M/s. International Engineers, Amritsar. V. The Asstt .Commissioner of Income Tax, Amritsar.

ITA 196/ASR/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2422 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 31-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KANWAL
• Keywords: Business income; Depreciation; Question of law
• Section: 143(3); 32; 145; 56; 154; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NOS.195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2006-07 PAN: AAAFI3880Q M/S. INTERNATIONAL ENGINEERING, VS. ASSTT. COMMR. O F INCOME TAX, RSD STREET, U/S HALL BAZAR, CIRCLE-1, AMRITSAR. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. ASHWANI KALIA, CA RESPONDENT BY:SH. S.S. KANWAL, DR DATE OF HEARING: 31/12/2015 DATE OF PRONOUNCEMENT: 11/02/2016 ORDER PER T.S. KAPOOR, AM: THESE ARE THE TWO APPEALS FILED BY THE ASSESSEE AG AINST THE SEPARATE ORDERS OF THE CIT(A), AMRITSAR, EACH DATED 16.01.2014 FOR THE ASSESSMENT YEARS 2004-05 AND 2006-07. 2. THE APPEALS WERE EARLIER DISMISSED BEING DEFECTI VE VIDE TRIBUNAL ORDER DATED 8.01.2015. HOWEVER, THE SAID TRIBUNAL ORDER WAS RECALLED VIDE TRIBUNAL ORDER DATED 11.06.2015 AND THE APPEA LS WERE LISTED FOR HEARING ON MERITS. 3. THE APPEAL IN ITA NO.195(ASR)/2014 FOR THE ASSES SMENT YEAR 2004- 05, RELATES TO THE GRIEVANCE OF THE ASSESSEE BY WH ICH THE LD. CIT(A) HAS ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 2 CONFIRMED THE ORDER PASSED BY THE AO UNDER SECTION 154 OF THE ACT, WHEREAS THE GRIEVANCE OF THE ASSESSEE IN ASSESSMENT YEAR 2006-07 IN ITA NO.196(ASR)/2014 IS AGAINST THE ORDER PASSED BY TH E AO U/S 143(3) OF THE ACT. 4. IN ITA NO.195(ASR)/2014, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS, IN HOLDING THAT PROCEEDINGS U/S 154 WERE RIGHTLY INITIATED BY AO. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S, IN HOLDING THAT NETTING OF INTEREST INCOME OF RS.4,02,038/- A GAINST INTEREST PAYMENT WAS RIGHTLY RECTIFIED BY AO U/S 15 4 AND BY SEPARATELY ASSESSING THE SAME AS INCOME FROM OTHER SOURCES. 5. IN ITA NO.196(ASR)/2014, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS, IN HOLDING THAT DEPRECIATION ON FIXED ASSETS IS NOT ALLOWABLE AS DEDUCTION AFTER THE APPLICATION OF NET PROFIT OF 8 % ON GROSS CONTRACT RECEIPTS ON THE REJECTION OF BOOKS OF ACCO UNT. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S, IN HOLDING THAT SALARY AND INTEREST PAID TO PARTNERS IS NOT AL LOWABLE AS DEDUCTION AFTER THE APPLICATION OF NET PROFIT RATE OF 8% ON GROSS CONTRACT RECEIPTS ON THE REJECTION OF BOOKS O F ACCOUNT. 6. THE BRIEF FACTS AS NOTED IN THE ASSESSMENT ORDER ARE THAT IN THE AY 2004-05, THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND BOOKS OF ACCOUNT WERE REJECTED BY THE AO AND A FLAT RATE OF 8% OF TOTAL RECEIPTS AS NET PROFIT WAS APPLIED. AFTER COMPLETION OF THE ASSESSMENT, IT CAME TO THE NOTICE OF THE AO THAT AN AMOUNT OF RS. 4,02,038 WHICH WAS EARNED ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 3 AS INTEREST ON FIXED DEPOSITS HAD ESCAPED REGULAR A SSESSMENT AND THIS MISTAKE HAD CREPT DUE TO NETTING OF INTEREST PAID A ND RECEIVED BY ASSESSEE. THE AO HELD THAT INTEREST EARNED ON FIXED DEPOSITS WAS ASSESSABLE UNDER SECTION 56, AS INCOME FROM OTHER S OURCES AND IT WAS NOT LIABLE TO BE ADJUSTED AGAINST THE INTEREST PAID BY ASSESSEE ON BUSINESS LOAN. THEREFORE, THE AO PASSED RECTIFICATI ON ORDER U/S 154 AND MADE SEPARATE ADDITION OF RS. 4,02,038/- 7. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTION OF T HE ASSESSEE AND RELYING UPON THE CASE LAW OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. DR. V.P. GOPINATHAN, REPORTED IN 248 ITR 449, HAS UPHE LD THE ADDITION. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSMENT IN THE CASE OF THE ASSESSEE WAS COMPLETE D BY REJECTING THE BOOKS OF ACCOUNT AND, THEREFORE, THE SAME BOOKS OF ACCOUNT CANNOT BE RELIED UPON BY THE AO FOR MAKING ADDITIONS BY MAKIN G RECTIFICATION U/S 154 OF THE ACT. THE LD. COUNSEL HAS PLACED HIS REL IANCE ON THE CASE OF DALJIT SINGH & BROS. VS. ACIT, IN ITA NO.201/ASR/20 02 FOR THE PROPOSITION THAT ONCE THE BOOKS OF ACCOUNT HAVE BEE N REJECTED, THE AO CANNOT FALL BACK UPON THE SAME BOOKS FOR MAKING ADD ITION ON THE INTEREST ACCRUED ON FDRS REFLECTED IN THE BOOKS OF ACCOUNT. ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 4 9. THE LD. COUNSEL SUBMITTED THAT IN REPLY TO N OTICE U/S 154, THE ASSESSEE HAD SUBMITTED THAT IT HAD MADE FDRS FOR PR OVIDING BANK GUARANTEE TO THE GOVERNMENT AGAINST THE EXECUTION OF VARIOUS WORKS CONTRACTS AND THEREFORE, THE INTEREST RECEIVED ON F DRS WAS HAVING DIRECT NEXUS WITH ITS BUSINESS AND THEREFORE, WAS TO BE AS SESSED AS INCOME FORM BUSINESS. THE LD. COUNSEL SUBMITTED THAT SECTI ON 154 CAN BE INVOKED FOR RECTIFYING A MISTAKE WHICH IS APPARENT FROM THE RECORD AND WHICH MUST BE GLARING, OBVIOUS AND SELF EVIDENT. IF IT IS A MISTAKE WHICH REQUIRES TO BE ESTABLISHED BY A PROCESS OF INVESTIG ATION OR ARGUMENTS OR PROOF ON WHICH THERE MAY CONCEIVABLY BE TWO OPINIO NS, THE SAME CANNOT BE REGARDED AS MISTAKE APPARENT FROM THE RECORD AND IN THIS RESPECT, RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: I) CIT VS. HERO CYCLES PVT. LTD. 228 ITR 463 (SC ) II) CIT VS. ALANKAR BOTTLING CO. 189 ITR 799 (ALL .) III) VED PARKASH MADAN LAL VS. CIT, 102 ITR 213 (P&H) IV) CIT VS. PREM RAJ GANPATRAJ & CO., 95 ITR 447 (GU J.) 10. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. HERO CYCLES P VT. LIMITED, HAS HELD THAT RECTIFICATION IS NOT POSSIBLE IF THE QUESTION IS DEBATABLE AND HAS FURTHER HELD THAT THE POINT WHICH WAS NOT EXAMINED ON FACT DURING ASSESSMENT PROCEEDINGS CANNOT BE TREATED AS A MISTA KE APPARENT FROM THE RECORD. THE LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE CASE LAW ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 5 RELIED ON BY THE AUTHORITIES BELOW IN THE CASE OF C IT VS. DR. V.P. GOPINATHAN (SUPRA) IS TOTALLY MISPLACED, AS THE AS SESSEE IN THIS CASE WAS NOT CARRYING OUT ANY BUSINESS AND INTEREST EARNED B Y HIM WAS ASSESSABLE U/S 56 OF THE ACT, AS INCOME FROM OTHER SOURCES, AS FDRS WERE NOT TAKEN FOR ANY BUSINESS PURPOSES, WHEREAS IN THE PRE SENT CASE, FDRS WERE GOT MADE FOR BUSINESS PURPOSES. THE LD. COUNSE L FURTHER SUBMITTED THAT INCOME FROM INTEREST ON FDR IS TAXABLE AS BUSI NESS INCOME OR INCOME FROM OTHER SOURCES DEPENDING UPON FACTS OF E ACH CASE, THEREFORE, HEAD OF TAXABILITY IS A DEBATABLE POINT. THE LD. CO UNSEL FOR THE ASSESSEE PLACED HIS RELIANCE ON THE FOLLOWING CASE LAWS FOR THE PROPOSITION THAT WHERE THE POINT OF ISSUE WAS DEBATABLE, NO RECTIFIC ATION U/S 154 WAS VALID: I) SATISH CHANDRA & CO. VS. CIT, 234 ITR 70 (KER.) II) CIT VS. MADRAS REFINERY LTD., 228 ITR 354 (MAD.) 11. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSE SSMENT IN THIS CASE WAS COMPLETED BY APPLYING NET PROFIT RATE OF 8% OF THE GROSS RECEIPTS AND THE BOOKS OF ACCOUNT WERE REJECTED DURING THE ASSES SMENT PROCEEDINGS AND, THEREFORE, THE SAME BOOKS OF ACCOUNT CANNOT BE RELIED UPON FOR CARRYING OUT MISTAKE U/S 154 OF THE ACT. THE AMRIT SAR BENCH OF THE TRIBUNAL IN THE CASE OF DALJIT SINGH & BROS VS. AC IT, IN ITA ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 6 NO.201/ASR/2002, VIDE ITS ORDER DATED 14.11.2002, VIDE PARA 6.6, UNDER SIMILAR FACTS AND CIRCUMSTANCES HAD HELD THAT ONCE THE BOOKS OF ACCOUNT HAS BEEN REJECTED, THE AO CANNOT FALL BACK UPON THE SAME BOOKS FOR MAKING ADDITION ON THE INTEREST ACCRUED ON THE FDRS REFLECTED IN THE BOOKS OF ACCOUNT. THE RELEVANT FINDINGS AS CONTAINE D IN PARA 6.6. OF THE AFORESAID ORDER OF THE TRIBUNAL ARE REPRODUCED AS U NDER: 6.6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOING THROUGH THE MATERIAL AVAILABLE ON THE RECORD, IT HAS BEEN NOTIC ED THAT THE AO REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLIED A NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS OF THE ASSE SSEE. IN OTHER WORDS, THE AO HAS NOT ACCEPTED THE BOOK RESULTS. ON THE OTHER HAND, HE TOOK THE FIGURE OF RS.2,94,700/- ON ACCOUNT OF I NTEREST ACCRUED ON FDRS AS REFLECTED BY THE ASSESSEE IN THE BOOKS OF A CCOUNT. WE, THEREFORE, FIND SUBSTANTIAL FORCE IN THIS CONTENTI ON OF THE LD. COUNSEL FOR THE ASSESSEE THAT ONCE THE BOOKS OF ACCOUNT HAS BEEN REJECTED, THE AO CANNOT FALL BACK UPON THE SAME BOOKS FOR MA KING ADDITION ON ACCOUNT OF INTEREST ACCRUED ON THE FDRS REFLECTE D IN THE BOOKS OF ACCOUNT. IT IS WELL SETTLED THAT WHEN NET PROFIT RA TE IS APPLIED ALL THE INCOME HAS BEEN CONSIDERED. IT IS ALSO TRUE THAT TH E AO HAD NOT DENIED THIS FACT THAT THE FDRS WERE RELATED TO THE BUSINESS BECAUSE HE HIMSELF ADMITTED THAT THE ASSESSEE HAS REFLECTED THE INTEREST ACCRUED IN THE PROFIT AND LOSS ACCOUNT WHICH WAS BA SED ON THE BOOKS OF ACCOUNT ,MAINTAINED BY THE ASSESSEE. WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED ABOVE, ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN MAKING SEPARA TE ADDITION ON ACCOUNT OF INTEREST ON FDRS WHEN HE HAD APPLIED A NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS FOR THE FULL YEAR BY IN VOKING THE PROVISIONS OF SECTION 145 OF THE INCOME TAX ACT, 19 61. WE, THEREFORE, SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER NOT TO INCLUDE THE INTEREST ACCR UED ON THE FDRS AMOUNTING TO RS.2,94,700/- IN THE INCOME OF THE ASS ESSEE. 13. FROM THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAD REFLECTED INTEREST INCOME ON FDRS IN ITS PROFIT & LOSS ACCOUNT AND THIS INTEREST WAS EARNED ON FIXED DEPOS ITS, WHICH WERE MADE ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 7 FOR PROVIDING BANK GUARANTEE TO GOVT. DEPARTMENTS A ND, THEREFORE, THE INTEREST INCOME HAD A DIRECT NEXUS WITH THE BUSINES S OF THE ASSESSEE AND THEREFORE, WAS REFLECTED IN THE PROFIT & LOSS ACCOU NT. RELYING UPON THE CASE LAW OF DALJIT SINGH & BROTHERS ( SUPRA), THAT ONCE THE BOOKS OF ACCOUNT WERE REJECTED, NO SEPARATE ADDITION ON ACCO UNT OF INTEREST EARNED ON FDRS, WHICH WAS MADE FOR BUSINESS PURPOSES WAS M AINTAINABLE, THEREFORE, WE ARE IN AGREEMENT WITH ARGUMENTS OF TH E LD. AR. MOREOVER, WE FIND THAT FOR INVOKING THE PROVISIONS OF SECTION 154 OF THE ACT, THE MISTAKE HAS TO BE APPARENT FROM THE RECORD AND RECT IFICATION IS NOT POSSIBLE IF THE QUESTION IS DEBATABLE. THIS HAS BEE N HELD BY THE HONBLE SUPREME COURT, IN THE CASE OF CIT VS. HERO CYCLES P VT. LIMITED, 228 ITR 463. THE HONBLE SUPREME COURT IN THIS CASE HAD FU RTHER HELD THAT FOR INVOKING THE PROVISIONS OF SECTION 154, THE POINT S HOULD HAVE BEEN EXAMINED ON FACTS AND IN LAW. 14. THE HONBLE KERALA HIGH COURT IN THE CASE OF SA TISH CHANDRA VS. CIT, 234 ITR 70, HAS HELD THAT WHERE THE POINT IS D EBATABLE, RECTIFICATION WAS NOT VALID. THE BRIEF FACTS OF THIS CASE ARE AS UNDER: IN THIS CASE IT WAS HELD THAT CARRIED FORWARD BUSI NESS LOSS FOR THE ASSESSMENT YEAR 1976-77 WAS ADJUSTED AGAINST BUSIN ESS INCOME AND ALSO INTEREST INCOME SHOWN UNDER THE HEAD OTHE R SOURCES IN ASSESSMENT YEARS 1979-80, 1980-81 & 1981-82. LATER ON, THESE ASSESSMENTS WERE RECTIFIED U/S 154 OF THE ACT BY L IMITING SET OFF OF BROUGHT FORWARD LOSS AGAINST INCOME FROM BUSINESS O NLY. INTEREST INCOME WAS FOUND TO BE FROM DEPOSITS MADE WITH THE BANKS TO ENABLE THE BANKS TO GIVE BANK GUARANTEE AND WAS CLO SELY ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 8 CONNECTED WITH THE BUSINESS INCOME. IT WAS HELD THAT THE POINT IS DEBATABLE AND RECTIFICATION WAS NOT VALID. 15. WE FIND THAT THE FACTS AND CIRCUMSTANCES IN THE PRESENT APPEAL ARE SIMILAR AND RESPECTFULLY FOLLOWING THE ABOVE JUDICI AL PRECEDENTS, WE ALLOW THE APPEAL OF THE ASSESSEE IN ITA NO.195(ASR)/2014. 16. NOW, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA N O.196(ASR)/2014 FOR THE AY 2006-07. THE BRIEF FACTS AS NOTED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSMENT IN THIS CASE WAS COMPLETED BY A PPLYING NET PROFIT RATE OF 8% ON GROSS RECEIPTS. IN THIS CASE ALSO, TH E BOOKS OF ACCOUNT WERE REJECTED. THE AO DID NOT ALLOW THE CLAIM OF DEPRECI ATION ON FIXED ASSETS AND ALSO DID NOT ALLOW SALARY AND INTEREST TO PARTN ERS OUT OF THE DETERMINED NET PROFIT CALCULATED @ 8%. THE LD. CIT (A) ALSO UPHELD THE ORDER OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPE AL BEFORE THIS BENCH. 17. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LALI CONSTRUCTIONS VS. ACIT, IN ITA NO.203 OF 2001 DATED 04.08.2014 AND SUBMITTED THAT THE HONBLE PUNJAB & HARYANA HIGH C OURT IN SIMILAR FACTS AND CIRCUMSTANCES HAD DECIDED THAT THE DEPREC IATION ON FIXED ASSETS WAS ALLOWABLE DEDUCTION IF THE ASSESSEE MADE A SPECIFIC CLAIM FOR DEPRECIATION. IT WAS FURTHER SUBMITTED THAT IN ASSE SSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05, UNDER SIMILAR FACTS AN D CIRCUMSTANCES, THE CLAIM OF DEPRECIATION HAD BEEN ALLOWED. ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 9 18. AS REGARDS THE CLAIM OF INTEREST ON PARTNERS C APITAL AND SALARY TO PARTNERS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE AMRITSAR BENCH OF THE TRIBUNAL IN ITA NO.361(ASR)/2013 & ITA NO.344(ASR)/2013, DATED 26/03/2014, IN THE CASE OF WALIA CONSTRUCTION COMPANY S. DCIT, CIR.IV, PATHANKOT HAS DECIDED SIMILAR ISSUE IN FAV OUR OF THE ASSESSEE. THE ASSESSEES COUNSEL ALSO INVITED OUR ATTENTION T O PARA 10.1 OF THE SAID ORDER. 19. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDERS OF THE AUTHORITIES BELOW. 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GO NE THROUGH THE MATERIAL AVAILABLE ON RECORD. AS REGARDS THE CLAIM OF DEPRECIATION, WE FIND THAT THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LALI CONSTRUCTION CO. (SUPRA) VIDE ITS ORDER DATED 04.08 .2014, HAD FRAMED THE FOLLOWING QUESTION OF LAW: WHETHER DEPRECIATION AND INTEREST ARE ALLOWABLE DE DUCTION FROM DEDUCTIONS FROM THE NET PROFITS EVEN IF TOTAL INCOM E IS CALCULATED BY APPLYING NET PROFIT RATE? IN AN ANSWER TO FIRST LIMB OF THE QUESTION REGARDIN G DEPRECIATION, THE HONBLE HIGH COURT HAD HELD AS UNDER: TAKING UP THE FIRST POINT, THE MATTER IS NO LONGER RES INTEGRA. THE DIVISION BENCHES OF THIS COURT IN COMMISSIONER OF I NCOME TAX VS. CHOPRA BROS. INDIA (P) LIMITED (2001) 252 ITR 412 AND GIRDHARI LAL VS. COMMISSIONER OF INCOME TAX AND ANOTHER, (2002) 256 ITR 318 WHILE CONSIDERING THE AFORESAID ISSUE, IN VIEW OF T HE CIRCULAR ISSUED BY THE BOARD, HAD HELD IN A CASE WHERE THE ASSESSE E MAKES A SPECIFIC CLAIM FOR DEPRECIATION AND GIVES THE INFOR MATION AS REQUIRED UNDER SECTION 32 OF THE ACT, THE ASSESSING OFFICER IS BOUND TO TAKE THE CLAIM OF THE ASSESSEE INTO CONSIDERATION. FOLLO WING THE AFORESAID JUDGMENTS, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION ON ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 10 ACCOUNT OF DEPRECIATION FROM RECEIPTS WHILE APPLYIN G NET PROFIT RATE ON THE GROSS RECEIPTS. 21. THEREFORE, FOLLOWING THE ABOVE ORDER OF THE HON BLE PUNJAB & HARYANA HIGH COURT, GROUND NO.1 OF THE APPEAL IS A LLOWED. 22. AS REGARDS THE ALLOWABILITY OF SALARY AND INTER EST TO THE PARTNERS, WE FIND THAT THE AMRITSAR BENCH OF THE TRIBUNAL IN ITA NO.361 & 344(ASR)/2013, VIDE ITS ORDER DATED 26.03.2014 HAD DECIDED THAT WHERE THE CONTRACT RECEIPTS HAD BEEN ESTIMATED ON PERCEN TAGE BASIS, THE ASSESSEE IS TO BE ALLOWED THE BENEFIT OF SALARY AND INTEREST TO PARTNERS SUBJECT TO THE CONTENTION THAT INCOME SHOULD NOT FA LL BELOW THE RETURNED INCOME. THE FINDINGS AS CONTAINED IN PARA 10.1 OF T HE ORDER, ARE REPRODUCED AS UNDER: 10.1. AS REGARDS THE ESTIMATION OF INCOME, THERE I S NO DISPUTE TO THE FACT THAT THE ASSESSEE IN THE PRECEDING YEARS HAS B EEN ASSESSED ALMOST AT THE RETURNED INCOME EXCEPT MINOR ADDITION S. THE ASSESSEE DURING THE IMPUGNED YEAR BEFORE DEPRECIATION, INT EREST & SALARY TO PARTNERS AND BANK INTEREST HAS DECLARED BETTER RESU LTS AS IS EVIDENT FROM THE COMPARATIVE FIGURES MENTIONED HEREINABOVE. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DEC ISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WE MODIFY THE ORDER OF BOTH THE AUTHORITIES BELOW AND DIRECT THE AO TO ESTIMATE NET PROFIT RATE OF 5% ON CONTRACT RECEIPTS DECLARED BY THE ASSESSEE AN D THEREAFTER ALLOW SALARY AND INTEREST TO PARTNERS AND DEPRECIAT ION SUBJECT TO THE INCOME DOES NOT FALL BELOW THE RETURNED INCOME. IT IS ORDERED ACCORDINGLY. THUS, THE APPEAL OF THE REVENUE AND TH AT OF THE ASSESSEE ARE PARTLY ALLOWED. 23. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL, WE ALSO ALLOW PAYMENT OF SALARY AND INTEREST OUT OF THE EST IMATED INCOME SUBJECT ITA NOS. 195 & 196(ASR)/2014 ASSESSMENT YEARS: 2004-05 & 2005-06 11 TO THE CONDITION THAT THE INCOME THUS, ARRIVED AT S HOULD NOT FALL BELOW THE RETURNED INCOME. 24. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE A SSESSEE IS ALLOWED. 25. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/02/2 016 SD/- SD/- (A.D. JAIN) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11/02/2016 /SKR/ COPY OF ORDER FORWARDED TO: 1. THE ASSESSEE: INTERNATIONAL ENGINEERS, AMRITSAR. 2. THE ACIT,CIR.1, AMRITSAR. 3. THE CIT(A), AMRITSAR. 4. THE CIT, AMRITSAR. 5. THE SR. DR, ITAT, ASR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH: AMRITSAR.