1977 (9) TMI 62 - AT - Income Tax

Summary

Issues:
1. Assessment of gross receipts
2. Applicability of section 145(1) of the IT Act, 1961
3. Calculation of net profit rate on gross receipts
4. Inclusion of materials supplied by the department in net profit calculation

Analysis:

1. Assessment of Gross Receipts:
The case involved an appeal by the assessee against the order of the AAC of Income-tax, Ranchi Range, relating to the assessment for the assessment year 1974-75. The dispute primarily revolved around the determination of the total gross payment received by the assessee, with the ITO contending that the gross receipt should be Rs. 16,54,900 instead of Rs. 15,91,270.74 as shown in the certificate of the Garrison Engineer. The ITO pointed out discrepancies in the figures noted and held that the gross receipt should be higher. The AAC agreed with the ITO's findings regarding the total gross payment and the applicability of section 145(1) of the IT Act, 1961.

2. Applicability of Section 145(1) of the IT Act, 1961:
Both the ITO and the AAC concurred that the provisions of section 145(1) of the IT Act, 1961 were applicable in the case. The section deals with the method of accounting followed by the assessee and empowers the assessing officer to make necessary adjustments to ensure the income is computed correctly.

3. Calculation of Net Profit Rate on Gross Receipts:
The dispute further extended to the calculation of the net profit rate, with the assessee contending that the net profit rate should be applied only on the net payment and not on the gross receipts. The ITO and the AAC upheld the application of a 10% net profit rate on the gross receipts, a decision that was not disputed by the assessee in the appeal.

4. Inclusion of Materials Supplied by the Department in Net Profit Calculation:
A significant aspect of the case was whether the value of materials supplied by the department should be included in the calculation of net profit. The Tribunal rejected the contention that a different net profit rate should apply if the cost of materials was excluded. It was held that even if the cost of materials was excluded, a 10% net profit rate could be applied on the net receipts. Citing relevant contractual provisions and legal precedents, the Tribunal concluded that the cost of materials supplied by the department should be excluded while calculating the net profit.

In conclusion, the Tribunal allowed the appeal in part, directing the assessing officer to verify the actual gross payment made by the military authority, consider the circumstances brought to light, and calculate the net profit at 10% on the net receipt after excluding the value of materials supplied by the department.