2017 (12) TMI 1836 - AT - Income Tax

Depreciation from the estimation of income - AO completed the assessment estimating the income @ 8% on impugned contracts, 6% on sub contracts, 2% on sub contracts given, however, the A.O. has not allowed the statutory allowance of depreciation - HELD THAT - In the instant case there is no dispute that facts are similar to that of the assessee s case for the assessment year 2009-10.D.R. did not bring any other case law or distinguished the facts of the case. Therefore, respectfully following the view taken by the ITAT for the earlier year in the assessee s own case 2015 (11) TMI 1530 - ITAT VISAKHAPATNAM , we direct the A.O. to allow the depreciation against the income estimated from the contract receipts. However, the income so computed shall not be less than the returned income. Accordingly, the appeal of the assessee is partly allowed.

Summary

Issues:
Assessment of income from civil contract works, disallowance of depreciation on estimated income, separate assessment of rental and interest income, appeal against CIT(A) order, allowance of depreciation by ITAT.

Analysis:
1. Assessment of Income: The assessee, engaged in civil contract works, filed income tax return for the assessment year 2011-12. The assessing officer estimated total income at &8377; 2,26,89,287, including income from main contracts, sub-contracts, rental receipts, and interest received. However, depreciation on the estimated income was not allowed by the AO.

2. Disallowance of Depreciation: The AO assessed rental and interest income separately under 'Income from other sources.' The CIT(A) confirmed the income estimation but deleted the addition on rental income. Regarding interest income, the CIT(A) upheld the AO's decision. The assessee appealed before the ITAT, arguing for depreciation allowance on the estimated income.

3. Appeal Against CIT(A) Order: The ITAT admitted revised grounds of appeal and considered the argument for depreciation allowance. The assessee contended that the estimation of income was high and depreciation should be allowed. The ITAT referred to a previous case where depreciation was allowed on estimated income, emphasizing the statutory nature of depreciation.

4. Allowance of Depreciation by ITAT: After hearing arguments from both sides, the ITAT noted that the AO and CIT(A) did not allow depreciation on the estimated income. Citing legal precedents, the ITAT directed the AO to allow depreciation against the estimated income from contract receipts, ensuring the computed income does not fall below the returned income. The ITAT partially allowed the assessee's appeal, emphasizing consistency with previous decisions.

5. Conclusion: The ITAT's judgment, delivered on 22nd Dec'17, upheld the assessee's appeal in part, directing the AO to allow depreciation on the estimated income from civil contract works while ensuring the computed income does not exceed the returned income. The ITAT decision was based on legal principles and precedents, emphasizing the statutory nature of depreciation allowance in such cases.