1981 (10) TMI 49 - AT - Income Tax

Summary

Issues:
1. Dispute over the exclusion of material costs from gross receipts for calculating profit rate.
2. Interpretation of contract terms regarding material supplies.
3. Admissibility of additional evidence in appeal.

Analysis:

Issue 1: Dispute over the exclusion of material costs
The assessee, a registered firm deriving income from building contracts, contested the assessment order by the ld. AAC, Allahabad, which applied a profit rate of 11% on gross payments due to the inclusion of material costs in the receipts. The assessee argued for the exclusion of Rs. 67,829.85, representing the cost of materials supplied by U.P.S.E.B., citing the Supreme Court decision in Brij Bhushan Lal Parduman Kumar vs. CIT. The ITO rejected this claim, leading to an appeal. The ld. AAC upheld the inclusion of material costs but reduced the profit rate to 10%.

Issue 2: Interpretation of contract terms
In the subsequent appeal before the ITAT, the assessee sought to introduce the specimen agreement between the parties to support their claim. The ITAT admitted this additional evidence, emphasizing that the agreement had been presented to the ld. AAC previously. The parties argued over the ownership and control of the materials supplied by U.P.S.E.B. The ITAT analyzed the contract clauses, noting that the materials were issued by U.P.S.E.B. for specific use in the contract, with provisions for return and recovery of excess consumption costs. The ITAT concluded that the materials' ownership remained with U.P.S.E.B., justifying the exclusion of material costs from gross receipts.

Issue 3: Admissibility of additional evidence
The ITAT accepted the additional evidence of the specimen agreement, as it was crucial to determining the ownership and control of the materials supplied. The ITAT considered the arguments of both parties and the relevant legal precedents, ultimately ruling in favor of the assessee and allowing the appeal. The ITAT's decision highlighted the factual basis and contractual terms supporting the exclusion of material costs from the profit calculation, emphasizing the importance of ownership and control in such assessments.