TMI Blog2016 (2) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... not possible if the question is debatable. This has been held by the Hon ble Supreme Court, in the case of CIT vs. Hero Cycles Pvt. Limited, [ 1997 (8) TMI 6 - SUPREME COURT] . Also further held that for invoking the provisions of section 154, the point should have been examined on facts and in law. The Hon ble Kerala High Court in the case of Satish Chandra vs. CIT [ 1998 (7) TMI 73 - KARNATAKA HIGH COURT] has held that where the point is debatable, rectification was not valid. Depreciation and interest as allowable deduction from deductions from the net profits - total income is calculated by applying net profit rate - HELD THAT:- The matter is no longer res integra. The Division Benches of this Court in Commissioner of Income Tax vs. Chopra Bros. India (P) Limited [ 2001 (9) TMI 90 - PUNJAB AND HARYANA HIGH COURT] and Girdhari Lal vs. Commissioner of Income Tax [ 2001 (9) TMI 28 - PUNJAB AND HARYANA HIGH COURT] while considering the aforesaid issue, in view of the circular issued by the Board, had held in a case where the assessee makes a specific claim for depreciation and gives the information as required under section 32 of the Act, the assessing officer is bound t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law and on facts, in holding that salary and interest paid to partners is not allowable as deduction after the application of net profit rate of 8% on gross contract receipts on the rejection of books of account. 6. The brief facts as noted in the assessment order are that in the AY 2004-05, the assessment was completed u/s 143(3) of the Act and books of account were rejected by the AO and a flat rate of 8% of total receipts as net profit was applied. After completion of the assessment, it came to the notice of the AO that an amount of ₹ 4,02,038 which was earned as interest on fixed deposits had escaped regular assessment and this mistake had crept due to netting of interest paid and received by assessee. The AO held that interest earned on fixed deposits was assessable under section 56, as income from other sources and it was not liable to be adjusted against the interest paid by assessee on business loan. Therefore, the AO passed rectification order u/s 154 and made separate addition of ₹ 4,02,038/- 7. Aggrieved, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A), however, did not accept the contention of the assessee and relyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, as the assessee in this case was not carrying out any business and interest earned by him was assessable u/s 56 of the Act, as income from other sources , as FDRs were not taken for any business purposes, whereas in the present case, FDRs were got made for business purposes. The Ld. counsel further submitted that income from interest on FDR is taxable as business income or income from other sources depending upon facts of each case, therefore, head of taxability is a debatable point. The ld. counsel for the assessee placed his reliance on the following case laws for the proposition that where the point of issue was debatable, no rectification u/s 154 was valid: i) Satish Chandra Co. vs. CIT, 234 ITR 70 (Ker.) ii) CIT vs. Madras Refinery Ltd., 228 ITR 354 (Mad.) 11. The ld. DR, on the other hand, relied upon the orders of the authorities below. 12. We have heard the rival parties and have gone through the material available on record. We find that the assessment in this case was completed by applying net profit rate of 8% of the gross receipts and the books of account were rejected during the assessment proceedings and, therefore, the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit loss account and this interest was earned on fixed deposits, which were made for providing Bank guarantee to Govt. departments and, therefore, the interest income had a direct nexus with the business of the assessee and therefore, was reflected in the profit loss account. Relying upon the case law of Daljit Singh Brothers ( supra), that once the books of account were rejected, no separate addition on account of interest earned on FDRs, which was made for business purposes was maintainable, therefore, we are in agreement with arguments of the ld. AR. Moreover, we find that for invoking the provisions of section 154 of the Act, the mistake has to be apparent from the record and rectification is not possible if the question is debatable. This has been held by the Hon ble Supreme Court, in the case of CIT vs. Hero Cycles Pvt. Limited, 228 ITR 463. The Hon ble Supreme Court in this case had further held that for invoking the provisions of section 154, the point should have been examined on facts and in law. 14. The Hon ble Kerala High Court in the case of Satish Chandra vs. CIT, 234 ITR 70, has held that where the point is debatable, rectification was not valid. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessee. The assessee s counsel also invited our attention to para 10.1 of the said order. 19. The ld. DR, on the other hand, heavily relied on the orders of the authorities below. 20. We have heard the rival contentions and have gone through the material available on record. As regards the claim of depreciation, we find that the Hon ble Punjab Haryana High Court in the case of Lali Construction Co. (supra) vide its order dated 04.08.2014, had framed the following question of law: Whether depreciation and interest are allowable deduction from deductions from the net profits even if total income is calculated by applying net profit rate? In an answer to first limb of the question regarding depreciation, the Hon ble High Court had held as under: Taking up the first point, the matter is no longer res integra. The Division Benches of this Court in Commissioner of Income Tax vs. Chopra Bros. India (P) Limited (2001) 252 ITR 412 and Girdhari Lal vs. Commissioner of Income Tax and another, (2002) 256 ITR 318 while considering the aforesaid issue, in view of the circular issued by the Board, had held in a case where t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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