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TMI Blog2017 (1) TMI 1194X X X X Extracts X X X X X X X X Extracts X X X X ..... stimating net profit of 8% on gross receipts net of all deductions including depreciation, and hence, the assessee is not eligible for separate deduction for depreciation. In so far as separate additions towards interest on fixed deposits under the head income from other sources, we find merits in the findings of the A.O. for the reason that there is no nexus between interest receipts and works contracts executed by the assessee. Just because fixed deposits are kept as security for obtaining works contracts, it does not alter the character of income. Interest on fixed deposits are assessable under the head income from other sources. Therefore, we are of the view that the A.O. was rightly made additions towards interest income under the head income from other sources. The CIT(A) after considering the relevant facts has rightly upheld the order of the A.O. We do not see any error or infirmity in the order of the CIT(A), hence, we inclined to uphold the CIT(A) order and reject ground raised by the assessee. - I.T.A.No.293/Vizag/2016 - - - Dated:- 20-1-2017 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri C.V.S. Murthy, AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause of nature of expenditure, which necessitated payment of wages by taking self-made vouchers. Therefore, the A.O. was incorrect in rejection of books of accounts, just because few expenditures are supported by self-made vouchers. The assessee further submitted that the A.O. was erred in not allowing deductions towards depreciation on assets, which is otherwise eligible to claim depreciation, even though the net profit is estimated from the business. In so far as separate additions towards interest on fixed deposits, the assessee submitted that he had kept fixed deposits in the name of principals for obtaining contracts and hence, any interest earned on such fixed deposit forms part of gross contract receipts and accordingly, the A.O. was erred in making separate additions towards interest income under the head income from other sources. 4. The CIT(A) after considering the explanations of the assessee and also relied upon the decision of ITAT, Hyderabad in the case of M/s. KNR Constructions, held that considering the facts and circumstances of the case, net profit estimated by the A.O. on gross contract receipts is fair and reasonable which does not require any interference. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.R. submitted that the A.O. ought to have allowed separate deduction towards depreciation even though net profit is estimated from contract receipts. Similarly, in respect of interest on fixed deposits, the A.R. submitted that all fixed deposits are kept in the name of the principals for obtaining contracts and hence any interest income on such fixed deposits forms part of business receipts and accordingly, the A.O. should have considered interest income as part of business receipts. In support of his arguments relied upon the decision of ITAT, Visakhapatnam in the case of DCIT Vs. R.R. Constructions in ITA No.47/Vizag/2013 dated 6.11.2015. 6. On the other hand, the Ld. D.R. strongly supporting the order of the CIT(A) submitted that the A.O. has rightly rejected books of accounts because of failure on the part of the assessee to produce supporting bills and vouchers in respect of expenditures. The Ld. D.R. further submitted that the A.O. has adopted fair and reasonable net profit of 8% considering the facts and circumstances of the business of the assessee and hence, the net profit estimated by the A.O. should be upheld. In so far as depreciation and income from other source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive evidence to come to the conclusion that the books of accounts maintained by the assessee gives a true and correct profit from the business. Therefore, we are of the view that the A.O. was right in rejection of books of accounts under the provisions of section 145(3) of the Act. 9. Having said, let us examine, on facts and circumstances of the case whether the A.O. was right in adopting net profit of 8% on gross contract receipts. There is no dispute with regard to the facts that the assessee is in the business of execution of works contracts. It is also an admitted fact that the assessee has disclosed 6.73% to 7.44% net profit, net of all deductions including depreciation in the earlier period. We further noticed that for the assessment year 2007-08 in the scrutiny assessment proceedings, the A.O. has estimated net profit of 8% on gross contract receipts for which the assessee has not preferred any appeal. Estimation of net profit from the business is one of the accepted method of determination of income from business. But, there is no hard and fast rule for estimation of income. The department is following estimation of net profit on various rates depending upon the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT, Visakhapatnam in the case of DCIT Vs. M/s. R.R. Constructions (supra) submitted that when estimation of net profit is made, separate deductions towards depreciation should be allowed, as depreciation is a notional deduction for normal wear and tear of the assets. We have gone through the case law relied upon by the assessee, in the light of the facts of the present case and find that the case law relied upon by the assessee is not applicable to the facts of the case. In the case of M/s. R.R. Constructions, the assessee is in the business of execution of works on sub contract basis where the ITAT has upheld the estimation of net profit of 8% on gross contract receipts subject to further deductions towards depreciation. In this case, the assessee is involved in the business of execution of main works which carries more profit than sub contract works and hence, the A.O. has rightly adopted reasonable net profit of 8% on gross contract receipts and accordingly, further deductions towards depreciation is not allowed. Whether separate deductions can be allowed towards depreciation or not is a fact which is to be decided based on the facts and circumstances of each case and also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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