Hardayal Hardy, J.:— By this application the assessee-company wants the following three questions which it claims are questions of law arising out of the order of the Tribunal dated July 17, 1967, to be referred to this court:

“(i) Whether, on the facts and in the circumstances of the case, the proviso to section 13 applies to the instant case?

(ii) Whether the case of the appellant was covered by the judgment dated April 6, 1967, of the Delhi High Court in In re R.S Chiranji Lal & Sons?

(iii) Whether there was any material, data or evidence before the Tribunal to sustain the addition of Rs. 6,000 in round figures in Srinagar contract?”

2. The facts are not in dispute. The relevant assessment year is 1959-60. The business of the assessee is execution of construction contracts. The assessee commenced its business from January 25, 1958, and the accounts were closed for the first time on January 25, 1959. During the accounting year the assessee undertook three contracts with respect to which it submitted separate profit and loss statements disclosing the following net profit:—

Rs. 1. Rourkela Dolomite & Pig Casting 4,80,299 26.5% 2. Rourkela Calcinning Plant 8,14,639 24% 3. Srinagar Aerodrome runway & taxi stand 6,38,235 9%

3. The accounts in respect of the first two contracts were accepted by the authorities under the Income-tax Act in toto but with regard to the accounts relating to the third contract the Income-tax Officer declined to accept the assessee's reasons for low profits at the rate of 9% in respect of that contract. He, therefore, applied a flat rate of 12½% profit and made an addition of Rs. 22,558 to the assessee's income. On appeal, the Appellate Assistant Commissioner of Income-tax agreed that some addition was called for but he felt that the addition made by the Income-tax Officer was definitely on the high side. He, therefore, held that it would meet the ends of justice if the addition was restricted to Rs. 10,000 in round figures. On further appeal to the Income-tax Appellate Tribunal, the addition was restricted to Rs. 6,000 only as against Rs. 10,000 sustained by the Appellate Assistant Commissioner. The question that has been mooted before us by the learned counsel for the assessee is whether the Tribunal was right in rejecting the assessee's application for submitting a statement of case and referring to this court the three questions as set out at the beginning of this order.

4. The argument advanced by Mr. Bajaj is that the Appellate Assistant Commissioner had accepted the assessee's reasons for the low profit of 9% but had nevertheless sustained an addition of Rs. 10,000 on the ground that the assessee's representative had not denied before him that full quantitative details might not be available in respect of the stores of the value of over Rs. 1,30,000 consumed in the execution of the contract. When the case came up before the Tribunal the addition of Rs. 10,000 was found to be excessive and was reduced to Rs. 6,000. Mr. Bajaj contended that it was not open to the Tribunal to sustain an addition of Rs. 6,000 unless there was material for the same. The order passed by the Tribunal, however, did not disclose any such material.

5. In this connection our attention was drawn by the learned counsel to a Full Bench decision of the Madras High Court in. Gunda Subbayya v. Commissioner of Income-tax [1939] 7 I.T.R 21 Mad. [F.B]., where it was held that recourse to section 13 could certainly be had if the method of accounting employed by the assessee was one which did not properly disclose the income, profits and gains of the assessee. In such a case the Income-tax Officer could adopt his own method but in doing so it was imperative that he should refer to the accounts before him as section 13 did not contemplate the rejection of the accounts. It was also said in that case that section 13 neither added to nor took anything away from section 23(3) and, therefore, when an assessment was made under section 23(3) it became incumbent upon the Income-tax Officer to draw the assessee's attention to the material on which he proposed to act and give him an opportunity to show that the opinion formed by the officer was wrong. The Income-tax Officer should also indicate in his order the material on which he had made his assessment as an order under section 23(3) was appealable. Basing himself on the above observations, Mr. Bajaj argued that the same applied to the Tribunal and that before any addition was made to the income of the assessee on the ground that recourse to section 13 was necessary the material on which that addition was contemplated should have been disclosed to the assessee.

6. Since the order of the Tribunal did not disclose any such material, it did give rise to the questions formulated by the assessee.

7. Reliance was also placed on the judgment of the Supreme Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax and on the decision of the Kerala High Court in 5. Veeriah Reddiar v. Commissioner of Income-tax [1960] 38 I.T.R 152 Ker... Particular stress was laid by the learned counsel on the judgment of the Kerala High Court in which it was held that low profits and absence of a regular stock register were not sufficient reasons or material on the strength of which the accounts of the assessee could be rejected under the proviso to section 13 of the Income-tax Act and an assessment made therein. In any case it was argued that the question whether the proviso to section 13 applied to the facts of the present case was a question of law which did arise out of the order of the Tribunal. Likewise, the question whether there was any material or evidence before the Tribunal to sustain the addition of Rs. 6,000 in round figures in respect of Srinagar contract was a question of law which ought to have been referred to this court.

8. It seems to us that the principles of law laid down in the above-mentioned decisions have no application to the facts of the present case. In the case of Gunda Subbayya3, the question before the Full Bench of the Madras High Court was whether in a case where there was evidence on which the Income-tax Officer could base a finding that the assessee's books were unreliable and consequently rejected them and the assessee failed to produce other evidence, it was open to the Income-tax Officer to assess under section 23(3) of the Act to the best of his judgment. Learned judges held that, although the words “to the best of his judgment” are used only in sub-section (4), the only difference between an assessment under subsection (3) in a case like the one before them and an assessment under subsection (4) was that the Act contemplated a more summary method when the Income-tax Officer was acting under sub-section (4) and this was by reason of the deliberate default of the assessee.

9. According to the learned judges, the interpretation to be placed on sub-section (3) was to be gathered from the judgment of the Privy Council in the case of Commissioner of Income-tax v. Maharajadhiraj of Darbhanga [1933] 1 I.T.R 94 P.C., and observed:

“In that case the assessee stated that he had an income of Rs. 4,364 from a certain source. The Income-tax Officer did not accept this figure, and passed an order assessing him on an income from this particular source of Rs. 1,04,364. In due course the Commissioner of Income-tax referred the following question to the Patna High Court for its decision:

‘Whether the assessing officer was right in making an estimate of Rs. 1,04,364 under this head as he has done?’

The High Court answered this question in the affirmative and Terrell C.J, in the course of his judgment, observed: ‘Learned counsel for the assessee has argued that the officer is not entitled to make a guess without evidence and I agree with that contention, but in this case the state of affairs in the previous years, coupled with the fact that the assessee had a large mortgage loan business and must have enforced mortgages by sale on many occasions, afford ample material for the assessment made’. The other judges concurred and the Privy Council also agreed ‘adding only that, if the assessee wished to displace the taxing officer's estimate, it was open to him to adduce evidence of all his purchase transactions during the year and of the financial results thereof, which he apparently made no attempt to do.’ The Income-tax Officer had assessed the assessee to the best of his judgment on the material before him and the material was sufficient for the purpose.”

10. In the present case there was material before the Tribunal on which its finding could be based: the assessee's representative had admitted before the Appellate Assistant Commissioner that full quantitative details in respect of the stores of the value of Rs. 1,30,000 consumed in the execution of the Srinagar contract might not be available. In the circumstances, recourse to estimating the profits on the contract was inevitable. He, therefore, made an addition of Rs. 10,000 as against Rs. 26,434 added by the Income-tax Officer. If the assessee wished to displace the Appellate Assistant Commissioner's estimate it was open to him to adduce evidence in support of its claim that the consumption of stores of the value of Rs. 1,30,000 was fully justified. This the assessee apparently did not do. For the subsequent year 1960-61 the assessee itself declared a net profit rate of 9.9% as against 9% declared in the assessment year in question. It cannot be disputed that this was additional material which the Tribunal could take into consideration as it did. There was thus material before the Tribunal on which its estimate of Rs. 6,000 was based. The Tribunal's decision is, therefore, in conformity with the decision in the case of Commissioner of Income-tax v. Maharajadhiraj of Darbhanga.

11. The judgment of the Supreme Court in Dhakeswari Cotton Mills case in no way supports the argument of the learned counsel. Their???ordships in that case approved the rule of law laid down by a Full Bench of the Lahore High Court in Seth Gurmukh Singh v. Commissioner of Income-tax. What was said in that case was that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee when he considered that evidence to be false, yet if he proposed to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he was going to base his estimate and that in case he proposed to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information which he proposed to utilize so as to enable the assessee to meet the case against him and that he should also give the assessee an opportunity to meet the same.

12. It is apparent that no such question arises in the case before us.

13. The facts in the case of S. Veeriah Reddiar v. Commissioner of Income-tax, before the High Court of Kerala, were also different. The assessee in that case had been regularly employing a method of accounting. The department had also accepted the figures in his books relating to the opening stock and purchases and sales during the accounting year. Although the assessee had not maintained a stock register, he had produced an inventory showing the quantities of the closing stock and their value. His books were however rejected by the Income-tax Officer on the ground that the assessee did not maintain a variety-wise stock register and the percentage of profits disclosed by the books was very low. An addition of Rs. 76,478 was, therefore, made to the profits disclosed in regard to a certain category of goods, but the profits shown in the rest of the trading were accepted. On appeal the Appellate Assistant Commissioner reduced the addition to Rs. 40,909 and on further appeal the Tribunal affirmed the decision of the Appellate Assistant Commissioner on the ground that the assessee had not proved that the additions were by any means excessive or unreasonable.

14. There is not even the remotest resemblance between the facts of that case and the facts of the case before us.

15. Mr. Bajaj finally referred to two decisions of this court. The case of R.S Chiranji Lal and Sons v. Commissioner of Income-tax (I.T.R No. 17D of 1966, decided on April 6, 1967, has been rightly distinguished by the Tribunal as the addition of Rs. 50,000 which was sustained by the Tribunal in that case was based on a pure guess as to how much material had found its way to the black market. The addition made in the present case is not made on any such guess.

16. The case of C. Lyall & Company v. Commissioner of Income-tax (I.T.C No. 10 of 1967), in which the assessee's application for mandamus under section 66(2) was allowed on July 23, 1968, and to which one of us was a party, is also wholly distinguishable. The Income-tax Officer had in that case estimated the assessee's profits on applying a flat rate of 26% on the net payment of Rs. 17,02,824 received by the company and thereby added Rs. 1,36,410 to the gross profits of Rs. 3,06,324 disclosed by the assessee. The Appellate Assistant Commissioner and the Tribunal reduced the rates to 16.5% and 12½%, respectively. Resort to the proviso to section 13 was made in that case by the Income-tax Officer and the Appellate Assistant Commissioner and their action was upheld by the Tribunal, firstly, on the ground that the assessee had not produced the copy of the contract and the tender submitted by it on the basis of which its offer had been accepted by the M.E.S authorities, and, secondly, on the ground that the expenses on wages and cartage which came to substantial figures of Rs. 3,73,622 and Rs. 4,63,180 were held to be unverifiable. The assessee's application for making a reference under section 66(1) having been dismissed by the Tribunal on the ground that its decision merely raised a question of fact, this court differed from the Tribunal and directed the following questions to be referred to it:

“(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the proviso to section 13 of the Indian Income-tax Act, 1922, validly applied to the case?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified to apply a flat rate of 12½% on the total receipts (gross value of work) for estimating the net profits of the assessee?”

17. We do not think that that case can be treated as a parallel to the present case where, as we have already said, there was material before the Tribunal on which the estimate made by it could be founded.

18. The result is that the application fails and is dismissed with costs. Counsel's fee Rs. 150.

19. Petition dismissed.