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2022 (8) TMI 1228 - AT - Income TaxEstimation of NP - net profit at 8% on the gross contract receipts - Applicability of provisions of section 44AD - AO by taking the intent of provisions of section 44AD of the Act, assessed the net profit rate at the rate of 8% of the gross contract receipts without allowing depreciation whether current depreciation or carry forward depreciation - CIT(A) confirmed the application of profit rate of 8% on the gross receipts and also confirmed the action of the AO in not considering the claim of depreciation of current year and the claim of set off of unabsorbed depreciation brought forward in earlier years - HELD THAT:- We are of the view that this issue is covered against Revenue and in favour of assessee by the decision of Hon’ble Madras High Court in the case of K. Kannan [2013 (10) TMI 1230 - MADRAS HIGH COURT] and the fact that in the present case, the amount prescribed in the provisions of section 44AD of the Act for this year is Rs.1 crore, whereas gross receipts of assessee being Rs.13,54,68,125/- , which is more than the prescribed limit. Hence, the lower authorities have wrongly taken cognizance of section 44AD of the Act for applying the profit rate. Hence, this proposition will decide in favour of assessee. Net profit computation - As gone through the profit rate adopted by the AO in assessee’s own case in earlier years and future years and noted from the above chart that profit rate varies from 1.05% to 13.02% i.e., profit before depreciation and in this year, the AO in the original assessment has accepted the profit rate at 7.2% and made assessment which was subject matter of revision before PCIT and the AO applied profit rate at 8% in consequence to the order giving effect to revision order passed by PCIT u/s.263 of the Act. In our view, the profit rate accepted by assessee as applied by the AO originally at 7.2% seems to be genuine and reasonable and we upheld the same. The AO is directed to recompute the net profit by applying profit rate at 7.2% of the gross receipts. After application of profit rate, even though the assessee has not maintained books of accounts, depreciation is to be allowed to the assessee - Once the assessee’s books of accounts are not available or rejected by the AO, the AO has to estimate the profit rate and thereafter has to allow depreciation as claimed, after verifying the details. In the present case before us, the assessee has made claim and originally, the AO allowed the claim of depreciation that means, the details are available and therefore, we direct the AO to allow the same. This proposition is also allowed in favour of assessee. Carry forward of depreciation relevant to assessment years 2011-12 and 2012-13 - We direct the AO to treat the unabsorbed depreciation as part of current year depreciation and the same is to be set-off against any other income. Hence, we direct the AO to verify the facts and then allow the claim of assessee accordingly. This issue of assessee’s appeal is allowed subject to verification by the AO.
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