Srinivasa Iyengar, J.
1. These two references under section 256(2) of the Income tax Act, 1961 relate to the assessment year 1964-65 (accounting year ending 31st March, 1964). The first one arises out of the assessment proceedings for the said year and the other one in respect of a penalty imposed under section 271(1)(c) of the Income tax Act, 1961.
2. The facts lie within a narrow compass. The assessee is a contractor at Udipi. During the year of account he had taken up contracts which included the construction of hospital at Udipi and construction of roads. The Income-tax Officer dealt with these several contracts under three headings. The first one was with regard to the building of a hospital at Udipi and construction of a garage and certain other items. Items Nos. 2 and 3 related to the construction of roads. The assessee did not maintain any accounts. In regard to the contract of item No. 1, he disclosed profit of 8 per cent of the receipts on estimate. The Income tax offer was of opinion that the profit disclosed was low. He estimated the profit in respect of the building contract at 10 per cent. of the total receipts. This was made on the basis of an estimate as the assessee had not taken into account the cost of materials. So far as the road works were concerned, he was of opinion that the profit in respect of such contracts would be higher than in regard to a building contact. Accordingly, he estimated the profits at 12 1/2 per cent. in respect of such items in item No. 1 and at 12 per cent. in respect of other items comprised in items Nos. 2 and 3. The assessee went up in appeal against these assessments. The Appellate Assistant Commissioner confirmed the assessment as made by the Income-tax Officer. Feeling aggrieved by this the assessee went up in appeal to the Tribunal. The Tribunal after considering the entire facts reduced the addition in regard to item No. 1 to a sum of Rs. 3,000 only. In regard to the other two items of contracts the case of the assessee was that he had given them out on subcontracts and the profit derived by him was only three per cent. The Income-tax Officer did not accept this contention. He held that the so-called sub contractor were mere name lenders to the assessee and the entire profit has to be assessed in the hands of the assessee. The same view was uphold both by the Appellate Assistant Commissioner and the Tribunal. It, however gave a further relief in a sum of Rs. 1,500 in respect of these two contracts.
3. The question referred for the opinion of this court are three in number. They are :
'1. Whether, on the facts and in the circumstances of the case, the inclusion of any sum as profit on the estimated cost of materials supplied by P. W. D. to the assessee is right in la ?
2. Whether in estimating the assessee's profit at 10% in the case of one work and 12% in the case of another work, and in rejecting the assessee's estimate of 8% the Tribunal acted arbitrarily on mere conjectures, suspicions and surmises; and whether such an estimate is correct in la
3. Whether the inference drawn by the Tribunal that the income of the sub-contractors should be regarded as the income of the assessee is erroneous in law by reasons of misplacement of the burden of proof and whether such inference was justified in law on the admissible evidence on record ?'
4. The first two questions relate to the quantum of assessment in respect of contract No. 1 and the other one in regard to the contracts considered as items Nos. 2 and 3. The contention urged is that there is an error of law in estimating the cost of materials and including the same for purposes of estimating the profits. The other question really amounts to whether the estimate of profits as sustained by the Appellate Tribunal is justified. In our opinion, on the facts and circumstances of the case, on question of law as such arises in respect of the determination of the profits in the case on hand. Though the Income tax offer proceeded upon estimating the profits at particular rates, ultimately the Tribunal found that as the assess had not maintained any accounts and, therefore, necessarily an estimate of reasonable profits had to be made, and accordingly sustained an addition in part. The question as to whether an addition of the cost of materials in the computation of the profits (sic), therefore, becomes absolutely academic. The real question was whether the profit as disclosed by the assessee which was on estimate was justified or not and if it was justified, what was the reasonable profit that has to be computed. The Income-tax Officer in his order specifically refereed to the rate of profits adopted for the earlier year in regard to the construction of buildings which was at 10 per cent. It cannot at all be said that there was any error of law in this behalf. The point sought to be raised in regard to the inclusion of the cost of materials as already mentioned by us is academic.
5. So far as the road works were concerned, the materials involved would be quite small. It would virtually be a contract of labour. It is common knowledge that in such contracts the margin of profits is higher than in the case of building and other constructions. No error of law can be discerned in the action of the Tribunal in estimating the profits in respect of these several contracts.
6. The third question that has been raised is in regard to the alleged sub-contracts. The two alleged sub-contractors were examined before the Income-tax Officer. Their evidence disclosed that they were not men of means and that for the execution of these contracts the funds were actually supplied by the assessee and they entirely depended upon the funds supplied by the assessee. Their evidence also disclosed that they did not know the details of the contracts and the total receipts that they would have got. Even the returns filed by them were of a dubious nature. In these circumstances, we are unable to discern any error of law or any burden of proof having been cast wrongly. The finding was on a question of fact based on the evidence available on record. It cannot be said that there is any error of law committed in coming to the conclusion that the assessee was liable for the entire profits in respect of these two contracts which were alleged to have been given out on sub-contracts.
7. For the reason stated above, we answer the questions all follows :
In the view we have taken, it is not necessary to answer question No. 1. The second question is answered that the estimate of profits as sustained by the Tribunal was correct on the facts and circumstances of the case. The answer to question No. 3 is that the finding of the Tribunal that the sub-contracts were not proved to be genuine and the assessee was liable for the entire profits arising therefrom was correct. The question are answered accordingly.
8. We now come to the other reference in regard to the penalty. The question referred for the opinion of this court is as follows :
'Whether, on a proper construction of the provisions of section 271(1)(c) of the Income-tax Act, 1961, and in the circumstances of the case and the evidence on record, it could be held in law that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income ?'
9. The proceeding for imposition of penalty was initiated by the Income tax officer in view of his finding that the alleged sub-contracts were nominal and those alleged sub-contractors were only benamidars for the assessee and in view of the other additions that had been made by him in the computation of the income. The Appellate Assistant Commissioner agreed with him, though he reduced the quantum of penalty to be imposed. On a further appeal, the Tribunal was of the opinion that in regard to the additions made in respect of contract item No. 1 no penalty was exigible. But on the view that in regard to contracts Nos. 2 and 3 the assessee had put forth a false case, the Tribunal was of the opinion that penalty was exigible. In the light of the modifications that had been made in the computation of the total income, the Tribunal however sustained the penalty at a sum of Rs. 1,500 only. On the facts and circumstances of the case, in our opinion it cannot be said that there was any concealment of income as such by the assessee. His case was that in respect of these two contracts he had given then out on a sub-contract, but the total receipts had been disclosed. His contention was that he was entitled to only 3 per cent. Of the profits and the rest was to go to the two sub-contractors. That contention was not accepted by the authorities. Merely bon this account it cannot be said that he had concealed any income as such or furnished any inaccurate particulars of such income. All that can be said is that the assessee was unable to satisfactorily his plea that the sub-contracts were genuine and he was only entitled to a profit of three per cent. Because of the such a failure, it cannot be said that the assessee concealed any income as such or furnished inaccurate particulars thereof. We, therefore, answer the question referred that, in the circumstances of the case, it cannot be said that the assessee had concealed the particulars of his income or furnished inaccurate particulars thereof and, therefore, the imposition of penalty is not justified.
10. The parties shall bear their own costs in the two references.