The proviso to Sec.13, Income-tax Act is applicable in regard to the accounts maintained for the contract business, which were not closed to profit at the end of each previous year but were closed to profit only after the completion of a contract.

Ramaswami, J.

1. In this case the assessment relates to the year 1944-45. The assessee is a Hindu undivided family and during the accounting year the asseessee carried on contract business and had a share in the firm of Jokhiram Jagannath. The accounting year corresponds to the period from 1-4-1943 to 31-3-1944. The assessee had obtained contracts from the Public Works Department and from the Defence Department. For the Public Works Department the assessee executed two contracts. The work of these contracts was taken up on 14-4-1943 and completed on 12-5-1944. For the Defence Department the assessee executed a contract known as Hirji Hospital contract. The work of this contract was started on 14-4-1943 and was closed on 3-12-1944. In the return for the assessment year 1944-45 the assessee did not show any income with respect to the contracts of the Public Works Department or with respect to the military contract. The assessee, on the other hand, showed an income of Rs. 12,000 in respect of his share of profit from the partnership business.

Before the Income-tax Officer the case of the assessee was that the contracts of the Public Works Department and the military contract were not closed within the accounting year and so the income from these contracts was not shown in the return filed by the assessee. The Income-tax Officer held that for the accounting year the assessee had realised a net income of Rs. 19,683 from the Public Works Department contracts. With respect to the military contract the Income-tax Officer held that the entire contract had been completed within the accounting year and the assessee had received a sum of Rs. 3,67,578 on account of this contract from the military authorities. In view of the defective state of the account books produced by the assessee the Income-tax Officer considered that the profit should be estimated at 15 per cent of this amount. He determined the net income from the military contract as Rs. 55,135 and included this amount in the total income of the assessee.

An appeal was taken to the Appellate Assistant Commissioner on behalf of the assessee and it was argued on his behalf that the military contract was not fully executed before 31-3-1944 and that the Income-tax Officer was not justified in holding that the income from the military contract should be included in the return of the assessee for the accounting year in question. This argument was accepted by the Appellate Assistant Commissioner who directed the Income-tax Officer to exclude the profit from the military contract. The Income-tax Department preferred an appeal to the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal held that the account maintained by the assessee did not reflect the true profits of the assessee for the accounting year.

The Tribunal accepted the case of the assessee that the military contract was executed on 3-12-1944; nevertheless, the Tribunal held that 9/10th of the contract work had been done in the accounting year and the assessee had received from the military department about Rs. 3,00,000 on account of the execution of the contract. The Tribunal took the view that the proviso to Sec.13 was applicable to the case and the profits of the assessee for the accounting year should be determined by the Income-tax Officer. The Tribunal observed--

"There is a well known method of ascertaining the profits accruing in any particular period in a contract. This is done by deducting from the receipts in the period the total expenses incurred on the contract in the period. To the balance is added the value of work in progress, for which payments have not been received, as the total expenditure would include expenditure on work in progress for which payments have not been received The resulting amount will represent the profit accruing in the contract in that parti cular period. The assessee has not adopted this method nor has he ascertained the profits of t