Law:

Section:

Section 143(3) of the Income-tax A ct, 1961 - Assessment - Addition to income - Assessment year 1961-62 - Assessee-firm was engaged in construction of building for Government on contract basis - While filing return, assessee did not include cost of material supplied by Govt. in computing income - ITO, however, estimated assessee's income after including cost of materials supplied to it by Govt. - Tribunal set aside ITO's order - Whether since assessee did not earn any profit in relation to materials supplied by Govt. value of said materials was not to be included in total receipts of assessee for calculating its profits for relevant assessment year - Held, yes FACTS The assessee-firm was engaged in construction of buildings for Government on contract basis. It returned certain income from business. In computing the income, the assessee did not include the cost of the materials supplied to it by the Government in the total receipts as, according to it, there was no element of profit in the cost of the materials supplied by the departments. The ITO was, however, of the view that if the assessee had purchased the building materials such as cement, steel, etc., in open market, it would have been in a more disadvantageous position, and that, therefore, it had definitely an advantage in getting the required materials from the departments concerned. He, therefore, included the cost of the materials supplied by the departments in the total receipts shown by the assessee and estimated the income at 12 per cent. of the total receipts including the cost of the materials. That resulted in addition to the income returned by the assessee. There was an appeal to the AAC, but without success. On further appeal, the Tribunal held that income of the assessee had to be calculated only on the actual receipts and that the cost of the materials supplied by the Government could not be included in the assessee's receipts. On reference: HELD Admittedly, the materials supplied by the departments had been used in the construction of the buildings and the assessee did not, in fact, earn any profit in relation thereto. Therefore, it could not be said that the turnover represented by the…

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