not apply. The assessee, a civil contractor, had filed returns admitting income for the relevant assessment years. The Assessing Officer rejected the books of account, estimating income at 8% of gross contract receipts. The CIT(Appeals) appreciated the assessee's contentions and directed profit estimation at 5% of gross receipts for both years. The Tribunal noted that the turnover exceeded the threshold under Section 44AD, making the 8% rate inapplicable. The Assessing Officer's estimation was upheld, with the directive to separately allow depreciation if claimed, ensuring fairness in income determination.

Rejection of books of account and estimation of profit rate:
The Assessing Officer rejected the books of account due to defective vouchers and estimated income at 8% of gross receipts. The CIT(Appeals) reduced the profit rate to 5% based on the assessee's arguments. The Tribunal acknowledged the Assessing Officer's estimation in the absence of clear depreciation claims, emphasizing the need for separate allowance of depreciation. The Tribunal upheld the 8% profit rate but directed the subsequent allowance of depreciation, ensuring a fair assessment of income.

Allowance of depreciation:
The Tribunal highlighted the statutory nature of depreciation as a legitimate allowance for the assessee. While upholding the 8% profit rate for income determination, the Tribunal stressed the separate calculation and allowance of depreciation. The Tribunal directed the Assessing Officer to assess income at the returned level if, after allowing depreciation, it falls below the returned income. This approach aimed to balance the estimation of income with the rightful allowance of depreciation, ensuring a just assessment outcome.

Separate Judgment:
The Tribunal differentiated the present case from a previous decision involving a sub-contractor, emphasizing the unique circumstances of the current assessment. The Tribunal allowed the Revenue's appeals for statistical purposes, maintaining the integrity of the assessment process.