Law:

Section:

Section 143(3) of the Income-tax Act, 1961 - Assessment - Whether when for purposes of assessing rate of profit there was nothing on record to show whether assessee-contractor or contracting Department had control over materials supplied by Department to assessee for execution of contract work, then Tribunal's order deducting cost of materials from gross receipt to arrive at profits had to be set aside and matter had to be sent back to it to be decided afresh after ascertaining as to which party had control over that material supplied - Held, yes Facts In the relevant assessment year the assessee-firm undertook a contract and received a certain amount as gross sum in satisfaction of its claim. The assessee returned certain income, which was arrived at after charging depreciation. The ITO rejected the accounts of the assessee and adopted the rate of 10 per cent net profit of the gross receipts without deducting depreciation. On appeal, the AAC held that out of the gross sum received by the assessee, a certain sum constituted the cost of materials supplied by the Department for whom the assessee had executed the work and, therefore, the rate of net profit should have been assessed on the basis of the net receipts and not on gross receipts. On appeal, the Tribunal upheld the order of the AAC On reference: Held In the light of the decision in Ramesh Chandra Chaturvedi v. CIT [1980] 121 ITR 116 (Pat.), the Tribunal had to consider the agreement or agreements in relation to the contract and the extent of the assessee's control over the materials supplied to him by the department. If the finding was that the assessee (contractor) had control over the materials, the net profit would have to be reckoned on the basis of the gross receipts. If, on the other hand, the finding was that the assessee had no control over the materials supplied by the Department, the rate of profit would have to be estimated on the basis of net receipt. In the instant case, there was nothing on the record to throw any light whether the assessee had control over the materials supplied or the contracting departments had complete control over the materials supplied. In the absence of any finding…

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