1974 (8) TMI 26 - HC - Income Tax

Summary

Issues:
Estimation of net profits based on gross receipts vs. net amount received after deducting cost of material supplied by the Government.

Analysis:
The judgment by the High Court of Andhra Pradesh pertains to the estimation of net profits for an assessee who is a contractor executing works for various Government departments. The primary issue revolves around whether the net profits should be calculated based on the gross amount received or the net amount after deducting the cost of material supplied by the Government. The assessee, in this case, did not maintain accounts for the contract works but provided receipts showing amounts received from the Government for the works executed. The Tribunal favored the assessee's contention that net profit should be based on the net receipts shown by him, excluding the cost of material supplied by the Government. However, the Commissioner of Income-tax challenged this decision, arguing that profits should be estimated based on the total bills' value when an assessee does not present any accounts.

The court referred to a previous judgment where a similar issue was raised and observed that when an assessee fails to produce accounts, profits must be determined based on the entire contract value, not just the net amount received after deducting material costs. The court highlighted that in cases where material is supplied by the Government, it is presumed that the Government deducted these costs from the payments made to the contractor. The judgment emphasized the importance of presenting accurate accounts to determine profits correctly. Additionally, a precedent from the Punjab High Court was cited, where it was held that the price of stores supplied by military authorities should be included in calculating profits.

Ultimately, the court concluded that the Tribunal erred in estimating net profits solely based on the net amount received by the assessee after deducting material costs. The judgment favored estimating profits on the gross amount received, including the material costs supplied by the Government. Therefore, the reference was answered against the assessee, emphasizing the necessity of accurate accounting for proper income tax assessment.