ITAT allows depreciation on estimated income from civil contracts, ensuring no excess over returned income.

The ITAT partially allowed the assessee's appeal, directing the AO to allow depreciation on the estimated income from civil contract works while ensuring the computed income does not exceed the returned income. The decision was based on legal principles and precedents, emphasizing the statutory nature of depreciation allowance.

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Issues:
Assessment of income from civil contract works, disallowance of depreciation on estimated income, separate assessment of rental and interest income, appeal against CIT(A) order, allowance of depreciation by ITAT.

Analysis:
1. Assessment of Income: The assessee, engaged in civil contract works, filed income tax return for the assessment year 2011-12. The assessing officer estimated total income at &8377; 2,26,89,287, including income from main contracts, sub-contracts, rental receipts, and interest received. However, depreciation on the estimated income was not allowed by the AO.

2. Disallowance of Depreciation: The AO assessed rental and interest income separately under 'Income from other sources.' The CIT(A) confirmed the income estimation but deleted the addition on rental income. Regarding interest income, the CIT(A) upheld the AO's decision. The assessee appealed before the ITAT, arguing for depreciation allowance on the estimated income.

3. Appeal Against CIT(A) Order: The ITAT admitted revised grounds of appeal and considered the argument for depreciation allowance. The assessee contended that the estimation of income was high and depreciation should be allowed. The ITAT referred to a previous case where depreciation was allowed on estimated income, emphasizing the statutory nature of depreciation.

4. Allowance of Depreciation by ITAT: After hearing arguments from both sides, the ITAT noted that the AO and CIT(A) did not allow depreciation on the estimated income. Citing legal precedents, the ITAT directed the AO to allow depreciation against the estimated income from contract receipts, ensuring the computed income does not fall below the returned income. The ITAT partially allowed the assessee's appeal, emphasizing consistency with previous decisions.

5. Conclusion: The ITAT's judgment, delivered on 22nd Dec'17, upheld the assessee's appeal in part, directing the AO to allow depreciation on the estimated income from civil contract works while ensuring the computed income does not exceed the returned income. The ITAT decision was based on legal principles and precedents, emphasizing the statutory nature of depreciation allowance in such cases.

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