1977 (5) TMI 41 - AT - Income Tax

Summary

Issues:
Assessment of income for a firm of building contractors based on estimation of profit margin and disputed expenses.

Analysis:

The appeal challenged an assessment order by the 4th IT Officer, Cir. II, Salem, under section 143(3) of the IT Act, 1961, for the assessment year 1973-74. The firm, consisting of six partners engaged in building contracting, disclosed an income of Rs. 64,149, which the assessing officer found unsatisfactory given the total receipts of Rs. 11,82,592. Due to lack of proper vouchers for purchases and unsupported payments, the officer rejected the books as unreliable and estimated the profit at 12 percent, resulting in a total income of Rs. 1,41,909.

The assessee contended before the AAC that the books were maintained properly and the returned income should have been accepted. They argued that the capital investment was minimal, borrowing was substantial, and expenses were incurred in developing lands for construction. Despite these claims, the AAC upheld the assessment, noting diversion of funds to partners and lack of evidence for increased material or labor costs, ultimately confirming the original assessment.

The counsel for the assessee argued that the accounts were maintained correctly for the current year and emphasized the completion of works in 1973. However, the tribunal found discrepancies in wage payments and lack of verifiable entries in the muster rolls, leading to the conclusion that the provisions of section 145 of the IT Act were applicable for estimating gross profit.

Considering the circumstances, including delayed acceptance of tenders and substantial borrowing, the tribunal decided to estimate the income at 10 percent, deducting allowable expenses of interest and depreciation. The revised income was calculated at Rs. 1,08,000, leading to a partial allowance of the appeal.

In conclusion, the tribunal modified the assessment by adopting a 10 percent profit margin and allowing certain expenses, resulting in a revised income figure for the firm of building contractors.