R.N.Pyne, J. - (1.) This reference arises out of the two orders of the Income-tax Appellate Tribunal both dated 9th March, 1971 and a consolidated statement of case has been submitted by the Tribunal pursuant to the order of the court. Relevant facts of this reference appearing from the said statement of case may briefly be stated : The assessee is a registered firm. Its business is to execute contracts for construction of roads, buildings and bridges under various Government departments. The assessment year involved in this reference is 1966-67, the corresponding financial year being 1965-66. The assessee disclosed a net profit of 7.2 per cent. on the receipts of Rs. 6,35,271 in the contract work. The assessee did not maintain any stock register showing the materials purchased and consumed in the process of construction work and the stock left. The expenses for construction were not properly vouched. The cash book was not properly maintained. Because of these defects the ITO did not accept the book results of the assessee. He found that the gross receipts amounted to Rs. 10,53,806. The ITO also considered the net profit of 7.2 per cent. as low and he estimated the gross profit at 12 1/2 per cent., which amount came to Rs. 1,31,726.
(2.) The assessee came up in appeal before the AAC and it was contended that the ITO should have accepted the book results. It was further contended that in any case the cost of material supplied by the Government amounting to Rs. 2,97,088 should not have been included in the gross receipts before estimating the net profit. The AAC agreed with the ITO that the book results could not be accepted on account of defects pointed out by the ITO as also of some other defects which were noticed by the AAC. The AAC upheld the rate of net profit as estimated by the ITO. He, however, accepted the contention of the assessee that the cost of material supplied by the Government amounting to Rs. 2,97,088 should be excluded from the gross receipts before applying the net profit at the rate of 12 1/2 per cent. This contention of the assessee was accepted on the grounds that from the certificate given by the Executive Engineer, P. W. D., Jalpaiguri, it appeared that the assessee-firm was not allowed any profit on the cost of materials supplied by the Government and that the cost of cement and steel supplied by the Government was more than the market price of the same. The AAC reduced the profit by Rs. 37,135. The ITO also disallowed certain depreciation claimed by the assessee but in this reference we are not concerned with that claim.
(3.) Both the department and the assessee preferred appeals against the order of the AAC before the Tribunal. In I. T. A. No. 134 (Cal) of 1969-70, the department challenged the exclusion of the cost of materials supplied by the Government from the gross receipt before applying the rate of 12 1/2 per cent. in arriving at the net income of the assessee. In I. T. A. No. 154 (Cal) of 1968-69, the assessee challenged the rejection of the book results and the application of 12 per cent. of the net profit. The assessee also challenged the disallowance of depreciation of Rs. 37,314 for jeep and trucks, etc., and the confirming of the addition of Rs. 4,273 under Section 41(2) of the I. T. Act, 1961.;