2011 (1) TMI 1437 - AT - Income Tax

Summary

Issues involved: Appeal against the order passed by CIT(A) regarding estimation of income u/s 44AD for assessment year 2007-08.

Revenue's Grounds:
1. CIT(A) erred in law and facts.
2. Discrepancy in estimation of gross receipts compared to similar cases.
3. Application of sections 30 to 44D when books are rejected.

Assessee's Cross Objection:
Supports CIT(A)'s order.

Facts:
Assessee, a construction company, filed return for AY 2007-08 with total income of Rs. 55,64,210. AO rejected books, estimated income at 10% of contract receipt. CIT(A) directed income estimation at 6% on gross receipts and 3% on hire charges. Revenue appealed.

Judgment:
Assessee's books not reliable, discrepancies found. AO rightly rejected books. Profit estimation varies based on factors like location, raw material availability. Tribunal considered 8% estimation reasonable based on similar cases. Directed AO to estimate income at 8% of gross contract receipt.

Depreciation:
Section 44AD restricts further deductions. Claim of depreciation on estimated income not justified.

Partner's Salary:
Proviso to section 44AD(2) allows deduction of partner's salary from income. Payment of salary to partner allowed subject to limitations under section 40(b).

Precedent:
Judgment of jurisdictional High Court not applicable due to changes in law. Salary paid to partner allowed separately from estimated income.

Outcome:
Revenue's appeal partly allowed, Assessee's Cross Objection dismissed. Salary to partner allowed as per limitations.