M/s K. Venkataraju, V. THE ADD.CIT , RAJAHMUNDRY RANGE, Rajahmundry

ITA 409/VIZ/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0188 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: TH LUCAS PETER
• Keywords: Rejection of books of accounts; Business income; Depreciation; Unabsorbed depreciation; Capital expenditure
• Section: 44AD; 142(1); 37

Judgement Text

ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 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.370/VIZAG/2012 ( / ASSESSMENT YEAR : 2009-10 ) ACIT CIRCLE - 1 RAJAHMUNDRY VS. M/S. K. VENKATA RAJU VEMAGIRI, E.G. DIST. [ PAN: AABFK 4007A] ( , ,, , / APPELLANT) (-., -., -., -., / RESPONDENT ) . .. ./ // / I.T.A.NO.409/VIZAG/2012 ( / ASSESSMENT YEAR : 2009-10 ) M/S. K. VENKATA RAJU VEMAGIRI, E.G. DIST. VS. A DDL. CIT RAJAHMUNDRY RANGE (, , , , / APPELLANT) (-., -., -., -., / RESPONDENT ) , / / APPELLANT BY : SHRI TH. LUCAS PETER, DR -., / / RESPONDENT BY : SHRI G.V.N. HARI, AR / 3 / DATE OF HEARING : 29.10.2015 / 3 / DATE OF PRONOUNCEMENT : 30.11.2015 ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE REVENUE AS WELL AS ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER OF CIT (A), VISAK HAPATNAM DATED 30.7.2012 FOR THE ASSESSMENT YEAR 2009-10. SINCE T HE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THEY ARE CLUBBED, HEAR D TOGETHER AND DISPOSED OFF BY WAY OF THIS COMMON ORDER FOR THE SA KE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF CIVIL CONS TRUCTION, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 25.9.2 009 DECLARING TOTAL INCOME OF RS.1,76,59,741/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES US 143(2) AND 142(1) OF THE INCOME TAX ACT (HEREINAFTER CALLED AS THE ACT) WERE ISSUED ON 23.8.2010 WHICH WAS DU LY SERVED ON 14.9.2010. IN RESPONSE TO THE SHOW CAUSE NOTICE, T HE ASSESSEES AR APPEARED FROM TIME TO TIME AND FURNISHED THE BOOKS OF ACCOUNTS AND OTHER DETAILS AS REQUIRED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER, HOWEVER, DID NOT CONVINCED WITH THE EXPLANATIONS FU RNISHED BY THE ASSESSE, REJECTED THE BOOKS OF ACCOUNTS AND ESTIMAT ED THE NET PROFIT OF 10% ON DIRECT CONTRACTS AND 8% NET PROFIT ON SUB CO NTRACT WORKS EXECUTED BY THE ASSESSEE. SIMILARLY, THE A.O. ESTI MATED 20% NET PROFIT ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 3 ON TOTAL SALES OF RS.71,42,650/- FROM THE BUSINESS OF SAND SALES. APART FROM THESE ADDITIONS, THE ASSESSING OFFICER MADE SE PARATE ADDITIONS TOWARDS INTEREST ON BANK DEPOSITS AND ALSO DISALLOW ED THE CLAIM OF DEPRECIATION, REMUNERATION AND INTEREST ON PARTNER S CAPITAL ACCOUNT. THUS, THE AO, COMPLETED THE ASSESSMENT AND DETERMIN ED THE TOTAL INCOME OF RS.5,18,49,508/- AS AGAINST THE DECLARED INCOME OF RS.1,76,59,741/-. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A). BEFORE CIT (A), THE ASS ESSEE CONTENDED THAT THE AO WAS NOT RIGHT IN REJECTING THE BOOKS OF ACCO UNTS, AS THE ASSESSEE HAS FURNISHED COMPLETE BOOKS OF ACCOUNTS ALONG WITH BILLS AND VOUCHERS FOR THE EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUN T. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. WAS NOT CORRECT IN ESTIMATING NET PROFIT OF 10% ON DIRECT CONTRACT, 8% ON SUB CONTRACTS AND 4 % ON SUB CONTRACTS GIVEN TO THIRD PARTIES. THE ASSESSEE CON TENDED THAT THE ELEMENT OF PROFIT IN THESE CONTRACT WORKS IS LESS A ND ALSO IT IS CONSISTENTLY DECLARING NET PROFIT RANGING FROM 5% T O 6% IN PREVIOUS FINANCIAL YEARS, THEREFORE, THE AOS ESTIMATION OF NET PROFIT APPLYING THE ABOVE RATE IS AT HIGHER SIDE. AS FAR AS THE ISSUE OF ESTIMATION OF NET PROFIT FROM SUB CONTRACT IS CONCERNED, THE ASSESSEE STATED THAT ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 4 ESTIMATION OF NET PROFIT @ 8% ON SUB-CONTRACT WORK S IS NOT CORRECT, AS THE SAME AO ESTIMATED NET PROFIT @ 6% ON SUB CONTRA CTS IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 . FURTHER, IT IS SUBMITTED THAT ESTIMATION OF 4% NET PROFIT FROM SUB CONTRACTS GIVEN TO THIRD PARTIES, IS QUITE CONTRARY TO THE PREVAILING PRACTICES AND ALSO STATED THAT NORMALLY THE NET PROFIT ELEMENT IN THE SUB CON TRACT WORKS GIVEN TO THE THIRD PARTIES IS AT 1%. TO SUPPORT HIS ARGUMEN T, THE ASSESSEE HAS FURNISHED CERTAIN ASSESSMENT ORDERS WHEREIN THE NET PROFIT ESTIMATED ON SUB CONTRACT GIVEN TO THIRD PARTIES IS AT 1%. THE A.R FURTHER CONTENDED THAT THE ASSESSING OFFICER IS NOT CORRECT IN ESTIMA TING NET PROFIT OF 20% ON SAND SALES, BECAUSE THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS AND VOUCHERS IN RESPECT OF THE SAID BUSINESS, THERE FORE, REJECTING THE BOOKS OF ACCOUNTS AND ESTIMATING NET PROFIT FROM SA LE OF SAND IS TOTALLY INCORRECT. AS REGARDS THE SEPARATE ADDITION TOWARD S INTEREST INCOME IS CONCERNED, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS KEPT FIXED DEPOSIT IN BANK FOR THE PURPOSE OF GETTING BANK GUA RANTEES TO BE GIVEN TO THE PRINCIPLES FOR OBTAINING CONTRACTS. THEREFO RE, ANY INCOME IN THE FORM OF INTEREST RECEIPTS FORMS PART OF BUSINESS RE CEIPTS, HENCE, THE SAME SHOULD BE CONSIDERED AS PART OF GROSS CONTRACT RECEIPTS. THEREFORE, IT IS ARGUED THAT THE A.O. IS NOT JUSTIF IED IN MAKING SEPARATE ADDITION TOWARDS INTEREST INCOME, WHEN INCOME IS ES TIMATED FROM ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 5 CONTRACT RECEIPTS. AS REGARDS THE ADDITION TOWARDS DIFFERENCE OF DEPRECIATION OF RS.45,10,496/-, THE ASSESSEE SUBMIT TED THAT AS PER THE PREVAILING PRACTICE, IT HAS DEBITED AN AMOUNT OF RS .2,07,92,245/- DEPRECIATION COMPUTED AS PER BOOKS OF ACCOUNT, HOWE VER, WHILE MAKING ADJUSTMENT TO THE TOTAL INCOME, ADDED BACK THIS DEP RECIATION TO THE NET PROFIT AND CLAIMED DEDUCTION OF RS.2,55,93,041/- AS PER INCOME TAX RULES. WHEN THIS DISCREPANCY WAS POINTED OUT TO TH E ASSESSEE, THE ASSESSEE FILED REVISED COMPUTATION RECTIFYING THE S AID MISTAKE ADMITTING TOTAL INCOME OF RS.2,21,70,240/- AS AGAINST THE ORI GINAL TOTAL INCOME OF RS.1,76,59,740/-, THEREFORE, THERE IS NO DIFFERENCE AS POINTED OUT BY THE A.O. THE ASSESSEE FURTHER CONTENDED THAT A.O. IS N OT CORRECT IN MAKING SEPARATE ADDITION TOWARDS DIFFERENCE IN DEPRECIATIO N, WHEN NET PROFIT IS ESTIMATED FROM GROSS RECEIPTS. AS FAR AS THE ISSUE OF DEDUCTIONS FOR REMUNERATION, INTEREST ON CAPITAL ACCOUNTS AND DEPR ECIATION, THE ASSESSEE CONTENDED THAT THE A.O. SHOULD HAVE ALLOWE D SEPARATE DEDUCTIONS TOWARDS DEPRECIATION, REMUNERATION TO PA RTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT, AS THE SAME ARE IN TH E NATURE OF STATUTORY DEDUCTIONS PROVIDED UNDER THE ACT AND ALSO THE ACT PROVIDES FOR DEDUCTIONS TOWARDS THESE ITEMS EVEN IF, THE NET PRO FIT IS ESTIMATED. 4. THE CIT, HOWEVER, AFTER CONSIDERING THE SUBMISSI ONS MADE BY THE ASSESSEE HELD THAT THE A.O. WAS RIGHT IN REJECTING THE BOOKS OF ACCOUNTS, ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 6 AS THE A.O. HAS POINTED OUT VARIOUS MISTAKES IN THE BOOKS OF ACCOUNTS FOR WHICH ASSESSEE HAS NO EXPLANATION. IN VIEW OF THE ANOMALIES IN THE BOOKS OF ACCOUNTS, THE AO RIGHTLY CONCLUDED THAT TH E NET PROFIT FROM THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE CANNOT BE COMPUTED, THEREFORE, UPHELD THE REJECTION OF BOOKS OF ACCOUNT S. THE CIT (A) FURTHER HELD THAT ESTIMATION OF NET PROFIT FROM THE CONTRACT RECEIPTS DEPENDS UPON MANY FACTORS AND THE DEPARTMENT IS FOL LOWING THE ESTIMATION OF NET PROFIT FROM THE CONTRACT BUSINESS . THE CIT (A) FURTHER HELD THAT THE TRIBUNAL HAVE UPHELD THE ESTIMATION O F NET PROFIT FROM 8% TO 12,5% IN RESPECT OF MAIN CONTRACTS AND 2% TO 7% IN RESPECT OF SUB CONTRACTS. THEREFORE, CONSIDERING RATIO OF THE HYD ERABAD TRIBUNAL JUDGEMENT IN THE CASE OF SHRI EASHWAR REDDY AND COM PANY IN ITA NO.668 AND 670/HYD/2009 AND ALSO SPECIAL BENCH DECI SION IN THE CASE OF ARIHANT BUILDERS PVT. LTD VS. ACIT 291 ITR 49, DIRE CT THE AO TO ESTIMATE THE NET PROFIT OF 8% ON MAIN CONTRACTS, 5% ON SUB C ONTRACTS AND 1% ON SUB CONTRACTS EXECUTED THROUGH THIRD PARTIES. AS F OR AS THE ESTIMATION OF INCOME FROM SAND BUSINESS IS CONCERNED, CONSIDERING THE ASSESSEES EXPLANATIONS, THE CIT (A) SCALED DOWN THE ESTIMATIO N FROM 20% TO 15% AND DIRECT THE AO TO RE-COMPUTE THE NET PROFIT @ 15 % ON GROSS SALES. AS REGARDS THE SEPARATE ADDITIONS TOWARDS INTEREST INCOME IS CONCERNED, THE CIT (A) HELD THAT IN VIEW OF JUDGEMENTS OF HON BLE PATNA HIGH COURT ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 7 AND ALSO DECISION OF KARNATAKA HIGH COURT IN THE CA SE OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS 297 ITR 70, NO SEPARATE AD DITION ON ACCOUNT OF INTEREST INCOME IS TO BE MADE AS THE INTEREST EA RNED FROM THE BANK DEPOSITS ARE KEPT AS MARGIN MONEY FOR OBTAINING BAN K GUARANTEE AND THE SAME IS USED FOR THE PURPOSE OF SECURING CONTRA CT WORKS, THEREFORE, THE SAME WOULD BE ASSESSABLE AS PART OF BUSINESS IN COME. 5. AS REGARDS THE ADDITION OF DEPRECIATION OF RS.45 ,10,496/- IS CONCERNED, THE CIT (A) HELD THAT ONCE NET PROFIT IS ESTIMATED APPLYING THE NET PROFIT RATE, NO SEPARATE ADDITIONS TOWARDS ANY EXPENDITURE CAN BE MADE TO THE TOTAL INCOME. THEREFORE, THE ORIGIN AL COMPUTATION/REVISED COMPUTATION, THE DEPRECIATION C LAIM MADE BY THE ASSESSEE LOSES THEIR RELEVANCE. THEREFORE, A.O. IS NOT CORRECT IN MAKING SEPARATE ADDITIONS TOWARDS THE DIFFERENCE BETWEEN T HE ORIGINAL AND REVISED COMPUTATIONS OF DEPRECIATION. AS FAR AS TH E ISSUE OF DEDUCTIONS TOWARDS REMUNERATION TO PARTNERS, INTEREST ON CAPIT AL AND DEPRECIATION IS CONCERNED, THE CIT (A) DIRECTED THE A.O. TO ALLOW I NTEREST AND REMUNERATION PAID TO THE PARTNERS AS PER THE PROVIS IONS OF SECTION 40(D) OF THE ACT. HOWEVER, THE CIT (A) REJECTED THE CLAI M OF DEDUCTION TOWARDS DEPRECIATION AND HELD THAT IN VIEW OF THE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF I NDWELL CONSTRUCTIONS VS. ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 8 CIT 232 ITR 776 AND ALSO HYDERABAD TRIBUNAL A BEN CH DECISION IN THE CASE OF SHRI EASHWAR REDDY AND COMPANY, CONFIRMED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIEVED BY THE CIT (A) ORDER THE REVENUE AS WELL AS ASSESSEE ARE IN APPEAL BEFORE US . 6. THE A.R. SUBMITTED THAT THE CIT (A) WAS NOT CORR ECT IN ESTIMATING NET PROFIT OF 8% ON MAIN CONTRACTS, 5% ON SUB CONTR ACTS AND 1% SUB CONTRACT WORKS GIVEN TO THIRD PARTIES. THE ASSESSE E HAS ADMITTED 5.28% NET PROFIT ON TOTAL CONTRACT RECEIPTS, WHICH IS REA SONABLE COMPARED TO THE NATURE OF WORKS EXECUTED BY THE ASSESSEE. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS AND RELEVANT VOUCHERS AND THE BOOKS OF ACCOUNTS ARE AUD ITED BY THE AUDITOR, HENCE, REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATIO N OF NET PROFIT IS INCORRECT. THE AR FURTHER SUBMITTED THAT THE FINAL AMOUNT OF INCOME AFTER RELIEF GIVEN BY THE LD. CIT (A), WORKS OUT TO APPROXIMATELY 10% OF GROSS RECEIPTS AS AGAINST 5.28% ADMITTED BY THE ASS ESSE, WHICH IS HIGHER THAN THE INCOME IN THIS LINE OF BUSINESS. T HEREFORE, REQUESTED TO ESTIMATE THE NET PROFIT @ 8% IN RESPECT OF MAIN CON TRACTS, 4% IN RESPECT OF SUB CONTRACT WORKS AND 1% IN RESPECT OF SUB CONTRACT EXECUTED TO THIRD PARTIES. ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 9 8. ON THE OTHER HAND, THE D.R. SUBMITTED THAT THE C IT (A) ERRED IN SCALED DOWN THE NET PROFIT ESTIMATED BY THE ASSESSI NG OFFICER TO 8% ON MAIN CONTRACTS, 4% ON SUB CONTRACTS AND 1% ON SUB C ONTRACT WORKS GIVEN TO THIRD PARTIES RESPECTIVELY AS AGAINST THE NET PROFIT ESTIMATED BY THE ASSESSING OFFICER AT 10%. THE D.R. FURTHER ARG UED THAT THE ASSESSEE IS A BIG CONTRACTOR HAVING A ANNUAL CONTRACT RECEIP TS OF RS. RS.31,45,36,573/- FOR THE RELEVANT YEAR, THEREFORE, ESTIMATION OF NET PROFIT BY TAKING THE INPUTS FROM THE PROVISIONS OF SECTION 44AD OF THE ACT IS NOT AT ALL CORRECT. THEREFORE, REQUESTED TO UPH OLD THE ASSESSMENT ORDER. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. IN THIS CASE, THE ASSESSING O FFICER REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE NET PROFIT FROM CONTRACT RECEIPTS @ 10% ON MAIN CONTRACTS, 8% ON SUB CONTRACTS AND 4% O N SUB CONTRACTS EXECUTED THROUGH THIRD PARTIES. THE ASSESSEE CONTE NDED THAT IT IS CONSISTENTLY DECLARING A NET PROFIT OF 5% TO 6% FOR THE PAST SEVERAL YEARS WHICH WAS ACCEPTED BY THE DEPARTMENT. THE AS SESSEE FURTHER SUBMITTED THAT THE ELEMENT OF PROFIT IN WORKS CONTR ACTS IS LESS, BECAUSE THERE IS A HUGE COMPETITION IN THE MARKET. THEREFO RE, THE PROFIT DECLARED BY THE ASSESSEE SHOULD BE ACCEPTED. THE C IT (A) AFTER ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 10 CONSIDERING THE ASSESSEES SUBMISSIONS SCALED DOWN THE NET PROFIT ESTIMATED BY THE ASSESSING OFFICER TO 8% ON MAIN CO NTRACTS, 5% ON SUB CONTRACTS AND 1% ON SUB CONTRACT WORKS EXECUTED THR OUGH THIRD PARTIES. WHILE DOING SO, THE CIT (A) RELIED UPON THE ITAT SPE CIAL BENCH DECISION IN THE CASE OF ARIHANT BUILDERS PVT. LTD. VS. ACIT 291 ITR 49 AND ALSO HYDERABAD BENCH DECISION IN THE CASE OF C. EASHWAR REDDY AND COMPANY IN ITA NO.668 & 670/HYD/2009. WE HAVE GONE THROUGH THE CIT (A)S ORDER AND ALSO CASE LAWS RELIED UPON BY T HE PARTIES. IT IS AN ADMITTED FACT THAT ESTIMATION OF NET PROFIT FROM CI VIL CONTRACTS RECEIPTS IS CONSISTENTLY FOLLOWED BY THE DEPARTMENT ON VARIOUS RATES DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THE ITAT HAVE UPHELD THE ESTIMATION OF NET PROFIT RANGING FROM 8% TO 12. 5% ON MAIN CONTRACTS AND 2% TO 7% ON SUB CONTRACT. THE COORDIN ATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ARIHANT BUILDERS PVT. LTD. (SUPRA) TOOK A CLUE FROM SECTION 44AD OF THE ACT, HELD THAT 8% NET PRO FIT FROM CIVIL CONTRACTS IS JUSTIFIED. THE RELEVANT PORTION OF TH E HONBLE TRIBUNAL ORDERS IS REPRODUCED HEREUNDER: WE HAVE CAREFULLY GONE THROUGH THE ORDER OF TH IS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA), K. C. REDDY ASS OCIATES (SUPRA), SRI SRINIVASA CONSTRUCTIONS (SUPRA) AND M. BHASKAR REDDY (SUPRA). NO DOUBT THIS TRIBUNAL ESTIMATED THE PROFIT FROM 12.59165 TO 8% DEPENDING UPON THE FACTUAL SITUATION. THE LEARNED DR MADE AN ATTEMPT TO DISTINGUISH THE O RDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) ON THE GROUND THAT THE TURNOV ER IS ONLY RS.54, 40,420. IT IS A WELL KNOWN FACT THAT WHENEVER THE TURNOVER INC REASES THE PROFIT RATIO ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 11 WOULD GO DOWN. MERELY BECAUSE THE TURNOVER INCREASE S THE PROFIT MAY NOT GO UP. THEREFORE, WE DO NOT AND ANY JUSTIFICATION IN T HE DISTINCTION MADE BY THE LEARNED DR TO SHOW THAT THIS TRIBUNAL ESTIMATED THE PROFIT AT 8% IN THE CASE OF M. BHASKAR REDDY (SUPRA) ONLY BECAUSE THE TURNOVER WAS RS.51, 40,420. A BARE READING OF THE ORDER OF THIS TRIBUNAL IN M. BHASKAR REDDY (SUPRA) DEARLY SHOWS THAT THIS TRIBUNAL AFTER CONSIDERING THE JUDGEMENT OF THE APEX COURT IN C. VELUKUTTY, 60 ITR 239 AND THE DECISION OF THE SPECI AL BENCH OF THIS TRIBUNAL IN ARIHANT BUILDERS PVT. LTD. VS. AC17 291 41 (SB) AND BY TAKING A DUE FROM SECTION 44AD OF LT ACT THE PROFIT WAS ESTIMATED 896. ADMITT EDLY SECTION 44AD WOULD BE APPLICABLE IN RESPECT OF A CASE WHERE THE GROSS 4ON TRACT RECEIPT DOES NOT EXCEED RS. 40 LAKHS. WHEREVER THE GROSS CONTRACT RECEIPTS EXCEED RS.40 LAKHS THE PROVISIONS OF SECTION 44AD ARE NOT APPLICABLE. THER EFORE, THE PROFIT CAN BE ESTIMATED EITHER AT LOWER THAN 896 OR ABOVE 89 1 6 DEPENDING UPON THE FACTUAL SITUATION. AS DISCUSSED EARLIER, FOR THE PURPOSE OF ESTIMATING THE PROFIT VARIOUS FACTORS SUCH AS THE PROFIT RATIO OF THE ASSESSEE IN THE EARLIER YEAR, PROFIT RATIO OF THE SIMILARLY PLACED TRADERS IN THE SAME LOCALITY, DEMAND FOR THE PRODUCT, AVAILABILITY OF LABOURERS, RAW MATERIALS, ETC., AND THE TIME GAP AVAILABLE FOR EXECUTING THE CONTRACT WORK, ETC., HAVE TO BE TAKEN INTO CONSIDERATION. THEREFORE, II OUR OPINION, REFERENCE TO EARLIER ORDER OF THIS TRIBUNAL ALONE FOR THE PURPOSE OF ESTIMATING THE PROFIT AT 12.59 1 0 MAY NOT BE JUSTIFIED AT ALL. 9. IN FACT, IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS IN ITA NOS. 116 AND 117/HYD/2007 FOR A. YS. 1993-94 AND 1994-95 THE TRI BUNAL ESTIMATED THE PROFIT ONLY AT 8% EVEN THOUGH THE PROFIT WAS ESTIMATED AT 12.5% FOR A . Y. 1992-92. THIS ITSELF SHOWS THAT FOR EACH YEAR THE PROFIT HAS TO BE ESTIMATED DEPENDING UPON THE FACTORS WHICH PREVAIL IN THE LOCALITY. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDERS OF T HE LOWER AUTHORITIES. THE CIT(A) AFTER REFERRING TO THE DECISION OF THIS TRIBUNAL IN THE CASE OF KRISHNAMOHAN CONSTRUCTIONS (SUPRA) AND THE SPECIAL BENCH DECISION IN ARIHANT B UILDERS (SUPRA) ESTIMATED THE PROFIT AT 8% FOR MAIN CONTRACT AND FOR SUB CONTRACT AT 5%. IT MA Y NOT BE OUT OF PLACE TO MENTION THAT THIS TRIBUNAL UNIFORMLY ESTIMATING THE PROFIT FROM MAIN CONTRACT AT 8% TO 12.5% DEPENDING UPON THE FACTUAL SITUATION AND 5% TO 7% ON THE SUB CONTRACT DEPENDING UPON THE FACTUAL SITUATION. THEREFORE, IN OUR OPINION, ESTIMATION OF PROFIT AT 8% BY THE CIT(A) ON MAIN CONTRACT AND AT 5% ON SUB CONTRACT IS JUSTIFIED. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY THE SAME IS CONFIR MED. 10. THE ITAT, HYDERABAD BENCH IN THE CASE OF ACIT V S. TEJA CONSTRUCTIONS IN ITA NO.1191/HYD/2001, WHILE DEALIN G WITH THE SIMILAR ISSUE HELD AS UNDER: THE ASSESSEES PAST TRACK RECORDS SHOW THAT THE AS SESSEE HAS NEGLECTED THE PRESENTING OF THE BOOKS OF ACCOUNT IN ACCORDANCE WITH LAW. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY ON ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 12 THE PART OF THE ASSESSEE TO PRODUCE THE BOOKS OF AC COUNT SUPPORTED BY PROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS N OT PRODUCED THE PROPER BOOKS OF ACCOUNT, TRUE PROFITS OR LOSS CANNO T BE DEDUCED FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAVING NO OTHER OPTION REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INC OME AT 10 PER CENT OF GROSS RECEIPTS. BUT THE POSITION IS THAT, THE AS SESSEE IS CARRYING ON THREE KINDS OF CONTRACTS, AS IN EARLIER YEARS, I.E. , (I) OWN CONTRACTS, (II) CONTRACTS TAKEN FROM THE SUB-CONTRACTORS, (III) CON TRACTS GIVEN TO OTHER PARTIES ON SUB-CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE ITSELF. IN T HESE CONTRACTS, THE ASSESSEE AGREED THAT HIS INCOME IS AT 9 PER CENT OF THE GROSS RECEIPTS. THUS, ACCORDINGLY THE AO IS DIRECTED TO ESTIMATE TH E INCOME ON THE CONTRACTS EXECUTED BY THE ASSESSEES OWN AT 9 PER C ENT. IN CASE OF CONTRACTS TAKEN BY ASSESSEE ON SUB-CONTRACT, THE IN COME TO BE ESTIMATED AT 8 PER CENT OF THE GROSS RECEIPTS. IN CA SE OF CONTRACTS GIVEN BY THE ASSESSEE TO THE 3RD PARTY ON SUB-CONTRACT, I NCOME TO BE ESTIMATED AT 4 PER CENT. THIS IS, BECAUSE, WHEN THE ASSESSEE GIVES CONTRACT TO THE OTHER PARTIES ON SUB-CONTRACT, THE ASSESSEE CANNOT KEEP THE SAME PERCENTAGE OF PROFIT AT 9 PER CENT, IT HAS TO FORGO CERTAIN PORTION OF PROFIT I.E., AROUND 5 PER CENT TO THE SU B-CONTRACTORS. SIMILAR IS THE POSITION IN THE CASE OF CONTRACTS TAKEN BY A SSESSEE ON SUB- CONTRACT FROM OTHER PARTIES. FURTHER, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AND REMUNERATION, AND INTERESTS TO PAR TNERS ON THE PROFIT ESTIMATED BY AO AT APPLICABLE RATES, BECAUSE THE IN COME ESTIMATED AS ABOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AN D INTEREST AND REMUNERATION OF THE PARTNERS. ACCORDINGLY, THE AO I S DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. 11. IN THE PRESENT CASE ON HAND, THE ASSESSEE DECLA RED A NET PROFIT OF 5.28% ON GROSS CONTRACT RECEIPTS. THE ASSESSING OF FICER HAS ESTIMATED NET PROFIT OF 10% ON MAIN CONTRACT WORKS, 8% ON SUB CONTRACTS AND 4% ON SUB CONTRACTS EXECUTED THROUGH THIRD PARTIES. T HE CIT (A) SCALED DOWN THE NET PROFIT TO 8%, 5% AND 1% RESPECTIVELY. THE CIT (A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , RIGHTLY ESTIMATED THE NET PROFIT, THEREFORE, HIS ORDER DOES NOT REQUI RE ANY INTERFERENCE. THEREFORE, WE ARE OF THE OPINION THAT THERE IS NO E RROR OR INFIRMITY IN THE ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 13 ORDER PASSED BY THE CIT (A), HENCE, WE ARE INCLINED TO UPHELD THE ORDER OF THE CIT (A). 12. COMING TO THE NEXT ISSUE, I.E. ADDITIONS TOWARD S INCOME FROM OTHER SOURCES BEING INTEREST EARNED ON FIXED DEPOSITS. T HE ASSESSING OFFICER, IN ADDITION TO ESTIMATION OF NET PROFIT FROM CONTRA CT RECEIPTS, MADE SEPARATE ADDITIONS TOWARDS INTEREST INCOME OF RS.25 ,00,490/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT (A), DELET ED THE ADDITIONS HELD THAT NO SEPARATE ADDITION TOWARDS INTEREST INC OME IS TO BE MADE, AS THE INTEREST ACCRUED ON THE SECURITY DEPOSIT KEPT F OR OBTAINING BANK GUARANTEE, USED FOR THE PURPOSE OF SECURING THE CON TRACT WORKS WOULD BE ASSESSABLE AS PART OF BUSINESS INCOME. THE D.R. ARGUED THAT INTEREST EARNED FROM FIXED DEPOSITS IN BANK HAS NOTHING TO D O WITH CONTRACTS EXECUTED BY THE ASSESSEE. THOUGH FIXED DEPOSITS AR E KEPT IN BANK AS MARGIN MONEY FOR BANK GUARANTEE ISSUED IN FAVOUR OF PRINCIPLES FOR SECURING THE WORKS CONTRACT, IT CANNOT BE CONSTRUED AS RECEIPTS ACCRUED ON ACCOUNT OF CARRYING OUT THE BUSINESS ACTIVITY, T HEREFORE, ADDITION TOWARDS INTEREST INCOME SHOULD BE SUSTAINED. WE FIN D FORCE IN THE ARGUMENTS OF THE LEARNED D.R. THAT INCOME FROM OTHE R SOURCES BEING INTEREST RECEIVED FROM BANK DEPOSIT CANNOT BE CONST RUED AS BUSINESS RECEIPTS RECEIVED ON ACCOUNT OF CARRYING OUT THE BU SINESS ACTIVITY OF THE ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 14 ASSESSEE. THE ASSESSEE EARNED THE INTEREST FROM BA NK DEPOSITS, WHICH ARE KEPT AS MARGIN MONEY FOR TAKING BANK GUARANTEES . THOUGH THESE BANK GUARANTEES ARE FURNISHED FOR OBTAINING CONTRAC T WORKS, THE INTEREST EARNED FROM THESE DEPOSITS, CANNOT BE AT ANY STRETC H OF IMAGINATION CONSIDERED AS BUSINESS RECEIPTS FOR THE ESTIMATION OF NET PROFIT. THERE IS NO NEXUS BETWEEN THE EARNING OF INTEREST AND WORKS CONTRACT, EXCEPT THE FACT THAT IT IS KEPT IN BANK AS MARGIN MONEY FOR OB TAINING BANK GUARANTEE. THERE SHOULD BE DIRECT NEXUS BETWEEN BU SINESS ACTIVITY AND EARNING OF INCOME. IF THESE INTEREST RECEIPTS ARE A RISES FROM THE WORKS CONTRACTS, THEN DEFINITELY THESE ITEMS FORMS PART O F CONTRACT RECEIPTS. BUT, IN THIS CASE THE INTEREST EARNED IS FROM BANK DEPOSITS. THEREFORE, THE AO RIGHTLY TREATED INTEREST EARNED FROM BANK DE POSITS UNDER THE HEAD INCOME FROM OTHER SOURCE BUT, THE CIT (A) IGNO RED THE BASIC FACT THAT THERE IS NO NEXUS BETWEEN THE EARNING OF INTER EST AND THE ASSESSEES CONTRACT WORKS, DELETED THE ADDITIONS MA DE BY THE ASSESSING OFFICER. THEREFORE, CONSIDERING THE FACTS AND CIRC UMSTANCES OF THE CASE, WE REVERSE THE ORDER OF THE CIT (A) AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 13. COMING TO THE NEXT ISSUE, I.E. ADDITIONS TOWARD S DEPRECIATION OF RS.45,10,496/-. THE A.O. MADE ADDITIONS OF RS.45,10 ,496/- TOWARDS ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 15 DIFFERENCE IN DEPRECIATION, IN ADDITION TO ESTIMATI ON OF NET PROFIT FROM THE CONTRACT RECEIPTS. THE CIT (A) DELETED THE ADDITIO NS MADE BY THE ASSESSING OFFICER ON THE GROUND THAT ONCE, THE NET PROFIT IS ESTIMATED FROM THE GROSS RECEIPTS, ALL EXPENDITURES DEDUCTIBL E HAVE BEEN CONSIDERED AS ALLOWED. THEREFORE, THERE IS NO RELE VANCE FOR ORIGINAL COMPUTATION, REVISED COMPUTATION AND DEPRECIATION C LAIM MADE BY THE ASSESSE, HENCE, A.O. IS NOT CORRECT IN MAKING SEPAR ATE ADDITION TOWARDS DEPRECIATION, WHEN DEPRECIATION ITSELF IS NOT BEING ALLOWED. 14. WE HAVE GONE THROUGH THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF CIT (A). THE A.O. ESTIMATED NET PRO FIT FROM GROSS CONTRACT RECEIPTS. ONCE NET PROFIT IS ESTIMATED, A LL EXPENDITURES DEDUCTIBLE HAVE BEEN CONSIDERED AS ALLOWED. THEREF ORE, EVEN IF THERE IS DIFFERENCE IN ORIGINAL COMPUTATION AND REVISED COMP UTATION AND DEPRECIATION CLAIM MADE BY THE ASSESSE, WHICH DOES NOT AFFECT THE COMPUTATION OF PROFIT WHEN THE NET PROFIT IS ESTIMA TED FROM THE GROSS RECEIPTS. THEREFORE, WE ARE OF THE OPINION THAT TH E CIT (A) HAS RIGHTLY DELETED THE ADDITIONS AND HIS ORDER DOES NOT REQUIR E ANY INTERFERENCE. HENCE, WE DIRECT THE AO TO DELETE THE ADDITIONS MAD E ON ACCOUNT OF DEPRECIATION. ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 16 15. THE NEXT ISSUE EMANATED FROM THE ASSESSEES APP EAL IS DEDUCTION TOWARDS DEPRECIATION, REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNTS. THE A.O. DID NOT ALLOWED THE DED UCTIONS TOWARDS REMUNERATION TO PARTNERS, INTEREST ON PARTNERS CAP ITAL ACCOUNT AND DEPRECIATION ON FIXED ASSETS. THE ASSESSEE CONTEND ED THAT EVEN IF, NET PROFIT IS ESTIMATED FROM THE CONTRACT RECEIPTS, THE DEDUCTIONS TOWARDS REMUNERATION TO PARTNERS AND INTEREST ON CAPITAL, I N THE CASE OF PARTNERSHIP FIRM IS TO BE ALLOWED IN VIEW OF THE SE PARATE DEDUCTIONS PERMITTED U/S 44AD OF THE ACT. THE CIT (A), HOWEVE R, ALLOWED THE DEDUCTIONS TOWARDS REMUNERATION TO PARTNERS AND INT EREST ON PARTNERS CAPITAL ACCOUNTS BUT, DENIED THE DEDUCTION TOWARDS DEPRECIATION BY RELYING UPON THE HONBLE ANDHRA PRADESH HIGH COURT JUDGEMENT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776. AT THE TIME OF HEARING, THE A.R. OF THE ASSESSEE POINTED OUT THAT THE ISSUE OF DEDUCTIONS TOWARDS DEPRECIATION, INTEREST ON PARTNE RS CAPITAL ACCOUNT AND REMUNERATION TO PARTNERS IS COVERED BY THE DECI SION OF COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE SRIVALLI SHIPPIN G & TRANSPORTS IN ITA NOS.79 TO 95/VIZAG/2013 OF ITAT, VISAKHAPATNAM BENC H AND ALSO IN THE CASE OF RAMESH METALS, VIJAYAWADA IN ITA NOS.244&24 5/VIZAG/2014. WE HAVE GONE THROUGH THE JUDGEMENTS REFERRED BY THE A.R. AND FIND THAT THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF SRIVALLI SHIPPING & ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 17 TRANSPORTS (SUPRA) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. THE ITAT, WHILE DEALING WITH THE SIMILAR ISSUE HELD AS UNDER: 24. ON CONSIDERATION OF RIVAL CONTENTIONS, WE FIN D MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. THE CAPITAL EXPENDITURE INCUR RED IS NOT ALLOWED AS DEDUCTION, BUT THE DETERIORATION IN THEIR VALUE IS ALLOWED AS DEDUCTION WITH THE NAME DEPRECIATION. HENCE, IT IS CALLED NON-CASH E XPENDITURE AND ALSO CALLED STATUTORY DEDUCTION. WHILE ESTIMATING THE INCOME, T HE TRADING 17 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 A SSESSMENT YEARS : 2004- 05 TO 2010-2011 SRIVALLI SHIPPING TRANSPORT RESULTS ONLY ARE ESTIMATED ON THE BASIS OF SALES/GROSS RECEIPTS, MEANING THEREBY, WHA T IS ESTIMATED IS ONLY THE NET PROFIT BEFORE ALLOWING ANY NON-CASH EXPENDITURE /STATUTORY DEDUCTIONS. FURTHER, THE QUANTUM OF DEPRECIATION WOULD ALSO DEP END UPON THE VALUE OF ASSETS. FOR EXAMPLE, A BUSINESS MAN HAVING LOWER VE RSION OF CAR OR AIR CONDITIONER WOULD BE ENTITLED TO CLAIM LOWER AMOUNT OF DEPRECIATION, SINCE THE COST OF THE LOWER VERSION OF CAR AND AIR CONDITIONE R WILL BE LESS. WHEREAS ANOTHER BUSINESS MAN HAVING HIGHER VERSION OF CAR A ND AIR CONDITIONER WOULD GET HIGHER AMOUNT OF DEPRECIATION, SINCE THE COST O F THOSE ASSETS SHALL BE HIGHER. HENCE, EVEN IF THE LEVEL OF OPERATIONS AND OTHER THINGS ARE EQUAL BETWEEN THE TWO, THE DEPRECIATION AMOUNT WILL BE DI FFERENT DUE TO THE DIFFERENCE IN THE VALUE OF ASSETS. HENCE THE TOTAL INCOME SHALL ALSO RESULT IN DIFFERENT FIGURES BETWEEN THE TWO BUSINESS MEN. THE ABOVE SAID ILLUSTRATION WOULD SUPPORT THE CONTENTIONS OF THE ASSESSEE THAT THE DEPRECIATION SHOULD BE ALLOWED SEPARATELY. ACCORDINGLY, WE DIRECT THE A O TO ALLOW THE DEPRECIATION ADMISSIBLE TO THE ASSESSEE AGAINST THE INCOME ESTIM ATED BY US IN THE PRECEDING PARAGRAPHS. 16. IN YET ANOTHER CASE, THE COORDINATE BENCH OF TH IS TRIBUNAL IN ITA NOS.244 & 245/VIZAG/2014 IN THE CASE OF RAMESH META LS VS. ACIT, AFTER CONSIDERING THE HONBLE ANDHRA PRADESH HIGH COURT J UDGEMENTS IN THE CASE OF M/S. INDWELL CONSTRUCTIONS VS. CIT(SUPRA) A ND CIT VS. V.S.Y. RAMACHANDRA REDDY HELD AS UNDER: FOR EXAMPLE, SECTION 44AD OF THE ACT PROVIDES FOR DETERMINATION OF THE INCOME OF AN ASSESSEE FROM THE BUSINESS AT 8% OF TH E TOTAL TURNOVER OR THE GROSS RECEIPTS OF THE PREVIOUS YEAR UNDER CERTA IN CIRCUMSTANCES. SUB- SECTION (2) IS TO THE EFFECT THAT IF ANY DEDUCTION ALLOWABLE UNDER SECTIONS 30 TO 38, WHICH TAKES IN ITS FOLD THE DEDUCTION SUC H AS DEPRECIATION AND ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 18 INTEREST, SHALL BE DEEMED TO HAVE BEEN EFFECTED. TH E PROCEDURE UNDER THAT SECTION, HOWEVER, APPLIES ONLY WHEN THE TURNOV ER IS BELOW A PARTICULAR FIGURE WHICH AT THE RELEVANT POINT OF TIME WAS RS.4 0,00,000/-. AS OF NOW, IT IS RS.1 CRORE. IN THE INSTANT CASE, SECTION 44AD OF THE ACT DOES NOT APPLY BECAUSE THE TURNOVER WAS ABOVE THE STIPULATED AMOUNT. THEREFORE, THE FEASIBILITY OF DEDUCTION OF TURNOVER AND INTERE ST CANNOT BE SAID TO HAVE BEEN TAKEN AWAY. THE LEARNED COUNSEL FOR THE APPELLANT IS NOT ABLE T O POINT OUT ANY PROVISION OF LAW IN THE ACT OR RULES MADE THEREUNDE R, WHICH RESTRICTS THE ALLOWANCE OF THE DEPRECIATION AND INTEREST. ON THE OTHER HAND, THE FACILITY CREATED UNDER THE ACT IS SO FIRM AND STRONG THAT IF FOR ANY REASON IT BECOMES IMPERMISSIBLE OR UNNECESSARY FOR AN ASSESSE E TO SEEK THE ALLOWANCE OF DEPRECIATION FOR A PARTICULAR ASSESSME NT YEAR, HE IS ENTITLED TO CARRY IT FORWARD, FOR THE SUBSEQUENT YEARS. IN SU CH AN EVENT, IT ASSUMES THE CHARACTER OF UNABSORBED DEPRECIATION. IN THIS V ERY CASE, THE ASSESSING OFFICER PERMITTED THE ALLOWANCE OF UNABSORBED DEPRE CIATION TO THE RESPONDENT. HOWEVER, HE DENIED THE BENEFIT OF THE A LLOWANCE OF CURRENT DEPRECIATION AND INTEREST. NO REFERENCE IS MADE TO ANY PROVISION OF LAW TO MAKE SUCH DISTINCTION. HIS UNDERSTANDING OF THE MAT TER IS THAT SECTION 44AD OF THE ACT, THAT PROVIDES FOR A COMPREHENSIVE FORMULA OF DETERMINING NET PROFIT DERIVED BY A CIVIL CONTRACT OR AT 8%, TAKES IN ITS FOLD, ALLOWANCE OF DEPRECIATION, INTEREST AND OTHER BENEFITS. THE FACT, HOWEVER, REMAINS THAT SUCH A PROVISION WAS NOT IN E XERCISE IN THE ASSESSMENT YEAR 1994-95. IF AN ASSESSEE IS ENTITLED TO CLAIM DEDUCTION OF INT EREST, BE IT UNDER SECTION 36(1)(III) OF THE ACT OR ANY OTHER RELEVANT PROVISION AND OF DEPRECIATION UNDER SECTION 37 OF THE ACT, IN THE OR DINARY COURSE OF ASSESSMENT, THERE IS NO REASON WHY THE SAME FACILIT IES BE NOT EXTENDED TO HIM, MERELY BECAUSE THE PROFIT IS DETERMINED ON THE BASIS OF ESTIMATION AS WAS DONE IN THE INSTANT CASE. WE ARE OF THE VIEW TH AT DEPRECIATION AND INTEREST, WHICH ARE OTHERWISE DEDUCTABLE IN THE ORD INARY COURSE OF ASSESSMENT, REMAIN THE SAME LEGAL CHARACTER, EVEN W HERE THE PROFIT OF ASSESSEE IS DETERMINED ON PERCENTAGE BASIS. THE CONCLUSIONS ARRIVED AT BY US, GET SUPPORT FROM THE CIRCULAR DATED 31.08.1965 ISSUED BY THE CENTRAL BOARD OF DIRECT TA XES. THOUGH THE CIRCULAR WAS WITH REFERENCE TO THE 1922 ACT, IT HOL DS GOOD FOR THE ANALOGOUS PROVISIONS UNDER THE 1961 ACT. THE LEARNED COUNSEL FOR THE APPELLANT RELIED ON A J UDGMENT OF THIS COURT IN INDWELL CONSTRUCTIONS V. COMMISSIONER OF INCOME TAX . THAT WAS A CASE IN WHICH THIS COURT TOOK THE VIEW THAT ONCE THE BOO KS OF ACCOUNT ARE DISBELIEVED FOR A PARTICULAR PURPOSE, THEY CANNOT B E RELIED UPON IN THE CONTEXT OF INTEREST. IN THE INSTANT CASE, WE ARE CO NCERNED WITH THE DEPRECIATION. THE OCCASION TO DENY THE DEDUCTION OF DEPRECIATION OR INTEREST WOULD ARISE IF ONLY THE MATERIAL PLACED BE FORE THE ASSESSING ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 19 AUTHORITY IN PROOF OF PURCHASE OF MACHINERY AND OTH ER ITEMS AND PAYMENT OF INTEREST IS DISBELIEVED. NO FINDING OF THAT NATU RE WAS RECORDED BY THE ASSESSING OFFICER. 17. THEREFORE, RESPECTFULLY FOLLOWING THE VIEW EXPR ESSED BY THE HONBLE JURISDICTIONAL HIGH COURT AND ALSO CONSIDER ING THE COORDINATE BENCH DECISION OF THIS TRIBUNAL, WE ARE OF THE OPIN ION THAT DEPRECIATION IS A ALLOWABLE DEDUCTION, EVEN AFTER ESTIMATION OF NET PROFIT FROM THE CONTRACT RECEIPTS. THEREFORE, WE DIRECT THE ASSESS ING OFFICER TO ALLOW THE DEPRECIATION AGAINST THE INCOME ESTIMATED FROM THE CONTRACT RECEIPTS. AS FAR AS THE DISALLOWANCE OF REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT IS CONCERNED, THE STATUTE ITSELF IN SECTION 44AD OF THE ACT, ALLOWED SEPARATE DEDUCTIONS TOWARDS INT EREST ON CAPITAL ACCOUNTS AND REMUNERATION TO PARTNERS, AFTER ESTIM ATION OF NET PROFIT FROM THE GROSS RECEIPTS. THE CIT (A) AFTER CONSIDE RING THE FACTS AND CIRCUMSTANCES OF THE CASE, HAS RIGHTLY DIRECTED THE A.O. TO ALLOW REMUNERATION TO PARTNERS AND INTEREST ON PARTNERS CAPITAL ACCOUNT FROM THE NET PROFIT ESTIMATED. THEREFORE, WE FIND NO ER ROR OR INFIRMITY IN THE ORDER OF THE CIT (A), HENCE, WE INCLINED TO UPHELD THE ORDER OF THE CIT (A). 18. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE TH E TOTAL INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IN ACCORDA NCE WITH THE DECISIONS RENDERED BY US ON VARIOUS ISSUES IN THE P RECEDING PARAGRAPHS. ITA NO.370&409/VIZAG/2012 M/S. K. VENKATA RAJU, RAJAHMUNDRY 20 HOWEVER, THE INCOME SO COMPUTED WORKS OUT TO LESS T HAN THE INCOME RETURNED BY THE ASSESSE, THEN, THE TOTAL INCOME SO COMPUTED SHALL NOT GO BEYOND THE RETURNED INCOME AND IT SHOULD BE REST RICTED TO THE INCOME RETURNED BY THE ASSESSE, SINCE, THE ASSESSED INCOME SHOULD NOT BE LESS THAN THE RETURNED INCOME. 19. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 409/VIZAG/2012 AND THE REVENUES APPEAL IN ITA NO.370/VIZAG.2012 ARE PARTLY ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30 TH NOV15. SD/- SD/- ( (( ( . .. . ) ) ) ) ( (( ( . . . . ) ) ) ) ( (( ( V. DURGA RAO ) )) ) ( (( ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 6 / DATED : 30.11.2015 VG/SPS / - 7 / COPY OF THE ORDER FORWARDED TO :8 1. , / THE APPELLANT THE ACIT, CIRCLE-1, RAJAHMUNDRY 2. -., / THE RESPONDENT M/S. K. VENKATA RAJU, CONTRACTOR, VEMAGIRI, KADIAM MANDAL, RAJAHMUNDRY 3. THE ADDL. CIT, RAJAHMUNDRY RANGE, RAJAHMUNDRY 4. : / THE CIT, RAJAHMUNDRY 5. : () / THE CIT (A), RAJAHMUNDRY 6. -, , / // / DR, ITAT, VISAKHAPATNAM 7 . . . . / GUARD FILE / BY ORDER // TRUE COPY // @A ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM