2010 (3) TMI 1256 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of depreciation on estimated profit.
2. Treatment of interest income from fixed deposits.

Summary:

Issue 1: Allowability of Depreciation on Estimated Profit
The Revenue contended that the CIT(A) erred in allowing depreciation on the estimated profit, misquoting the Board's Circulars, and not giving the AO an opportunity to examine the claim, thus violating rule 46A of the I.T. Rules. The assessee had not maintained any books of account nor got them audited u/s 44AB of the Act. The AO adopted an 8% income rate on receipts of Rs. 4.48 crores, which the assessee consented to. The CIT(A) directed the AO to allow depreciation as per the provisions of the Act and the Board's Circular No.29D of 1965. The Tribunal found that the Circular, which allows depreciation on estimated profits, was still valid and applicable. The Tribunal directed the AO to allow the eligible and correct depreciation on the basis of particulars furnished by the assessee on the estimated profit.

Issue 2: Treatment of Interest Income from Fixed Deposits
The Revenue argued that the CIT(A) wrongly applied the jurisdictional High Court's decision and directed the AO to calculate profit from interest income at the same rate as the contractual receipt. The assessee contended that the fixed deposits were maintained for obtaining bank guarantees required for securing contract business, thus the interest should be treated as business income. The Tribunal, referencing the jurisdictional High Court's decision in CIT v. Chinna Nachimuthu Constructions, held that the interest accrued on such fixed deposits should be treated as business income. The Tribunal directed the AO to treat the interest accrued on fixed deposits as business income.

Conclusion:
The Tribunal dismissed the Revenue's appeal, sustaining the CIT(A)'s order on both issues. The Tribunal pronounced the judgment on March 31, 2010.