D.K.Mahajan, J.

1. This order will cover Income-tax References Nos. 2 and 3 of 1973. In these references a single question of law has been referred for our opinion, namely:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the cost of material supplied by the Government was not to be included while estimating the profit of a contractor ?"

2. The assessee is a registered firm. It derives its income from contract business. The assessment years in question are 1965-66 and 1966-67, accounting years ending on 31st March, 1965, and 31st March, 1966, respectively. The assessee filed its return of income declaring the income at Rs. 18,684 for the assessment year 1965-66. The total receipts from the contract were Rs. 2,63,853. The income was shown on the basis of account maintained but during the assessment proceedings, the assessee offered that a that rate of 9 per cent, on the total receipt of Rs. 2,63,853 be applied. The Income-tax Officer, however, applied a flat rate of 10 per cent, on total receipt of Rs. 3,07,605. The total receipt shown by the assessnc at Rs. 2,63,853 did not include the value of the stores supplied by th