2021 (1) TMI 1201 - AT - Income Tax

Estimation of business income - Invoking the provisions of section 145(3) - CIT(A) justification in directing AO to apply the position of profits after interest but before depreciation in the year under appeal and in preceding year - HELD THAT - The estimation of income from business had been made after considering the various aspects of the case - also considered the reasonable of gross profit rate and the allowance of various indirect expenses, interest and depreciation. The second issue of the revenue with regard to allowability of depreciation has also been decided. Thus, we don t find any merit in the present appeal of the revenue and dismiss both the grounds of appeal raised in the Revenue appeal.

Summary

Issues:
1. Justification of directing AO to apply profits after interest but before depreciation despite lapses by assessee.
2. Allowance of depreciation on fixed assets without adequate documentary evidence.

Issue 1:
The appeal by the Revenue challenges the CIT(A)'s order directing the AO to apply profits after interest but before depreciation for the year under appeal and the preceding year. The Revenue contests this direction due to significant lapses and discrepancies on the part of the assessee, acknowledged by the assessee and invoked under section 145(3) of the Income Tax Act, 1961. The ITAT, in a previous decision, thoroughly analyzed the facts, legal positions, and various contentions. The ITAT considered the gross profit rates, comparing the current year's 29.29% with the preceding year's 27.87%, finding the current year's rate better. The ITAT scrutinized the revenue from operations, non-operating income, and various expenses claimed by the assessee. After a detailed examination, the ITAT concluded that the gross profit rate shown by the assessee was reasonable, leading to a discussion on indirect expenses like employees' benefits, financial costs, and administrative expenses. The ITAT directed the AO to assess the income at ?50 lacs instead of the returned loss of ?3,17,161, considering the genuineness and reasonableness of the claimed expenditures.

Issue 2:
The second ground of appeal questions the allowance of depreciation on fixed assets amounting to ?30,58,84,950 without adequate documentary evidence. The ITAT, based on a previous decision, had already addressed and decided this issue. The ITAT had considered the reasonableness of the gross profit rate, allowance of indirect expenses, interest, and depreciation. Consequently, the ITAT found no merit in the Revenue's appeal and dismissed both grounds raised by the Revenue. The appeal of the Revenue was ultimately dismissed, upholding the findings and decisions made in the previous ITAT order.

This judgment highlights the meticulous examination of financial aspects, legal provisions, and factual circumstances by the ITAT in addressing the Revenue's appeal against the CIT(A)'s order. The detailed analysis provided by the ITAT in a previous decision formed the basis for dismissing the Revenue's appeal, emphasizing the importance of reasonableness in assessing profits, expenses, and allowances in income tax matters.