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2014 (1) TMI 832 - AT - Income TaxError in directing AO for estimation of the income – Held that:- As decided in assessee’s own case in the previous years, the ITAT has estimated the profits of the Assessee @ 9% on own contract works, 8% on contracts taken by assessee on subcontracts and @ 5% on contracts given by the assessee to 3rd party on subcontracts - This estimate according to ITAT is before allowing remuneration, interest on capital and depreciation and hence ITAT directed that these amounts should be reduced out of the estimated income - Estimate of income may vary from case to case - The estimate may be gross profits after which other expenditure may be allowed or the estimate may of the net income after all the expenditure - their estimate of income as a percentage of Gross receipts is prior to allowance of depreciation, interest on capital and remuneration. The circumstances this year being identical as the earlier year and as Department has not brought anything on record to persuade us to take a different view - the order of the CIT(A) upheld regarding the rate of profits to be adopted on the gross receipts and a further allowance of remuneration, interest on capital and depreciation – Decided against Revenue. Depreciation u/s 32 of the Act – Held that:- It falls under the provision of section 30 to 38 and be deemed to have been already given full effect while estimating the income of the assessee - thus, with respect to depreciation, the ground of appeal raised by the Revenue is allowed – Decided partly in favour of Revenue. Deletion made appearing as liability – Held that:- The expenditure were of the nature claimed by the Assessee has been kept in mind for determining the estimated profits from business, none of the individual expenditure can be considered as having been allowed in computing the taxable income - In fact the books of the Assessee has been rejected and the profits have been estimated as a percentage of the gross receipts - the basic precondition for application of sec 41(1), allowance of the expenditure/ liability has been made in the assessment any previous year is not satisfied - This being the case the CIT(A) has correctly held that the addition appearing as liability in the books of account of the Assessee as profits u/s 41(1) is not sustainable – the order of the CIT(A) deleting the addition upheld appearing as liability in the books of the Assessee and confirm the deletion of these amounts – Decided partly in favour of Revenue.
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