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2022 (11) TMI 442 - AT - Income TaxRevision u/s 263 by CIT - As per CIT grant of depreciation and interest was not in accordance with the provisions of section 44AD(2) - HELD THAT:- PCIT has considered the action of the AO as erroneous and prejudicial to the interest of the revenue stating that interest and depreciation is not allowed on the profit estimated u/s.44AD. This is not the correct facts of the case, as the assessee has clearly submitted that 44AD is not applicable to him and this fact has been acknowledged by the AO in his order. PCIT has substituted his view with that of the AO to state that the deduction of interest and depreciation is allowed u/s.44AD by the AO and concluded the order of the AO as erroneous. AR drew our attention to para 4 and 5 of the AO’s order where the AO has clearly acknowledged that the assessee has used the % specified in 44AD and that the said section is not applicable in assessee’s case. It is because of this reason the AO has adopted a higher % for estimation viz., 9% which fact is not correctly noticed by the PCIT. PCIT has also misinterpreted the reliance placed by the assessee and considered by the AO in the case of Sammurai Techno Trading Co Ltd [2009 (11) TMI 938 - KERALA HIGH COURT] had stated that when reliance is placed on this decision on the applicability of 44AD then the assessee ought not to have claimed interest and depreciation and the AO should have allowed the claim. This is a gross misconception on the part of the PCIT, since the assessee had relied on the decision only to justify the applicability of 8% as a profit estimate even when section 44AD is not applicable in his case. The AO though accepted the estimation proceeded to enhance the % to 9% after considering the facts and the details furnished. Therefore the conclusion of the PCIT that the order passed by the AO is erroneous is not tenable as the assumption of the PCIT that the AO has estimated the profits by applying the provisions of section 44AD and allowed interest and depreciation on the estimated profit, is not correct interpretation of AO’s order. Penalty proceedings initiated u/s.271B for non-maintenance of books of accounts being erroneous and prejudicial to the interest of the revenue - As relying on the case of Siddappa [2022 (4) TMI 535 - ITAT BANGALORE] we do not find it necessary to interfere with the observations of the PCIT on the issue of dropping the penalty proceedings initiated by the AO. Appeal of the assessee allowed.
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