TMI Blog2015 (4) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... here the profit of assessee is determined on percentage basis. The conclusions arrived at by us, get support from the Circular dated 31.08.1965 issued by the Central Board of Direct Taxes. Though the Circular was with reference to the 1922 Act, it holds good for the analogous provisions under the 1961 Act. in case of estimation of profit on contract business, deduction towards depreciation and interest is allowable as there is no provision under the Act restricting such allowance. The Hon’ble jurisdictional High Court in case of CIT Vs. Sri Venkateswara Swamy Lorry Service (2013 (6) TMI 780 - ANDHRA PRADESH HIGH COURT) while dismissing the appeal of the revenue again held that in case of estimation of income after rejecting the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted by authentic bills and vouchers, are not verifiable. Therefore, AO opined that books of account of assessee could not be relied upon and have to be rejected . After rejecting the books of account, AO proceeded to estimate the profit by applying the rate of 12.5% on main contract work and 8% on sub-contract work. Further, AO also noticed that during the year, assessee has also sub-contracted a portion of the work to third parties. AO, therefore, estimated income on such sub-contracted work at 3% of the turnover. In this process, income was determined on estimate basis at ₹ 3,26,30,512. After estimating the income as aforesaid, AO allowed further deduction towards depreciation amounting to ₹ 1,28,36,934 and interest and remun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by AO for the AY 2010-11. Being aggrieved of such directions of ld. CIT, assessee is before us. 5. Ld. AR submitted before us, AO having allowed depreciation claimed by assessee after making necessary enquiry and proper application of mind, ld. CIT was not justified in revising such assessment order by invoking his power u/s 263 of the Act. Ld. AR submitted, even, in a case where income is estimated after rejecting books of account, deduction towards depreciation and interest remuneration to partners is still allowable. In this context, he placed reliance upon decisions of the Hon ble Jurisdictional High Court in the following cases: 1. CIT Vs. VSY Ramachandra Reddy, ITTA 48 of 2002, judgement dated 30/07/2014. 2. CIT Vs. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mating the profit from contract business has applied a much higher rate than the rate prescribed u/s 44AD. In these circumstances, it cannot be said that once profit is estimated no further deduction is allowable because section 44AD provides that once income is estimated, deduction available u/s 30 to 38 shall be deemed to have been given full effect. The Hon ble jurisdictional High Court in case of CIT Vs. V.S.Y. Ramachandra Reddy (supra) while considering identical issue of allowance of depreciation and remuneration and interest payment to partners in case of estimation of profit on contract business held in the following manner: For example, Section 44AD of the Act provides for determination of the income of an assessee from the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of law to make such distinction. His understanding of the matter is that Section 44AD of the Act, that provides for a comprehensive formula of determining net profit derived by a civil contract or at 8%, takes in its fold, allowance of depreciation, interest and other benefits. The fact, however, remains that such a provision was not in exercise in the Assessment Year 1994-95. If an assessee is entitled to claim deduction of interest, be it under Section 36(1)(iii) of the Act or any other relevant provision and of depreciation under Section 37 of the Act, in the ordinary course of assessment, there is no reason why the same facilities be not extended to him, merely because the profit is determined on the basis of estimation as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act restricting such allowance. The Hon ble jurisdictional High Court in case of CIT Vs. Sri Venkateswara Swamy Lorry Service(supra) while dismissing the appeal of the revenue again held that in case of estimation of income after rejecting the books of account further deduction towards depreciation and interest and remuneration payment to partners is still allowable. Therefore, respectfully following the view expressed by Hon ble jurisdictional High Court as aforesaid, we hold that exercise of power u/s 263 of the Act and the consequent order passed by ld. CIT directing AO to disallow depreciation is not valid. Accordingly, we set aside the impugned order of ld. CIT for both the assessment years and restore the assessment orders passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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