Law:

Section:

Section 144 of the Income-tax Act, 1961 - Best assessment - Assessment year 1998-99 - Whether even in case, where Assessing Officer has adopted net profit rate in making assessment of income on basis of best assessment, allowance of depreciation is required to be made - Held, yes Section 44AD of the Income-tax Act, 1961 - Civil construction business - Assessment year 1998-99 - Whether in a particular case, where amount of gross receipts being in excess of Rs. 40 lakhs, section 44AD is not applicable, principle underlying said section can be adopted - Held, no FACTS The Assessing Officer had rejected the books of account of the assessee and made a best assessment. While doing so, he determined the gross profit, and then allowed various admissible deductions including depreciation therefrom. That order was upheld in appeal by the Commissioner (Appeals). On second appeal, the Tribunal held that when the assessee had conceded non-maintenance of vouchers in support of expenses, application of provisions of section 145(3) by the Assessing Officer was justified, but his ad hoc estimate of expenses divorced from the relevant facts could not be upheld. The Tribunal further held that though the assessee's gross receipts being in excess of Rs. 40 lakhs, its case did not strictly fall within the parameters laid down under section 44AD, yet in order to determine the correct net profit, the principle underlying in that section could be adopted. It, accordingly, applied 8 per cent net profit rate which was after depreciation but before interest and remuneration to partners. On appeal to the High Court : HELD From a reading of the order of the Tribunal, it was clear that the Tribunal had itself found that the case did not strictly fall within the parameters laid down under section 44AD. However, since the Tribunal found that it was regularly seeking guidelines from that section for applying net profit rate, the net profit rate was applied and directed to be calculated after depreciation, but before remuneration and interest to the partners. [Para 5] Where the Assessing Officer has adopted net profit rate in making the assessment on best assessment basis, even in that case…

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