1978 (3) TMI 115 - AT - Income Tax

Tribunal excludes government material cost from profit calculation, overturns addition in favor of assessee

The Tribunal ruled in favor of the assessee, holding that profit should not be calculated on government-supplied materials for contract work. The addition ... Estimation of profit - calculation of contractor's profit where materials are supplied by the government - tendered contract price excluding governmentsupplied materialsEstimation of profit - calculation of contractor's profit where materials are supplied by the government - Whether profit should be estimated on the cost of materials supplied by the Government when the contractor submitted tenders on the basis that such materials would be supplied by the Government. - HELD THAT: - The Tribunal found that the assessee had submitted tenders on the express basis that cement and certain other materials would be supplied by the Government at fixed rates. Where the tendered contract price does not include the cost of materials because those materials are to be supplied by the Government, the authorities cannot independently add profit on the cost of such governmentsupplied materials. The Tribunal relied on precedents applying the principle that profit on materials supplied by the Government is to be computed only where the assessee has included the cost of those materials in the tendered amount. On the facts, the cost of materials supplied by the Government was not part of the tendered contract price and therefore the estimating authorities were not justified in adding an estimated percentage profit on that cost. [Paras 4]Addition of estimated profit on governmentsupplied materials deleted; authorities below were not justified in estimating profit on such materials.Final Conclusion: Appeal allowed; the addition made by the assessing authorities for estimated profit on materials supplied by the Government is deleted. The appeal was filed by the assessee regarding the estimation of profit on materials supplied by the Government for contract work. The authorities estimated a profit of 5% on the material cost, but the Tribunal ruled in favor of the assessee, stating that profit should not be calculated on government-supplied materials. The addition of Rs. 7,186 was deleted. Key cases cited include Trikanji Punia & Sons, Trilok Chand Chuni Lal, and Goswamy Bros.