Deb, J. -
(1.)The following questions are involved in this reference under Section 256(1) of the I. T. Act, 1961 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the additions sustained to the income or loss disclosed in the statement of account represented the actual commercial profits for the purpose of Section 23A of the Indian Income-tax Act, 1922 ?
" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner of Income-tax, Range 'D', Calcutta, was not justified in vacating the order under s, 23A in this case ?"
2. The assessee is a private limited company to which Section 23A of the Indian I.T. Act, 1922, applies. In the assessment year 1961-62, with which we are concerned, the ITO rejected the loss claimed at Rs. 66,737 by the assessee arising out of constructional work of bridges and estimated the positive income of Rs. 65,182 at 20% gross profit on receipts. There was thus an addition of Rs. 1,31,919 in the computation of the total income of the assessee.
(3.)The assessee preferred an appeal against the said assessment order and the AAC granted reduction in the total income. The total income, as sustained by the AAC, was Rs 2,04,440. On further appeal before the Tribunal, there was a further reduction in the total income. The Tribunal also deleted the addition of profits but sustained the disallowance of loss in the following terms :
"The learned counsel next submitted that in the case of a continuing contract an overall picture should be taken after the completion of the contract and the reasonableness of the gross profit shown this year should be tested in the background of the overall result. It was submitted that the assessee-company was mainly engaged in two contracts of bridge construction. One was the construction of Singharan Bridge started in the assessment year 1961-62. The total receipts for the three years amounted to Rs. 20,93,949 and the overall gross profit amounted to, Rs. 3,75,316, whereas in the earlier two years the gross profit offered for assessment amounted to Rs. 3,79,146 on receipts amounting to Rs. 18,95,764. It was submitted that the overall profit of Rs. 3,75,316 on total receipts of Rs. 20.93 lakhs amounted to 18%. The other contract was the construction of flyover bridge at Ondal. The contract commenced in the assessment year 1960-61 and was completed in the assessment year 1963-64, the aggregate receipts amounting to Rs. 1,46,073 with gross loss of Rs. 18,115 as determined in that year..... so far as Singharan Bridge contract is concerned, the overall gross profit of Rs. 3,75,916 which works out to about 18% prima facie does not warrant any estimate of profit in respect of the receipts of the previous year. According to the assessee, there would be a loss of Rs. 3,400 this year having regard to the profit returned in the earlier two years amounting to Rs. 3,79,146. For the defects mentioned, we would hold that the assessee's claim of loss from this contract this year is not proved but at the same time there is no need to estimate any profit with reference to the receipts of this year in isolation. As regards the flyover bridge construction at Ondal, the assessee's expenditure amounted to Rs. 1,05,313 in the assessment year 1960-61 but there were no receipts in that year. In the year 1961-62, the expenditure amounted to Rs. 41,835. The receipts accounted for this year at Rs. 11,27,728 were evidently in respect of the work done in the assessment years 1960-61 and 1961-62. According to the profit and loss account, the work-in-progress was valued at Rs. 8,400. If the value of the work-in-progress were correct there would be a loss of Rs. 11,020. It appears, however, that the estimate of work-in-progress is not quite correct. If it were correct there would be some receipts accounted for in the assessment year 1962-63, and in that year no expenditure also has been booked. We are not able to see whether there was any real loss in this contract so far as this year is concerned. Accordingly, we would disallow the claim of loss this year but refrain from making any estimate of profit on the receipts arising from this contract. It would be open to the assessee to establish in due course in the year of completion of the contract the actual position in respect of the contract. If there was in fact an overall loss of Rs. 18,115 in the year of completion, there would be no objection to its being so determined if the assessee is able to explain what the adverse factors were which gave rise to this loss. In the result, we would maintain the disallowance of loss of Rs. 66,737 as reflected by the Account books but delete the further estimate of profit of Rs. 65,182."