THE Dy. CIT, CIRCLE - 2(1), Vijayawada V. M/s R,R.Constructions, Vijayawada

ITA 47/VIZ/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 0220 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Rejection of books of accounts; Depreciation; Capital expenditure
• Section: 142(1); 32; 144

Judgement Text

ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 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.47/VIZAG/2013 ( / ASSESSMENT YEAR : 2008-09 ) DCIT CIRCLE - 2(1) VIJAYAWADA VS. M/S. R.R. CONSTRUCTIONS VIJAYAWADA [ PAN: AADFR 5608L] (, , , , / APPELLANT) (-., -., -., -., / RESPONDENT ) . .. ./ // / I.T.A.NO.154/VIZAG/2013 ( / ASSESSMENT YEAR : 2008-09 ) M/S. R.R. CONSTRUCTIONS VIJAYAWADA VS. ACIT CIRCLE - 2 (1) VIJAYAWADA ( , , , , / APPELLANT) ( - -- - ., ., ., ., / RESPONDENT ) , / / APPELLANT BY : SHRI M.K. SETHI, DR -., / / RESPONDENT BY : SHRI G.V.N. HARI, AR / 3 / DATE OF HEARING : 29.10.2015 / 3 / DATE OF PRONOUNCEMENT : 06.11.2015 ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 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 ORDER PASSED BY THE CIT(A), VI JAYAWADA DATED 8.11.2012 FOR THE ASSESSMENT YEAR 2008-09. SINCE, THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THEY ARE CLUBBED, HEARD T OGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONV ENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCT ION, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 14.9.2008 DECLARING TOTAL INCOME OF RS.25,13,363/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT (HEREINAFTER CALLED AS THE ACT). SUBSEQUENTLY, THE CASE HAS BEEN SELECTED FOR SCRUTINY THROUGH CASS AND STA TUTORY NOTICES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN RESPONS E TO NOTICES, THE ASSESSEES AUTHORISED REPRESENTATIVE APPEARED AND P RODUCED THE COMPUTATION STATEMENT, TAX AUDIT REPORT, BALANCE SH EET AND PROFIT & LOSS ACCOUNT. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE A.O. ASKED AUTHORISED REPRESENTATIVE TO FURNISH DETAILS OF SUN DRY CREDITORS, EVIDENCES AGAINST THE ESTABLISHMENT EXPENSES, DIRECT EXPENSES ALONG WITH DAY BOOK AND LEDGER. DESPITE GIVING AMPLE OPPORTUNITY, THE ASSESSEE FAILED TO ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 3 FURNISH THE DETAILS CALLED FOR, THE A.O. LEFT WITH NO OPTION BUT TO PROCEED TO PASS EX-PARTE ASSESSMENT ORDER U/S 144 OF THE ACT. THE ASSESSING OFFICER WHILE, COMPLETING THE ASSESSMENT U/S 144 OF THE ACT , REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ESTIMATED NET PROFIT A PPLYING THE PERCENTAGE OF PROFIT FOR THE REASON THAT THE ASSESSEE COULD NO T PRODUCED BOOKS OF ACCOUNTS AND VOUCHERS IN SUPPORT OF THE EXPENSES DE BITED TO THE PROFIT & LOSS ACCOUNT, HENCE, THE GENUINENESS AND REASONABLE NESS OF THE EXPENSES CLAIMED IS IN DOUBT. WITH THESE OBSERVATIONS, THE A .O. ESTIMATED THE NET PROFIT @ 12.5% ON THE TOTAL CONTRACT RECEIPTS. IN A DDITION TO THE ESTIMATION OF NET PROFIT ON CONTRACT RECEIPTS, THE A.O. MADE S EPARATE ADDITIONS TOWARDS INCOME FROM OTHER SOURCES BEING INTEREST RE CEIVED, ROYALTY, DISCOUNTS RECEIVED AND SUB-CONTRACT RECEIPTS AND DE TERMINED THE TOTAL INCOME. FURTHER, THE A.O. DISALLOWED THE CLAIM OF DEPRECIATION ON FIXED ASSETS AS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR AND CONCLUDED THE ASSESSME NT. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS MADE ELABORATE WRITTEN SUBMISSIONS AND CONTENDED THAT THE EX-PARTE ASSESSMENT ORDER U/S 144 PASSED BY THE ASSESSING OFFICER AS WELL AS THE ESTIMATION OF NET PROFIT @ 12.5% ON GROSS CONTRACT RECEIPTS. THE ASSESSEE A LSO CHALLENGED THE ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 4 SEPARATE ADDITIONS MADE TOWARDS INCOME FROM OTHER S OURCES AND ALSO THE CLAIM OF DEPRECIATION DISALLOWED BY THE ASSESSING O FFICER. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE CIT(A) FORWARD ED THE SUBMISSIONS OF THE ASSESSEE TO THE ASSESSING OFFICER FOR HIS COMME NTS. THE ASSESSING OFFICER VIDE HIS REMAND REPORT DATED 3.4.2012 HAS A GREED THAT THE ASSESSEE IS A SUB-CONTRACTOR AND STATED THAT THE ASSESSEE DI D NOT RESPOND TO THE NOTICES ISSUED BY THE A.O. HENCE, THE A.O. LEFT WI TH NO OPTION BUT TO MAKE BEST JUDGEMENT ASSESSMENT HAS RIGHTLY COMPLETED THE ASSESSMENT U/S 144 OF THE ACT. THE CIT(A) AFTER CONSIDERING THE ASSES SEES SUBMISSIONS AND ALSO THE REMAND REPORT OF THE ASSESSING OFFICER HEL D THAT THE ASSESSEE IS A SUB-CONTRACTOR RECEIVED WORKS CONTRACT RECEIPTS OF RS.7,72,88,655/-, WHEREAS THE A.O. HAS CONSIDERED AN AMOUNT OF RS.7,4 5,16,462/-, WHICH IS INCORRECT AND ACCORDINGLY, DIRECTED THE A.O. TO TAK E THE CORRECT CONTRACT RECEIPT OF RS.7,72,88,655/-. THE CIT(A) FURTHER, H ELD THAT OUT OF THE TOTAL SUB CONTRACT RECEIPT OF RS.7,72,88,655/-, THE ASSES SEE HAS GIVEN WORKS AMOUNTING TO RS.3,33,91,036/- TO 16 PERSONS FOR EXE CUTION OF WORK ON ITS BEHALF AND THUS, THE EFFECTIVE SUB CONTRACT WORKS E XECUTED BY THE ASSESSEE ITSELF IS AT RS.4,38,97,619/-. CONSIDERING THE ABO VE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) AFTER CONSIDE RING THE ITAT HYDERABAD BENCH DECISION IN THE CASE OF ACIT VS. TE JA CONSTRUCTIONS, SECUNDERABAD IN ITA NO.1191/HYD/2001, SCALED DOWN T HE NET PROFIT ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 5 ESTIMATED BY THE ASSESSING OFFICER AT 8% ON SUB CON TRACT WORKS DIRECTLY EXECUTED BY THE ASSESSEE AND 4% ON THE SUB CONTRACT WORKS EXECUTED BY THE ASSESSEE THROUGH OTHER CONTRACTORS. HOWEVER, T HE CIT(A) REJECTED THE ASSESSEES CONTENTIONS WITH REGARD TO THE INCOME FR OM OTHER SOURCES BEING INTEREST RECEIVED, ROYALTY RECEIVED AND DISCOUNT RE CEIVED AND CONFIRMED THE ADDITIONS. THE CIT(A) ALSO REJECTED THE ASSESSEES GROUND RELATING TO SEPARATE DEDUCTIONS TOWARDS DEPRECIATION ON FIXED A SSETS AND HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION OF DEPRECIAT ION, ONCE THE INCOME IS ESTIMATED APPLYING THE NET PROFIT RATE. 4. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE AS WE LL AS ASSESSEE ARE IN APPEAL BEFORE US. 5. THE LD. D.R. SUBMITTED THAT THE CIT(A) IS ERRED IN BIFURCATING THE GROSS TURNOVER FROM CONTRACT RECEIPTS INTO SUB CONT RACT WORKS DIRECTLY EXECUTED BY THE ASSESSEE AND SUB CONTRACT WORKS EXE CUTED BY THE ASSESSEE THROUGH OTHER CONTRACTORS, BECAUSE THIS IS SUE WAS NOT RAISED BEFORE THE ASSESSING OFFICER. THE LD. D.R. FURTHER ARGUED THAT THE ESTIMATION OF NET PROFIT AT 12.5% BY THE A.O. IS RE ASONABLE, BECAUSE THE ESTIMATION OF NET PROFIT IS DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE, CONSIDERING THE NATURE OF WORKS EXECUTED BY THE CONTRACTORS. THE LD. D.R. FURTHER ARGUED THAT ONCE, NET PROFIT I S ESTIMATED APPLYING THE ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 6 PERCENTAGE OF PROFIT RATE, THE QUESTION OF SEPARATE ALLOWANCES TOWARDS DEPRECIATION DOES NOT ARISE AS THE DEPRECIATION IS AN ALLOWABLE DEDUCTION U/S 32 OF THE ACT. THE DR FURTHER ARGUED THAT ONCE THE NET PROFIT IS ESTIMATED, ALL DEDUCTIONS REFERRED TO IN SECTIONS 3 0 TO 38 OF THE ACT HAVE BEEN CONSIDERED AS ALLOWED. THEREFORE, SEPARATE DE DUCTION TOWARDS DEPRECIATION CANNOT BE ALLOWED. THE LD. D.R. FURTH ER ARGUED THAT AS FAR AS INCOME FROM OTHER SOURCES BEING INTEREST RECEIPTS A ND OTHER INCOME, THESE ITEMS OF INCOME ARE TAXABLE UNDER THE HEAD OF INCOM E FROM OTHER SOURCES AND EARNING OF THIS INCOME IS NOTHING TO DO WITH ES TIMATION OF NET PROFIT ON TURNOVER PERTAINING TO WORKS CONTRACT. THEREFORE, REQUESTED TO UPHELD THE CIT(A) AND ASSESSMENT ORDER. 6. ON THE OTHER HAND, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A SUB CONTRACTOR AND THE ELEMENT OF PROFIT IN SUB CONTRACT WORK IS LESS WHEN COMPARED TO MAIN CON TRACTS, THEREFORE, NET PROFIT ESTIMATED BY THE CIT(A) IS QUITE HIGHER SIDE . THE A.R. FURTHER SUBMITTED THAT THE VERY SAME ASSESSING OFFICER, WHI LE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2010-11 IN THE A SSESSEES OWN CASE ESTIMATED THE NET PROFIT AT 8% OF SUB CONTRACT WORK S EXECUTED DIRECTLY BY THE ASSESSEE AND NET PROFIT @ 5% ON SUB-CONTRACT WO RKS EXECUTED THROUGH OTHERS CONTRACTORS SUBJECT TO SEPARATE DEDUCTIONS F OR DEPRECIATION, ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 7 REMUNERATION AND INTEREST TO PARTNERS. THE A.R. FU RTHER SUBMITTED THAT CONSIDERING THE FACT THAT PROFIT IN INITIAL YEARS I S NORMALLY LESS THAN THE PROFIT FOR THE SUBSEQUENT YEARS, THE PROFIT ESTIMAT ED BY THE LD. CIT(A) ON SUB CONTRACT WORKS EXECUTED BY THE ASSESSEE THROUGH OTHER CONTRACTORS IS JUSTIFIED. HOWEVER, APPLYING THE DIFFERENTIAL MARG IN OF 3% NET PROFIT ASSESSED IN ASSESSMENT YEAR 2010-11, THE PROFIT ON SUB CONTRACT WORKS EXECUTED DIRECTLY BY THE ASSESSEE MAY KINDLY BE EST IMATED AT 7%. THE A.R. ARGUED THAT SEPARATE DEDUCTION FOR DEPRECIATIO N IS TO BE ALLOWED AS THE ISSUE WAS ALREADY DECIDED BY THE ITAT VISAKHAPA TNAM BENCH IN THE CASE OF SRIVALLI SHIPPING & TRANSPORTS PVT. LTD. IN ITA NOS.79 TO 95/VIZAG/2013 AND ALSO IN THE CASE OF RAMESH METALS , VIJAYAWADA IN ITA NOS.244 & 245/VIZAG/2014. THE A.R. FURTHER SUBMITT ED THAT EVEN OTHERWISE, THE ASSESSING OFFICER HIMSELF ALLOWED TH E DEPRECIATION SEPARATELY IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010 -11 & 2011-12. THEREFORE, REQUESTED TO ALLOW THE DEPRECIATION. AS FOR AS THE ISSUE OF SEPARATE ADDITION TOWARDS INCOME FROM OTHER SOURCES , THE A.R. SUBMITTED THAT WHEN NET PROFIT IS ESTIMATED ON GROSS RECEIPTS , SEPARATE ADDITION CANNOT BE MADE FOR INCOME FROM OTHER SOURCES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS AVAILABLE ON RECORD. ADMITTEDLY, IN THIS CASE, THE A.O. PASS ED BEST JUDGEMENT ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 8 ASSESSMENT ORDER U/S 144 OF THE ACT. THE A.O. WHIL E PASSING THE ASSESSMENT ORDER U/S 144 OF THE ACT REJECTED THE BO OKS OF ACCOUNTS AND ESTIMATED THE NET PROFIT OF THE ASSESSEE @ 12.5% ON TOTAL CONTRACT RECEIPTS. THE ASSESSE, BEFORE CIT(A) CONTENDED THA T IT IS A SUB CONTRACTOR, THE ELEMENT OF PROFIT IN SUB CONTRACT WORKS IS LESS WHEN COMPARED TO THE MAIN CONTRACTORS, THEREFORE, THE ESTIMATION OF NET PROFIT AT 12.5% IS AT HIGHER SIDE. THE CIT(A) AFTER CONSIDERING THE ASSE SSEES SUBMISSIONS HAS CONSIDERED THE GROSS CONTRACT RECEIPTS OF RS. 7,72, 88,655 INCLUDING SUB CONTRACT WORK RECEIPTS OF RS. 27,92,423/- CONSIDERE D UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE GROSS CON TRACT RECEIPTS OF RS. 7,45,16,462/- CONSIDERED BY THE ASSESSING OFFICER A ND SCALED DOWN THE ESTIMATION OF NET PROFIT TO 8% ON THE SUB CONTRACTS WORKS EXECUTED DIRECTLY BY THE ASSESSEE AND NET PROFIT @ 4% ON SUB CONTRACT WORKS EXECUTED BY THE ASSESSEE THROUGH OTHER CONTRACTORS. WHILE DOING SO, THE CIT(A) RELIED UPON THE JUDGEMENT OF HONBLE ITAT HYDERABAD BENCH IN THE CASE OF ACIT VS. TEJA CONSTRUCTIONS (SUPRA). WE HAVE GONE THROU GH THE CIT(A)S ORDER AND ALSO CASE LAWS RELIED UPON BY THE PARTIES. IT IS AN ADMITTED FACT THAT ESTIMATION OF NET PROFIT FROM THE CIVIL CONSTRUCTIO N WORKS IS CONSISTENTLY FOLLOWED BY THE DEPARTMENT ON VARIOUS RATES DEPENDI NG UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. ALSO, THE ITAT UPHELD THE ESTIMATION OF NET PROFIT DEPENDING UPON THE FACTS AND CIRCUMSTANCES O F THE EACH CASE. IN ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 9 ONE SUCH CASE, THE ITAT HYDERABAD BENCH IN THE CASE OF ACIT VS. TEJA CONSTRUCTIONS (SUPRA) HELD AS UNDER. THE ASSESSEES PAST TRACK RECORDS SHOW THAT THE ASS ESSEE HAS NEGLECTED THE PRESENTING OF THE BOOKS OF ACCOUNT IN ACCORDANCE WI TH LAW. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY ON THE PAR T OF THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT SUPPORTED BY PROPER BI LLS AND VOUCHERS. SINCE THE ASSESSEE HAS NOT PRODUCED THE PROPER BOOKS OF A CCOUNT, TRUE PROFITS OR LOSS CANNOT BE DEDUCED FROM THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAVING NO OTHER OPTION REJECTED THE BOOKS OF ACCOUN T AND ESTIMATED THE INCOME AT 10 PER CENT OF GROSS RECEIPTS. BUT THE PO SITION IS THAT, THE ASSESSEE IS CARRYING ON THREE KINDS OF CONTRACTS, AS IN EARL IER YEARS, I.E., (I) OWN CONTRACTS, (II) CONTRACTS TAKEN FROM THE SUB-CONTRA CTORS, (III) CONTRACTS GIVEN TO OTHER PARTIES ON SUB-CONTRACTS. THE ASSESSEE HAD A HIGHER RATE OF PROFIT ON THE CONTRACTS EXECUTED BY THE ASSESSEE ITSELF. IN THESE CONTRACTS, THE ASSESSEE AGREED THAT HIS INCOME IS AT 9 PER CENT OF THE GROS S RECEIPTS. THUS, ACCORDINGLY THE AO IS DIRECTED TO ESTIMATE THE INCO ME ON THE CONTRACTS EXECUTED BY THE ASSESSEES OWN AT 9 PER CENT. IN CA SE OF CONTRACTS TAKEN BY ASSESSEE ON SUB-CONTRACT, THE INCOME TO BE ESTIMATE D AT 8 PER CENT OF THE GROSS RECEIPTS. IN CASE OF CONTRACTS GIVEN BY THE A SSESSEE TO THE 3RD PARTY ON SUB-CONTRACT, INCOME 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 T O THE SUB-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 FO R DEPRECIATION AND REMUNERATION, AND INTERESTS TO PARTNERS ON THE PROF IT ESTIMATED BY AO AT APPLICABLE RATES, BECAUSE THE INCOME ESTIMATED AS A BOVE OF THE ASSESSEE IS BEFORE THE DEPRECIATION AND INTEREST AND REMUNERATI ON OF THE PARTNERS. CORDINGLY, THE AO IS DIRECTED TO COMPUTE THE INCOME OF THE ASSESSEE AFRESH. 8. IN THE PRESENT CASE ON HAND, THE ASSESSEE IS A S UB CONTRACTOR EXECUTING WORKS CONTRACT FOR MAIN CONTRACTOR. IT I S A ADMITTED FACT THAT ELEMENT OF PROFIT IS LESS IN SUB CONTRACT WORKS WHE N COMPARED TO MAIN CONTRACT WORKS. THE CIT(A) AFTER CONSIDERING THE F ACTS AND CIRCUMSTANCES OF THE CASE RIGHTLY ESTIMATED 8% NET PROFIT IN RESP ECT OF SUB CONTRACTS WORKS EXECUTED DIRECTLY BY THE ASSESSEE AND 4% NET PROFIT IN RESPECT OF SUB CONTRACTS WORKS EXECUTED BY THE ASSESSEE THROUG H THIRD PARTIES. THEREFORE, WE ARE OF THE OPINION THAT THE CIT(A) HA S RIGHTLY ESTIMATED THE ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 10 NET PROFIT AND HIS ORDER DOES NOT REQUIRE ANY INTER FERENCE. HENCE, WE ARE INCLINED TO UPHELD THE ORDER OF THE CIT(A) ON THIS ISSUE. 9. COMING TO THE NEXT ISSUE, I.E. ADDITION TOWARDS INCOME FROM OTHER SOURCES. THE A.O. AFTER ESTIMATION OF NET PROFIT, M ADE SEPARATE ADDITION TOWARDS INCOME FROM OTHER SOURCES BEING INTEREST RE CEIVED, ROYALTY RECEIVED AND DISCOUNT RECEIVED. THE A.O. WAS OF TH E OPINION THAT THESE ARE SEPARATE RECEIPTS, DOES NOT HAVE ANY BEARING ON CON TRACTS EXECUTED BY THE ASSESSEE, THEREFORE, THESE ITEMS ARE TAXABLE AS INC OME FROM OTHER SOURCES. THE CIT(A) CONFIRMED THE ASSESSING OFFICERS ORDER AND HELD THAT INCOME FROM OTHER SOURCES BEING INTEREST RECEIVED, ROYALTY AND DISCOUNT RECEIVED IS NOTHING TO DO WITH BUSINESS ACTIVITY OF THE ASSESSE E, THEREFORE, EVEN AFTER ESTIMATION OF NET PROFIT, THESE ITEMS SHOULD BE BRO UGHT TO TAX SEPARATELY. WE FIND FORCE IN THE ARGUMENTS OF THE LD. D.R. THAT INCOME FROM OTHER SOURCES BEING INTEREST RECEIVED, ROYALTY AND DISCOU NT RECEIVED ARE NOT CONNECTED WITH THE BUSINESS ACTIVITY OF THE ASSESSE E. THEREFORE, WHILE ESTIMATING THE NET PROFIT FROM THE CONTRACT RECEIPT S, THESE ITEMS CANNOT BE INCLUDED. THERE IS NO NEXUS BETWEEN INTEREST AND RO YALTY RECEIPTS TO WORKS CONTRACT RECEIPTS. IF THESE RECEIPTS ARE ORIGINATED FROM WORK CONTRACTS, THEN DEFINITELY THESE ITEMS FORMS PART OF CONTRACT RECEI PTS. BUT, IN THIS CASE, IT IS NOT SO. THE A.O. AS WELL AS CIT(A) RIGHTLY HELD THA T THESE ITEMS ARE ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 11 SEPARATELY TAXABLE EVEN IN CASE OF ESTIMATION OF NE T PROFIT FROM THE CONTRACT RECEIPTS. THEREFORE, WE UPHELD THE ORDER OF THE CI T(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. 10. THE NEXT ISSUE EMANATED FROM THE ASSESSE APPEAL RELATES TO THE CLAIM OF DEDUCTION OF DEPRECIATION. BOTH THE AUTHO RITIES HAVE REJECTED THE CLAIM OF DEPRECIATION ON THE GROUND THAT ONCE THE N ET PROFIT IS ESTIMATED FROM THE CONTRACT RECEIPTS, THEN ALL DEDUCTIONS REF ERRED TO IN SECTION 30 TO 38 OF THE ACT HAVE BEEN CONSIDERED AS ALLOWED AND S EPARATE DEDUCTIONS TOWARDS DEPRECIATION CANNOT BE ALLOWED. THE CONTEN TION OF THE ASSESSEE IS THAT THE DEPRECIATION ALLOWANCE IS A NOTIONAL DEDUC TION TOWARDS NORMAL WEAR AND TEAR OF THE VALUE OF THE ASSETS AND ALSO I S A STATUTORY DEDUCTION PROVIDED UNDER THE ACT AND AS PER THE CBDT CIRCULAR . THE A.R. AT THE TIME OF HEARING ARGUED THAT THE ISSUE OF DEPRECIATION IS COVERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ITAT VISAKHAPA TNAM BENCH IN ITA NOS.79 TO 95/VIZAG/2013 AND ARGUED THAT UNDER SIMIL AR CIRCUMSTANCES, THE ITAT HAS CONSIDERED THE ISSUE OF ALLOWANCE OF DEPRE CIATION EVEN AFTER ESTIMATION OF NET PROFIT. WE HAVE CONSIDERED THE S UBMISSIONS MADE BY EITHER PARTIES AND ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY THE A.R. WE FIND THAT THE ITAT, VISAKHAPATNAM BENCH IN THE CA SE OF SRIVALLI ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 12 SHIPPING & TRANSPORTS PVT. LTD. (SUPRA) HELD THE IS SUE IN FAVOUR OF ASSESSE. THE ITAT WHILE DEALING WITH THE SIMILAR ISSUE HELD AS UNDER: 24. ON CONSIDERATION OF RIVAL CONTENTIONS, WE FIND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE. THE CAPITAL EXPENDITURE INCURRED I S NOT ALLOWED AS DEDUCTION, BUT THE DETERIORATION IN THEIR VALUE IS ALLOWED AS DEDUCTION WITH THE NAME DEPRECIATION. HENCE, IT IS CALLED NON-CASH EXPEND ITURE AND ALSO CALLED STATUTORY DEDUCTION. WHILE ESTIMATING THE INCOME, THE TRADING 17 I.T.A. NOS.79 TO 85/VIZ/2013 I.T.A. NOS.89 TO 95/VIZ/2013 ASSESSMENT YEARS : 2004-05 TO 2010- 2011 SRIVALLI SHIPPING TRANSPORT RESULTS ONLY ARE E STIMATED ON THE BASIS OF SALES/GROSS RECEIPTS, MEANING THEREBY, WHAT IS ESTI MATED IS ONLY THE NET PROFIT BEFORE ALLOWING ANY NON-CASH EXPENDITURE/STATUTORY DEDUCTIONS. FURTHER, THE QUANTUM OF DEPRECIATION WOULD ALSO DEPEND UPON THE VALUE OF ASSETS. FOR EXAMPLE, A BUSINESS MAN HAVING LOWER VERSION OF CAR OR AIR CONDITIONER WOULD BE ENTITLED TO CLAIM LOWER AMOUNT OF DEPRECIATION, SIN CE THE COST OF THE LOWER VERSION OF CAR AND AIR CONDITIONER WILL BE LESS. WH EREAS ANOTHER BUSINESS MAN HAVING HIGHER VERSION OF CAR AND AIR CONDITIONER WO ULD GET HIGHER AMOUNT OF DEPRECIATION, SINCE THE COST OF THOSE ASSETS SHALL BE HIGHER. HENCE, EVEN IF THE LEVEL OF OPERATIONS AND OTHER THINGS ARE EQUAL BETW EEN THE TWO, THE DEPRECIATION AMOUNT WILL BE DIFFERENT DUE TO THE DIFFERENCE IN T HE 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 CONTE NTIONS OF THE ASSESSEE THAT THE DEPRECIATION SHOULD BE ALLOWED SEPARATELY. ACCO RDINGLY, WE DIRECT THE AO TO ALLOW THE DEPRECIATION ADMISSIBLE TO THE ASSESSEE A GAINST THE INCOME ESTIMATED BY US IN THE PRECEDING PARAGRAPHS. 11. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO APPLYING THE RATIOS OF THE DECISION RELIED UPON BY THE A.R., WE ARE OF THE OPINION THAT DEPRECIATION IS A ALLOWABLE DEDUCTION, EVEN AFTER ESTIMATION OF NET PROFIT ON GROSS RECEIPTS. ACCORDINGLY, WE DIRE CT THE A.O. TO ALLOW THE ADMISSIBLE DEPRECIATION AGAINST THE INCOME ESTIMATE D FROM THE CONTRACT RECEIPTS. ITA NOS.47&154/VIZAG/2013 M/S. R.R. CONSTRUCTIONS, VIJAYAWADA 13 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO.47/VIZAG/2013 IS DISMISSED AND APPEAL BY THE ASSESSEE IN ITA 154/VIZAG/2013 IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6 TH NOV15. SD/- SD/- ( (( ( . .. . ) ) ) ) ( (( ( . . . . ) ) ) ) ( (( ( V. DURGA RAO ) )) ) ( (( ( G. MANJUNATHA) / // / JUDICIAL MEMBER / // / ACCOUNTANT MEMBER /VISAKHAPATNAM: 6 / DATED : 6.11.2015 VG/SPS / - 7 / COPY OF THE ORDER FORWARDED TO :8 1. , / THE APPELLANT THE DCIT, CIRCLE-2(1), VIJAYAWADA 2. -., / THE RESPONDENT M/S. R.R. CONSTRUCTIONS, PLOT NO.63, ROAD NO.4, KANAKADURGA GAZETTED OFFICERS COLONY, RING ROAD, VI JAYAWADA520 008. 3. THE ACIT, CIRCLE-2(1), VIJAYAWADA 4. : / THE CIT, VIJAYAWADA 5. : () / THE CIT(A), VIJAYAWADA 6. -, , / // / DR, ITAT, VISAKHAPATNAM 5 . . . . / GUARD FILE / BY ORDER // TRUE COPY // @A ( SR.PRIVATE SECRETARY ) , / // / ITAT, VISAKHAPATNAM