1983 (12) TMI 5

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.... After the completion of the contracts, the Government departments made payment of the balance amount to the contractor after deducting a sum of Rs. 1,02,196, representing the value of the material supplied to him for execution of the works. The ITO rejected the accounts maintained by the assessee, holding that they were not correct and complete and he applied a net profit rate of 15% to the turnover of the assessee. On appeal, the AAC considered it to be reasonable to apply a net profit rate of 12 1/2% on the turnover of the assessee. Before the Income-tax Appellate Tribunal, Jaipur (hereinafter referred to as " the Tribunal "), the assessee, on further appeal, raised the question that no amount of profit should be calculated on the value ....

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....as High Court in CIT v. K. S. Guruswami and K. S. Irishnaraju [1973] 92 ITR 90, the Gujarat High Court in Trilok Chand Chunnilal v. CIT [1976] 104 ITR 732 and a Full Bench of the Andhra Pradesh High Court in Addl. CIT v. Trikamji Punia and Sons [1977] 106 ITR 597, took the view which the Tribunal has taken in the present case, that as no amount of profit was involved in respect of the material supplied by the Government departments for the execution of the contracts, as such, in best assessment judgment, the value of the materials supplied by the Government departments should not be included while applying the net profit rate to the income of the assessee. However, the Punjab and Haryana High Court in Brij Bhusan Lal v. CIT [1971] 81 ITR 49....

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....ver represented by the cost of such material. It is true that, ordinarily, when works contract is put through or completed by a contractor, the income or profits derived by the contractor from such contract is determined on the value of the contract as a whole and cannot be determined by considering the several items that go to form such value of the contract but in our view where certain stores/materials are, supplied at fixed rate. By the department to the contractor solely for being used or fixed or incorporated in the works undertaken on terms and conditions mentioned above, the real total value of the entire contract would be the value minus the cost of such stores/material so supplied. Therefore, since no element of profit was involve....