1986 (2) TMI 22

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.... In this reference, we are concerned with the assessment year 1970-71. The assessee is a partnership firm. The firm undertook contract work during the assessment year in question. During the assessment year in question, the firm received a sum of Rs. 9,16,384 as gross sum in satisfaction of its claim. The assessee returned a profit of Rs. 58,160. This sum was arrived at after charging depreciation to the tune of about Rs. 10,000. The Income-tax Officer considered the profit to be very low. In his view, there was some defect in the accounts. He also found that the expenses were not properly vouched and verified. He, therefore, adopted the rate of 10% net profit of the gross receipt without deducting depreciation. On appeal, the Appellate ....

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....ee, there would be no scope for deduction. If, on the other hand, the materials were within the absolute control of the authority for whom the work was being done, the cost of materials must be deducted before calculating the rate of profit. The same question again fell for consideration before a Bench of this court in the case of Ramesh Chandra Chaturvedi v. CIT [1980] 121 ITR 116. In this case, their Lordships laid down the law as follows (at pp. 119 and 120) : " There cannot be a hard and fast rule to determine the question as to whether the value of the materials should or should not be included in the gross turnover of an assessee, who is a contractor, for determining his net profits. It all depends upon the manner in which the mate....

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.... entire value of the contract including the value of the materials. Their Lordships also observed that in a works contract, the value of the materials has to be wholly excluded because the contractor has no concern whatsoever with the materials except for the purpose of putting them into shape as desired by the person giving the contract. In a lump sum contract, however, that part of the value of the materials which the assessee arranged himself, has to be included in determining his net profits from the contract. On the facts of that case, their Lordships further held that the assessee, the contractor, had failed to show that he had no control over the materials supplied to him and used by him. The instant case must be decided by the Tr....