Best judgment contract assessment includes supplied materials in total receipts; reassessment objection is not waived without clear abandonment.

An objection to reassessment under section 34(1) of the Income-tax Act, 1922 was not treated as waived because mere participation in assessment proceedings did not amount to clear abandonment. The reopening was justified where income had escaped assessment due to non-disclosure of the cost of materials supplied by the military authorities. In a best judgment assessment of contract receipts, profit could be estimated on the contract as a whole, so the value of stores supplied by the department had to be included before applying the flat rate, and the same rate was properly applied uniformly to that entire receipt base.

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Issues: (i) Whether the assessee had waived his objection to the validity of the notice issued under section 34(1) of the Income-tax Act, 1922; (ii) whether the case fell under section 34(1) of the Income-tax Act, 1922; (iii) whether the price of stores supplied by the military authorities was to be included before applying the flat rate to the assessee's receipts; and (iv) whether the same flat rate was rightly applied to the price of stores supplied by the department as to the assessee's other receipts.

Issue (i): Whether the assessee had waived his objection to the validity of the notice issued under section 34(1) of the Income-tax Act, 1922.

Analysis: The objection to the notice was not shown to have been waived. The mere conduct of the assessee in the assessment proceedings did not amount to an intentional abandonment of the challenge to the validity of the notice. On the Tribunal's own material, the objection remained available and could not be treated as given up.

Conclusion: The objection was not waived and the finding of waiver was against the assessee.

Issue (ii): Whether the case fell under section 34(1) of the Income-tax Act, 1922.

Analysis: The reassessment was founded on the omission to disclose the cost of materials supplied by the military authorities, which had escaped inclusion at the time of the original assessment. That omission brought the case within the reopening provision and justified action under section 34(1).

Conclusion: The case did fall under section 34(1), in favour of the revenue.

Issue (iii): Whether the price of stores supplied by the military authorities was to be included before applying the flat rate to the assessee's receipts.

Analysis: Where an assessee does not produce accounts and income is estimated on a best judgment basis, the taxing authority may estimate profits on the value of the contract as a whole. The contract could not be split by excluding the value of materials supplied under the arrangement, because the profit estimate was to be made on the total contract receipts.

Conclusion: The price of stores was includible before applying the flat rate, in favour of the revenue.

Issue (iv): Whether the same flat rate was rightly applied to the price of stores supplied by the department as to the assessee's other receipts.

Analysis: Since the assessment was made on the contract as a whole, the percentage of profit was properly applied uniformly to the entire amount, including the value of stores supplied by the department. No separate rate was warranted for that component of the contract.

Conclusion: The same flat rate was correctly applied, in favour of the revenue.

Final Conclusion: The reference was answered partly for the assessee and partly for the revenue, with the reopening objection succeeding but the substantive valuation and profit-rate questions decided against the assessee.

Ratio Decidendi: In a best judgment assessment of contract income, the profit rate may be applied to the contract as a whole, including the value of materials supplied under the contract, and waiver of a jurisdictional objection to reassessment cannot be presumed without clear abandonment.

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