Law:

Section:

Section 144, read with section 145 of the Income-tax Act, 1961 – Best judgment assessment – Assessment years 1965-66 and 1966-67 – Whether authority making best judgment assessment must make an honest and fair estimate of income of assessee and though arbitrariness cannot be avoided in such estimate, same must not be capricious but should have reasonable nexus to available material and circumstances of case - Held, yes – Assessee firm carried on business of executing works on behalf of Government – For execution of works, certain materials were supplied by Government at fixed rate – Such materials remained property of Government and surplus if any had to be returned to Government – Whether there was no element of profit involved in turnover represented by cost of materials supplied by Government to assessee-firm and, therefore, cost of materials supplied by Government was to be excluded while determining income or profit of assessee from such contract - Held, yes FACTS The assessee firm was a Military Engineering Services (M.E.S.) contractor, and as such carried on the business of executing contracts and works on behalf of the Government. For the execution of the works undertaken by the assessee certain materials such as cement, coal, items of steel, etc., was supplied at the fixed rates by the Government for being used in the works. Such material though in custody of the contractor always remained the property of the Government and if any surplus was left at the completion of the contract, the contractor (assessee) had to account for it at the same rates at which the supply was made to him (wear and tear excepted) and return the same to the Government. The assessee filed return of income but did not furnished any figures about the material received by it from the Government. The ITO called upon the assessee to produce the relevant certificates in respect of such stores but the assessee failed to do. The ITO rejected the book results and estimated the profit of the assessee-firm by applying flat rate to cash payments received by the assessee firm against the contract as well as the cost of materials supplied by the Government. The AAC reduced the addition. On…

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