CHANANA ASSOCIATES Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is an application by the assessee under Section 256 (2) of the Income-tax Act, 1961 (for short "the Act"), seeking a direction to the Income-tax Appellate Tribunal (for short, "the Appellate Tribunal"), to state the case and refer the following questions of law to this court for opinion :

(2.) THE assessee-firm derived its income from the execution of contract work. The net profit was shown on the basis of the profit and loss account prepared by the assessee at Rs. 95,990 for the assessment year 1986-87. The accounting period of the firm ended on November 30, 1985. The Assessing Officer noticed during the assessment proceedings that there were no vouchers in respect of the expenditures. It was also seen that the amount of Rs. 1,51,310 representing 75 per cent. of the total value of the materials supplied to various Government agencies had been shown by the assessee as receipts but, as against the said receipts, the total expenditure had been shown at Rs. 1,35,415 only whereas it should have been at Rs. 2,01,748. The assessee had shown the gross profits at less than 10 cent. Since the assessee had not maintained vouchers in respect of the expenditure nor produced the muster rolls, the declared profit was not accepted and the Assessing Officer proceeded to determine the gross profit at 12 per cent. of the total receipts. Thus, the profit was determined at Rs. 1,61,328 as against Rs. 95,990 declared by the assessee. Further addition of Rs. 1,58,965 was also made on account of payments made by the assessee-firm in cash in excess of Rs. 2,500. Since it was a violation of Section 40a (3) of the Act, this addition was separately made. The assessee went in appeal and got part relief at the hands of the Commissioner of Income-tax (Appeals ). The gross profit rate adopted by the Assessing Officer at 12 per cent. was reduced to 10 per cent. of the total contract receipts. The addition of Rs. 1,58,965 was, however, sustained.

(3.) THE assessee sought the following four questions claiming these to be questions of law for being referred to this court under Section 256 (1) of the Act :