R.N.Pyne, J. - (1.) This reference under Section 66(1) of the Indian Income-tax Act, 1922, relates to the assessment year 1960-61 in respect of which the previous year ended on June 30, 1959. In this reference the following question of law has been referred by the Tribunal for consideration of this court: "Whether, on the facts and in the circumstances of the case, Section 23A of the Indian Income-tax Act, 1922, was rightly applied?"
(2.) The relevant facts relating to this reference may briefly be stated. The assessee is a private limited company carrying on business of execution of contracts. For the assessment year 1960-61, the total income of the assessee, as revised by the Appellate Assistant Commissioner, was Rs. 63,436. The facts regarding the assessee's accounts and the assessments made on it as stated in the Tribunal's order in I.T.A. No. 14561 of 1963-64 (for assessment year 1957-58), which was followed and applied in I.T.A. No. 14564 of 1963-64 in relation to the assessment year 1960-61 may conveniently be stated at this stage. The assessee commenced business in January, 1956, and closed its books on June 30, 1956, and on the same date in the succeeding years. The work undertaken by the assessee took a period of nearly 5 years to complete but it had not worked out its profits every year. No separate job work account had been prepared and the value of the work-in-progress had not been taken into account. The annual expenses were shown on the balance-sheet and the overhead expenses were charged to the profit and loss account. At the end of the contract period a consolidated revenue account was struck and on the total receipt of Rs. 42.23 lakhs for all the contracts, a gross profit of 10'1% and a net profit of 2.8% were shown by the assessee in its books. The Income-tax Officer required the assessee to furnish the evidence regarding the total receipts of each year and the details of the relevant expenses in respect of each contract. The expenses, however, were neither fully verifiable nor allowable properly against the receipts from any individual contracts. The Income-tax Officer had, therefore, to resort to estimate under the proviso to Section 13 of the Indian Income-tax Act, 1922 (hereafter referred to as "the Act"), and applied a flat rate of 15% on the receipts of each year and allowed some expenses thereagainst. In appeal, the Appellate Assistant Commissioner reduced the net rate of profit to 9% in respect of one contract and 12 1/2% in respect of others before deduction of certain items of expenses and allowances. On further appeal, the Appellate Tribunal reduced the rate to 5% in respect of one contract and aflirmed the Appellate Assistant Commissioner's estimates in respect of others. From the said total income of Rs. 63,436 as determined under the proviso to Section 13 of the Act for the assessment year 1960-61 after deducting the amount of tax payable, the distributable surplus worked out to Rs. 34,890. As, according to the Income-tax Officer, the assessee should have declared 65% of the distributable surplus, i.e., Rs. 22,679, as dividends during the 12 months following the expiry of the previous year and as no dividend was declared during that period, the Income-tax Officer initiated proceeding under Section 23A of the Act. In those proceedings the assessee contended that for the purpose of Section 23A the commercial profits were to be considered and not the assessed profits. Reliance was placed on the decision of the Supreme Court in the case of Bipin Chandra Maganlal & Co. The Income-tax Officer, however, held that the ratio laid down in that case had no bearing to the facts and circumstances of the case of the assessee. He further held that the book profits of the assessee were not accepted and the proviso to Section 13 was applied which meant that the company had not disclosed the correct profits. In those circumstances, the Income-tax Officer concluded that on the basis of the estimated profits, the application of Section 23A was quite tenable and, relying upon the case of Rasipuram Union Motor Service Private Ltd. [1964] 53 ITR 702 (Mad), the Income-tax Officer applied the provisions of Section 23A after obtaining the necessary approval of the Inspecting Assistant Commissioner and levied a super-tax of Rs. 12,909 on the assessee. From the decision of the Income-tax Officer, the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner allowed the said appeal and quashed the said order of the Income-tax Officer. The Appellate Assistant Commissioner relied on the case of Commissioner of Income-tax v. Gangadhar Banerjee & Co. (P.) Ltd. According to the Appellate Assistant Commissioner the facts of the instant case were on all fours with the facts of the said Supreme Court case.
(3.) The revenue, thereafter, appealed to the Tribunal against the said order of the Appellate Assistant Commissioner. The Tribunal found that there was material before the Income-tax Officer to come to the conclusion that the real income was not disclosed. The Tribunal held as follows : "The Income-tax Officer has pointed out defects in the books and arrived at the assessee's profits on materials available. There is no reason to hold that such a determination is entirely unrelated to reality. In fact, decisions have held that such additions represent real income and that the assessee, in a subsequent order, can take advantage of the Income-tax Officer's determination, if necessary (See Kuppuswami Mudaliar v. Commis~ sioner of Income-tax [1964] 51 ITR 757 (Mad). Moreover, the present case seems to us to be covered fully by the decision of the Supreme Court in Gobald Motor's case.";