Tribunal allows Revenue's appeal on depreciation rate for survey equipment under Income Tax Act

The Tribunal partially allowed the Revenue's appeal by upholding the deletion of an addition made by the AO due to rejection of books of account under Section 145(3) of the Income Tax Act, 1961. However, the Tribunal agreed with the CIT(A) on the entitlement of the assessee to claim depreciation at 60% on survey equipment, directing the AO to allow the higher depreciation rate. The Tribunal instructed the AO to estimate income at 10% and grant the appropriate depreciation rate, thereby partly allowing the Revenue's appeal for statistical purposes.

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Issues Involved:
1. Deletion of addition made by AO due to rejection of books of account under Section 145(3) of the Income Tax Act, 1961.
2. Entitlement of the assessee to claim depreciation at 60% on survey equipment.

Summary:

Issue 1: Deletion of Addition Made by AO due to Rejection of Books of Account under Section 145(3)
The Revenue appealed against the CIT(A)'s order, which deleted the addition of Rs. 6,05,99,475/- made by the AO by rejecting the books of account under Section 145(3). The AO had added this amount on the grounds that the assessee failed to produce books of accounts, bills, and vouchers related to foreign projects, thereby questioning the accuracy of the balance sheet. The CIT(A) held that the AO erred by applying a GP rate of 10% without rejecting the trading results under Section 145(3). The CIT(A) noted that the assessee maintained accounts on a mercantile system, verified by a Chartered Accountant, and that the AO had not pointed out any defects in the books of accounts. The CIT(A) relied on the Delhi High Court's decision in B.K. Khanna & Co. Pvt. Ltd. vs. CIT, which stated that addition without rejecting trading results under Section 145(3) is not warranted.

Issue 2: Entitlement to Claim Depreciation at 60% on Survey Equipment
The CIT(A) directed the AO to allow depreciation at 60% on survey equipment, treating them as computer accessories and peripherals integral to computer systems, based on the decision in CIT vs. BSES Yamuna Power Ltd. The AO had initially allowed only 15% depreciation. The Tribunal agreed with the CIT(A) that the assessee is entitled to the prescribed rate of depreciation.

Conclusion:
The Tribunal found that the assessee failed to produce the required books of account, bills, and vouchers for foreign projects, making it impossible for the AO to ascertain the correct trading results. Consequently, the CIT(A)'s deletion of the addition was not justified. However, the Tribunal upheld the CIT(A)'s decision on the depreciation rate. The Tribunal directed the AO to estimate the income at 10% and grant the applicable depreciation rate, thereby partly allowing the Revenue's appeal for statistical purposes.

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