Court Upholds Depreciation & Interest Deductions in Ordinary Assessment

The appeal was dismissed as the court upheld the decision to allow depreciation and interest deductions in the ordinary assessment, even when profits are estimated. The court emphasized that these deductions should be granted as long as legal criteria are met, rejecting the appellant's argument that such allowances should be restricted. The court found no basis to deny depreciation and interest payments when the legal requirements were fulfilled.

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Issues:
1. Allowance of depreciation and interest payments from the estimate of profit
2. Granting reliefs on items not claimed by the assessee
3. Granting depreciation already granted by the Assessing Officer

Analysis:
Issue 1: Allowance of Depreciation and Interest Payments
The respondent, a civil contractor, declared losses for the Assessment Year 1994-95. The Assessing Officer passed an order estimating profits at 9% of total receipts and disallowing depreciation and interest payments. The Commissioner directed net profits to be calculated at 12% and allowed depreciation and interest. The Tribunal upheld the Commissioner's order. The appellant argued that depreciation and interest should not be allowed separately as per Section 44AD of the Income Tax Act. However, the respondent contended that best judgment assessment under Section 144 is distinct from depreciation allowance under Section 32.

Issue 2: Granting Reliefs on Unclaimed Items
The Commissioner determined net profits based on total receipts and allowed depreciation and interest. The Tribunal upheld this decision, emphasizing that the nature of business and unreliable books of account were considered. The appellant challenged the allowance of current depreciation and interest, claiming it was not permissible under the law. However, no provision was cited to restrict these deductions, and unabsorbed depreciation was allowed by the Assessing Officer. The Tribunal's decision was supported by a Circular from the Central Board of Direct Taxes.

Issue 3: Granting Depreciation Already Granted
The Assessing Officer allowed unabsorbed depreciation but denied current depreciation and interest deductions. The appellant argued that Section 44AD provides a comprehensive formula inclusive of depreciation and interest, but this provision was not applicable for the relevant assessment year. The court held that depreciation and interest deductions should be allowed even when profits are estimated, as long as the usual legal provisions are met.

In conclusion, the appeal was dismissed, emphasizing that depreciation and interest deductions should be allowed in ordinary assessments, regardless of profit estimation methods. The court found no reason to deny these deductions when the legal criteria were satisfied, and the appellant failed to demonstrate any legal basis for restricting depreciation and interest allowances.

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