2015 (4) TMI 1115 - AT - Income Tax

Revision u/s 263 - deduction towards depreciation and interest - Held that - If an assessee is entitled to claim deduction of interest, be it under Section 36(1)(iii) of the Act or any other relevant provision and of depreciation under Section 37 of the Act, in the ordinary course of assessment, there is no reason why the same facilities be not extended to him, merely because the profit is determined on the basis of estimation as was done in the instant case. We are of the view that depreciation and interest, which are otherwise deductable in the ordinary course of assessment, remain the same legal character, even where the profit of assessee is determined on percentage basis. The conclusions arrived at by us, get support from the Circular dated 31.08.1965 issued by the Central Board of Direct Taxes. Though the Circular was with reference to the 1922 Act, it holds good for the analogous provisions under the 1961 Act. in case of estimation of profit on contract business, deduction towards depreciation and interest is allowable as there is no provision under the Act restricting such allowance. The Hon ble jurisdictional High Court in case of CIT Vs. Sri Venkateswara Swamy Lorry Service (2013 (6) TMI 780 - ANDHRA PRADESH HIGH COURT) while dismissing the appeal of the revenue again held that in case of estimation of income after rejecting the books of account further deduction towards depreciation and interest and remuneration payment to partners is still allowable. Therefore, respectfully following the view expressed by Hon ble jurisdictional High Court as aforesaid, we hold that exercise of power u/s 263 of the Act and the consequent order passed by ld. CIT directing AO to disallow depreciation is not valid. - Decided in favour of assessee

Summary

Issues involved:
Challenging the revision of assessment order under section 263 of the Income Tax Act for AYs 2009-10 and 2010-11 due to the allowance of further deductions towards depreciation, interest, and remuneration by the Assessing Officer.

Analysis:
1. The appeals by the assessee were against separate orders passed under section 263 of the Act for AYs 2009-10 and 2010-11, challenging the rejection of books of account by the Assessing Officer and the subsequent estimation of income.

2. The facts of the case involved the assessee, a partnership firm engaged in civil contract work, filing returns declaring income, which led to the rejection of books of account by the AO and estimation of income based on specific rates for main and sub-contract work.

3. The CIT invoked power under section 263, deeming the assessment orders erroneous and prejudicial to revenue's interests due to the allowance of further deductions towards depreciation, interest, and remuneration, contrary to established legal precedents.

4. The assessee contended that the CIT's revision was unwarranted as the AO had properly allowed deductions after due enquiry, citing relevant case laws supporting the allowance of deductions even in cases of estimated income.

5. The dispute centered on whether deductions towards depreciation and interest are permissible once income is estimated, with the CIT arguing against further deductions post-estimation based on legal interpretations.

6. The Tribunal analyzed the legal provisions and precedents cited by both parties, emphasizing that the provisions of section 44AD did not restrict deductions post-estimation, especially when the turnover exceeded the prescribed limit.

7. Relying on decisions of the jurisdictional High Court, the Tribunal concluded that deductions for depreciation and interest are allowable even in cases of estimated income, overturning the CIT's order and restoring the assessment orders passed by the AO for both AYs 2009-10 and 2010-11.

8. Consequently, the Tribunal allowed both appeals of the assessee, setting aside the CIT's order and upholding the assessment orders passed by the AO for the respective assessment years.