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TMI Blog2014 (1) TMI 1925X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal except change in the figures in ground nos. 1(a) and ground no.2. For ready reference, we are reproducing the grounds for the assessment year 2004-05, which read as under: "(1)(a) That the CIT(A), C-I has erred, both on the facts and circumstances of the case as well as in law, in confirming the A.O's action in estimating appellant's profit once he has made addition as per seized documents and no evidence or document found having been found in search suggesting that appellant has erred more income than discovered in course of search and seized documents and thereby making an addition of Rs.23,56,877/- as profit alleged to have been earned @35% of turnover disclosed which rate is based on subsequent years rate of profit earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and carefully considered the same. In our opinion, whether the assessee is entitled to depreciation on the fixed assets or not is a legal ground. The quantification of the depreciation has to be verified by the AO. The ground taken by the assessee requires the direction to the AO to allow depreciation. We, therefore, following the decision of the Hon'ble Supreme Court in the case of NTPC 229 ITR 383, admit the additional ground taken by the assessee. 5. Brief facts of the case, being common in all the appeals, are that there had been a search in the case of the assessee under section 132 on 02.12.2009. The assessee company is engaged in running a nursing home. In consequence to the search, the AO issued notice under section 153A for al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd loss Assessment Year (s) Turnover (Rs.) Loss (Rs.) 2004-05 67,33,935/- 9,05,251/- 2005-06 88,84,429/- 1,86,732/- 2006-07 83,79,905/- 1,58,228/- 2007-08 77,45,754/- 6,63,006/- 2008-09 78,00,546/- 2,10,546/- In each of the assessment year, the AO noted that the turnover of the assessee exceeds Rs.40 lakhs and therefore, tax audit was compulsory. Even after giving opportunity to the assessee, the assessee did not produce the books of accounts. The AO, therefore, invoked the provisions of section 145(3) and computed the income in the manner laid down under section 144. The AO noted that the assessee has derived net profit @37.84% and 34.85% after including the miscellaneous income in the assessment years 2009-10 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on the basis of the materials found during the course of search. There was no material found during the course of the search that the assessee has earned the income what has been estimated by the AO. In this regard, reliance was placed on the decisions of the Hon'ble Allahabad High Court in the case of CIT-vs- Dr.Ratan Kumar Singh 357 ITR 35 (All.) and that of CIT-vs- R,M.Mehrotra 320 ITR 403 (All.). It was vehemently contended that none of the disclosed assets or investments was found during the course of the search and therefore, no addition can be made. In the initial year, it is not necessary that the enterprise may earn the income. The AO estimated the income on the basis of the profit earned by the assessee in the subsequent year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even did not produce the books of accounts before the AO. Under these provisions, the AO, in our opinion, does not have any alternative except to reject the books under section 145(3) and compute the income in the manner laid down under section 144. We have noted that the AO has estimated the net profit, after deducting all the expenditure including the depreciation and estimated the profit on the basis of the profit for the assessment year 2009-10 and 2010-11 at 35%. We also find force in the submissions of the ld. AR that in the initial year, the percentage of the profit cannot be higher and there cannot be any thumb rule that a particular enterprise will earn the profit at a particular rate. In the subsequent year, the assessee might ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "2. The Board consider that where it is proposed to estimate the profit and the prescribed particulars have been furnished by the assessee, the depreciation allowance should be separately worked out. In all such cases, the gross profit should be estimated and the deductions and allowances including the depreciation allowance should be separately deducted from the gross profit. If it is considered that the net profit should be estimated it should be estimated subject to the allowance for depreciation and the depreciation allowance should be deducted therefrom." Thus, it was contended that the AO be directed to allow depreciation to the assessee while estimating the income. 10. The ld. DR, on the other hand, relied on the orders of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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