IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 9TH JUNE 2008 / 19TH JYAISHTA 1930 ITR.No. 17 of 2000() -------------------- RA NO.291/COCH/1997 IN ITA 138/COCH/1990 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------- LATE SHRI. V. GOPINATHAN, REPRESENTED BY SRI. G. YATHEESH, MULAVANA PADINJATTATHIL, PRAYAR SOUTH, OACHIRA. BY THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 09/06/2008, ALONG WITH ITR NO. 18 OF 2000 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR & V.K. MOHANAN, JJ. -------------------------------------------- I.T.R. Nos. 17 & 18 OF 2000 -------------------------------------------- Dated this the 9th day of June, 2008 JUDGMENT Ramachandran Nair,J. Heard standing counsel appearing for the applicant and Sri. Dale P Kurien appearing for the respondent. The question involved is whether the assessee is entitled to deduction of depreciation and interest from the net-income computed for the assessment years 1985- 86 and 1986-87. It is seen that for the earlier three assessment years, 1980-81, 1981-82 and 1982-83, the Tribunal declined to grant any deduction of depreciation and interest from the net income computed by the Officer. When the department brought to the notice of the Tribunal the earlier decision, they took the stand that for these two years the net income computed is at 12% as against 10% computed for the earlier years and therefore the assessee should be granted the deduction claimed. However, the Tribunal has not taken into account the net effect of grant of deduction of interest and depreciation. In other words, it is not known whether the grant of deduction claimed will result in net income computed below 10% fixed by the Tribunal for the earlier years. Even though there is nothing wrong in granting of 2 depreciation and interest from estimated income, normal deductions are granted only when income estimated is gross income and not net income. We feel it was wrong for the Tribunal to have granted deduction of interest and depreciation without reference to final result. For the sake of consistency we feel the Tribunal should have only considered the relief in the computation of net income. In this case, since the Officer has estimated net income there is no scope for granting deduction therefrom. In the circumstances, we set aside the orders of the Tribunal, restore the appeals back to the Tribunal for hearing the assessee and department and to consider quantum of relief in the estimation of rate of profit. References are answered as above. A copy of this judgment under the seal of the High Court and signature of the Registrar-General shall be forwarded to the Income tax Appellate Tribunal, Cochin Bench, Cochin. (C.N.RAMACHANDRAN NAIR) Judge. (V. K. MOHANAN) Judge. kk 3