SABYASACHI MUKHARJI, J.

( 1 ) IN the reference under Section 256 (2) of the I. T. Act, 1961, as directed by this court, the Tribunal has referred to this court the following questions :"1. Whether the Tribunal's finding of fact bearing on the question of penalty are perverse in that they are unsupported by and/or contrary to evidence ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order under Section 271 (1) (c) ?"

( 2 ) THIS reference relates to four years, viz. , assessment years 1966-67 to 1969-70. The assessee is a registered firm and is a manufacturer of machine parts, etc. The assessee also has and, at the relevant time, had income from house properties and other sources. According to the assessee, the assessee's accounts were accepted and acted upon by the revenue from year to year and the assessee further asserts that no serious challenge was ever made to their genuineness or that those were not kept regularly in the course of the assessee's business. The assessee started construction of a ten-storeyed building at No. 8/9, Bentinck Street, Calcutta, during the previous year relevant to the assessment year 1962-63. The cost of construction of the building up to 31st March, 1970, as appearing in the assessee's account books, was Rs. 14,14,410. The ITO, however, w'as of the view that the cost of construction was understated. He, therefore, made a reference regarding the cost of construction to the departmental valuer and in accordance with his estimate took the cost of construction of the building as Rs. 23,58,500. He considered it to be an unexplained cost of construction of the property for several years from juhdisclosed sources amounting to Rs. 1,60,002 for the assessment year 1966-67, Rs. 2,73,075 for the assessment year 1967-68, Rs. 1,46,490 for the assessment year 1968-69 and Rs. 1,34,412 for the assessment year 1969-70. These are the relevant asessment years.

( 3 ) BUT, in this connection, it has to be mentioned that in the assessment orders for the assessment years 1962-63 to 1965-66, the ITO had observed that "the assessee had failed to furnish the detailed extent of the construction work undertaken during the accounting period with particulars of the area constructed, with other necessary details and the nature of construction effected during the relevant accounting period so as to justify the investment shown or disclosed". The ITO further observed that "the expenses entered were in excess of supporting vouchers ". On the 15th March, 1970, in support of his contention, the assessee had submitted a report of the valuer, Sri B. K. Banerjee, dated March 15, 1970, in which he had estimated as the cost of construction up to the date, that is to say, March 15, 1970, at Rs. 15,97,346. According to the assessee's books of account up to 31st March, 1970, the cost of construction was Rs. 14,14,410 as mentioned hereinbefore. It is further stated that in-the accounts for the years ending March 31, 1971, and March 31, 1972, a further sum of Rs. 2,11,226 was incurred for completing the construction. Therefore, the total expenditure incurred, according to the assessee's books of account, was Rs. 16,25,636.

( 4 ) AS the ITO was not satisfied with the report of the valuation made by the assessee's valuer, there was a joint valuation some time in October, 1970, of the building by the departmental valuer, one Sri R. N. Roy Chowdhury, and another valuer appointed by the assessee, Sri S. R. Banerjee. According to the report of the valuer, Sri S. R. Banerjee, dated October 23, 1970, the cost of construction was Rs. 19,60,592. The estimate of Sri S. R. Banerjee was made on the basis of the West Bengal P. W. D. rates. On the 9th December, 1970, the departmental valuer, Sri R. N. Roy Chowdhury, submitted his report to the ITO and he valued the promises in question at Rs. 23,58,500. The estimate of Sri R. N. Roy Chowdhury was based on C. P. W. D. Schedule.

( 5 ) ON be

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