TMI Blog2015 (11) TMI 1637X X X X Extracts X X X X X X X X Extracts X X X X ..... re, even after estimation of net profit, these items should be brought to tax separately - Held that:- We find force in the arguments of the Ld. D.R. that income from other sources being interest received, royalty and discount received are not connected with the business activity of the assessee. Therefore, while estimating the net profit from the contract receipts, these items cannot be included. There is no nexus between interest and Royalty receipts to works contract receipts. If these receipts are originated from work contracts, then definitely these items forms part of contract receipts. But, in this case, it is not so. The A.O. as well as CIT(A) rightly held that these items are separately taxable even in case of estimation of net profit from the contract receipts. Therefore, we upheld the order of the CIT(A) and reject the ground raised by the assessee on this issue. Claim of deduction of depreciation denied - Held that:- We are of the opinion that depreciation is a allowable deduction, even after estimation of net profit on gross receipts. Accordingly, we direct the A.O. to allow the admissible depreciation against the income estimated from the contract receipts. - I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act receipts and determined 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 assessment. 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 also challenged the separate additions made towards income from other sources and also the claim of depreciation disallowed by the assessing officer. During the course of appellate proceedings, the CIT(A) forwarded the submissions of the assessee to the assessing officer for his comments. The assessing officer vide his remand report dated 3.4.2012 has agreed that the assessee is a sub-contractor and stated that the assessee did not respond to the notices issued by the A.O. Hence, the A.O. left with no option but to make best judgement assessment has rightly completed the assessment u/s 144 of the Act. The CIT(A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 30 to 38 of the Act have been considered as allowed. Therefore, separate deduction towards depreciation cannot be allowed. The Ld. D.R. further argued that as far as income from other sources being interest receipts and other income, these items of income are taxable under the head of income from other sources and earning of this income is nothing to do with estimation 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 contracts, therefore, net profit estimated by the CIT(A) is quite higher side. The A.R. further submitted that the very same assessing officer, while completing the assessment for the assessment year 2010-11 in the assessee s own case estimated the net profit at 8% of sub contract works executed directly by the assessee and net profit @ 5% on sub-contract work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s executed by the assessee through other contractors. While doing so, the CIT(A) relied upon the judgement of Hon ble ITAT Hyderabad Bench in the case of ACIT Vs. Teja Constructions (supra). We have gone through 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 construction works is consistently followed by the department on various rates depending upon the facts and circumstances of each case. Also, the ITAT upheld the estimation of net profit depending upon the facts and circumstances of the each case. In one such case, the ITAT Hyderabad bench in the case of ACIT vs. Teja Constructions (Supra) held as under. The assessee s past track records show that the assessee has neglected the presenting of the books of account in accordance with law. When the assessee claimed any expenditure, it is mandatory on the part of the assessee to produce the books of account supported by proper bills and vouchers. Since the assessee has not produced the proper books of account, 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources being interest received, royalty received and discount received. The A.O. was of the opinion that these are separate receipts, does not have any bearing on contracts executed by the assessee, therefore, these items are taxable as income from other sources. The CIT(A) confirmed the Assessing Officer s order and held that income from other sources being interest received, royalty and discount received is nothing to do with business activity of the assessee, therefore, even after estimation of net profit, these items should be brought to tax separately. We find force in the arguments of the Ld. D.R. that income from other sources being interest received, royalty and discount received are not connected with the business activity of the assessee. Therefore, while estimating the net profit from the contract receipts, these items cannot be included. There is no nexus between interest and Royalty receipts to works contract receipts. If these receipts are originated from work contracts, then definitely these items forms part of contract receipts. But, in this case, it is not so. The A.O. as well as CIT(A) rightly held that these items are separately taxable even i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... car and Air conditioner will be less. Whereas another business man having higher version of Car and Air conditioner would 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 between the two, the depreciation amount will be different 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 AO to allow the depreciation admissible to the assessee against 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 direct the A.O. to allow the admissible depreciation against the income estimated from the contract receipts. 12. In the result, the appeal filed by the revenue in ITA No.47/Vizag/2013 is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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