TMI Blog1976 (1) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-s. (1) of s. 145 were clearly applicable to the facts of the present case. There was decline in the gross profit rate also as compared to the earlier years. He rejected the trading results of the assessee and estimated the profits in respect of both the years by estimating the sales and the gross profit rates as follows: Asstt. year. Sales estimated Rate applied Addition made 1970-71 10 lakhs 24% 98,525 1971-72 7,70,000 24% 42,805 2. On appeal to the Appellate Assistant Commissioner, the application of the proviso to sub-s. (1) of s. 145 of the Income Tax Act, 1961 was sustained by the Appellate Assistant Commissioner. He, however, modified the trading results as follows: Asst. yr. Sales estimated by AAC G.P. rate applied by AAC Addition sustained by AAC 1970-71 Rs. 9,50,000 20% 48,525 1971-72 Rs. 7,50,000 22.5% 26,754 3. In the metal foundry account, the results shown by the assessee were as follows: Asst. yr. Sales shown Gross profit dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. Thus in the accounting period 1968, the bonus paid was Rs. 26,023 as against Rs. 20,966 paid during the year under consideration. (iii) Whereas the assessee had paid no commission on sales in the accounting period 1968, he had paid Rs. 10,852 by way of commission during this year. These three factors among themselves accounted for the lowness in the gross profit rate and these factors should have been taken note of by the learned Appellate Assistant Commissioner while estimating the gross profit rate. Between themselves, they account for a reduction in the gross profit rate of about 6. To 6.5%. 6. In respect of assessment year 1970-71 also, according to him, the gross profit margin would not be more than what the assessee had declared and, therefore, there was, according to him, no justification in making any addition to the trading account of Craftsman engineering Works. 7. Turning to the metal foundry account, the assessee points out that during the accounting period 1969, the assessee had undertaken a contract of manufacturing transport and erection of chuts and vents, pipes and rupers at the works of Udaipur Cement Works, Udaipur. The responsibility of supplying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 23,237 because in effect the contract was only of labour. Such labour payments received were Rs. 67,082. The profit shown by the assessee in this account was thus not as low as the Income Tax Officer made it out. 9. On behalf of the Department, the above submissions have been resisted. It is pointed out that so far as the special factors mentioned by the assessee are concerned, the learned Appellate Assistant Commissioner has already taken them into account and has accordingly reduced the gross profit margin from 26% which was the rate applied by the Income Tax Officer, to 20% and that no further deduction was warranted. As regards the assessment year 1971-72, it is pointed out that the special factors mentioned by the assessee with regard to the assessment year 1970-71 were altogether absent and, therefore, the application of the profits rate applied by the Appellate Assistant Commissioner were reasonable. Our attention is drawn to the fact that the ratio of consumption of the raw-materials to the sale during this year is less than what it was is the earlier year i.e. 1968, corresponding to assessment year 1969-70 and therefore there was no occasion to reduce the gross pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1969-70. We, therefore, see no justification for interfering with the order of the Appellate Assistant Commissioner with regard to the rate of gross profit in respect of assessment year 1971-72. There is, however, no justification to estimate the sales, for the reasons indicated above. The gross profit will therefore, be computed by applying the rate of 22.5% to the declared sales. 12. This brings up to the consideration of the gross profit margin in the metal foundry account. After going through the correspondence which was shown by the assessee and the facts of the case, the assessee s contention that he had in effect undertaken the labour contract with Udaipur Cement Works appears to be correct. The reasonableness of the gross profit margin will have to be seen with reference to the payments received on account of labour rather than with reference to be totality of the payments. 13. During this year, the assessee had undertaken a fencing contract which did not involve any fabrication. The margin of gross profit in this type of work would not be as high as in the case of fabrication. We would, estimate the gross profit margin on this at 15%, which would give the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the services rendered by the persons concerned, to whom the payment were alleged to have been made. These payments were, allegedly, made to the relatives of certain Overseers and Engineers to ensure that the said Overseers and Engineers passed the assessee s bills expeditiously. The payment of Rs. 3,000 made on 9th Dec, 1969 to one Sri Kulwant Singh was hit by the provisions of s. 40A(3) also. Even at our stage, the assessee has not been able to spell out in detail as to what were the services that were rendered to the assessee by the persons concerned to whom the alleged payments have been made. In the circumstances, we are of the opinion that the payments in question cannot be said to have been proved as, having been laid out wholly and exclusively for the purpose of the assessee s business. If the aforesaid payments are in the nature of payoffs indirectly made to the Engineers and Overseers who were Govt. Servants, the said payments would not be admissible as it cannot be said that, it is the normal practice of a trader or a business man to pay such amounts to the Govt. Servants. The payments, if at all, were made by the assessee in his capacity other than as a trader. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
