TaxTMI 
TaxTMI 
2015 (11) TMI 1637
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income Tax Act (hereinafter called as 'the Act'). Subsequently, the case has been selected for scrutiny through CASS and statutory notices u/s 143(2) & 142(1) of the Act were issued. In response to notices, the assessee's authorised representative appeared and produced the computation statement, tax audit report, balance sheet and profit & loss account. During the course of assessment proceedings, the A.O. asked authorised representative to furnish details of sundry creditors, evidences against the establishment expenses, direct expenses along with day book and ledger. Despite giving ample opportunity, the assessee failed to furnish the details called for, the A.O. left with no option but to proceed to pass ex-parte assessment order u/s 144 of the Act. The Assessing Officer while, completing the assessment u/s 144 of the Act, rejected the books of accounts of the assessee and estimated net profit applying the percentage of profit for the reason that the assessee could not produced books of accounts and vouchers in support of the expenses debited to the profit & loss account, hence, the genuineness and reasonableness of the expenses claimed is in doubt. With these observations, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ficer at 8% on sub contract works directly executed by the assessee and 4% on the sub contract works executed by the assessee through other contractors. However, the CIT(A) rejected the assessee's contentions with regard to the income from other sources being interest received, royalty received and discount received and confirmed the additions. The CIT(A) also rejected the assessee's ground relating to separate deductions towards depreciation on fixed assets and held that the assessee is not entitled for deduction of depreciation, once the income is estimated applying the net profit rate. 4. Aggrieved by the CIT(A) order, the revenue as well as assessee are in appeal before us. 5. The Ld. D.R. submitted that the CIT(A) is erred in bifurcating the gross turnover from contract receipts into sub contract works directly executed by the assessee and sub contract works executed by the assessee through other contractors, because this issue was not raised before the assessing officer. The Ld. D.R. further argued that the estimation of net profit at 12.5% by the A.O. is reasonable, because the estimation of net profit is depends upon the facts and circumstances of each case, consideri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng officer himself allowed the depreciation separately in assessee's own case for the assessment year 2010-11 & 2011-12. Therefore, requested to allow the depreciation. As for as the issue of separate addition towards income from other sources, the A.R. submitted that when net profit is estimated on gross receipts, separate addition cannot be made for income from other sources. 7. We have heard both the parties and perused the materials available on record. Admittedly, in this case, the A.O. passed best judgement assessment order u/s 144 of the Act. The A.O. while passing the assessment order u/s 144 of the Act rejected the books of accounts and estimated the net profit of the assessee @ 12.5% on total contract receipts. The assesse, before CIT(A) contended that it is a sub contractor, the element of profit in sub contract works is less when compared to the main contractors, therefore, the estimation of net profit at 12.5% is at higher side. The CIT(A) after considering the assessee's submissions has considered the gross contract receipts of Rs. 7,72,88,655 including sub contract work receipts of Rs. 27,92,423/- considered under the head income from other sources as against the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entage of profit at 9 per cent, it has to forgo certain portion of profit i.e., around 5 per cent to the sub-contractors. Similar is the position in the case of contracts taken by assessee on sub-contract from other parties. Further, the assessee is entitled for depreciation and remuneration, and interests to partners on the profit estimated by AO at applicable rates, because the income estimated as above of the assessee is before the depreciation and interest and remuneration of the partners. cordingly, the AO is directed to compute the income of the assessee afresh. 8. In the present case on hand, the assessee is a sub contractor executing works contract for main contractor. It is a admitted fact that element of profit is less in sub contract works when compared to main contract works. The CIT(A) after considering the facts and circumstances of the case rightly estimated 8% net profit in respect of sub contracts works executed directly by the assessee and 4% net profit in respect of sub contracts works executed by the assessee through third parties. Therefore, we are of the opinion that the CIT(A) has rightly estimated the net profit and his order does not require any inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....79 to 95/Vizag/2013 and argued that under similar circumstances, the ITAT has considered the issue of allowance of depreciation even after estimation of net profit. We have considered the submissions made by either parties and also gone through the case laws relied upon by the A.R. We find that the ITAT, Visakhapatnam bench in the case of Srivalli Shipping & Transports Pvt. Ltd. (supra) held the issue in favour of assesse. The ITAT while dealing with the similar issue held as under: 24. On consideration of rival contentions, we find merit in the submissions made by the assessee. The capital expenditure incurred is not allowed as deduction, but the deterioration in their value is allowed as deduction with the name "depreciation". Hence, it is called non-cash expenditure and also called statutory deduction. While estimating the income, the trading 17 I.T.A. Nos.79 to 85/Viz/2013 I.T.A. Nos.89 to 95/Viz/2013 Assessment Years : 2004-05 to 2010- 2011 Srivalli Shipping Transport results only are estimated on the basis of sales/gross receipts, meaning thereby, what is estimated is only the net profit before allowing any non-cash expenditure/statutory deductions. Further, the quantu....