1995 (4) TMI 89 - AT - Income Tax

Summary

Issues:
- Whether the Tribunal was right in allowing depreciation to the assessee out of the income estimated after applying a net profit rate of 10% in the absence of books of account or where the books of account are rejected under s. 145(2)?

Detailed Analysis:

1. Partnership Firms and Rejection of Books of Account:
- Two partnership firms with identical names, one with three partners and the other with two partners, were involved in building contractor businesses.
- The Assessing Officer rejected the books of account in both cases due to unverifiable expenditures and applied a 10% profit rate after rejecting the book results.
- The claim for depreciation on various assets was denied initially.

2. Tribunal's Decision on Depreciation:
- The Tribunal upheld the rejection of the books of account due to unverifiable expenditures and the 10% profit rate on gross receipts.
- However, the Tribunal allowed the claim for depreciation on assets like tractor, truck, car, motorcycle, two trucks, and one machine for the two firms.
- The Tribunal considered its earlier orders and decisions in similar cases to support the allowance of depreciation despite the rejected books of account.

3. Arguments Presented:
- The Departmental Representative argued that since the 10% profit rate considered the claim for depreciation, there was no justification for further allowing depreciation.
- The counsel for the assessee contended that depreciation was a separate statutory claim under section 32 and was rightly allowed.
- The counsel cited previous Tribunal orders and the case of Vinod Kumar Bhatia to support the independent nature of the depreciation claim.

4. Tribunal's Decision on Law:
- The Tribunal concluded that no question of law arose from its order allowing depreciation based on the 10% profit rate.
- Both applications by the Revenue requesting a reference to the High Court were rejected by the Tribunal.

In summary, the Tribunal declined to refer the question of law regarding the allowance of depreciation to the High Court, as it deemed depreciation to be a separate statutory claim independent of the profit rate applied. The Tribunal upheld the allowance of depreciation for the partnership firms despite the rejection of their books of account, citing previous decisions and legal provisions to support its decision.