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2016 (11) TMI 729 - AT - Income TaxRejection of books of accounts - N.P. termination - Held that - We are in agreement with the argument of learned AR and findings of learned CIT(A) in Asst. Year 2012-13 wherein he has reduced the rate of profit to 8% from 10% and therefore, in Asst. Years 2010-11 & 2011-12 we hold the rate of 8% instead of 10% and in view of the above, Ground No.2 to 4 in assessee s appeal are allowed. Separate addition of interest on fixed deposits - Held that - Once the books of accounts has been rejected the Assessing Officer cannot fall back upon the same books for making addition on account of interest accrued on the FDRs reflected in the books of account. Deprecation after estimating the income - Held that - CIT(A) has relied upon the case law of Hon ble Punjab & Haryana High Court in the case of Lali Construction vs. ACIT 2014 (9) TMI 500 - PUNJAB & HARYANA HIGH COURT for allowing depreciation from the net profits even if the total income was computed by applying the net profit rate
Issues Involved:
1. Application of net profit rate by the Assessing Officer (AO). 2. Separate addition of interest on fixed deposits. 3. Claim of depreciation from the estimated income. Issue-wise Detailed Analysis: 1. Application of Net Profit Rate: The AO observed discrepancies in the assessee's books of accounts and rejected them, estimating the income by applying a 10% net profit rate to gross receipts for the assessment years 2010-11 and 2011-12. The CIT(A) upheld this rate for these years but reduced it to 8% for the assessment year 2012-13, considering the assessee's submissions and analyzing various figures and ratios of expenses to gross receipts. The CIT(A) distinguished the case of Shivam Construction Company, noting the assessee's declared net profit ranged from 5.3% to 5.8%, unlike the 10% in the cited case. The Tribunal agreed with the CIT(A)'s findings for 2012-13 and applied the 8% rate for 2010-11 and 2011-12 as well. 2. Separate Addition of Interest on Fixed Deposits: The AO made a separate addition of interest on fixed deposits, which the CIT(A) upheld. However, the Tribunal referred to the case of Daljit Singh & Bros., where it was held that once the books of accounts are rejected, the AO cannot rely on the same books to make a separate addition of interest income. The Tribunal agreed with this precedent, ruling that the AO was not justified in making a separate addition for interest on FDRs when a net profit rate was applied to the gross receipts. 3. Claim of Depreciation from Estimated Income: The AO denied the claim of depreciation from the estimated income. The CIT(A) allowed the claim for 2012-13, citing various case laws, including the decision of the Punjab & Haryana High Court in the case of Lali Construction Co., which held that depreciation is allowable from net profits even if the total income is computed by applying a net profit rate. The Tribunal agreed with the CIT(A)'s findings and allowed the claim of depreciation for the assessment years 2010-11 and 2011-12 as well. Conclusion: The Tribunal partly allowed the appeals filed by the assessee, applying an 8% net profit rate instead of 10% for the assessment years 2010-11 and 2011-12, and allowing the claim of depreciation. The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decision to reduce the profit rate to 8% and allow depreciation for the assessment year 2012-13. The separate addition of interest on fixed deposits was also disallowed. The order was pronounced in the open court on 15th June 2016.
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