Contractor profit estimation excludes departmental material cost but includes retained deposits in total receipts.

In estimating a contractor's income for assessment year 1972-73, the cost of materials supplied by the department was not to be added to the contractor's receipts for applying the profit rate, because such material cost is excluded from computation of income and profits. Deposits retained by the department were treated differently and were includible in the total receipts for profit estimation. The operative effect is that profit estimation is confined to cash receipts and other includible amounts, while departmental material supplies are of the receipt base; the point was resolved partly in favour of the assessee.

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Issues: Whether, for the assessment year 1972-73, the rate of profit estimated in the contractor's case was to be applied to the gross receipts including the cost of materials supplied by the department, or only to the cash receipts actually received, and whether deposits retained by the department were includible in the total receipts.

Analysis: The earlier view that the cost of materials supplied by the department formed part of the contractor's receipts was rejected in light of the Supreme Court ruling that such material cost is not to be included while computing the contractor's income and profits. The amounts retained as deposits, however, were distinguishable and were accepted as part of the total receipts for the purpose of estimating profits.

Conclusion: The rate of profit could not be applied to the cost of materials supplied by the department, but the deposits retained were includible in the total receipts; the answer was therefore partly in favour of the assessee.

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