Depreciation on estimated business income remains allowable when the net profit rate excludes depreciation from computation.

Depreciation under section 32 remained allowable where business income was estimated by applying a net profit rate in best judgment assessment, because the assessed net profit figure expressly excluded depreciation and interest paid to third parties. Since depreciation was not embedded in the estimated profit, the assessee was entitled to claim the deduction separately in computing business income. Denial of depreciation did not arise on those facts.

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Issues: Whether depreciation under section 32 of the Income-tax Act, 1961 could be allowed where income was computed by applying a net profit rate in a best judgment assessment.

Analysis: The assessment order applied an 8 per cent net profit rate expressly without taking into account depreciation and interest paid to third parties. On that footing, the net profit so determined did not include depreciation. Since depreciation was not embedded in the estimated profit figure, the assessee remained entitled to claim deduction for depreciation under section 32 in computing business income.

Conclusion: Depreciation under section 32 was allowable and its denial did not arise on the facts.

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