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2015 (11) TMI 1530 - AT - Income TaxRejection of books of accounts - estimated the net profit from contract receipts @ 10% on main contracts, 8% on sub contracts and 4% on sub contracts executed through third parties - Held that:- . In the present case on hand, the assessee declared a net profit of 5.28% on gross contract receipts. The assessing officer has estimated net profit of 10% on main contract works, 8% on sub contracts and 4% on sub contracts executed through third parties. The 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 require any interference. Therefore, we are of the opinion that there is no error or infirmity in the order passed by the CIT (A), hence, we are inclined to upheld the order of the CIT (A). Additions towards income from other sources being interest earned on fixed deposits - Held that:- The assessee earned the interest from bank deposits, which are kept as margin money for taking bank guarantees. Though these bank guarantees are furnished for obtaining contract works, the interest earned from these deposits, cannot be at any stretch 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 obtaining bank guarantee. There should be direct nexus between business activity and earning of income. If these interest receipts are arises from the works contracts, then definitely these items forms part of contract receipts. But, in this case the interest earned is from bank deposits. Therefore, the AO rightly treated interest earned from bank deposits under the head income from other source but, the CIT (A) ignored the basic fact that there is no nexus between the earning of interest and the assessee’s contract works, deleted the additions made by the assessing officer. Therefore, considering the facts and circumstances of the case, we reverse the order of the CIT (A) and upheld the addition made by the Assessing Officer. Additions towards depreciation - difference in depreciation, in addition to estimation of net profit from the contract receipts - Held that:- As going through the orders of the Assessing Officer as well as the order of CIT (A). The A.O. estimated net profit from gross contract receipts. Once net profit is estimated, all expenditures deductible have been considered as allowed. Therefore, even if there is difference in original computation and revised computation and depreciation claim made by the assesse, which does not affect the computation of profit when the net profit is estimated from the gross receipts. Therefore, we are of the opinion that the CIT (A) has rightly deleted the additions and his order does not require any interference. Hence, we direct the AO to delete the additions made on account of depreciation. Deduction towards depreciation, remuneration to partners and interest on partners capital accounts - Held that:- Depreciation is a allowable deduction, even after estimation of net profit from the contract receipts. Therefore, we direct the assessing 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 partner’s capital account is concerned, the statute itself in section 44AD of the Act, allowed separate deductions towards interest on capital accounts and remuneration to partner’s, after estimation of net profit from the gross receipts. The CIT (A) after considering the facts and circumstances of the case, has rightly directed the A.O. to allow remuneration to partners and interest on partner’s capital account from the net profit estimated. Therefore, we find no error or infirmity in the order of the CIT (A), hence, we inclined to upheld the order of the CIT (A).
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