B.S. Dhillon, J.
1. This is a reference made by the Income-tax Appellate Tribunal under orders of this court. The assessee is a military contractor. During the accounting period relevant to the assessment year 1964-65, the assessee took three M.E.S. contracts. The ITO found that the expenditure of the assessee was not supported by vouchers and he detected some other mistakes also in the accounts. After applying the provisions of Section 145(1) of the I.T. Act (hereinafter called 'the Act'), the ITO assessed the profit from these contracts by applying a flat rate of 10% on the total receipts. The AAC allowed the appeal of the assessee and held that no rate of profit could be applied on the value of the stores supplied by the Government and this order was upheld by the Tribunal. The question of law referred at the instance of the Tribunal in accordance with the directions of this court is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the Appellate Assistant Commissioner that price of stores supplied by Government was not to be included while applying the flat rate to the assessee's contract receipts ?'
2. A Division Bench of this court in Brij Bhushan Lal v. CIT took the view that where the assessee does not produce his accounts to satisfy the ITO so as to enable him to assess actual profits or income earned by him from contracts and leaves it to the officer to determine the same on the basis of estimate, the percentage of profit, is not determined with reference to each item of the material involved in theperformance of the contract but on the amount of the whole contract which cannot be divided into different parts according to the nature and source of supply of the materials used for that purpose. This view has been followed in CIT v. Brij Bhushan Lal Ramesh Kumar and CIT v. K. S. Reddy : 103ITR822(AP) . The latter authority is that of the Andhra Pradesh High Court, which stands over-ruled by a Full Bench of the same High Court in Addl. CIT v. Trikamji Puma & Sons : 106ITR597(AP) .
3. On the other hand, we find that a contrary view has been taken in CIT v. K. S. Guruswami Gounder & K. S. Krishnaraju : 92ITR90(Mad) , M. P. Alexander & Co. v. CIT : 92ITR92(Ker) , Trilokchand Chunilal v. CIT : 104ITR732(Guj) , Addl. CIT v. Trikamji Punia & Sons : 106ITR597(AP) and CIT v. J. S. Serwarey . The main ground, on which the above mentioned authorities are based, is that the tax has to be levied on the income, which would, in turn, mean the profit. The value of the goods, which were supplied by the Government and for which an amount was deducted by the Government from the contract account, cannot form the basis of any profit. Therefore, the said value has to be deducted and no tax can be levied on the said amount. Mr. Gupta, the learned counsel for the assessee, contends that the view taken in Brij Bushan Lal's case and other decisions while following the said view is not the correct position in law. We are of the opinion that the matter requires reconsideration by a larger Bench. The papers may be placed before my Lord the Chief Justice for constituting a larger Bench.