JAWAHAR LAL GUPTA,J. - (1.) THESE four cases raise a common question regarding the claim of the assessee for deduction on account of depreciation. Learned counsel for the parties have referred to the facts in IT Ref. No. 55 of 1994. These may be briefly noticed.
(2.) THE assessee is a private limited company. It is engaged in the execution of contracts for construction. For the asst. year 1988 89, the assessee filed a return declaring an income of Rs. 48,810. During the accounting period, it had received a total amount of Rs. 48,39,648. Out of this, a sum of Rs. 9,17,104 was paid to sub contractors. Resultantly, the assessee had received gross payments of Rs. 39,22,544. On consideration of the matter, the ITO found that there were defects in the maintenance of accounts. The provisions of S. 145 were invoked. The book results were rejected. The taxable income was worked out by applying a net profit rate of 10 per cent. Certain additions and deductions were made. The total taxable income was fixed at Rs. 3,91,340. The assessee appealed to the CIT(A). It was inter alia, contended that the AO should have allowed depreciation on the machinery used in the execution of works as claimed in the return of income. The action of the AO was contrary to the circular issued by the Board on 31st Aug., 1965. The CIT (A) rejected the assessee's claim. It was held that "when net profit was estimated, it must be presumed that all permissible allowances were made and income so determined should be deemed to have covered all the expenses including depreciation.....". The circular issued by the Board was held to be inapplicable. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Tribunal. On difference of opinion, the matter was placed before the President. Vide order dt. 31st March, 1993, the President accepted the assessee's claim. In view of the opinion of the majority, the assessee's claim with regard to deduction on account of depreciation was accepted. The Revenue filed a petition under S. 256(1) of the IT Act, 1961. Accepting the Revenue's claim, the Tribunal has referred the following question for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in separately allowing depreciation on machinery when the net profit rate of 10 per cent on contract receipts had been adopted." This is how the matter has travelled to this Court. In the connected cases, the claim for deduction on account of depreciation was disallowed by different orders of the Tribunal. Aggrieved by the orders, the assessees have filed the three appeals. R. P. Sawhney, counsel for the Revenue, contended that the taxable income having been determined by applying the principle of net profit, all admissible allowances should be deemed to have been taken into consideration. The claim made on behalf of the Revenue was controverted by A.K. Mittal, counsel for the assessees.
(3.) IT is undoubtedly true that if the AO is not satisfied about the correctness or completeness of the accounts of the assessee, he can proceed to make best judgment assessment. However, even while doing so, the AO is bound to take into account all relevant material on the record. The consideration cannot be assumed. It must be apparent from the order.;