2020 (11) TMI 265 - AT - Income Tax

Estimation of income - rejection of books of accounts - denial of depreciation - estimation of the income by adopting Net Profit @6% disallow the depreciation on the ground that one of the trucks purchased during the year under consideration was not to put to use and therefore the depreciation is not allowable - HELD THAT - Once the Assessing Officer has estimated the income by adopting the Net Profit, then scope of further disallowance on account of depreciation is ruled out. Hence, the disallowance of depreciation by the Assessing Officer is highly arbitrary and inappropriate and the same is liable to be deleted. Ground raised by the assessee is allowed.

Summary

Issues:
1. Assessment framed under section 143(3) - Validity of income determination.
2. Invocation of section 145(3) for rejection of books of accounts.
3. Addition made by assessing officer under section 145(3).
4. Enhancement in declared net rate.
5. Disallowance of interest received on income tax refund.
6. Disallowance of depreciation.
7. Haste in making additions/disallowances.
8. Charge of penal interest.
9. Fresh grounds of appeal.

Analysis:

1. Assessment under section 143(3):
The appeal challenged the assessment framed under section 143(3) of the Income Tax Act, disputing the income determined at ?24,80,470 as against the returned income of ?14,67,720. The appellant contended that the declared income should have been accepted. However, during the hearing, all grounds except Ground No.7 regarding disallowance of depreciation were pressed. Consequently, only Ground No.7 remained for adjudication.

2. Invocation of section 145(3):
The Assessing Officer invoked section 145(3) to reject the books of accounts, leading to an estimation of income by enhancing the net profit to 6% from the declared 5.09%. The appellant argued that the application of this provision was unjustified as the books were audited by a qualified chartered accountant with fully vouched expenses. The appellant relied on legal precedent to challenge the rejection of books based on the net profit estimation.

3. Addition under section 145(3):
An addition of ?2,78,395 was made by the assessing officer under section 145(3) in an arbitrary manner, which the appellant contended was unjustified and illegal. The appellant argued against the enhancement in the declared net rate, citing differences in facts from a cited case law.

4. Disallowance of depreciation:
The Assessing Officer proceeded to disallow depreciation based on an estimation of income at 6%, which the appellant opposed. The appellant presented a legal argument supported by a decision of the Hon'ble Andhra Pradesh High Court to challenge the disallowance of depreciation after income estimation.

5. Conclusion:
Ultimately, the Tribunal allowed Ground No.7 raised by the appellant, holding the disallowance of depreciation as arbitrary and inappropriate. The appeal was partly allowed, and the order was pronounced on 6th November 2020.