COMMISSIONER OF INCOMETAX-3 HYD vs. Y.RAMACHANDRA REDDY

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ITTA/70/2002HC TelanganaHBHC01030511200205 August 2014Bench: CHALLA KODANDA RAM,L.NARASIMHA REDDY3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that even where the profit of the assessee is determined by taking recourse to Section 144 of the Act, the deductions and allowances that are otherwise permissible in an ordinary assessment must be allowed. The reasoning is that the determination of profit under Section 144 is a method of assessment when the assessee fails to provide satisfactory accounts or information. However, this method should not disentitle the assessee from claiming legitimate deductions and allowances that are statutorily provided. The ratio is that the method of assessment (best judgment assessment under Section 144) does not negate the right to claim statutory deductions. The appeal was dismissed, following a previous order of the Tribunal in a similar case concerning the same assessee for a different assessment year.

What were the facts?

The Revenue is in appeal against the order dated 23.11.2001, passed by the Hyderabad Bench 'A' of the Income Tax Appellate Tribunal in I.T.A.No.404/H/01. The dispute concerns the allowance of depreciation and interest to the assessee when business profits are determined based on a fixed percentage rather than actual verification of records. The Assessing Authority held that if profits are determined by a fixed percentage, it is presumed to include depreciation and other allowances. This appeal pertains to the same assessee as in I.T.A.No.48 of 2002, but for a different assessment year.

What were the issues?

1. Whether, when the profit of an assessee is determined by taking recourse to Section 144 of the Income Tax Act, 1961, otherwise permissible deductions and allowances must still be allowed? (Question of law) Assessee's Contention: The judgment does not record any specific contentions made by the assessee. However, the Tribunal's decision implies that the assessee would have argued for the allowance of deductions and allowances. Revenue's Contention: The Revenue contended that once profits are determined on a fixed percentage basis (under Section 144), it is deemed that depreciation and other allowances have already been factored in, and therefore, no separate allowance should be granted.

Which sections of the Income-tax Act were involved?

Section 144,Section 260A

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HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A No.70 OF 2002

JUDGMENT:- (Per Hon’ble Sri Justice L.Narasimha Reddy)

This appeal under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) is preferred by the Revenue feeling aggrieved by the order dated 23.11.2001, passed by the Hyderabad Bench ‘A’ of the Income Tax Appellate Tribunal in I.T.A.No.404/H/01.

2) The controversy is about the allowance of depreciation and interest to the assessee, whenever the profit from a business is determined at certain percentage, than on the basis of actual verification of records. The Assessing Authority took the view that once the determination of the profits is on the basis of fixed percentage, it is deemed to have taken into its fold the depreciation and other allowances.

3) Heard Sri J.V. Prasad, learned Standing Counsel for the Revenue and Sri A.V. Krishna Koundinya, learned counsel for the respondent.

4) The very controversy that arises in this appeal was the subject matter of I.T.A.No.48 of 2002. Incidentally, it is with reference to the same assessee, but in relation to a different Assessment Year. Through our order dated 30.07.2014, we took the view that even where the profit of the assessee is determined by taking recourse to Section 144 of the Act, the deductions and allowances, which are otherwise permissible in an ordinary assessment, must be allowed.

5) Following the same, we dismiss this appeal. There shall be no order as to costs. Miscellaneous Petitions, if any pending in this appeals shall also stand disposed of.

___________________________ L. NARASIMHA REDDY, J

____________________________ CHALLA KODANDA RAM, J Date:05.08.2014 gk/va HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM

I.T.T.A No.70 OF 2002

Date: 05.08.2014

va/gk

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