1973 (8) TMI 11 - HC - Income Tax

These two references under section 256(2) of the Income-tax Act, 1961, relate to the assessment year 1964-65 (accounting year ending 31 st March, 1964). The first one arises out of the assessment proceedings for the said year and the other one in respect of a penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 - Since the assessee did not maintain any accounts, the profits had to be estimated. No error of law had been committed in this estimation. The Tribunal s finding that sub-contracts were not proved genuine and the assessee was liable for the entire profits was also correct that regarding penalty the mere fact that the assessee was unable to prove that the work was given to sub-contractors does not give rise to an inference that he had concealed any income

Summary

Issues:
1. Assessment of profits on estimated cost of materials supplied by P.W.D.
2. Arbitrariness in estimating profits and rejection of assessee's estimate.
3. Treatment of sub-contracts and imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961.

Analysis:

1. The first issue pertains to the inclusion of any sum as profit on the estimated cost of materials supplied by P.W.D. to the assessee. The Tribunal found that as the assessee had not maintained any accounts, an estimate of reasonable profits had to be made. The Income-tax Officer estimated profits at specific rates, and the Tribunal upheld an addition in part. The court opined that the inclusion of the cost of materials in the profit computation was academic since the real question was whether the disclosed profit by the assessee was justified. The court found no error of law in estimating the profits for the building contract and the road works, considering the nature of the contracts involved.

2. The second issue revolves around the arbitrariness in estimating profits and rejecting the assessee's estimate. The Tribunal had to determine whether the estimate of profits was justified based on the facts and circumstances of the case. The court held that no question of law arose in the determination of profits as the Tribunal had to make a reasonable estimate due to the lack of maintained accounts by the assessee. The court found no error in the Tribunal's actions regarding the estimation of profits for the different contracts, emphasizing that the margin of profits in road works contracts is typically higher.

3. The third issue concerns the treatment of alleged sub-contracts and the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The Tribunal concluded that the sub-contracts were not genuine and held the assessee liable for the entire profits. However, the court found that the assessee's failure to establish the genuineness of the sub-contracts did not amount to concealing income or furnishing inaccurate particulars. The court determined that the imposition of a penalty was not justified as there was no evidence of deliberate concealment or furnishing of inaccurate particulars by the assessee.

In conclusion, the court answered the questions related to the assessment of profits and the penalty imposition in favor of the assessee, stating that the imposition of penalty was not justified. The court emphasized the importance of establishing genuine sub-contracts and maintaining proper records to avoid disputes regarding profit estimation and penalty imposition under the Income-tax Act, 1961.