TMI Blog2022 (8) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of law. In the absence of necessary books of accounts and supporting materials, the income of the assessee cannot be deduced. Thus, the only option available to the AO is to determine the profit of the assessee in the scientific manner. For this purpose, we note that the AO has taken other assessee engaged in similar business for comparable and reached to the conclusion that the net profit of the assessee should have been declared at least 1.5% of the turnover. The industrial comparable rate selected by the AO while determining the profit has not been disputed by the assessee. Deduction of depreciation from the estimated income - Estimate the income of an assessee by applying a net profit or gross profit to the gross receipts/turnover of the assessee - As provided by presumptive taxes, under sections 44AD, 44AE and 44AF, all deductions under sections 30 to 38 shall be deemed to have been allowed, and no further deduction under those sections would be allowable. No such provision has been mentioned in any other case of presumptive income or estimation by the Assessing Officer and, hence, depreciation should be allowable being statutory allowance where Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of accounts of the appellant and upholding the consequential addition of Rs. 38,01,728/- being NP estimated at 1.5% of the turnover. It is, therefore, prayed that the addition of Rs. 38,01,728/- upheld by the CIT(A) may kindly be deleted. 3. The only effective issue raised by the assessee is that the learned CIT(A) erred in confirming the addition of Rs. 38,01,728/- made by the AO after rejecting the books of account under section 145(3) of the Act. 4. The facts in briefs are that the assessee is a partnership firm and engaged in the business of purchase and processing of raw cotton, trading of cotton bales and seeds. The assessee during the year under consideration has shown the turnover of Rs. 25,34,48,526/- on which declared gross profit of Rs. 84,46,956/- and net profit of Rs. NIL. The assessee was asked to furnish the details of purchase and sale registers along with copy of invoices, unit wise yield of production and details of closing stock along with method of valuation. But assessee failed to submit copy of invoices, unit wise yield of production etc. despite several reminders. Therefore, the AO vide notice dated 11-03-2016 purposed to reject the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f books of accounts was not justified since no defect was noted in the audited accounts of the appellant. This submission of the appellant, however, does not hold merit. 1 find that the AO had very specifically asked for various details like purchases and sales register, unit-wise yield of production, copies of electricity bills, copies of sales bills, details of closing stock, etc. which were not produced by the appellant. During the appellate proceedings as well, none of these documents/registers, etc. have been produced and no reason has been given for the same. If the books of accounts of the appellant are audited and all the necessary registers, bills, etc. are available with it, then the appellant should have no problem in producing the same before the AO. During remand proceedings as well, it is evident that these have not been furnished to the AO. The appellant has also not made any mention in this regard in its rejoinder to the remand report./In view of these facts, I am of the opinion that the AO was justified in rejecting the books of accounts of the appellant and accordingly the estimation of net profit of Rs. 38,01,728/- is confirmed. Ground of appeal No. 1 is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has taken other assessee engaged in similar business for comparable and reached to the conclusion that the net profit of the assessee should have been declared at least 1.5% of the turnover. The industrial comparable rate selected by the AO while determining the profit has not been disputed by the assessee. 11.2. Even before us, the learned AR has not brought anything on record contrary to the finding of the authorities below. It was just contended by the learned AR that books of accounts were duly audited and therefore the same cannot be rejected without assigning any reason. However, we are not convinced with the argument of the learned AR that getting the books of accounts audited debar the assessee to provide the necessary supporting documents along with the books of accounts as appearing in the audited financial statements. 11.3. Before parting, we note that the Hon'ble High Court in numerous cases has held that once the books of accounts have been rejected, then the only option is to estimate the income of an assessee by applying a net profit or gross profit to the gross receipts/turnover of the assessee in scientific manner. In such cases, following questions alw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taxable under the business income. 11.2 Similarly, we note that interest and salary received by the partners are treated on a different footing by the Act and not in its ordinary sense of term. The Section 28(v) treats the passive income accrued by way of interest as also salary received by a partner of the firm as a 'business receipt' unlike different treatments given to similar receipts in the hands of entities other than partners. In this context, we also note that under proviso to section 28, the disallowance of such interest is only in reference to section 40(b) and not section 36 or S. 37. This also gives a clue that deduction towards interest is regulated only under section 40(b) and the deduction of such interest to partners is out of the purview of s. 36 or 37 of the Act. Notably, there has been no amendment in the general law provided under Partnership Act 1932. The amendment to section 40(b) as referred hereinabove has only altered the mode of taxation. Needless to say, the Partnership firm is not a separate legal entity under the Partnership Act. It is not within the purview of the Income-tax Act to change or alter the basic law governing partnership. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act although separate unit of assessment for tax purposes. There cannot therefore be a relationship inferred between partner and firm as that of lender of funds (capital) and borrowal of capital from the partners, hence section 36(1)(ii) is not applicable at all. Section 40(b) is the only section governing deduction towards interest to partners. In the light of what is already noted above that firm and partners not being two separate persons, the question of borrowing capital by the firm from its partners does not arise at all and, therefore, section 36(1)(ii) is not at all applicable for the purposes of computation of interest to partners under section 40(b) of the Act. To put it differently, in view of section 40(b) of the Act, the Assessing Officer purportedly has no jurisdiction to apply the test laid down under section 36 of the Act to find out whether the capital was borrowed for the purposes of business or not. Thus, the question of allowability or otherwise of deduction does not arise except for S. 40(b) of the Act. 11.5. The above order of the ITAT reveals that interest on the partners' capital and remuneration to the partners by the assessee is not an expense rath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and no claim for depreciation has been made in the return, the Income-tax Officer should estimate the income without allowing depreciation allowance. In such cases, the estimate of net profit would be naturally higher than otherwise and the fact that the estimate has been made without considering depreciation allowance may be clearly brought out in the assessment order. In such cases, the written down value of depreciable assets would continue to be the same as at the end of the preceding year as no depreciation would actually be allowed in the assessment year. 11.7. Following cases support the view that depreciation is a statutory allowance and same is allowable after applying estimated income:- -Girdhari Lal v. CIT [2002] 256 ITR 318/[2001] 119 Taxman 863 (Punj. Har.). -CIT v. Chopra Bros. India (P.) Ltd. [2001] 252 ITR 412/119 Taxman 866 (Punj. Har.). -CIT v. Sriram Co. [2001] 250 ITR 169/[2002] 120 Taxman 238 (Raj.). 11.8. Further as provided by presumptive taxes, under sections 44AD, 44AE and 44AF, all deductions under sections 30 to 38 shall be deemed to have been allowed, and no further deduction under those sections would be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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