Tribunal rules for assessee on depreciation, upholds interest income addition

The Tribunal partially allowed the appeal, ruling in favor of the assessee on the disallowance of depreciation issue based on legal precedents and the CBDT Circular. The addition of interest income on FDR was upheld, and the Tribunal maintained the 6.5% net profit rate adopted by the Assessing Officer as final.

---

---

Issues:
1. Disallowance on account of depreciation.
2. Addition of interest income on FDR.
3. Adoption of net profit rate for estimating income.

Disallowance on account of depreciation:
The appeal was against the order upholding the disallowance of depreciation by the Assessing Officer under section 154. The Assessing Officer initially rejected the books of account and computed income at 6% of gross receipts. The assessee claimed depreciation should have been allowed separately. The Assessing Officer rectified the mistake under section 154, but later disallowed depreciation again. The CIT(A) upheld the disallowance. The Tribunal referred to the CBDT Circular and a High Court decision stating depreciation should be allowed separately. The Tribunal found the first rectification order allowing depreciation was correct, and the second order disallowing it was unjustified.

Addition of interest income on FDR:
The Assessing Officer added interest income on FDR separately, despite the assessee arguing it was for business purposes and part of the net profit estimation. The CIT(A) confirmed the addition. The Tribunal agreed with the CIT(A) that the interest income should be added separately while computing total income. The Tribunal found no error in confirming the addition of interest income on FDR.

Adoption of net profit rate for estimating income:
The Assessing Officer increased the net profit rate from 6% to 6.5% in the first rectification order. The CIT(A) reduced it back to 6%. The Tribunal noted that since the Assessing Officer did not disturb the 6.5% rate in the second rectification order, it became final. The Tribunal held that the CIT(A) was not justified in changing the net profit rate in the appeal against the second rectification order. Consequently, the Tribunal partially allowed the appeal, modifying the CIT(A)'s order on the net profit rate issue.

In conclusion, the Tribunal partially allowed the appeal, finding in favor of the assessee on the disallowance of depreciation issue based on legal precedents and the CBDT Circular. The addition of interest income on FDR was upheld. The Tribunal maintained the 6.5% net profit rate adopted by the Assessing Officer, stating it had become final.

---