G.Raja Gopala Rao, Visakhapatnam V. The DCIT, Visakhapatnam

ITA 293/VIZ/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6564 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 26-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P SRINIVASA MURTHYDR
• Assessee Lawyers: C V S MURTHY
• Keywords: Rejection of books of accounts; Business income; Depreciation
• Section: 44AD

Judgement Text

ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.293/VIZAG/2016 ( / ASSESSMENT YEAR: 2009-10) G. RAJA GOPALA RAO, VISAKHAPATNAM VS. DCIT, CIRCLE - 4(1), VISAKHAPATNAM [PAN: ACYPG6097M ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C.V.S. MURTHY, AR / RESPONDENT BY : SHRI P. SRINIVASA MURTHY,DR / DATE OF HEARING : 16.01 .2017 / DATE OF PRONOUNCEMENT : 20.01.2017 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE COMMISSIONER OF INCOME TAX (A)-2, GUNTUR, CAMP OFFI CE AT VISAKHAPATNAM DATED 30.3.2016 AND IT PERTAINS TO TH E ASSESSMENT YEAR 2009-10. ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF EXECUTION OF CIVIL WORKS CONTRACT, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 29.9.2009 DECLARING TOTAL INCOME OF ` 97,32,420/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) & 142( 1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WERE IS SUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE APPEARED FROM TIME TO TIME AND PRODUCED BOOKS OF ACCOUNTS ALONG W ITH BILLS AND VOUCHERS FOR VERIFICATION. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, ON VERIFICATION OF BOOKS OF ACCOUNTS AND OTHER DETA ILS FILED BY THE ASSESSEE, THE A.O. NOTICED THAT MOST OF THE EXPENDI TURES IN RESPECT OF LABOUR CHARGES, WORK EXPENSES, MESS CHARGES AND OTH ER INDIRECT EXPENSES ARE NOT SUPPORTED BY PROPER BILLS AND VOUC HERS. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS KEPT SELF-MA DE VOUCHERS IN SUPPORT OF MAJOR EXPENDITURE AND ACCORDINGLY, OPINE D THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT AMENABL E FOR VERIFICATION AND HENCE, REJECTED BOOKS OF ACCOUNTS UNDER THE PRO VISIONS OF SECTION 145(3) OF THE ACT AND ESTIMATED NET PROFIT OF 8% ON GROSS CONTRACT RECEIPTS NET OF ALL DEDUCTIONS. IN ADDITION TO EST IMATION OF NET PROFIT, THE A.O. HAS MADE SEPARATE ADDITIONS TOWARDS INCOME FRO M OTHER SOURCES ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 3 BEING INTEREST EARNED ON FIXED DEPOSITS UNDER THE H EAD INCOME FROM OTHER SOURCES. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS FILED WRITTEN SUBMISSIONS. THE ASSESSEE FURTHER CONTENDE D THAT THE A.O. WAS ERRED IN REJECTION OF BOOKS OF ACCOUNTS WITHOUT POI NTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS WHICH WARRANTS REJ ECTION OF BOOKS OF ACCOUNTS UNDER THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT HE HAD MAINTAINED B ILLS AND VOUCHERS IN RESPECT OF MAJOR EXPENDITURE, HOWEVER, IN RESPECT O F LABOUR AND LIKE CHARGES, HE HAD MAINTAINED SELF-MADE VOUCHERS BECAU SE OF NATURE OF EXPENDITURE, WHICH NECESSITATED PAYMENT OF WAGES BY TAKING SELF-MADE VOUCHERS. THEREFORE, THE A.O. WAS INCORRECT IN REJ ECTION OF BOOKS OF ACCOUNTS, JUST BECAUSE FEW EXPENDITURES ARE SUPPORT ED BY SELF-MADE VOUCHERS. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. WAS ERRED IN NOT ALLOWING DEDUCTIONS TOWARDS DEPRECIATION ON ASS ETS, WHICH IS OTHERWISE ELIGIBLE TO CLAIM DEPRECIATION, EVEN THOU GH 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 CO NTRACTS AND HENCE, ANY ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 4 INTEREST EARNED ON SUCH FIXED DEPOSIT FORMS PART OF GROSS CONTRACT RECEIPTS AND ACCORDINGLY, THE A.O. WAS ERRED IN MAK ING SEPARATE ADDITIONS TOWARDS INTEREST INCOME UNDER THE HEAD IN COME 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 INTE RFERENCE. THE CIT (A) FURTHER HELD THAT THERE IS NO HARD AND FAST RUL E FOR ESTIMATION OF NET PROFIT. HOWEVER, THERE SHOULD BE BASIS FOR ESTIMAT ION, EITHER SOME COMPARABLE CASES OF SIMILAR BUSINESSES OR ASSESSEE S OWN BOOK RESULTS IN THE EARLIER PERIODS. IN THIS CASE, THE ASSESSEE HA S DECLARED 6.73% TO 7.44% NET PROFIT NET OF ALL DEDUCTIONS INCLUDING DE PRECIATION FOR THE EARLIER YEARS. FURTHER, THE ASSESSEE HIMSELF HAS A CCEPTED ESTIMATION OF NET PROFIT OF 8% FOR THE ASSESSMENT YEAR 2007-08. SINCE, THE FACTS BEING THE SAME INCLUDING THE NATURE OF WORKS EXECUT ED AND ALSO AS NO DIFFERENTIAL FEATURES HAVE BEEN POINTED OUT, THE CI T(A) HAS CONFIRMED ESTIMATION OF NET PROFIT MADE BY THE A.O. IN SO FA R AS SEPARATE DEDUCTIONS TOWARDS DEPRECIATION, THE CIT(A) HELD TH AT THE CASE LAW ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 5 RELIED UPON BY THE ASSESSEE TOWARDS SEPARATE DEDUCT IONS FOR DEPRECIATION HAS NO RELEVANCE TO THE FACTS OF THE A SSESSEES CASE, AS IN THOSE CASES, THE NET PROFIT HAS BEEN ESTIMATED AT 1 2.5%, WHEREAS IN THIS CASE, THE A.O. HAS ADOPTED NET PROFIT OF 8% AND HEN CE, SEPARATE DEDUCTIONS TOWARDS DEPRECIATION IS INCORRECT. IN S O FAR AS, ADDITIONS TOWARDS INTEREST ON FIXED DEPOSITS, THE CIT(A) UPHE LD THE ACTION OF THE A.O. IN BRINGING INTEREST INCOME UNDER THE HEAD INC OME FROM OTHER SOURCES. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESS EE IS IN APPEAL BEFORE US. 5. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT TH E LD. CIT(A) WAS ERRED IN UPHOLDING THE ACTION OF THE A.O. IN ESTIMA TING NET PROFIT OF 8% ON GROSS RECEIPTS. THE A.R. FURTHER SUBMITTED THAT THE BOOK RESULTS DECLARED BY THE ASSESSEE ARE VERY REASONABLE AND TH E ASSESSING AUTHORITY OUGHT TO HAVE ACCEPTED THE SAME WITHOUT A PPLYING THE PROVISIONS OF SECTION 145(3) OF THE ACT, AS THE A.O . DID NOT FOLLOW THE PROCEDURES FOR INVOKING THE PROVISIONS OF SECTION 1 45(3) OF THE ACT. THE A.R. FURTHER SUBMITTED THAT THE A.O. REJECTED BOOKS OF ACCOUNTS SUMMARILY WITHOUT POINTING OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNTS, JUST BECAUSE FEW EXPENDITURES ARE SUPPORT ED BY SELF-MADE VOUCHERS. BUT, THE FACT IS THAT THE ASSESSEE HAS M AINTAINED BILLS AND ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 6 VOUCHERS FOR ALL EXPENDITURES, EXCEPT IN THE CASE O F LABOUR AND LIKE CHARGES WHERE MAINTENANCE OF SUPPORTING BILLS IS NO T POSSIBLE. THE A.R. FURTHER SUBMITTED THAT THE A.O. HAS ADOPTED HIGHER NET PROFIT OF 8% WITHOUT UNDERSTANDING THE NATURE OF CONTRACTS EXECU TED BY THE ASSESSEE. IN SO FAR AS DEPRECIATION IS CONCERNED, THE A.R. SU BMITTED THAT THE A.O. OUGHT TO HAVE ALLOWED SEPARATE DEDUCTION TOWARDS DE PRECIATION EVEN THOUGH NET PROFIT IS ESTIMATED FROM CONTRACT RECEIP TS. SIMILARLY, IN RESPECT OF INTEREST ON FIXED DEPOSITS, THE A.R. SUB MITTED THAT ALL FIXED DEPOSITS ARE KEPT IN THE NAME OF THE PRINCIPALS FOR OBTAINING CONTRACTS AND HENCE ANY INTEREST INCOME ON SUCH FIXED DEPOSIT S FORMS PART OF BUSINESS RECEIPTS AND ACCORDINGLY, THE A.O. SHOULD HAVE CONSIDERED INTEREST INCOME AS PART OF BUSINESS RECEIPTS. IN S UPPORT OF HIS ARGUMENTS RELIED UPON THE DECISION OF ITAT, VISAKHA PATNAM IN THE CASE OF DCIT VS. R.R. CONSTRUCTIONS IN ITA NO.47/VIZAG/2 013 DATED 6.11.2015. 6. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ING THE ORDER OF THE CIT(A) SUBMITTED THAT THE A.O. HAS RIGHTLY REJE CTED BOOKS OF ACCOUNTS BECAUSE OF FAILURE ON THE PART OF THE ASSE SSEE TO PRODUCE SUPPORTING BILLS AND VOUCHERS IN RESPECT OF EXPENDI TURES. THE LD. D.R. FURTHER SUBMITTED THAT THE A.O. HAS ADOPTED FAIR AN D REASONABLE NET ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 7 PROFIT OF 8% CONSIDERING THE FACTS AND CIRCUMSTANCE S 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 SOURCES, THE D.R. SUBMITTED THAT WHEN AN ESTIMATION OF NET PROFI T IS MADE FROM THE BUSINESS, ALL DEDUCTIONS ALLOWED U/S 30 TO 38 OF TH E ACT ARE DEEMED TO HAVE BEEN ALLOWED, THEREFORE, SEPARATE DEDUCTIONS T OWARDS DEPRECIATION CANNOT BE ALLOWED. IN SO FAR AS INTEREST INCOME IS CONCERNED, THE COORDINATE BENCH OF ITAT, VISAKHAPATNAM HAS TAKEN A VIEW THAT INTEREST ON FIXED DEPOSIT IS ASSESSABLE UNDER THE HEAD INCOM E FROM OTHER SOURCES AND HENCE, THE A.O. WAS RIGHT IN BRINGING TO TAX IN TEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. REJECTED BOOKS OF ACCOUNTS U/S 145(3) OF THE A CT AND ESTIMATED NET PROFIT OF 8% ON GROSS CONTRACT RECEIPTS. THE A.O. WAS OF THE OPINION THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESS EE ARE NOT AMENABLE FOR VERIFICATION. THE A.O. FURTHER WAS OF THE OPINION THAT THE ASSESSEE FAILS TO PRODUCE BILLS AND VOUCHERS IN SUP PORT OF MAJOR EXPENDITURE, THEREFORE, OPINED THAT BOOK RESULTS DE CLARED BY THE ASSESSEE ARE NOT SHOWING TRUE AND CORRECT PROFIT FR OM THE BUSINESS AND ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 8 HENCE, REJECTED BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 8% ON GROSS CONTRACT RECEIPTS. IT IS THE CONTENTION OF T HE ASSESSEE THAT THE A.O. WAS ERRED IN REJECTING BOOKS OF ACCOUNTS WITHO UT POINTING OUT ANY DEFECTS IN THE BOOKS OF ACCOUNTS, WHICH WARRANTS IN VOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSEE FURTHER CONTENDED THAT HE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS AND ALSO P RODUCED BILLS AND VOUCHERS IN RESPECT OF MAJOR EXPENDITURE. FURTHER, IN RESPECT OF LABOUR AND LIKE CHARGES, IT IS IMPOSSIBLE TO PRODUCE SUPPO RTING BILLS BECAUSE OF NATURE OF EXPENDITURE, THEREFORE, THE A.O. WAS INCO RRECT IN SUMMARILY REJECTING BOOKS OF ACCOUNTS AND ESTIMATION OF NET P ROFIT. 8. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS ON RECORD, WE FIND THAT THE A.O. HAS REJECTED BOOKS OF ACCOUNT S FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PRODUCE NECESSARY BILLS AND VOUCHERS IN RESPECT OF EXPENDITURES. THE A.O. HAS OBSERVED THA T MOST OF THE EXPENDITURE ARE SUPPORTED BY SELF-MADE VOUCHERS. A LTHOUGH, THE ASSESSEE CLAIMS THAT IT HAS PRODUCED BILLS AND VOUC HERS IN RESPECT OF MAJOR EXPENDITURE, FAILS TO SUBSTANTIATE THE CLAIM WITH NECESSARY EVIDENCES. THE ASSESSEE FAILS TO CONTROVERT THE FI NDINGS OF THE A.O. WITH ANY POSITIVE EVIDENCE TO COME TO THE CONCLUSION THA T THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE GIVES A TRUE AN D CORRECT PROFIT FROM ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 9 THE BUSINESS. THEREFORE, WE ARE OF THE VIEW THAT T HE 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 CIRCUM STANCES OF THE CASE WHETHER THE A.O. WAS RIGHT IN ADOPTING NET PRO FIT 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 C ONTRACTS. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HAS DISCLOSED 6.73% TO 7.44% NET PROFIT, NET OF ALL DEDUCTIONS INCLUDING DEPRECIATIO N 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 BUSINES S IS ONE OF THE ACCEPTED METHOD OF DETERMINATION OF INCOME FROM BUS INESS. 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 AND CIRCUMSTANCES OF EACH CASE. BUT, WHILE E STIMATING NET PROFIT FROM THE BUSINESS, THERE SHOULD BE A BASIS FOR ADOP TING A PARTICULAR RATE OF NET PROFIT, EITHER BASED ON COMPARABLE CASES OF SIMILAR NATURE OF BUSINESS OR ASSESSEES OWN BOOK RESULTS FOR EARLIER YEARS. WHEN THERE IS ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 10 NO POSSIBILITY OF GETTING A COMPARABLE CASES, AND T HERE IS NO POSSIBILITY OF REFERENCE TO ASSESSEES OWN BOOK RESULTS FOR EAR LIER PERIODS, A REFERENCE TO THE PROVISIONS OF SECTION 44AD OF THE ACT CAN BE MADE, WHEREIN THE ACT PROVIDES FOR ESTIMATION OF NET PROF IT FROM THE SPECIFIED BUSINESSES SUBJECT TO CERTAIN CONDITIONS. 10. THE PROVISIONS OF SECTION 44AD OF THE ACT, PROV IDES FOR ESTIMATION OF NET PROFIT OF 8% ON GROSS RECEIPTS, IN CASE WHE RE THE ASSESSEES ARE INVOLVED IN SPECIFIED BUSINESSES AND TURNOVER FROM THE BUSINESS DOES NOT EXCEED SPECIFIED LIMIT. ALTHOUGH, THE ASSESSEE S CASE DOES NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 44AD OF THE ACT, AS ITS CONTRACT RECEIPTS EXCEED THE SPECIFIED LIMIT, THE A NALOGY PROVIDED IN THE PROVISIONS OF SECTION 44AD OF THE ACT CAN BE ADOPTE D FOR ESTIMATION OF NET PROFIT BECAUSE THE NATURE OF BUSINESS CARRIED O UT BY THE ASSESSEE. THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE I S SQUARELY FIT INTO THE SPECIFIED BUSINESSES REFERRED TO IN THE PROVISIONS OF SECTION 44AD OF THE ACT. SINCE, THE PRESUMPTIVE RATE OF NET PROFIT OF 8% INCORPORATED IN SECTION 44AD OF THE ACT, REFLECTS THE LEGISLATIVE A PPROVED RATE OF NET PROFIT, WHICH CAN BE CONSIDERED AS FAIR AND REASONA BLE TO ESTIMATE INCOME FROM CIVIL CONTRACT BUSINESS, WHERE THE BOOK S OF ACCOUNTS ARE NOT FOUND RELIABLE BY THE ASSESSING OFFICER. IN TH IS CASE, ADMITTEDLY, THE ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 11 A.O. HAD REJECTED BOOKS OF ACCOUNTS FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PRODUCE SUPPORTING BILLS AND VOUCHERS IN RESPECT OF EXPENDITURES. IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE HIMSELF HAS ADMITTED ABOUT 8% NET PROFIT IN THE EARLIER PERIOD NET OF ALL DEDUCTIONS INCLUDING DEPRECIATION. THEREFORE, CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE RATE OF NET PROFIT ADOPTED BY THE A.O. APPEARS TO BE FAIR AND REASONAB LE. HENCE, WE UPHOLD ESTIMATION OF NET PROFIT OF 8% ON TOTAL RECE IPTS NET OF ALL DEDUCTIONS INCLUDING DEPRECIATION. 11. IN SO FAR AS SEPARATE DEDUCTIONS TOWARDS DEPREC IATION IS CONCERNED, THE LD. A.R. FOR THE ASSESSEE BY REFERRI NG TO THE DECISION OF ITAT, VISAKHAPATNAM IN THE CASE OF DCIT VS. M/S. R. R. CONSTRUCTIONS (SUPRA) SUBMITTED THAT WHEN ESTIMATION OF NET PROFI T 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 ASSESS EE, IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FIND THAT THE CAS E 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 BUS INESS OF EXECUTION OF WORKS ON SUB CONTRACT BASIS WHERE THE ITAT HAS UPHE LD THE ESTIMATION ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 12 OF NET PROFIT OF 8% ON GROSS CONTRACT RECEIPTS SUBJ ECT TO FURTHER DEDUCTIONS TOWARDS DEPRECIATION. IN THIS CASE, THE ASSESSEE IS INVOLVED IN THE BUSINESS OF EXECUTION OF MAIN WORKS WHICH CA RRIES MORE PROFIT THAN SUB CONTRACT WORKS AND HENCE, THE A.O. HAS RIG HTLY ADOPTED REASONABLE NET PROFIT OF 8% ON GROSS CONTRACT RECEI PTS AND ACCORDINGLY, FURTHER DEDUCTIONS TOWARDS DEPRECIATION IS NOT ALLO WED. WHETHER SEPARATE DEDUCTIONS CAN BE ALLOWED TOWARDS DEPRECIA TION OR NOT IS A FACT WHICH IS TO BE DECIDED BASED ON THE FACTS AND CIRCU MSTANCES OF EACH CASE AND ALSO BASED ON THE RATE OF NET PROFIT ADOPT ED FOR ESTIMATION OF PROFIT. IN THIS CASE, SINCE, THE A.O. HAS ADOPTED REASONABLE RATE OF 8% ON GROSS CONTRACT RECEIPTS, FURTHER DEDUCTIONS TOWA RDS DEPRECIATION WILL RESULT INTO DETERMINATION OF TOTAL INCOME BELOW THE INCOME RETURNED BY THE ASSESSEE IN HIS RETURN OF INCOME. THEREFORE, W E ARE OF THE VIEW THAT THE A.O. WAS RIGHT IN ESTIMATING NET PROFIT OF 8% O N GROSS RECEIPTS NET OF ALL DEDUCTIONS INCLUDING DEPRECIATION, AND HENCE, T HE ASSESSEE IS NOT ELIGIBLE FOR SEPARATE DEDUCTION FOR DEPRECIATION. 12. IN SO FAR AS SEPARATE ADDITIONS TOWARDS INTERES T ON FIXED DEPOSITS UNDER THE HEAD INCOME FROM OTHER SOURCES, THE A.R. OF THE ASSESSEE SUBMITTED THAT ALL FIXED DEPOSITS ARE IN THE NAME O F THE PRINCIPALS FOR THE PURPOSE OF OBTAINING CONTRACTS AND HENCE, ANY INTER EST RECEIPTS ON SUCH ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 13 FIXED DEPOSITS ARE IN THE NATURE OF BUSINESS RECEIP TS, FORMS PART OF GROSS CONTRACT RECEIPTS, THEREFORE, THE A.O. WAS ERRED IN MAKING SEPARATE ADDITIONS TOWARDS INTEREST INCOME UNDER THE HEAD IN COME FROM OTHER SOURCES. THE LD. D.R. REFERRING TO THE CASE LAW RE LIED UPON BY THE ASSESSEE, IN THE CASE OF DCIT VS. R.R. CONSTRUCTION S (SUPRA), ARGUED THAT THE ISSUE HAS BEEN ALREADY DECIDED BY THE ITAT , IN FAVOUR OF REVENUE, WHEREIN IT WAS OBSERVED THAT INTEREST ON F IXED DEPOSITS IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND HENCE, THE A.O. HAS RIGHTLY MADE ADDITIONS UNDER INCOME FROM O THER SOURCES AND HIS ORDER SHOULD BE UPHELD. 13. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND THAT THE A.O. MADE SEPARATE ADDITIONS TOWAR DS INTEREST ON FIXED DEPOSITS UNDER THE HEAD INCOME FROM OTHER SOURCES F OR THE REASON THAT INTEREST RECEIPTS DOES NOT HAVE ANY BEARING ON THE CONTRACT EXECUTED BY THE ASSESSEE. THE A.O. FURTHER OBSERVED THAT THE A SSESSEE HAS EARNED INTEREST ON FIXED DEPOSITS WHICH WERE KEPT IN THE N AME OF THE PRINCIPALS FOR OBTAINING CONTRACTS. ALTHOUGH, THESE FIXED DEP OSITS ARE KEPT AS SECURITY FOR OBTAINING CONTRACTS, THE NATURE OF DEP OSIT DOES NOT ALTER THE CHARACTER OF INCOME. IT IS AN ADMITTED FACT THAT I NTEREST INCOME IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, T HEREFORE, THERE IS ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 14 NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT INT EREST INCOME FORMS PART OF BUSINESS RECEIPTS OF THE ASSESSEE. WE FIND MERITS IN THE FINDINGS OF THE A.O. FOR THE REASON THAT THERE IS NO NEXUS B ETWEEN INTEREST RECEIPTS AND WORKS CONTRACTS EXECUTED BY THE ASSESS EE. JUST BECAUSE FIXED DEPOSITS ARE KEPT AS SECURITY FOR OBTAINING W ORKS CONTRACTS, IT DOES NOT ALTER THE CHARACTER OF INCOME. INTEREST ON FIX ED DEPOSITS ARE ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS RIGHTLY MADE ADDI TIONS TOWARDS INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. T HE CIT(A) AFTER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY UPHELD T HE 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 G ROUND RAISED BY THE ASSESSEE. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20 TH JAN17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 20.01.2017 VG/SPS ITA NO.293/VIZAG/2016 G. RAJA GOPALA RAO, VISAKHAPATNAM 15 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI G. RAJA GOPALA RAO, D.NO.39- 33-61/2, VUDA COLONY, MADHAVADHARA, VISAKHAPATNAM 2. / THE RESPONDENT THE DCIT, CIRCLE-4(1), VISAKHAP ATNAM 3. + / THE PRINCIPAL CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A)-2, GUNTUR, CAMP: VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM