JUDGMENT
Nazir Ahmad, J.
1. A statement of the case under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), has been submitted by the Income-tax Appellate Tribunal, “A” Bench, Patna, referring the following question of law for the opinion of this court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the value of the materials supplied to the assessee in execution of the contract work should be excluded from the gross receipts in determining the net profit by the application of rate ?”
2. The reference application has been filed by the Commissioner of Income-tax, Bihar, Patna, and Mr. B.P. Rajgarhia, learned counsel for the Revenue, has not disputed the other findings of the Tribunal and
wants the answer only to the question relating to the contract with the Housing Department of the Government of Bihar. He has also submitted that the question relating to the profit from contract with Bokaro Steel Ltd. is not in dispute, as from the order of the Tribunal, it is evident that there has been no deduction relating to the cost of materials for Bokaro Steel Ltd. As regards the contract for Patratu Thermal Power Plant, he has accepted the finding of the Tribunal, in view of the decision of this court in the case of Kalpnath Rai v. CIT [1985] 151 ITR 281. Hence, the order of the Tribunal was justified. So it has to be held that as regards the contract for Patratu Thermal Power Plant, the Tribunal was justified in holding that the value of the materials supplied to the assessee in respect of the contract should be excluded from the gross profit in determining the net profit by application of rate in view of the terms of the contract and so the question will accordingly be answered in favour of the assessee and against the Department.
3. Now, we have to consider only the case relating to the Housing Department. The Income-tax Officer has pointed out in annexure A that as regards the Housing Department, Government of Bihar, the books of account produced suffered from the defects as found out in Bokaro Steel Ltd. and Patratu Thermal Power Plant and that on a gross receipt of Rs. 1,10,766, the assessee has shown a net profit of Rs. 8,912 which the Income-tax Officer considered to be low for this line of business. He, therefore, did not accept the book results in view of the unverifiable nature of the books of account. He, therefore, estimated the net profit at 10% of the gross profit including depreciation.
4. The Appellate Assistant Commissioner in annexure B in paragraph 6 has also pointed out that as regards the Housing Department, Government of Bihar, the gross payment of Rs. 1,10,766 and the value of materials deducted is Rs. 25,295 and thus the net payment is Rs. 85,471, on which the assessee had shown a net profit of Rs. 8,912 which is more than 10%. The Appellate Assistant Commissioner, in view of the reasons given in connection with the works done under the Patratu Thermal Power Plant Works, held that the value of the materials should be deducted and only on a net payment of Rs. 85,471, profit should be estimated. He held that the assessee had himself shown a profit of more than 10% and so he accepted the profit shown by the assessee. The Appellate Tribunal only mentioned the facts relating to the Housing Department of the Government of Bihar and accepted the finding of the Appellate Assistant Commissioner. However, the Tribunal also did not consider as to whether there was any contract between the assessee and the Housing Department of the Government of Bihar.
5. It is necessary that the agreement of contract, if it is in existence between the assessee and the Housing Department of the Government of Bihar, should have been considered by the Tribunal. From the orders or the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal, it is not evident whether there is any agreement of contract between the assessee and the Housing Department of the Government of Bihar and whether it was filed by the assessee. Without the agreement of contract relating to the Housing Department of the Government of Bihar, it is not possible for me to answer the question referred by the Tribunal. Whether the Tribunal has come to a finding on the basis of the agreement and/or any other material or whether the Housing Department of the Government of Bihar had control over the materials supplied to the assessee or not and unless this finding is specifically given by the Appellate Tribunal, it will not be possible to answer the reference.
6. In view of my discussions above, I hold that the Tribunal was justified in law in holding that that the value of materials supplied to the assessee in execution of the contract work relating to the Patratu Thermal Power Plant should be excluded from the gross receipt in determining the net profit by the application of rate and accordingly the question is answered in favour of the assessee and against the Revenue.
7. However, I refuse to answer the question relating to the contract of the assessee with the Housing Department of the Government of Bihar. The Appellate Tribunal will record a finding whether the Housing Department of the Government of Bihar had control over the materials supplied to the assessee and that the assessee had no control over materials supplied by the Housing Department of the Government of Bihar. In deciding this matter, the Appellate Tribunal will keep in view the law laid down by the Supreme Court in the case of Brij Bhushan Lal Parduman Kumar v. CIT [1978] 115 ITR 524 and of this court in Ramesh Chandra Chaturvedi v. CIT [1980] 121 ITR 116. There will be no order as to costs.
Uday Sinha, J.
8. I agree.
