TaxTMI 
TaxTMI 
1977 (8) TMI 74
X X X X Extracts X X X X
X X X X Extracts X X X X
....orked out to 10 per cent in the asst. yrs. 1973-74 and to 14 per cent in the asst. yr. 1974-75 of the gross receipts. Further, the expenses claimed by the assessee were not verifiable in the absence of proper books of account. He, therefore, rejected the book results and estimated the profit at 12-1/2 pen cent of the gross receipts which worked out to Rs. 2,24,810 in the asst. yr. 1973-74 and to Rs. 3,55,260 in the asst. yr. 1974-75. 4. The assessee appealed to the AAC and urged that the no profit at all should have been estimated on the value of the materials supplied by the contractee to the assessee. It was submitted that the materials were utilised in the works under the supervision of the contractee and there was no scope whatsoever for making any profit from out of these materials. The AAC was of the view that the supply of the materials by the contractee to the assessee was not substantial inasmuch as they were less than 25 per cent of the gross receipts. He further observed that the assessee did not tender any evidence before the ITO to show that it did not obtain any profit or advantage out of the materials supplied by the contractee. In this view of the matter, he foun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TR 430, in support of his contention. 7. We have carefully considered the contentions of either sides as well as the facts on record. The fact that the assessee did not maintain proper books of account and so its profit had to be estimated in accordance with the provisions of s. 145 of the IT Act, 1961, was not disputed before us. The only question that was posed for our decision was as to whether the rate of 12-1/2 per cent admitted by both the sides to be fair, should be applied on the gross receipts of the contract or only on the net receipts after deduction of the materials supplied by the contractee to the assessee. 8. We have considered the petition of the assessee regarding the admission of the additional evidence. As a copy of one of the contracts entered into by the assessee during the years under consideration has a bearing on the issue before us and as the AAC for the first time observed in his order that no evidence regarding the same was produced by the assessee, we deem it fair to admit this piece of evidence in the interest of justice. 9. Profit from a business is the excess of incomings over the outgoings. When the incomings and outgoings are known, then th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....preneur. A contractor is obviously not a trader of the goods he uses in the job and, therefore, there is no question of making any profit on reselling the goods which were bought for being used in the job, unless in a particular case, there is material to show that the goods which were originally bought for the job were actually sold away in the market at profit. When a contractor buys material that he needs to execute the job either from the local market or from outside or from the contractee, there does not appear to be any profit element at any time on such purchase operation alone. Of course, if the materials supplied by the contractee were obtained at rates lower than the prevailing market rates, then the profit from the entire contract would be higher. Similarly, if the assessee was to pay a higher rate than the market rate to the contractee for the materials supplied by it, then, and then alone, the profit from the contract as a whole would fall to a lower figure. If this is so, then, the total income for the purpose of estimating the profit has to be taken as the gross turnover and not the net turnover. In our opinion, the mere fact that the assessee bought some materials u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t on the cost of materials supplied by the Department which obviously meant that the value of those materials did not form a part of the contract turnover. 12. Thus, in our opinion, the standard rate of 12-1/2 per cent has to be applied on the gross value of the contract and not on the net receipts, were the contract was entered into with the stipulation that certain materials will be supplied at a definite price, its effect is to reduce the turnover of the contract by that amount. Even in cases where there are actually heavy recoveries, a percentage lower than 12-1/2 per cent may have to be applied on the gross receipts. Thus, where there is evidence to show that both the parties, at the time of entering into the contract, have agreed to exclude the materials supplied by the contractee for the purpose of estimating the profit, then the same has to be excluded. 13. Coming to the facts of the case, we find that the cost of the materials to be supplied by the contractee has not been worked out in the tender. However, it is apparent from the tender that the assessee was not to incur the cost and conveyance expenses on M.S. Rods and binding wire. But, the contract was for the who....