R.K. Gulati, J. - (1.) These are two applications under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") arising out of a common order passed by the Income-tax Appellate Tribunal. These applications have been made at the instance of the Revenue and pertain to the assessment years 1987-88 and 1988-89. In these applications, the following common question has been proposed : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in directing to allow depreciation when the Income-tax Officer had given a clear finding in his assessment order that the income was estimated after allowing admissible depreciation ?"
(2.) The assessee is a contractor. The Income-tax Officer rejecting the book profits computed the income by applying a flat rate. In the assessment year 1987-88, he worked out the taxable income by applying a net rate of ten per cent. and observed : "The assessee has claimed depreciation. The depreciation claimed by the assessee is not allowable when net rate is applied when working the income."
(3.) In the other year 1988-89 also a net rate of ten per cent. was applied but there are no observations to the effect as made in the assessment year 1987-88. The assessee took the matter in appeal before the Commissioner of Income-tax (Appeals) for both these years. The Commissioner upheld the rate of ten per cent. but directed that the assessee was entitled to the relief in respect of the depreciation that it had claimed. Against the appellate order, cross-appeals were filed before the Income-tax Appellate Tribunal. The appeal filed by the Revenue was dismissed and that filed by the assessee was allowed in part, inasmuch as, the net rate of profit was reduced to nine per cent. from ten per cent. The Revenue applied for a reference under Section 256(1) of the Act and its applications having been dismissed, these applications have been filed with the prayer that the Income-tax Appellate Tribunal may be directed to refer the question set out earlier for the opinion of this court for the question proposed is a question of law.;