TMI Blog2014 (5) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided against Assessee. Claim of seigniorage charges – Held that:- The material supplied by the Government/contractor will not have any element of profit - it shall be reduced from the contract receipts - the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit – thus, the AO is directed that while computing the total contract receipts the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. Estimation of income @5% - Grant of depreciation - Held that:- Following Indwell Constructions Versus Commissioner Of Income-Tax [1998 (3) TMI 121 - ANDHRA PRADESH High Court] - the deduction available u/ss. 30 to 38 shall be deemed to have been already given full effect and no further deduction under those sections shall be allowed - Depreciation is allowable u/s. 32 of the Income-tax Act - as provided in section 44AD no further/separate deduction shall be allowed - the claim of depreciation on the estimated income is not justified. Payment of interest and salary to the partner – Held that:- The provision of section 44AD as it is applicable for the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8/Hyd/14 assessee appeal: 1. On the facts and in the circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals)-VI, Hyderabad is erroneous and bad in law. 2. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-VI, Hyderabad ought not have rejected the books of account maintained by the Appellant in the normal course of business and he ought have accepted income returned of Rs. 4,92,760/- (after claiming depreciation of Rs. 29.25,336/- and interest/finance charges of Rs. 17,36,109/-) as derived from the audited books of account. 3. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)- VI, Hyderabad erred by directing that the total income of the appellant be estimated @ 3% of the gross receipts, net of all the expenses as against the income returned/admitted of Rs. 4,92,760/- (after claiming depreciation of Rs. 29,25,336/- and interest! finance charges of Rs. 17,36,109/-). 4. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)- VI, Hyderabad further erred by not allowing depreciation allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not capable of verification as they did not contain date, signature of the recipient, vehicle number etc. It was also observed that the details of trip sheets were not furnished for verification. The AR submitted before the Assessing Officer that given the voluminous number of vouchers and the constraints in this line of business, it was not possible to maintain the vouchers in the perfect manner. The Assessing Officer held that since the assessee had been unable to produce all the vouchers and in view of the deficiencies noted by him, he estimated the income at 5% of the turnover clear of all expenditure, by rejecting the books of account. 4. Before the CIT(A), the AR relied on the decision of this Tribunal in the case of Sri Venkateswara Swamy Lorry Service, Kodad for AY 2005-06 (ITA No. 353/Hyd/2009 dt. 25.11.2009) where in similar facts and circumstances, the Tribunal, had directed that from the income estimated, the deduction towards interest/financial charges and depreciation be allowed from such estimated income. The assessee also relied on the decision of Rajasthan High Court in the case of Jain Constructions Others vs. CIT (45 ITR 527) on similar facts. 5. The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivel Murugan Transport Agency (ITA No. 1919/Hyd/2011 dt. 28.06.2012), where the assessee was running the business through hired vehicles, as against the assessee in the present case with few lorries of his own, put to use in business. Though the assessee has his own lorries, it appears, major portion of business is carried through hired vehicles, as could be seen from the record, wherein the expenditure incurred with reference to the freight charges stood at Rs. 4.79 crores, as against the gross receipts of Rs. 9.82 crores. But all the other factors remain same, where in the Tribunal has directed the AO to adopt the profit at 3% on gross receipts, net of all the expenses, relying on the decision of Tribunal in the case of C. Eswar Reddy Co. (ITA No. 668/Hyd/2009 dt. 31.01.2011) from which the payments of remuneration u/s. 40(b), were further directed to be allowed. Under the circumstances, the CIT(A) was of the considered opinion that the decision of the Tribunal in the case of Veera Vadivel Murugan Transport Agency (supra) is more applicable in this case, on facts and as such the net profit of the business of the assessee is directed to be estimated at 3% of the gross receipts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying a rate of 3%. In deciding the issue as above, we considered the fact that the assessee does not own trucks used in the business and is incurring huge incidental expenditure. From such income estimated applying rate of 3%, deduction towards interest and remuneration to partners in terms of S. 40(b) of the Act may be allowed. We are supported in this behalf by the decision of the coordinate Bench of this Tribunal in ITA No. 668/Hyd/2009 and thee others in the case of M/s. C. Eswara Reddy Co., Hyderabad, relied upon by the learned counsel for the assessee, wherein the Tribunal, vide para 14 of its order dated 31.1.2011, even in a case covered by the provisions of S. 44AD, has directed the assessing officer to allow deduction towards salary and interest and salary paid to partners, from out of the income estimated in terms of S. 44AD of the Act. Accordingly, impugned order of the CIT(A) is set aside, and the assessing officer is directed to recompute the income of the assessee. Accordingly, assessee s ground No. 2 is partly allowed and ground No 3 is allowed. 9. As the CIT(A) followed the earlier order of the Tribunal which is based on the conclusion reached by this Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubt this Tribunal estimated the profit from 12.5% to 8% depending upon the factual situation. The learned DR made an attempt to distinguish the order of this Tribunal in M. Bhaskar Reddy (supra) on the ground that the turnover is only Rs.54,40,420. It is a well known fact that whenever the turnover increases the profit ratio would go down. Merely because the turnover increases the profit may not go up. Therefore, we do not find any justification in the distinction made by the learned DR to show that this Tribunal estimated the profit at 8% in the case of M. Bhaskar Reddy (supra) only because the turnover was Rs.51,40,420. A bare reading of the order of this Tribunal in M. Bhaskar Reddy (supra) clearly shows that this Tribunal after considering the judgement of the Apex Court in C. Velukutty, 60 ITR 239 and the decision of the Special Bench of this Tribunal in Arihant Builders Pvt. Ltd. vs. ACIT, 291 ITR 41 (SB) and by taking a clue from section 44AD of I.T. Act the profit was estimated at 8%. Admittedly section 44AD would be applicable in respect of a case where the gross contract receipt does not exceed Rs.40 lakhs. Wherever the gross contract receipts exceed Rs.40 lakhs the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimating the profit. Accordingly we direct the Assessing Officer while computing the total contract receipts the seigniorage charges shall be reduced from the total contract receipts for the purpose of estimating the profit. 12. Now coming to the depreciation. We have carefully gone through the judgement of the jurisdictional High Court in the case of Indwell Construction (supra). In the case before the jurisdictional High Court an addition was made towards interest and remuneration paid to the partner when the profit was estimated. The jurisdictional High Court after considering the provisions of section 29 and 40 found that no separate addition shall be made. The contention of the learned counsel for the assessee is that depreciation shall be on the WDV from the profit computed/estimated. Therefore, depreciation shall be allowed on the profit computed. 13. We have carefully gone through the provisions of section 44AD of the Act. Now doubt this provision is applicable for those cases where the turnover/total contract receipt does not exceed Rs.40 lakhs. However, by Finance (No.2) Act of 2009 with effect from 1.4.2011 the Legislature removed the restriction of the total co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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