Smt. Surapaneni Latha, Visakhapatnam V. The DCIT, Central Circle-2, Visakhapatnam, Visakhapatnam

ITA 37/VIZ/2012

• Counselvise Citation: 3725314 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Rejection of books of accounts; Depreciation; Search and seizure; Opportunity of being heard
• Section: 153A; 132

Judgement Text

ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO S . 36&37 / VIZAG/ 2012 ASSESSMENT YEARS : 2008-09 & 2009-10 SURAPANENI LATHA VISAKHAPATNAM VS. DCIT CENTRAL CIRCLE-2 VISAKHAPATNAM (APPELLANT) (RESPONDENT) PAN NO.AEPPS 1604B ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT DATE OF HEARING : 08.07.2014 DATE OF PRONOUNCEMENT : 08.07.2014 ORDER PER BENCH:- THESE ARE TWO APPEALS, BOTH BY THE ASSESSEE, AGAINS T SEPARATE ORDERS OF CIT(A) BOTH DATED 23.1.2012 PERTAINING TO THE AS SESSMENT YEARS 2008-09 AND 2009-10. ITA NO.36/VIZAG/2012 2. THE ASSESSEE HAS RAISED 4 GROUNDS. GROUND NO.1 AND 4 BEING GENERAL IN NATURE NEED NOT BE ADJUDICATED. AT THE OUTSET, THE LD. A.R. EXPRESSED HIS INTENTION NOT TO PRESS GROUND NO.2. ACCORDINGLY, T HIS GROUND IS DISMISSED AS NOT PRESSED. IN GROUND NO.3, THE ASSESSEE HAS CHAL LENGED THE DISALLOWANCE OF EXPENDITURE OF RS.23,30,296/- BEING THE COMPENSA TION PAYABLE TO EMPLOYEES ON RETRENCHMENT. 3. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISPU TE ARE, THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM HER PROPRIETARY BUS INESS OF EXPORTING GRANITES IN THE NAME AND STYLE OF M/S. PAVILION GRANITES. T HE ASSESSEE FILED A RETURN OF INCOME ORIGINALLY ON 30.8.2008 DECLARING INCOME OF RS.8,10,200/-. CONSEQUENT UPON A SEARCH AND SEIZURE OPERATION COND UCTED IN CASE OF M/S. ISWARYA DEVELOPERS U/S 132 OF THE ACT IN CASE OF THE ASSESSEE ON 22.1.2008. ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 2 A NOTICE WAS ISSUED TO THE ASSESSEE U/S 153A OF THE ACT CALLING UPON HER TO SUBMIT THE RETURN OF INCOME. IN RESPONSE TO SUCH N OTICE, THE ASSESSEE FILED HER RETURN OF INCOME ON 5.11.2009 DECLARING THE SAM E INCOME OF RS.8,10,200/- AS WAS SHOWN IN THE ORIGINAL RETURN. IN COURSE OF THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER NOTED THAT AMONGST THE INCRIMINATING MATERIAL FOUND AT THE TIME OF SURVEY IS A PROFIT & LOSS ACCOUNT FOR THE PERIOD FROM 1.4.07 TO 31.3.2008 WERE IN THE NET PROFIT WAS SHOWN AT RS.1,78,68,649/-. WHEREAS IN THE AUDITED PROFIT & LOSS ACCOUNT AND CAPITAL ACCOUNT FILED ALONG WITH THE RETURN OF INCOME IN RE SPONSE TO NOTICE U/S 153A THE NET PROFIT IS SHOWN AT RS.8,85,394/-. WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AND RECONCILE THE DIFFERENC E IN THE PROFIT SHOWN, THE ASSESSEE REPLIED THAT THE PROFIT & LOSS ACCOUNT IMP OUNDED WAS INCOMPLETE AS IT IS BASED ON THE ACCOUNTS WHICH ARE NOT COMPLETE IN ALL RESPECTS SINCE THE CLOSING ENTRIES HAVE NOT BEEN MADE. IT WAS SUBMITTE D THAT THE PROFIT & LOSS ACCOUNT FILED ALONG WITH RETURN OF INCOME IS ON THE BASIS OF THE COMPLETED ACCOUNTS WHICH SHOULD BE CONSIDERED FOR THE PURPOSE OF ARRIVING AT THE PROFIT OF THE ASSESSEE. EXPLAINING FURTHER, IT WAS SUBMIT TED THAT THE VARIATION WAS MAINLY ON ACCOUNT OF EXPENDITURE INCURRED BY THE AS SESSEE IN ITS BRANCH/DIVISION TO THE TUNE OF RS.1,18,89,750/- WHI CH WAS NOT CONSIDERED AS EXPENDITURE IN THE MAIN HEAD OF ACCOUNT AND REMAINE D AS UNADJUSTED ACCOUNT TILL THE DATE OF SURVEY OPERATIONS APART FR OM OTHER EXPENDITURE. THE ASSESSING OFFICER HOWEVER WAS NOT CONVINCED WITH TH E EXPLANATION OF THE ASSESSEE CONCLUDED THAT THE NET PROFIT SHOWN AS PER THE IMPOUNDED PROFIT & LOSS ACCOUNT AT RS.1,78,68,649/- IS THE ACTUAL PROF IT OF THE ASSESSEE. ACCORDINGLY, DEDUCTING THE NET PROFIT OF RS.8,85,39 4/- DISCLOSED BY THE ASSESSEE THE BALANCE AMOUNT OF RS.1,69,83,255/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED OF SUCH ADDITION MADE BY THE ASS ESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE C IT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ACCEPTED THE SAME A ND HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER CANNOT BE SU STAINED. HOWEVER, THE CIT(A) MADE DISALLOWANCE OF RS.10,20,590/- U/S 40A( 3) OF THE ACT. FURTHER, HE NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF R S.23,30,296/- AS ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 3 COMPENSATION PAYABLE TO THE EMPLOYEES WORKING AT AM BADA SITE. WHEN THE CIT(A) CALLED UPON THE ASSESSEE TO EXPLAIN HOW THE EXPENDITURE WHICH IS CONTINGENT IN NATURE CAN BE ALLOWED AS DEDUCTION AG AINST THE PROFITS OF THE CURRENT YEAR, AS STATED BY THE CIT(A), IT WAS CONTE NDED BY THE A.R. THAT IT IS A CRYSTALISED LIABILITY PAYABLE TO EMPLOYEES WHO LEFT THE SERVICE AND THE SAME WAS PAID IN THE SUBSEQUENT YEAR. THE CIT(A) HOWEVE R DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND HELD THAT IT BEING P URELY IN THE NATURE OF CONTINGENT LIABILITY THE SAME IS NOT ALLOWABLE AS A N EXPENDITURE. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO ADD THE AMOUNT OF RS.23,30,296/-. 5. THE LD. A.R. SUBMITTED BEFORE US THAT THE CIT(A) WAS NOT JUSTIFIED IN DISALLOWING THE EXPENDITURE CLAIMED BY TREATING IT AS CONTINGENT LIABILITY AS THE COMPENSATION HAS BECOME PAYABLE TO THE EMPLOYEES AN D WAS ACTUALLY PAID IN THE SUBSEQUENT ASSESSMENT YEAR. IT WAS SUBMITTED TH AT AS THE ASSESSEE DECIDED TO REDUCE THE BUSINESS ACTIVITY AT THE WORK SITE AT AMBADA VILLAGE, SHE HAD REMOVED THE EMPLOYEES WORKING IN THE SAID S ITE. CONSEQUENTLY ON THE BASIS OF MUTUAL UNDERSTANDING, THE ASSESSEE AGR EED TO PAY COMPENSATION TO THE SAID EMPLOYEES AND THE SAID EMPLOYEES LEFT T HEIR SERVICES IN THE FINANCIAL YEAR 2007-08 ITSELF. SUCH COMPENSATION P AYABLE TO THE EMPLOYEES WAS QUANTIFIED AT RS.23,30,296/-. IT WAS SUBMITTED THAT AS SUFFICIENT FUNDS WERE NOT AVAILABLE WITH THE ASSESSEE, THE COMPENSAT ION COULD NOT BE PAID IMMEDIATELY BUT THE SAME WAS PAID IN THE MONTH OF J ULY, 2008 IN MOST OF THE CASES PRIOR TO THE SEARCH OPERATION TOOK PLACE. IT WAS SUBMITTED THAT SINCE THE COMPENSATION AMOUNT WAS NOT PAID TO THE EMPLOYE ES BY 31.3.2008, THE SAME WAS SHOWN AS LIABILITY THOUGH THE EMPLOYEES HA VE ACTUALLY LEFT THE SERVICES. IT WAS SUBMITTED THAT THE ASSESSEE IS CON SISTENTLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE AMOUNT BECA ME PAYABLE TO THE SAID EMPLOYEES. ACCORDINGLY, PROVISION WAS MADE IN THE PROFIT & LOSS ACCOUNT AS OUTSTANDING LIABILITY AS ON 31.3.2008. IT WAS SUBMI TTED THAT AS THE LIABILITY TO PAY COMPENSATION HAS CRYSTALLIZED DURING THE YEAR U NDER CONSIDERATION IT CANNOT BE TREATED AS CONTINGENT LIABILITY. 6. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT TH E ACCOUNTS OF THE ASSESSEE ITSELF WOULD SHOW THAT THE COMPENSATION WA S PAID TO THE RETRENCHED ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 4 EMPLOYEES IN THE FINANCIAL YEAR 2008-09. THEREFORE , IT CANNOT BE SAID THAT THE LIABILITY HAS CRYSTALISED DURING THE YEAR UNDER CONSIDERATION. THE LD. D.R. SUBMITTED THAT THOUGH IN COURSE OF THE PROCEEDING B EFORE HIM THE CIT(A) HAS SPECIFICALLY ASKED THE ASSESSEE TO PROVE THE RETREN CHMENT OF EMPLOYEES DURING THE YEAR UNDER CONSIDERATION, WHICH THE ASSE SSEE HAS NOT BEEN ABLE TO SUBSTANTIATE. IT WAS SUBMITTED BY THE LD D.R. THAT SINCE THE RETRENCHED EMPLOYEES WERE WORKING IN THE MINE IT IS HIGHLY IMP ROBABLE THAT THEY WOULD HAVE WAITED FOR THE COMPENSATION FOR MORE THAN 6 MO NTHS. HE THEREFORE SUBMITTED THAT THE DISALLOWANCE HAS BEEN RIGHTLY MA DE BY THE CIT(A). 7. WE HAVE CONSIDERED SUBMISSIONS OF THE PARTIES AN D PERUSED THE ORDER OF THE LD. CIT(A) AND OTHER MATERIALS ON RECORD. T HERE IS NO DISPUTE TO THE FACT THAT THE COMPENSATION WAS ACTUALLY PAID TO THE EMPLOYEES DURING THE FINANCIAL YEAR 2008-09 RELEVANT TO THE ASSESSMENT Y EAR 2009-10. HOWEVER, IT IS CLAIM OF THE ASSESSEE THAT THE LIABILITY TO PAY COMPENSATION HAS CRYSTALISED DURING THE IMPUGNED ASSESSMENT YEAR. IN THIS CONTEX T, THE ACTUAL RETRENCHMENT OF EMPLOYEES AND UNDERSTANDING WITH TH EM TO PAY COMPENSATION AND ACTUAL QUANTIFICATION OF THE COMPE NSATION AMOUNT ASSUMES IMPORTANCE. SINCE THE ASSESSEE HAS NOT SUBSTANTIAT ED THESE FACTS BEFORE THE FIRST APPELLATE AUTHORITY, WE ARE INCLINED TO GRANT ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM ON COMPENSATION PAYABLE TO THE RETRENCHED EMPLOYEES BY FURNISHING NECESSARY DETAILS/EVIDENCES TO SHOW THAT THE EMPLOYEES WERE ACTUALLY RETRENCHED DURING THE FINAN CIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE AND THE COMPENSATION AMOUNT PAYABLE TO THEM WAS QUANTIFIED. ACCORDINGLY, WE REMIT THE MAT TER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH AFTER A FFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. THIS APPEAL IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. ITA 37/VIZAG/2012 9. THE ASSESSEE HAS RAISED ALTOGETHER 7 GROUNDS. G ROUND NOS.1 & 7 BEING GENERAL IN NATURE NEED NOT BE ADJUDICATED. I N THE WRITTEN SUBMISSION DATED 31.10.2012 FILED BEFORE US THE LD. A.R. HAS E XPRESSED HIS INTENTION NOT ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 5 TO CONTEST GROUND NOS.2 & 3. ACCORDINGLY, THESE TW O GROUNDS ARE DISMISSED AS NOT PRESSED. IN GROUND NO.4, THE ASSESSEE HAS C HALLENGED THE DIRECTION OF THE CIT(A) TO ADD THE LOSS ON SALE OF MACHINERY CLA IMED BY THE ASSESSEE. 10. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISP UTE ARE, DURING THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER ON THE BASIS OF PROFIT & LOSS ACCOUNT FOUND AND IMPOUNDED IN COURSE OF SURVEY NOT ICED THAT THE PROFIT AS PER THE IMPOUNDED PROFIT & LOSS ACCOUNT IS SHOWN AT RS.29,60,235/-, WHEREAS IN THE AUDITED PROFIT & LOSS ACCOUNT FILED ALONG WI TH THE RETURN IN RESPONSE TO NOTICE U/S 153A OF THE ACT, THE ASSESSEE HAS SHOWN NET LOSS OF RS.2,40,557/-. THE ASSESSING OFFICER THEREFORE ASKED THE ASSESSEE TO EXPLAIN AND RECONCILE THE DIFFERENCE. THOUGH THE ASSESSEE SUBMITTED ITS EXPLANATION EXPLAINING THE DIFFERENCE BUT THE ASSESSING OFFICER WAS NOT CONVIN CED WITH THE SAME AND PROCEEDED TO ESTIMATE THE PROFIT OF THE ASSESSEE BY APPLYING THE RATE OF 47.5% ON THE TURNOVER OF RS.1,76,59,688/- AND ACCOR DINGLY WORKED OUT THE NET PROFIT AT RS.83,31,035/- AFTER ALLOWING DEPRECI ATION OF RS.57,316/-. AGAINST THE ASSESSMENT ORDER SO PASSED, THE ASSESSE E PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE HELD AS UNDER: FINDINGS: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS FACTS OF THE CASE. THE APPELLANTS CONTENT ION THAT THERE WAS NO PROFIT AND LOSS A/C IMPOUNDED BY THE DEPARTMENT FROM 1.4.2008 TO 19.8.2008 IS NOT CORRECT. THE HEADING IN THE IM POUNDED DOCUMENT CLEARLY READS AS PAVILLION GRANITES, PROFIT AND LOSS A/C, 1 APR 2008 TO 19 AUG 2008 WHICH CLEARLY SAYS THAT THE DOCUMENT IS NOTHING BUT PROFIT AND LOSS A/C FOR THE SAID PERIOD. THE ASSESSING OFFICER HAD SPECIFICALLY ASKED THE ASSESS EE TO FURNISH THE PROFIT AND LOSS A/C IN TWO PARTS I.E. ONE FOR THE P ART PERIOD 1.4.2008 TO 19.8.2008 AND THE OTHER FOR THE BALANCE ACCOUNTI NG PERIOD 20.8.2008 TO 31.3.2009; AND ALSO TO RECONCILE AND E XPLAIN THE DIFFERENCE WITH CREDIBLE AND VERIFIABLE EVIDENCES. THE ASSESSEE DID NOT CHOOSE TO FILE THE INFORMATION CALLED FOR BY TH E ASSESSING OFFICE4R. INSTEAD, THE ASSESSEE MADE AN ARGUMENT B EFORE THE AO AS WELL AS BEFORE ME THAT THERE WAS NO PROFIT AND LOSS A/C FOR THE PERIOD 1.4.2008 TO 19.8.2008 WHICH IS NOT CORRECT. IN THE ABSENCE OF ANY INFORMATION WITH EXPLANATION FORTHCOMING FRO M THE ASSESSEE, THE AO, BASING ON THE IMPOUNDED P&L A/C, ESTIMATED THE NET PROFIT ADOPTING THE PERCENTAGE OF 47.5% ON THE ENTIRE TURN OVER. I FIND THAT THE ESTIMATION OF PROFIT @ 47.5% FOR THE WHOLE YEAR IS ON HIGH SIDE AND THE AO IS NOT JUSTIFIED IN DOING SO. I AL SO FIND FORCE IN THE ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 6 ARGUMENT OF THE APPELLANT THAT PROFIT PERCENTAGE CA NNOT BE THAT MUCH IN THIS LINE OF BUSINESS. BUT THERE IS A STRO NG CASE FOR REJECTION OF BOOKS OF A/C MAINTAINED BY THE ASSESSEE DUE TO T HE FACT THAT MAJOR EXPENSES ARE INCURRED IN CASH AND VOUCHERS AR E SELF MADE. IN VIEW OF THESE EVIDENCES THE BOOKS OF A/C MAINTAINED BY THE APPELLANT DOES NOT GIVE CORRECT PROFITS TO DEPEND O N. THEREFORE, ESTIMATION OF PROFIT IS NECESSARY IN THE GIVEN CONT EXT. CONSIDERING THE FACTS OF THE CASE AND EARLIER RESULTS AS WELL A S CONTENTION OF THE APPELLANT, I AM OF THE VIEW THAT ESTIMATION OF NET PROFIT @ 6% IS REASONABLE WHICH WOULD MEET ENDS OF JUSTICE. ACCOR DINGLY, THE AO IS DIRECTED TO ESTIMATE THE NET PROFIT AT 6% ON THE TURNOVER OF RS.1,76,59,688/- WHICH WORKS OUT TO RS.10,59,581/-. THIS NET PROFIT SHOULD BE SUBSTITUTED IN THE PLACE OF NET LOSS DECL ARED BY THE APPELLANT OF RS.2,40,557/-. ACCORDINGLY, THE AO IS DIRECTED TO RECOMPUTED THE TOTAL INCOME OF THE ASSESSEE BY ADDI NG LOSS ON SALE OF MACHINERY OF RS.3,60,221/-, INTEREST PAYABLE TO TML FINANCE U/S 40A(IA) OF RS.2,26,800/- AND DEPRECIATION TO BE ALL OWED AS DONE BY HIM IN THE ASSESSMENT ORDER. 11. THE LD. A.R. SUBMITTED BEFORE US THAT WHEN THE ASSESSING OFFICER AND CIT(A) HAVE REJECTED THE BOOKS OF ACCOUNTS AND ESTI MATED PROFIT, NO SEPARATE ADDITIONS COULD HAVE BEEN MADE AS SUCH ESTIMATION O F PROFIT TAKES CARE OF ALL OTHER DEDUCTIONS AND DISALLOWANCES. THEREFORE, THE DIRECTION OF THE CIT(A) TO ADD THE LOSS ON SALE OF MACHINERY IS UNCALLED FOR. 12. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE OR DER OF THE CIT(A). 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITY AS WELL AS MATERIAL S ON RECORD. IT IS OBVIOUS FROM THE ASSESSMENT ORDER AS WELL AS ORDER OF THE C IT(A) THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE HAVE BEEN REJECTED AND PRO FIT HAS BEEN ESTIMATED AT 47.5% BY THE ASSESSING OFFICER WHICH WAS REDUCED TO 6% BY THE LD. CIT(A). THEREFORE, WHEN THE BOOKS OF ACCOUNTS ARE REJECTED AND PROFIT IS ESTIMATED, THEN NO SEPARATE DISALLOWANCE RELYING ON THE SAME S ET OF BOOKS OF ACCOUNTS CAN BE MADE. THE ESTIMATION OF PROFIT MADE TAKES C ARE OF ALL DEDUCTIONS AND DISALLOWANCES. IN THE AFORESAID VIEW OF THE MATTER, WE HOLD THAT THE CIT(A) IS NOT JUSTIFIED IN DIRECTING ADDITION OF RS.3,60,221/ - CLAIMED BY THE ASSESSEE ON ACCOUNT OF LOSS ON SALE OF MACHINERY. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE SAME. ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 7 14. GROUND NO.5 RELATES TO DISALLOWANCE MADE U/S 40 (A)(IA) OF THE ACT. THE CONTENTION OF THE LD. A.R. IS WHEN THE PROFIT O F THE ASSESSEE IS ESTIMATED AFTER REJECTING THE BOOKS OF ACCOUNTS, SEPARATE DIS ALLOWANCE U/S 40(A)(IA) OF THE ACT CANNOT BE MADE. IN SUPPORT OF SUCH CONTENT ION, HE HAS RELIED ON THE DECISION OF THE HONBLE A.P. HIGH COURT IN CASE OF INDWELL CONSTRUCTION LTD. VS. CIT 232 ITR 776 AND THE DECISION OF THE ITAT KO LKATA SPECIAL BENCH IN CASE OF KENARAM SAHA AND SUBHASH SAHA 301 ITR (AT) 171 (SB). 15. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIALS ON RECORD. UNDISPUTEDLY, IN CASE OF THE ASSESSEE NET PROFIT HAS BEEN ESTIMATED AFTER REJECTING THE BOOKS OF ACCOUNT S OF THE ASSESSEE. HENCE, NO SEPARATE DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT AS HELD BY THE HONBLE A.P. HIGH COURT IN CASE OF INDWELL CONSTRUCT ION VS. CIT (SUPRA) AND BY THE ITAT KOLKATA SPECIAL BENCH IN CASE OF KENARA M SAHA (SUPRA). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DEL ETE THE ADDITION MADE. 16. IN GROUND NO.6 THE ASSESSEE HAS CHALLENGED THE D IRECTION OF THE CIT(A) TO ALLOW DEPRECIATION AS HAS BEEN DONE BY THE ASSES SING OFFICER IN THE ASSESSMENT ORDER. 17. THE LD. A.R. SUBMITTED THAT THE ASSESSING OFFIC ER HAD ALLOWED DEPRECIATION WHICH WAS DEBITED TO THE PROFIT & LOSS ACCOUNT (BELOW THE LINE) WITHOUT NOTICING THE FACT THAT THE ASSESSEE HAD CLA IMED DEPRECIATION UNDER THE HEAD OF MANUFACTURING EXPENSES ON THE ASSETS US ED IN THE MANUFACTURING ACTIVITY WHICH WAS DEBITED TO PROFIT & LOSS ACCOUNT (ABOVE THE LINE) BEFORE ARRIVING AT THE GROSS PROFIT SINCE THE DEPRECIATION IS RELATABLE TO THE ASSETS USED IN THE MANUFACTURING ACTIVITY. IT WAS SUBMITTE D THAT SUCH DEPRECIATION CLAIMED BY THE ASSESSEE IS OF RS.17,79,047/-. HOWE VER, THE OVERALL DEPRECIATION ALLOWABLE AS PER INCOME TAX RULES, AS CLAIMED BY THE ASSESSEE IS OF RS.18,90,524/-. IT WAS SUBMITTED THAT AS THE CIT (A) AND THE ASSESSING OFFICER, IN PRINCIPLE, AGREED TO ALLOW DEPRECIATION , THE ACTUAL DEPRECIATION AS CLAIMED BY THE ASSESSEE OF RS.18,90,524/- SHOULD BE ALLOWED OUT OF THE INCOME ESTIMATED BY THE CIT(A). IT WAS THEREFORE SU BMITTED THAT NECESSARY ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 8 DIRECTIONS TO BE ISSUED TO THE ASSESSING OFFICER TO ALLOW DEPRECIATION AS APPLICABLE OUT OF THE PROFIT ESTIMATED. 18. THE LD. D.R. SUBMITTED THAT ONCE PROFIT IS ESTI MATED, NO SEPARATE DEDUCTION TOWARDS DEPRECIATION IS TO BE ALLOWED. 19. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIALS ON RECORD. AS CAN BE SEEN FROM THE ASSES SMENT ORDER, ASSESSING OFFICER HIMSELF HAS ALLOWED DEPRECIATION WHILE COMP UTING NET PROFIT OF THE ASSESSEE. THE CIT(A) HAS ALSO DIRECTED FOR ALLOWAN CE FOR DEPRECIATION AS HAS BEEN DONE BY THE ASSESSING OFFICER. SINCE THE DEPA RTMENT HAS NOT APPEALED AGAINST THE ORDER OF THE CIT(A), THE CONTENTION OF THE LD. D.R. THAT NO DEPRECIATION IS ALLOWABLE CANNOT BE ACCEPTED. SO F AR AS THE ASSESSEES CLAIM IS CONCERNED, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE OTHER MATERIALS ON RECORD, WE ARE OF THE VIEW THAT SAME NEEDS TO BE CONSIDERED AFRESH BY THE ASSESSING OFFICER WH O SHALL EXAMINE THE ISSUE AND ALLOW DEPRECIATION IN ACCORDANCE WITH LAW AFTER EXAMINING ALL THE NECESSARY DETAILS AND AFFORDING A REASONABLE OPPORT UNITY OF BEING HEARD. HOWEVER, WE MAKE IT CLEAR THAT ASSESSING OFFICER WH ILE COMPUTING THE INCOME OF THE ASSESSEE AS PER OUR DIRECTIONS HEREIN ABOVE MUST ENSURE THAT THE INCOME DETERMINED IN NO CASE SHOULD BE BELOW THE IN COME RETURNED BY THE ASSESSEE. 20. HENCE, GROUND NO.6 IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. 21. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED PRONOUNCED IN THE OPEN COURT ON 8 TH JULY14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 8 TH JULY, 2014 ITA NOS.36&37/VIZAG/2012 SURAPANI LATHA, VSKP 9 COPY TO 1 SMT. SURAPANENI LATHA, 201, SILVER LEAF APARTMENT S, PLOT NO.36, KIRLAMPUDI LAYOUT, VISAKHAPATNAM 2 THE CIT,(A)-I, HYDERABAD 3 THE DCIT CENTRAL CIRCLE-2, VISAKHAPATNAM 4 THE DR, ITAT, VISAKHAPATNAM. 5 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM