TMI Blog2016 (1) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... in Appeal No. 951/XII/Cir-10/09-10 dated 13-02-2012 for the assessment year 2007-08 against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The only issue to be decided in this appeal is as to whether the Learned CIT(A) in the facts and in the circumstances of the case is right in estimating the net profit @ 2.5% of contract receipts of the assessee as against 8% adopted by the Learned AO. 3. The brief facts of this issue is that the assessee is a company engaged in civil construction contracts awarded by Government departments. During the assessment year under appeal, the assessee filed its return of income declaring taxable income of ₹ 18,63,450/-. The accounts of the assessee were duly subjected to tax audit u/s 44AB of the Act. The net profit reported by the assessee was 2.03% of net contract receipts. During the course of assessment proceedings, the assessee did produce the books of accounts and filed details called for by the Learned AO. However, the Learned AO resorted to estimate the net profit from contract business @ 8% of total contract receipts and accordingly added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence the estimation of profit @ 8% of contract receipts does not gain any support from the provisions of the Act and has to be construed only as a general estimation made by the Learned AO. We also find that the operating profit of the assessee before charging interest and depreciation is 8% of contract receipts. This aspect was mistakenly understood by the Learned AO that the assessee itself had admitted to adoption of 8% of receipts as its net profit and this made the Learned AO to reject the books of accounts of assessee and resort to presumptive taxation u/s 44AD of the Act. This acceptance was denied by the assessee before the Learned CIT(A). 5.1. We find that the assessee had taken secured loans of ₹ 326.89 lakhs on which bank interest of ₹ 35,08,977/- and bank charges of ₹ 6,57,561/- was incurred by the assessee. Similarly fixed assets to the tune of ₹ 80,27,539/- was used for civil construction business and depreciation thereon of ₹ 12,87,911/- was claimed as allowance u/s 32 of the Act by the assessee. The Learned CIT(A) found that these figures of bank interest, bank charges and depreciation , if reduced from the estimated profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 118 (All.), Chopra Bros. (India) (P.) Ltd. v. ITO [1993] 202 ITR 40 (Chd. Trib.), CIT v. Jain Construction Co. [2000] 110 Taxman 156 (Raj.) 10. As regards allowability of interest and bank charges the same is covered by the order of the Third Member ITAT Chandigarh in-the case of lncome-tax Officer v. Nikka Ram Sanjeev Kumar [1999] 69 ITD 195 (CHD.) (TM) where the Third Member held as follows: When an estimate of an income is made, all the inputs i.e., the expenses including interest paid for capital borrowed for the purpose of the business are allowable deductions. In doing so, it is to be seen whether the assessee borrowed capital for the purpose of the business and was used for the same. If so, then the interest thereon has to be allowed as a deduction. If, however, the assessee has sufficient capital and in spite of that borrowed money which was not utilised for the purpose of the business it is for the Assessing Officer to disallow the claim as the borrowed money was not for the purpose of the business. In the present case, there is no dispute regarding the capital borrowed which was utilised for the purpose of the business. Admittedly, it is allowable dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Court in CIT v. Chopra Bros. India (P) Ltd [2001] 252 ITR 412/119 Taxman 866 and Girdhari Lal v. CIT [2002] 256 ITR 318 [2001] 119 Taxman 863 was with regard to deduction to be made on account of depreciation from the gross receipts while applying net profit rate. It was held on the basis of a circular issued by the Board, which was binding on the revenue that the gross receipts to which net profit rate is to be applied shall be determined after giving allowance on account of depreciation. CIT vs Y.Ramachandra Reddy reported in (2014) 50 taxmann.com 129 (AP HC) dated 30.7.2014, wherein the questions raised before their Lordships and decision rendered thereon are reproduced below:- Questions: 1. Whether on the facts and in the circumstances of the case the Tribunal is correct in law in directing the Assessing Officer to allow depreciation and interest payments from the estimate of profit at 12%? 2. Whether on the facts and in the circumstances of the case the Tribunal is correct in law in directing the Assessing Officer to grant reliefs on those items which are not claimed by the assessee? 3. Whether on the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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