Law:

Section:

Section 144, read with section 145 of the Income-tax Act, 1961 - Best assessment - Assessment years 1964-65 to 1967-68 - ITO rejecting accounts of contractor-assessee under section 145(2) made best assessment under section 144 - While estimating net income of assessee, ITO included cost of materials that were supplied to assessee by railway authorities as per contract between parties - Whether very fact that some materials were to be supplied by railway authorities and it was not open to assessee to purchase same from outside showed that those items could never have entered into making of profits by assessee and, hence, cost of such materials should not be taken into consideration in estimating net income of assessee - Held, yes FACTS The assessee was a registered partnership firm and carried on business as railway contractors. The relevant years of account were the four years ending with Deepavali of each Hindu calendar year. For the assessment year 1964-65, in the first instance, the assessee filed a return disclosing an income of Rs. 47,535 and the return was based on the books of account maintained by the firm. Subsequently, the assessee filed a revised return declaring a total income of Rs. 1,04,609 estimating the same at 10 per cent of its receipts. The ITO found that the accounts kept by the assessee-firm were not reliable. He found that the total receipts during the year amounted to Rs. 10,34,350. He also found that the assessee-firm had received materials of the value of Rs. 72,584 from the railway authorities. He estimated the total receipts at Rs. 11,10,000 and estimating the gross profit at 15 per cent thereon, he finally determined the total income at Rs. 1,03,611. Similarly, for subsequent years also, the ITO added the cost of materials supplied by the railway authorities to the assessee-firm. The additions made by the ITO for all the four years were challenged in different appeals before the AAC. The AAC took the view that the cost of materials should be included for the purpose of calculating the gross profit earned by the assessee-firm. He, however, held that the profit estimated by the ITO for the assessment years 1965-66 and 1966-67 was…

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