Law:

Section:

Section 143(3) of the Income-tax Act, 1961 - Assessment - Addition to income - Assessee entered into two contracts with Government - For execution of contract Government supplied materials - In order to calculate profits of contracts, method adopted was to apply a certain percentage on total turnover - Assessee claimed that in computing turnover, amount representing cost of materials supplied by Govt. should be left out of account - Tribunal rejected assessee's claim - Whether since turnover represented by cost of materials did not in any manner contribute to assessee's profit, value of said material supplied by Govt. could not be included while calculating total turnover of assessee - Held, yes FACTS The assessee entered into two contracts for the execution of certain works for the State Government. The accounts submitted by the assessee were rejected and such rejection was not disputed before the Tribunal. An estimate was therefore made and the method adopted was to apply a percentage on the total turnover. In computing the turnover, the Tribunal accepted the assessee's case that the amount representing hire charges should not be taken into account as these were the charges which the contractor had to meet in executing the contract. The assessee further contended that the amount representing cost of materials supplied by Govt. should also be left out of account. This contention of the assessee had been rejected and the question was whether on the facts and in the circumstances the computation of profits on the above amounts also would be justified in law. On reference : HELD The Tribunal proceeded on the basis that there was an element of profit involved even in the supply of materials by the State Government. Even so they were prepared to say that there was no such element involved in the hire charges. One could not discern any difference between these. Further, there was no material on the basis of which it was possible to postulate that the turnover represented by the cost of materials in any manner contributed to the profit of the assessee. If anything, the materials indicated that there was no such element of profit. In view of above, this was a case in…

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