1981 (3) TMI 120 - AT - Income Tax

Summary

Issues:
1. Dispute over the determination of net profit rate for a registered firm deriving income from contract business.
2. Assessment of income based on the rate of Gross Profit (G.P.) applied by the Income Tax Officer (ITO).
3. Appeal to the Appellate Assistant Commissioner (AAC) challenging the net profit rate determined by the ITO.
4. Interpretation of Supreme Court judgment regarding the inclusion of material cost in a contractor's turnover for calculating net profits.
5. Arguments presented by the Departmental Representative and the assessee's counsel regarding the application of net profit rate.
6. Consideration of conflicting judgments by the Supreme Court and the Patna High Court on the treatment of material cost in contractor's turnover.
7. Justification of the AAC's direction to exclude the cost of material supplied by the concerned Department from gross receipts.
8. Assessment of the reasonableness of the net profit rate applied by the AAC and determination of a fair and reasonable rate by the ITAT.

Analysis:
The judgment by the Appellate Tribunal ITAT Delhi-D involved two appeals, one by the assessee and one by the Revenue, both concerning a common contention regarding the determination of net profit rate for a registered firm engaged in contract business. The Income Tax Officer (ITO) initially calculated the income based on a net profit rate of 10 percent, considering the low Gross Profit (G.P.) rate of 7 percent disclosed by the assessee. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision but directed the exclusion of material cost supplied by the concerned Department in line with a Supreme Court judgment. The Departmental Representative disputed this exclusion, citing a Patna High Court judgment on the inclusion of material cost in a contractor's turnover. The assessee's counsel argued for a lower net profit rate, highlighting the increased cost of materials in the relevant year.

The ITAT analyzed the conflicting judgments of the Supreme Court and the Patna High Court regarding the treatment of material cost in a contractor's turnover. It upheld the AAC's direction to exclude the material cost from gross receipts for calculating net profits, finding merit in the assessee's appeal. The ITAT considered the substantial increase in material costs presented by the assessee and determined a fair net profit rate of 8 percent, lower than the rate applied by the AAC. Consequently, one appeal was partly allowed, and the other was dismissed, concluding the dispute over the net profit rate for the registered firm engaged in contract business.