Accounting year and profit estimation in contract business depend on actual accounts and record-based factual support.

The note states that, for the relevant assessment year, the ordinary previous year under section 2(11)(i)(a) of the Income-tax Act, 1922, is the financial year ending on 31 March unless the assessee's accounts are actually made up for a different period; where contract accounts were closed only on completion of work, an alternative accounting year could not govern the assessment period. It also records that a challenge to estimating profit on the gross contract amount, rather than on the net amount after materials supplied by the Government, required supporting facts and evidence in the record; absent that foundation, the profit-rate method of assessment was not disturbed.

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Issues: (i) Whether, on the facts and in the circumstances of the case, the previous year for the assessment year 1959-60 in respect of the contract business was correctly taken as the year ending on 31 March 1959; (ii) Whether estimation of profit on the gross amount, instead of on the net amount received after deduction of the cost of materials supplied by the Government, was justified in law.

Issue (i): Whether, on the facts and in the circumstances of the case, the previous year for the assessment year 1959-60 in respect of the contract business was correctly taken as the year ending on 31 March 1959.

Analysis: Under section 2(11)(i)(a) of the Income-tax Act, 1922, the ordinary previous year is the financial year ending on 31 March, and a different period can be adopted only where the accounts are made up for that period. The accounts relating to the contract business were not made up periodically for the longer period relied upon, but were closed only on completion of the contracts. In those circumstances, the earlier adoption of another accounting period could not control the correct statutory position.

Conclusion: The issue was answered in the affirmative and against the assessee.

Issue (ii): Whether estimation of profit on the gross amount, instead of on the net amount received after deduction of the cost of materials supplied by the Government, was justified in law.

Analysis: The contention was not raised before the Tribunal, no evidence was adduced to support it, and the statement of the case did not contain the necessary factual foundation. On the materials available, the assessment proceeded on a profit-rate basis, and there was no basis to interfere with that method of estimation.

Conclusion: The issue was answered in the affirmative and against the assessee.

Final Conclusion: Both questions were decided in favour of the department, and the income-tax references were answered accordingly.

Ratio Decidendi: A different accounting period for the previous year can be adopted only when the assessee's accounts are actually made up for that period, and a challenge to the basis of profit estimation cannot be entertained without a factual foundation in the record.

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