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TMI Blog1976 (1) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... ine in the gross profit rate also as compared to the earlier years. He rejected the trading results of the assessee and estimated the profits in respect of both the years by estimating the sales and the gross profit rates as follows: Asstt. year. Sales estimated Rate applied Addition made 1970-71 10 lakhs 24% 98,525 1971-72 7,70,000 24% 42,805 2. On appeal to the Appellate Assistant Commissioner, the application of the proviso to sub-s. (1) of s. 145 of the Income Tax Act, 1961 was sustained by the Appellate Assistant Commissioner. He, however, modified the trading results as follows: Asst. yr. Sales estimated by AAC G.P. rate applied by AAC Addition sustained by AAC 1970-71 Rs. 9,50,000 20% 48,525 1971-72 Rs. 7,50,000 22.5% 26,754 3. In the metal foundry account, the results shown by the assessee were as follows: Asst. yr. Sales shown Gross profit declared Rate 1970-71 Rs. 1,02,920 Rs. 14,570 14.5% 1971-72 Rs. 3,34,812 Rs. 23,237 7.5% 4. In asmuch as the input and output ratio in respect of the aforesaid account was also not verifiable, the Income Tax Officer rejected the trading results under this account also. He estimated the profits of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the gross profit rate of about 6. To 6.5%. 6. In respect of assessment year 1970-71 also, according to him, the gross profit margin would not be more than what the assessee had declared and, therefore, there was, according to him, no justification in making any addition to the trading account of Craftsman engineering Works. 7. Turning to the metal foundry account, the assessee points out that during the accounting period 1969, the assessee had undertaken a contract of manufacturing transport and erection of chuts and vents, pipes and rupers at the works of Udaipur Cement Works, Udaipur. The responsibility of supplying the raw material, steel sheets in this case, was that of the Udaipur Cement Works and the assessee had contracted for labour work only. Our attention has been invited in this connection to the copy of the order placed by the Udaipur Cement Works bearing No. CE/7/SRN/5286 dt. 16th May 1969 wherein it has been clearly indicated by the aforesaid company that the rates on which the project was offered to the assessee was on the basis of the current rates pertaining in the market of steel sheets and plates. The relevant part of the order was as follows: "The above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Officer, to 20% and that no further deduction was warranted. As regards the assessment year 1971-72, it is pointed out that the special factors mentioned by the assessee with regard to the assessment year 1970-71 were altogether absent and, therefore, the application of the profits rate applied by the Appellate Assistant Commissioner were reasonable. Our attention is drawn to the fact that the ratio of consumption of the raw-materials to the sale during this year is less than what it was is the earlier year i.e. 1968, corresponding to assessment year 1969-70 and therefore there was no occasion to reduce the gross profit margin for this year 1969-70. Inasmuch as the learned Appellate Assistant Commissioner had already applied a gross profit margin of 22.5%, there was no occasion to give further relief. With regard to the metal foundry accounts, the orders of the authorities below have been stoutly defended by the learned Departmental Representative. 10. We have carefully examined the facts of these cases and the rival submissions. With respect to the account of Crafts and Engineering Works, there is no doubt that in respect of assessment year 1969-70, there are certain adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the case, the assessee's contention that he had in effect undertaken the labour contract with Udaipur Cement Works appears to be correct. The reasonableness of the gross profit margin will have to be seen with reference to the payments received on account of labour rather than with reference to be totality of the payments. 13. During this year, the assessee had undertaken a fencing contract which did not involve any fabrication. The margin of gross profit in this type of work would not be as high as in the case of fabrication. We would, estimate the gross profit margin on this at 15%, which would give the gross profit of Rs. 600 on this contract. In the case of Sluice Gate, the payment received were Rs. 16,735. The gross profit margin on this contract during the year under consideration would be the same as in the Craftsman Engineering Works account i.e. 18% i.e. Rs. 3,060 approximately. If we exclude the aforesaid profit from the gross profit of Rs. 4,570 declared by the assessee under this account, the remaining profit would be Rs. 10,910. This profit has been earned by the assessee on total receipts for labour payments on the Udaipur Cement Works contract which would gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged payments have been made. In the circumstances, we are of the opinion that the payments in question cannot be said to have been proved as, having been laid out wholly and exclusively for the purpose of the assessee's business. If the aforesaid payments are in the nature of payoffs indirectly made to the Engineers and Overseers who were Govt. Servants, the said payments would not be admissible as it cannot be said that, it is the normal practice of a trader or a business man to pay such amounts to the Govt. Servants. The payments, if at all, were made by the assessee in his capacity other than as a trader. The disallowance made by the authorities below was, in our opinion, entirely justified. 16. The authorities below have disallowed Rs. 1200 on account of entertainment expenses. These expenses consist of payments made for tea, soft-drinks etc. It is not possible to accept the position that these payments are of the nature of entertainment expenses. Their disallowance does not appear to us to be justified. 17. The last controversy in respect of assessment year 1970-71 is regarding the charging of interest under Ss. 139,215 and 217. No appeal against the charging of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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