2021 (10) TMI 237 - HC - Income Tax

Rectification of mistake u/s 154 - Estimation of income tax 12.5% of the gross receipts and to grant depreciation - HELD THAT - The legal position enunciated in Ramachandra Reddy 2014 (9) TMI 205 - ANDHRA PRADESH HIGH COURT is that an assessee is not automatically disentitled to depreciation where the profit is determined on percentage basis. Hence, the issue of deduction on the score of depreciation from gross income which is computed on the basis of estimation is a debatable one and cannot be a palpable error on the face of the record. We are of the opinion deduction of depreciation from gross receipts of income estimated at the rate of 12.5% on main contractual receipts is a debatable question of law and fact. Since the issue is not a palpable mistake on record but involves interpretation of the ratio laid down in KNR Constructions 2012 (10) TMI 1046 - ITAT HYDERABAD in the light of the law declared in Y.Ramachandra Reddy (supra), we are of the opinion that the invocation of jurisdiction under Section 154 of the Act was not justified. Hence, no case to admit the appeal on the proposed questions of law.

Summary

Issues:
1. Whether the order of the Tribunal is perverse and liable to be set aside?
2. Whether the Tribunal was correct in directing the assessing officer to estimate income tax at 12.5% of gross receipts and grant depreciation?

Analysis:
Issue 1:
The Assessing Officer estimated the income of the assessee for the accounting year 2008-09 at 12.5% on contractual receipts based on the ratio in 'KNR Constructions Vs. DCIT.' Subsequently, the Assessing Officer added depreciation to the income of the assessee under Section 154 of the Income Tax Act. The CIT (Appeals) allowed the appeal, stating that the rectification by the Assessing Officer exceeded the powers under Section 154. The ITAT upheld the CIT's decision. The Department contended that the Assessing Officer incorrectly applied the ratio in 'KNR Constructions' and allowed depreciation after estimating gross income. The Department argued that a mistake was apparent on the face of the record, citing 'Indwell Constructions vs. Commissioner of Income Tax.'

Issue 2:
The debate centered around whether deduction on account of depreciation is permissible on estimated income. The Department argued that depreciation cannot be allowed on gross income if the books of accounts are rejected, relying on 'Indwell Constructions.' On the contrary, the assessee cited 'CIT Vs. Y.Ramachandra Reddy' to support the argument that depreciation is permissible even on estimated income. The Court emphasized that a debatable question of law cannot be considered a mistake apparent on the face of the record. Referring to 'T.S.Balaram v. M/s. Volkart Brothers,' the Court reiterated that only a glaring and palpable mistake justifies rectification under Section 154.

Conclusion:
The Court found that the issue of deduction on depreciation from gross income estimated at 12.5% on main contractual receipts was a debatable question of law and fact. Citing 'Y.Ramachandra Reddy,' the Court concluded that the matter involved interpretation of legal principles and was not a clear mistake on record. Therefore, the invocation of jurisdiction under Section 154 was deemed unjustified, leading to the dismissal of the appeal.