ACIT, Pune V. Shri Sanjay Bapusaheb Patil, Pune

ITA 729/PUN/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56596 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K SRINIVASAN
• Keywords: Rejection of books of accounts; Depreciation
• Section: 44AD; 145; 144

Judgement Text

ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 729 / PN / 20 10 ASSESSMENT YEAR : 2006 - 07 ACIT CIRCLE - 3 PUNE VS. SANJAY B. PATIL PUNE (APPELLANT) (RESPONDENT) PAN NO.AAUPP 2855J C.O. 69 /PN/201 1 ASSESSMENT YEAR : 2006 - 07 SANJAY B. PATIL PUNE VS. ACIT CIRCLE - 3 PUNE (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PANKAJ GARG, DR RESPONDENT BY: SHRI K. SRINIVASAN ORDER PER SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER:- THIS IS THE REVENUES APPEAL FILED AGAINST THE ORDER OF THE CIT(A) DATED 23.2.2010. THE GROUNDS ARE AS UNDER: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) GROSSLY ERRED REDUCING THE PROFI T MARGIN FROM 15% TO 8% INSTEAD OF CONFIRMING THE SAME. 3. THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIATE T HAT THE ASSESSING OFFICER HAD POINTED OUT SPECIFIC REASONS FOR REJECT ION OF BOOKS OF ACCOUNTS WHICH THE CIT(A) HIMSELF HAD NOT FOUND FAU LT WITH; AND IN THE CIRCUMSTANCES, THE ADDITION/ESTIMATE MADE BY THE AS SESSING OFFICER OUGHT NOT TO HAVE BEEN REDUCED MERELY BY MAKING COM PARISONS ON UNRELATED ISSUES. 4. THE LEARNED CIT(A) GROSSLY ERRED IN APPLYING THE PR OVISIONS OF SECTION 44AD WHICH IS NOT AT ALL APPLICABLE TO THE ASSESSEE S CASE. 2. ASSESSEE ALSO FILED THE CO RAISING THE FOLLOWING OBJECTIONS AND THE SAME READ AS UNDER: CIT(A) HAS REJECTED THE CLAIM OF DEPRECIATION AN D INTEREST FROM THE NET PROFIT ESTIMATED AT 8% EVEN THOUGH THE ROVISIONS OF SECTION 44 AD ARE NO APPLICABLE. 3. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSE SSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF CIVIL CONTRACTORS . HE REGISTERED THE TURNOVER OF RS.2,35,71,701/- DURING THE YEAR AND DISCLOSED THE NET PROFIT OF RS.6,91,718/- WHICH WORKS OUT TO 2.93%. OTHERWISE, THE GROSS PROFIT RATE FOR THE YEAR IS 11 %. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ISSUE OF REJECTION OF ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE 2 BOOKS OF ACCOUNTS U/S 145 OF THE ACT CAME UP AND EV ENTUALLY, THE BOOKS OF ACCOUNTS WERE REJECTED AT THE END OF THE PROCEEDING S DUE TO VARIOUS DEFECTS IN THE BOOKS, IN GENERAL AND THE AUDITORS REPORT IN F ORM NO.3CD (POINT NO.27), IN PARTICULAR. THE A.O. NOT ONLY PROPOSED TO REJECT T HE BOOKS OF ACCOUNTS BUT ALSO ANNOUNCED TO CALCULATE THE ASSESSEES PROFIT ADOPTI NG THE PROFIT @ 20% ON THE GROSS RECEIPTS. IN THIS REGARD, THE ASSESSEE FILED A WRITTEN SUBMISSION DATED 9.12.2008. THE A.O. CONSIDERED THE ABOVE SAID SUBM ISSIONS AND FINALLY INVOKED THE PROVISIONS OF SECTION 145 OF THE INCOME-TAX ACT , 1961. AS MENTIONED IN PARA 4.4 OF THE AOS ORDER, ASSESSEE DISCUSSED THE FACTS OF A CASE OF M/S. S.K. ORSE & CO., A COMPARABLE CASE WHOSE TURNOVER IS AROUND RS. 4.65 CRORES FOR THE SAME ASSESSMENT YEAR, WHICH REPORTED THE GROSS PROFIT RA TE OF 12% ( BEFORE THE ALLOWING OF INTEREST AND DEPRECIATION EXPENSES) FI NALLY, THE A.O. ADOPTED THE PROFIT PERCENTAGE OF 15% OVER THE CONTRACT RECEIPTS AND DETERMINED THE TAXABLE INCOME ON THIS ACCOUNT AT RS.35,35,755/-. THE A.O. DID NOT GRANT ANY DEDUCTION ON ACCOUNT OF INTEREST AND DEPRECIATION. 4. AGGRIEVED WITH THE ABOVE, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THERE IS NO DISPUTE ABOUT THE DECISION OF THE AO IN MATTERS OF REJECTION OF BOOKS OF ACCOUNTS BEFORE THE FIRST APPELLATE AUTHORITY (I E CIT(A). MANNER OF MAKING OF THE BEST JUDGMENT ASSESSMENT IS THE CORE DISPUTE. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE CONTESTED THAT THE CASE OF M/S. S.K. ORSE & CO IS NOT A COMPARABLE CASE TO THE FACTS OF THIS CASE ON THE GROUNDS OF (1) ITS HIGHER TURNOVER; AND (2) THE MEAGER NATURE OF THE INTERES T AND DEPRECIATION CLAIMS. IN THIS REGARD, ASSESSMENT MENTIONED THAT IN THE INSTA NT CASE, THE INTEREST EXPENDITURE AND DEPRECIATION EXPENDITURE ARE RS.5,4 9,955/- AND RS.14,43,849/- RESPECTIVELY. WHERE AS IN THE SAIS COMPARABLE CASE, CORRESPONDING FIGURES ARE MEAGER AND NEGLIGIBLE (RS. 44,282/- IS THE DEPRECIA TION CLAIM). ON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) MENTION ED THAT THERE IS NO ISSUE OR DISPUTE ABOUT THE REJECTION OF BOOKS OF ACCOUNTS AN D THE ISSUE IS ONLY ON THE ESTIMATION OF THE PROFITS IN THE BEST JUDGMENT ASSE SSMENT. ON THIS ISSUE, THE CIT(A) UPHELD THE REQUIREMENT OF ESTIMATION OF PROF ITS, IN PRINCIPLE. BUT HE DECIDED TO DISAGREE WITH THE DECISION OF THE AO AND DECIDED TO TAKE A DEVIATION IN MATTERS OF THE MANNER OF ESTIMATION OF PROFITS O F THE ASSESSEE FOR THE INSTANT AY. THE SAID DIVERSION IS DISCUSSED IN PARA 3.5 & 3.6 OF THE IMPUGNED ORDER. FURTHER, WE FIND THAT THE CIT(A) CRITICIZED THE AO S DECISION IN RECKONING THE CASE OF M/S. S.K. ORSE & CO. AS A COMPARABLE CASE ON THE REASONING THAT IN THE SAID COMPARABLE CASE, THE CLAIM OF DEPRECIATION DOES NOT ARISE AS THAT ASSESSEE DOES NOT OWN ITS PLANT AND MACHINERY AND THEY RELY ON TH E OUTSOURCING THE SAME. WHEREAS, IN THE ASSESSEES CASE, DEPRECIATION CLAIM IS MORE AS HE OWNS MAJOR MACHINERY AS REQUIRED FOR THE CIVIL CONTRACTS. HE ALSO DISCUSSED THE HEAVY INTEREST BURDEN ON THE ASSESSEE UNLIKE IN THE COMPA RABLE CASE. DEPRECIATION ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE 3 CLAIM IN THE COMPARABLE CASE IS ONLY RS. 44,282/- A GAINST RS.14.4 LAKHS (ROUNDED OFF) IN THE ASSESSEES CASE. FINALLY, CIT(A) DISCU SSED THE PROVISIONS OF SECTION 44AD OF THE ACT AND CERTAIN CITATIONS BEFORE RESORT ING TO ADOPT THE SPIRIT OF THE SAID PROVISIONS AND EVENTUALLY ADOPTING THE BENCH M ARK OF 8% RATE OF NET PROFIT MENTIONED THEREIN. IN THE PROCESS, HE RELIED ON THE DECISIONS OF THE RAJASTHAN BENCH IN THE CASE OF CIT VS. KAILASH KACCHWAHA 293 ITR 449 (RAJ) AND EASTERN CONSTRUCTION COMPANY VS. ITO 59 TTJ 723 AND SURENDR A PRASAD MISRA VS. ITO 104 TTJ 292 (LUCKNOW) IN HIS SUPPORT. THE CIT(A) DID NOT ALLOW THE DEDUCTIONS ON ACCOUNT OF INTEREST ON DEPRECIATION OUT OF THE ESTIMATED PROFITS @ 8% ON THE GROSS TURNOVER. 5. THUS, THE ASSESSEE IS NOT HAPPY WITH THE INVOKIN G OF THE SAID PROVISIONS OF SECTION 44AD OF THE ACT AND ALSO NOT ALLOWING THE C LAIM OF DEDUCTION ON ACCOUNTS OF DEPRECIATION AND INTEREST. REVENUE IS ALSO NOT H APPY WITH THE HIS DECISION OF INVOKING THE SAID PROVISIONS OF SECTION 44AD OF THE ACT. THUS, BOTH PARTIES ARE NOT HAPPY WITH THE DECISION OF CIT(A) IN RESORTING TO THE PROVISIONS OF SECTION 44AD OF THE ACT. WE SHALL ADJUDICATE THE APPEALS OF BOTH THE PARTIES IN THE SUCCEEDING PARAGRAPHS AND SHALL TAKE UP THE C.O. OF THE ASSESSEE FIRST FOR ADJUDICATION. C.O. 69/PN/2011 BY THE ASSESSEE 6. DURING THE PROCEEDINGS BEFORE US, SHRI K. SRINIV ASAN LD. COUNSEL FOR THE ASSESSEE NARRATED LABORIOUSLY ALL THE DETAILS OF TH E INSTANT CASE AND TRACED THE FOLLOWING ARGUMENTS WHICH ARE AS FOLLOWS:- (I) THE CIT(A) ERRED IN INVOKING THE PROVISIONS OF SECTION 44AD OF THE ACT WHICH IS IN FACT APPLICABLE ONLY TO THE SIMILAR CAS ES WITH THE TURNOVER NOT EXCEEDING RS 40 LAKHS AND THE SAME IS NOW INCREASED TO RS 60 LAKHS W.E.F. 1.4.2011 ONWARDS. (II) THE CIT(A) ERRED IN NOT GRANTING DEDUCTION FR OM THE SAID PROFIT, SO COMPUTED, ON ACCOUNTS OF INTEREST AND DEPRECIATION. IN THIS REGARD, THE COUNSEL OBJECTED TO THE DECISION OF THE CIT(A) IN INVOKING THE PROVISIONS OF SECTION 44AD RELYING ON JUDGMENT OF THE HIGH COURT OF RAJASTHAN IN THE CASE OF SHRI RAM JHANWAR LAL VS. ITO & ORS. 321 ITR 400 FOR THE PROP OSITION THAT,- GROSS RECEIPTS OF THE ASSESSEE CONTRACTOR BEING MO RE THAN RS.40 LAKHS, S. 44AD, AS SUCH IS NOT APPLICABLE, NOR THE PRINCIPLE UNDERLYING S. 44AD COULD BE APPLIED FOR ESTIMATING THE PROFITS; IMPUGNED ORD ER OF THE TRIBUNAL IS SET ASIDE AND THE MATTER IS SENT BACK TO THE TRIBUN AL FOR DECIDING THE SAME AFRESH. 7. FURTHER, SRI SRINIVASAN ARGUED STATING THAT AFTE R RESORTING TO ESTIMATION OF NET PROFIT OF THE ASSESSEE BY THE A.O IN ANY METHOD OF ESTIMATION IN THE BEST JUDGMENT ASSESSMENT, THE AO OUGHT TO HAVE ALLOWED THE CLAIM OF DEPRECIATION ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE 4 OUT OF THE SO ESTIMATED PROFITS AND TOOK STRENGTH I N THIS REGARD FROM THE CONTENTS OF PARA-8 OF THE ABOVE JUDGMENT IN THE CASE OF SHRI RAM JHANWAR LAL (SUPRA). THUS, HE SUMMED UP STATING THAT THE CIT(A) ERRED IN INVOKING THE PROVISIONS OF SECTION 44AD OF THE ACT AND AFTER HAVING INVOKED TH E SAME, HE HAS ERRED IN NOT GRANTING DEDUCTION ON ACCOUNTS OF THE STATUTORY DED UCTION SUCH AS (I) THE DEPRECIATION AND (II) INTEREST EXPENSES. FURTHER, REFERRING TO THE APPEAL OF THE REVENUE, LD COUNSEL ARGUED STATING THAT THE ASSESSEES BOOK PROFIT (NET) PERCENTAGE IS 2.93% AGAINST THE ASSESSED PROFIT RATE OF 15%, WHICH IS EXTRAORDINARILY HIGH A ND UNACCEPTABLE. HE ALSO MENTIONED THAT THE CIT(A) DECIDED THE REDUCE THE SA ID PER CENT OF 8% OF THE GROSS RECEIPTS, WHILE THE COMPARABLE CASE REGISTERS THE PROFIT PERCENTAGE OF 4.5% ONLY. FURTHER, LD COUNSEL MENTIONED THAT THE TRUTH LIES SOMEWHERE AMONG THE 15%, 8%, 4.5% MENTIONED ABOVE. FURTHER, LD COU NSEL FILED A CHART SHOWING IF 15% AS ADOPTED BY THE A.O. HAS TO BE CONSIDERED REASONABLE, THE STATUTORY DEDUCTIONS ON ACCOUNT OF INTEREST DEPRECIATION MAY BE ALLOWED, IN SUCH CASE, THE NET PROFIT WOULD WORK OUT TO 15,41,951/- AND IN PER CENTAGE TERMS THE NET PROFIT PERCENTAGE IS 6.55% IE AFTER GRANTING DEDUCTION ON ACCOUNT OF INTEREST ON DEPRECIATION. 8. ON THE OTHER HAND, THE D.R. FOR THE REVENUE ALSO MENTIONED THAT THE CIT(A) ERRED IN REDUCING THE NET PROFIT RATE OF 15% TO 8% BY WRONGLY INVOKING THE PROVISIONS OF SECTION 44AD OF THE ACT. THE D.R . PLEADS FOR CONFIRMING THE ORDER OF THE A.O. WITHOUT ANY DISTURBANCE. 9. WE HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF THE REVENUE AND THE MATERIAL AVAILABLE BEFORE US. AS IT IS ALREADY DES CRIBED IN THE PRECEDING PARAGRAPHS ABOVE, THERE IS NO DISPUTE ABOUT THE INV OKING OF THE PROVISIONS OF SECTION 145 OF THE ACT RELATING TO METHOD OF ACCOU NTING AND THE REJECTION OF BOOKS OF ACCOUNTS. THE LIMITED ISSUE FOR ADJUDICAT ION BEFORE US RELATES TO THE MAKING OF AN ASSESSMENT IN THE MANNER PROVIDED IN S ECTION 144 OF THE ACT READ WITH SECTION 145(3) OF THE ACT. SECTION 144 REFERS TO BEST JUDGMENT ASSESSMENT AND A.O. SHALL MAKE ASSESSMENT OF THE TOTAL INCOME OR LOSS TO THE BEST OF HIS JUDGMENT AND DETERMINED THE SAME PAYABLE BY THE ASS ESSEE ON THE BASIS OF SUCH ASSESSMENT AFTER TAKING INTO ACCOUNT ALL THE R ELEVANT MATERIAL WHICH THE A.O. HAS GATHERED. ON HEARING BOTH THE PARTIES, WE FIND THAT THERE ARE 3 SITUATIONS OR THREE DIFFERENT WAYS OF MAKING OF THE BEST JUDGMENT ASSESSMENTS, WHICH ARE REQUIRED TO BE TAKEN INTO ACCOUNT FOR ADJ UDICATING THE BEST JUDGMENT ASSESSMENT. THEY ARE THE: (1) DECISION OF THE A.O; (2) DECISION OF CIT(A); AND (3) COMPARABLE CASES OF M/S S K ORSE & CO RELEVANT BASIC PARTICULARS OF THESE 3 SITUATIONS ARE TABULATED AS UNDER: ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE 5 (RS) SL.NO. PARTICULARS AS PER AO ORDER AS PER CIT(A) ORDER IF M/S S K ORSE & CO PATTERN IS FOLLOWED 1. PROFIT BEFORE INTEREST & DEPRECIATION (PBID) 3,535,755 1,881,736 3,064,321 PERCENTAGE @ 15% 8% 12% 2. INTEREST - - 549,955 3. DEPRECIATION - - 1,443,849 4. NET PROFIT 3,535,755 1,881,736 1,070,517 5. NET PROFIT PERCENTAGE 15% 8% 4.50% 10. WE SHALL NOW DISCUSS THE MERITS OF EACH OF THE ABOVE. FIRST WE TAKE UP THE SITUATION ADOPTED BY THE A.O, WHERE HE HAS DIRE CTLY APPLIED NET PROFIT RATE OF 15% ON THE GROSS RECEIPTS OF RS.2,35,71,701/- WITHO UT ANY LEGALLY SUSTAINABLE LOGIC. FURTHER, THE A.O. DID NOT GRANT ANY DEDUCTIO N ON ACCOUNT OF INTEREST AND DEPRECIATION TOO, WHICH ARE HUGE INCIDENTAL EXPENDI TURE SPECIFIC TO THIS CASE AND WHICH CANNOT BE IGNORED CONSIDERING THE LEGALLY ALL OWABLE CLAIMS TO THE ASSESSSEE. IN PRINCIPLE, WE CAN NOT APPRECIATE SUC H DECISION OF THE A.O. HAVING INVOKED THE NET PROFIT RATE OF 15% ON THE GROSS PRO FITS, HE SHOULD HAVE ALLOWED BENEFIT OF DEDUCTIONS ON ACCOUNT OF THE DEPRECIATIO N. WE TAKE THE SPIRIT OF RAJASTHAN HIGH COURT DECISION IN THE CASE OF SHRI R AM JHANWAR LAL VS. ITO & ORS. 321 ITR 400. PARA 6 TO 8 ARE RELEVANT IN THIS CASE WHICH ARE AS UNDER: 6. THE GRIEVANCE OF THE APPELLANT IS, THAT WHEN THE BEST JUDGMENT ASSESSMENT OF NET PROFIT IS MADE, THEREAFTER, DEPRE CIATION IS REQUIRED TO BE ALLOWED TO BE DEDUCTED THEREFROM , AND FOR THAT PURPOSE, RELIANCE IS PLACED ON JUDGMENTS OF THIS CO URT, IN CIT VS. JAIN CONSTRUCTION CO. (1999) 156 CTR (RAJ) 290 : (2000) 245 ITR 527 (RAJ), AND IT REF. NO.55 OF 1998, BHARAT CONSTRUCTION CO. VS. CIT, DECIDED ON 13 TH SEPT., 2001 [REPORTED AT (2002) 172 CTR (RAJ) 408 ED.]. 7. ON THE OTHER HAND, LEARNED COUNSEL FOR THE REVE NUE SUBMITTED, THAT THE FINDINGS RECORDED ARE PURE FINDINGS OF FAC T, AND DO NOT REQUIRE ANY INTERFERENCE. 8. IN OUR VIEW, SO FAR AS THE QUESTION NO.1 IS CONC ERNED, IT IS CLEAR FROM THE JUDGEMENTS OF THIS COURT IN JAIN CONSTRUCT IONS (SUPRA) AND BHARAT CONSTRUCTIONS CASES (SUPRA), THAT WHERE THE AO HAS ADOPTED NET PROFIT RATE IN MAKING ASSESSMENT ON BEST JUDGEM ENT ASSESSMENT BASIS, EVEN IN THAT CASE ALLOWANCE OF DE PRECIATION IS REQUIRED TO BE MADE . THE QUESTION NO.1 IS ACCORDINGLY, ANSWERED IN FAVOUR OF THE ASSESSEE, AND AGAINST THE REVENUE. HOWEVER, WE FIND THAT THE INTEREST ISSUE WAS NOT TH E SUBJECT MATTER BEFORE THE HIGH COURT OF RAJASTHAN. 11. SECONDLY, WE HAVE EXAMINED THE DECISION OF THE CIT(A) IN THE MATTER IE REJECTION OF THE DECISION OF THE AO AND INVOKING OF THE PROVISIONS OF SECTION 44AD OF THE ACT, WHICH IS LEGALLY MEANT FOR THE CAS E OF TURN OVER NOT EXCEEDING THE AMOUNT OF RS.40 LAKHS. IN THE INSTANT CASE, THE TURNOVER IS 6 TIMES MORE THAN THAT OF THE CASES REFERRED IN S. 44AD OF THE A CT. OF COURSE, HE HAS RELIED ON VARIOUS CITATIONS AS NARRATED ABOVE. NOTWITHSTANDIN G THE SAME, CONSIDERING THE ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE 6 PLAIN LANGUAGE OF THE PROVISIONS OF SECTION 44AD O F THE ACT AND STATED JUDGMENT IN THE CASE OF SRI RAM JHANWAR LAL, SUPRA, IN OUR O PINION, THE SAID APPROACH OF THE CIT(A) IS NOT CONSIDERED VALID ALSO IN VIEW OF THE CATEGORICAL DISAPPROVAL OF THE HON BLE HIGH COURT OF RAJASTHAN AS MENTIONED IN PARA-9 OF THE ORDER OF THE JUDGMENT ABOVE CASE I.E. SHRI RAM JHANWAR LAL VS. I TO & ORS. (SUPRA). WE FOLLOW THE SAME. 12. THIRD SITUATION RELATES TO LIKELY NET PROFIT CA LCULATION IF THE MANNER OF COMPUTING RECORDED IN THE SAID COMPARABLE CASE I.E. M/S. S.K. ORSE & CO. (SUPRA), IS APPLIED TO THE INSTANT CASE. IN THE SAI D COMPARABLE CASE, THE NET PROFIT PERCENTAGE BEFORE ALLOWING THE DEDUCTIONS ON ACCOUNTS OF INTEREST AND DEPRECIATION, WAS CALCULATED AT 12%. AFTER ALLOWIN G THE SAID DEDUCTIONS, THE NET PROFIT PERCENTAGE COMES TO 4.5%. AS DISCUSSED, THI S SITUATION IS NOT ACCEPTABLE TO BOTH THE PARTIES OF THE LITIGATION. BOTH THE PAR TIES MENTIONED THAT THE CASE OF M/S. S.K. ORSE & CO CANNOT CONSTITUTE A COMPARABLE CASE IN VIEW OF THE HIGH TURN OVER, LOWER DEPRECIATION AND INTEREST CLAIMS. 13. IN THE LIGHT OF THE ABOVE 3 SITUATIONS AND OUR EXPRESS VIEWS, NONE OF THE THREE SITUATIONS DISCUSSED ABOVE BRINGS OUT BEST J UDGMENT ASSESSMENT AS EACH OF THEM SUFFER FROM ONE PROBLEM OR OTHER. AS DISCUS SED ABOVE, CONSIDERING THE GENUINENESS OF THE CLAIMS RELATING TO INTEREST AND DEPRECIATION AND THEIR ALLOWABILITY TO THE ASSESSEE IN VIEW OF THE SETTLED LEGAL PROPOSITIONS NARRATED ABOVE, IT BECOMES THE DUTY OF THE AO ALLOW THE SAME . ASSESSEE IS ENTITLED TO THE SAID DEDUCTION ON ACCOUNT OF INTEREST AND DEPRE CIATION OUT OF THE PROFITS DETERMINED BY ANY METHOD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE INCURRED EXPENDITURE BY WAY OF INTEREST ON THE BORROWALS TAK EN FOR THE BUSINESS PURPOSE AND SAME IS THE CASE WITH OTHER FACT IE THE ASSESSE E OWNS SUBSTANTIAL PLANT AND MACHINERY, ON WHICH THE ASSESSEE IS ENTITLED TO DEP RECIATION AS PER THE LAW. THE ALLOWABILITY OF THE DEDUCTION OF DEPRECIATION WAS A LREADY ADVOCATED BY THE AFORESAID RAJASTHAN HIGH COURT IN THE CASE OF SHRI RAM JHANWAR LAL VS. ITO & ORS. (SUPRA). ON THE SAME REASONING, THE ASSESSEE M UST BE ENTITLED TO THE CLAIM OF INTEREST TOO. THEREFORE, IN PRINCIPLE, WE AP PROVE THE ASSESSEES CLAIMS FOR ALLOWANCE OF THESE TWO EXPENDITURES. ACCORDINGLY, THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IS ALLOWED TO THAT EXTENT. 14. NEXT ISSUE FOR ADJUDICATION RELATES TO WHAT IS THE BEST JUDGMENT NET PROFIT RATE TO BE APPLIED ON THE GROSS PROFITS FOR DETERMI NING THE PROFITS OF THIS ASSESSEE. SHOULD IT BE 15% AS ADOPTED BY THE A.O. O R 8% AS APPLIED BY THE CIT(A) OR 12% AS REPORTED BY THE SO CALLED COMPARAB LE CASE OF M/S. S.K. ORSE & CO?. CONSIDERING OUR EXPRESS OPINION STRENGTHENED BY THE JUDGMENT OF THE HONBLE HIGH COURT OF RAJASTHAN, CIT(A)S DECISION T O INVOKE PROVISIONS OF SECTION ITA NO.729/PN/2010 SANJAY B. PATIL, PUNE 7 44AB TO THE INSTANT CASE IS NOT PROPER AND THEREFOR E, WE DISMISS THE CIT(A)S DECISION ON THE DISPUTE. COMING TO THE 12% NET PRO FIT RATE BEFORE INTEREST AND DEPRECIATION IS ALLOWED IN THE ALLEGED COMPARABLE C ASE OF M/S. S.K. ORSE & CO, WE FIND THE FACTS OF THIS CASE ARE NOT EVEN COMPARA BLE FOR MANY REASONS. 15. IN THE END, WE EXAMINED IF THE PROFIT PERCENTAG E OF 15% AS ADOPTED BY THE AO IN THE ASSESSMENT PROCEEDINGS SHALL MEET THE ENDS OF JUSTICE AND IF IT CONSTITUTES THE BEST JUDGMENT ASSESSMENT. OF COURSE , THE ASSESSEE IS ENTITLED TO DEDUCTION ON ACCOUNTS OF INTEREST AND DEPRECIATION AS DISCUSSED ABOVE. IN OUR OPINION, THE AOS DECISION WITH PROFIT PERCENTAGE O F 15% ON THE GROSS TURNOVER SHOULD BE APPROVED AND FOR WANT OF CLARITY, WE DISA PPROVE AOS REFUSAL TO GRANT DEDUCTION ON ACCOUNT OF INTEREST ON DEPRECIATION. IN SUMMARY, WE ALSO DISAPPROVE THE CIT(A)S DECISION IN INVOKING THE PR OVISIONS OF SECTION 44AD OF THE ACT AND ALSO THE DECISION IN NOT GRANTING DEDUC TION ON ACCOUNT OF INTEREST AND DEPRECIATION IN VIEW OF THE SAID JUDGMENT OF RA JASTHAN IN THE CASE OF SHRI RAM JHANWAR LAL, SUPRA. THEREFORE, AMONG THE THREE AVAILABLE SCENARIOS ABOVE, THE ESTIMATION OF NET PROFITS PERCENTAGE OF 15% AS ADOPTED BY THE A.O AND GRANTING THE DEDUCTION TO THE INTEREST AND DEPRECIA TION SHOULD CONSTITUTE MOST REASONABLE AND BEST JUDGMENT ASSESSMENT AND IT WOUL D MEET BOTH ENDS OF THE JUSTICE. ACCORDINGLY, GROUNDS RAISED IN BOTH THE A PPEALS OF THE REVENUE AS WELL AS THE C.O. OF THE ASSESSEE ARE PARTLY ALLOWED . 16. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E C.O. OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 /11/2011 SD/- SD/- ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER (D. K ARUNAKARA RAO ) ACCOUNTANT MEMBER PUNE, DATED THE 29/11/2011 COPY OF THE ORDER IS FORWARDED TO :, 1. ACIT, CIRCLE-3, PUNE 2. SANJAY BAPUSAHEB PATIL, 32, CONTINENTAL CHAMBERS , KARVE ROAD, PUNE-004 3. THE CIT(A), PUNE 4. THE CIT CONCERNED 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE