TMI Blog2010 (3) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... actual receipt has been taxed. Brief facts: 3. The assessee was carrying on the business of civil contract for PWD, VISL, MPM etc. During the year under dispute, the assessee had shown the total receipts of ₹ 4.3 crores whereas he had offered the income from business only at 5%, besides the other incomes being remuneration and interest from the partnership firm - Krishna Tyres, Bhadravathi. The assessee had neither maintained any books of account nor got audited u/s 44 AB of the Act. 4. By virtue of having concurrent jurisdiction over the assessee, the Addl. CIT ('the AO' hereinafter), during the course of assessment proceedings sought certain details with regard to difference between the total credits available in bank accounts and total receipts shown by the assessee while computing the net profit. Consequent on the reconciliation of the total credits of bank accounts, the following credits available in the bank accounts represent the contractual receipts of the assessee which have not been included in the total turnover of the assessee: (i) receipt from Kuvempu University ₹ 1408128 (ii) receipt of contract amounts from BSNL 294760 (iii)recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related with the contract owing to the decision of Hon'ble Karnataka High Court, interest income will be treated as a part of business receipts. Therefore, AO is directed to allow the same after finding out the deposits are related to contract business. 6. Disillusioned with the stand of the Ld. CIT(A) on twin issues, the Revenue has come up before us for re-dressal. 6.1. It was contended by the Revenue that - (i) The Board's Circular as relied by the CIT(A) was issued much earlier to the introduction of s.44AD of the Act in Finance Act 1994 w.e.f 1.4.1994; - the CIT(A) erred in allowing depreciation in this case where books of accounts were not maintained and that the above circular is applicable for the cases where the books of accounts were rejected by the AO; - the CIT (A) erred in not giving opportunity to the AO on the claim of allowability of depreciation and hence the provisions of rule 46A of the I.T.Rules have been violated; - relies on the case law of Surinder Pal Nayyar v. CIT reported in (2009) 177 Taxman 207 (P H) (ii) the decision of the Hon'ble jurisdictional High Court has been wrongly applied and, thus, directed the AO to calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition in the income-tax provisions that the books of account should be maintained for allowance of depreciation which is not in the nature of any expenditure as such and, therefore, the same cannot be subsumed into total expenditure that may be deemed to have been allowed when income is estimated on net profit basis; - case laws relied upon: (a) CIT v. Daudayal Hotels P. Ltd. (2006) 282 ITR 132 (Guj) (b) Shri Ram Jhanwar Lal v. ITO (2009) 177 Taxman 135 (Raj) (c) CIT v. Sriram Co. (2001) 250 ITR 169 (Raj) (d) Allahabad Glass Works v. CIT (1961) 42 ITR 439 (All) (iv) While computing income by applying net profit rate, depreciation being in the nature of a statutory allowance should have been allowed by the AO; (v) With regard to the claim of depreciation, the assessee had furnished the requisite particulars - balance sheet, fixed asset details for the years-ended 31.3.04, 31.3.05 and 31.3.06, schedule of OB, additions, deletions, net block, depreciation and the WDV - which were available on the records of the AO at the time of passing the impugned order of the AO. Thus, no additional evidence was furnished before the CIT(A) and as such there was no breach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested with him, concluded the assessment which is under dispute. Since the DCIT, Shimoga is having jurisdiction over the assessee, the CIT, Davanagere, perhaps, directed the DCIT, Shimoga to prefer an appeal against the order of the CIT (A). Though there was a technical flaw on the part of the CIT's direction, in our considered view, it does not alter the jurisdiction over the assessee vests with the DCIT, Shimoga for all practical purposes and, thus, the appeal preferred by the DCIT, Shimoga is in order. 7.2. Let us now analyze the issues raised by the Revenue chronologically. 7.2.1. The bone of contention of the Revenue is that the CIT (A) had quoted the date of the Circular as 31.3.1995 instead of 31.3.1965. While pointing out the gaffe committed by the CIT (A), the Revenue itself had unwittingly made a faux pas in mentioning the date as 31.3.1965 whereas the actual date of the Circular has been 31.8.1965. 7.2.2. Turning to the main issue, the urge of Revenue is that the Circular as relied on by the CIT(A) was issued way back in 1965 i.e., much earlier to the introduction of s.44AD in the Finance Act 1994 w.e.f. 1.4.1994. 7.3. We shall have a quick look at s.44AD of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of allowability of depreciation. 7.4.1. What rule 46A(3) says? 46A (3) The Commissioner (Appeals) shall not take into account any evidence produced under sub-rule (1) unless the assessing officer has been allowed a reasonable opportunity- (a) to examine the evidence o document or to cross-examine the witness produced by the appellant, or (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant. 7.4.2. We could have agreed with the Revenue's argument that the CIT(A) had erred in not taking into confidence the Revenue before allowing the claim of depreciation provided such evidences were not furnished before the AO by the assessee. 7.4.3. It has been vouched by the Ld. AR that 16..............the respondent had already furnished requisite particulars for claiming depreciation and the same were available on records of the Ld.AO at the time of passing the order of assessment. The respondent had filed before the AO, balance sheet, fixed asset details (for three years.........................), schedule of OB, additions, deletions, net block, depreciation and the WDV. In fact, the AO had also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular, we find that the Circular doesn't expressly say so as claimed by the Revenue. 7.6.2. No reference has been brought to the knowledge of this Bench by the Revenue to suggest that the said Circular was either superseded or withdrawn by the Board, and, thus, it holds good even now. 7.6.3. In view of the facts and circumstances of the issue as deliberated upon in the fore-going paragraphs, the AO is directed to allow the eligible and correct depreciation on the basis of particulars furnished by the assessee on the estimated profit. It is ordered accordingly. 8. The other grievance of the Revenue is that the CIT (A) erred in quoting the finding of the jurisdictional H.C and thereby directed to calculate the profit from interest income at the same rate at which the contractual receipt has been taxed. 8.1. We have duly considered the rival submissions as narrated supra. We find force in the submission of the Ld. A R which is in brief that the assessee had to execute civil contracts for Government agencies and in order to safe guard the performance or execution of such contract, the Government agencies insisted for performance bank guarantee. In order to obtain such b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only..... 8.1.2. On appeal by the Revenue, the jurisdictional Hon'ble High Court reported in (2008) 297 ITR 70, in its wisdom has observed thus - 4. Having heard counsel for both sides, we have noticed that the investment of amount in fixed deposits by the assessee was only to secure a bank guarantee to be offered to KPTCL in order to acquire a contract work. Therefore, it cannot be treated as an income from other sources and interest accrued on such fixed deposits has to be treated as business income only. Our view is also supported by the judgment of the Supreme Court in the case of CIT v. Govinda Choudhury Sons (1993) 203 ITR 881. 8.1.3. With respects, we would like to point out that the issue on hand is similar to that of the issue on which the Hon'ble High Court was pleased to observe that interest accrued on such fixed deposits has to be treated as business income only . In conformity with the above finding of the Hon'ble Court, we direct the AO to treat the interest accrued on fixed deposits as business income only. It is ordered accordingly. 8.1.4. In a nut-shell, the impugned order of the Ld. CIT(A) is sustained. 9. In the result, the Revenue' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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