1966 (12) TMI 7 - HC - Income Tax

Whether the previous year for the asst. yr. 1959-60 in respect of the contract business was correctly taken as the year ending on the March 31, 1959 - Held, yes

Summary

Issues:
1. Determination of the correct "previous year" for assessment.
2. Estimation of profit on gross amount instead of net amount received by the assessee.

Analysis:
1. The first issue pertains to the determination of the correct "previous year" for assessment in the case of a contractor undertaking building contract work. The assessee had undertaken a building contract work for "Rashtrapathi Nilayam" and had maintained accounts for the entire period from January 1, 1957, to August 30, 1959. The Income-tax Officer had initially adopted the previous year as October to September for the assessment year 1958-59. However, it was found that this adoption did not meet the requirements of section 2(11)(i)(a) of the Income-tax Act, which specifies that the previous year should be the twelve months ending on the 31st day of March or a different period if the accounts are made up for that period. Since the accounts were not made up for over 2 years and 8 months, the correct accounting period should have been 1st April to 31st March. Therefore, the court held that the adoption of the accounting period from October to September for the assessment year 1958-59 was incorrect, and the next Income-tax Officer was justified in adopting the correct accounting period as per the law.

2. The second issue concerns the estimation of profit on the gross amount instead of the net amount received by the assessee after deduction of costs of materials supplied by the Government. The contention raised was that the profit ratio should be based only on the net receipts, excluding the cost of materials supplied by the Government. However, the court noted that the materials supplied by the Government were deducted from the payments made to the assessee, indicating that the gross amount received already accounted for the cost of materials. The Appellate Assistant Commissioner also observed that the profit ratio adopted by the Income-tax Officer was reasonable, considering the circumstances of the contract. Since the assessee did not provide evidence or raise this contention during the assessment proceedings, the court held that the estimation of profit on the gross amount, including the cost of materials supplied, was justified in law.

In conclusion, the court answered both questions in the affirmative and in favor of the department, upholding the assessment of the correct previous year and the estimation of profit on the gross amount received by the assessee.