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2016 (7) TMI 936 - HC - Income TaxApplication of Section 44 AD - Determination of Net Profit Rate - Held that - Section 44AD would not apply in the case of the respondent assessee. Resultantly, the challenge to the claim of depreciation having been allowed by the Tribunal must fail. So far as the challenge by the Revenue to the application of Net Profit Rate @ 7% is concerned, the same has been ordered to be applied by the Tribunal after considering the entire facts and circumstances of the case before it, which we do not find as arbitrary or perverse and resultantly, choose not to interfere with the same. The argument of the learned counsel for the appellant to apply Net Profit Rate of 8% as provided under Section 44AD (1) of the Act is also required to be rejected as in view of the proviso to Section 44AD (1) of the Act, since the gross receipts paid or payable in the case of the assessee are over ₹ 40 lacs, the provisions of Section 44AD (1) of the Act, as reproduced above, would not be attracted in the case of the respondent-assessee.
Issues:
Condonation of delay in re-filing the appeal, Application of Net Profit Rate, Allowance of depreciation, Interpretation of Section 44AD. Condonation of Delay: The appellant sought condonation of a 183-day delay in re-filing the appeal, which was allowed as prayed for, and the application was disposed of accordingly. Application of Net Profit Rate: The appeal challenged an order by the Income Tax Appellate Tribunal directing the Assessing Officer to apply a gross profit rate of 7% instead of the 10% adopted by the AO. The Tribunal's decision was based on a comparison with similar cases and relevant legal provisions. The appellant argued for a 10% rate, citing Section 44AD(1) of the Income Tax Act. However, the court held that since the gross receipts exceeded ?40 lakhs, Section 44AD was not applicable, and the 7% rate was justified. The court referred to Circular No. 737, clarifying the applicability of Section 44AD based on gross receipts. Allowance of Depreciation: The appellant contested the allowance of depreciation to the assessee, citing Section 44AD(2) of the Act, which deems deductions under Sections 30 to 38 to have been already given effect to when applying the Net Profit Rate. The court held that since Section 44AD did not apply due to gross receipts exceeding ?40 lakhs, the depreciation claim was valid. The court referenced past judgments and Circular No. 737 to support this decision. Interpretation of Section 44AD: The court analyzed the provisions of Section 44AD(1) and (2) of the Income Tax Act, focusing on the applicability based on gross receipts. It was established that Section 44AD did not apply if gross receipts exceeded ?40 lakhs, as per Circular No. 737. The court emphasized that the Net Profit Rate should be determined based on the specific circumstances of the case and relevant legal provisions. The appellant's reliance on previous judgments was deemed irrelevant as they did not align with the current case's facts. In conclusion, the appeal was dismissed as the court found no merit in challenging the application of the Net Profit Rate and the allowance of depreciation, given the specific circumstances and legal provisions applicable to the case.
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