ITAT rules in favor of appellant, allows depreciation claim, emphasizes ownership proof.

The ITAT allowed the appellant's appeal against the Commissioner of Income Tax's decision to disallow depreciation amounting to Rs. 1,93,47,466/-, directing the AO to estimate net profit at 3% of gross receipts net of all deductions, including depreciation, for the Assessment Year 2010-11. The ITAT considered the lack of proper accounting records but applied a precedent favoring the assessee, emphasizing the need for ownership proof for claiming depreciation. The decision was rendered on 22nd August 2022.

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Issues:
1. Appeal against order of Learned Commissioner of Income Tax (Appeals)-9, Hyderabad.
2. Disallowance of depreciation by the Commissioner of Income Tax, Vijayawada under section 263 of the Income Tax Act, 1961.
3. Estimation of income @ 15% of Gross Receipts by the Assessing Officer.
4. Comparison with previous ITAT orders regarding net profit estimation.
5. Discrepancy in estimation of net profit and depreciation allowance.
6. Determination of net profit @ 3% on gross receipts net of all deductions including depreciation.
7. Admissibility of depreciation without proof of ownership of assets.

Analysis:
1. The appeal was filed against the order of the Learned Commissioner of Income Tax (Appeals)-9, Hyderabad, for the Assessment Year (AY) 2010-11 under section 143(3) r.w.s 263 of the Income Tax Act, 1961. The Assessing Officer (AO) had estimated the total income at Rs. 16,89,380/- by rejecting the books of accounts and allowing depreciation of Rs. 1,93,47,466/-.

2. The Commissioner of Income Tax, Vijayawada, set aside the assessment order and directed the AO to disallow the depreciation of Rs. 1,93,47,466/- as the income was being estimated. The appellant challenged this decision, leading to an appeal before the ITAT. The ITAT upheld the order passed under section 263 of the Act.

3. The main contention was the estimation of income at 15% of Gross Receipts by the AO without allowing depreciation. The appellant argued for a lower estimation based on previous ITAT orders which directed a net profit estimation of 3% on gross receipts net of all deductions, including depreciation.

4. The ITAT examined the facts and circumstances of the case, noting that the appellant did not maintain proper books of accounts for verification. Considering the lack of verifiable data, the AO's estimation at 15% net of all deductions was deemed appropriate. However, the ITAT referred to a similar case where a 3% net profit estimation was directed, following the principle of adopting the view most beneficial to the assessee.

5. The ITAT concluded that since the appellant failed to prove ownership of assets for claiming depreciation and the facts were akin to a previous ITAT case, it directed the AO to estimate the net profit at 3% on gross receipts net of all deductions, including depreciation, for the AY 2010-11. Consequently, the appeal of the assessee was allowed, and the decision was pronounced on 22nd August 2022.

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