Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1963-64, the following questions of law have been referred to this court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the action of the Income-tax Officer in initiating proceedings under Section 147(a) of the Income-tax Act, 1961, for the assessment year 1963-64 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the addition of the sum of Rs. 77,786 made by the Income-tax Officer as income of the assessee under the head 'Other sources' for the assessment year 1963-64 ?" Shortly stated, the facts are that the assessee-company started construction of a building in the accounting year 1960-61 and the construction was completed in the accounting year ending on March 31, 1966. The total cost incurred by the assessee on the construction of the building was considered during the assessment year 1966-67 and the Income-tax Officer was of the opinion that the cost disclosed by the assessee was lower than the cost actually incurred. Accordingly, the Income-tax Officer made an addition of Rs. 6,03,962 and the same was confirmed in appeal by the Commissioner of Income-tax (Appeals).
(2.) Against the aforesaid order of the Commissioner of Income-tax (Appeals) for the assessment year 1966-67, the assessee came up in appeal before the Tribunal and made two submissions. The first submission was that the cost shown by the assessee-company was reasonable. The second argument of the assessee was that the total addition could not be made in the assessment year 1966-67 and that the addition should be spread over the years during which the construction took place. The first objection of the assessee was negatived by the Tribunal. However, the Tribunal accepted the second argument and maintained an addition of Rs. 70,231 for the assessment year 1966-67. The Tribunal also directed that proportionate addition should be made in respect of other years.
(3.) The Tribunal recorded as follows : "The next question that has been raised on behalf of the assessee is that the construction was spread over a number of years and in this year only a sum of Rs. 2,63,200 in all had been spent. The remaining amount had been spent in the assessment years 1961-62, 1962-63, 1963-64, 1964-65 and 1965-66. That being the position, the entire amount which, according to the authorities below, came to Rs. 6,03,962 and according to our order above would now amount to Rs. 6,03,962 cannot be added in this one year because it certainly was not an investment made in this year. This is a very pertinent question raised on behalf of the assessee and the only answer given by the Departmental representative was that this question had not been raised either before the Income-tax Officer or before the Appellate Assistant Commissioner or before the Tribunal by a specific ground of appeal, That, indeed, appears to be true but the fact being on record we cannot close our eyes to the errors committed by the authorities below in assessing the entire amount in one year although it had to be assessed in all the years on a pro rata basis. The statement on page 1 of the paper book submitted by the assessee showed that there were only preliminary expenses of a minor nature in 1961-62 and 1967-68. The construction started in full swing in 1963-64 when an investment of Rs. 2,91,551 was made. In the assessment year 1964-65, the investment was Rs. 12,03,428 and in 1965-66, it was Rs. 4,86,414. The year before us. that is, 1963-64, was the first year of the construction although minor works went on up to 1975 but we are not concerned with those years. In the assessment year before us, there was only an expenditure of about Rs. 75,000 on construction and the remaining expenditure was on electric installation, transformer and tubewells. The total expenditure in this assessment year was a sum of Rs. 2,65,200 only. The expenditure under all these years according to the books of account of the assessee came to Rs. 27,63,702 which has been estimated by us to be Rs. 28,67,664. The investment in this year being only Rs. 2,63,200, the unexplained investment in this year can only be on a pro rata basis, i.e., a sum of Rs. 70,231. By no logic can the Department add the entire amount invested by the asses see-company for a period of five previous years, in the last year when only a minor part of the investment was made. For the remaining unexplained investment, the Department will have to seek its remedy in the earlier years if it is available to it but so far as the year before us is concerned, we cannot uphold the entire unexplained investment in this year. We, accordingly, accept the assessee's contention and reduce the addition to Rs. 70,231 only. The assessee shall get the remaining relief." The Income-tax Officer, in the light of the above direction, took action under Section 147(a) of the Act and issued a notice to the assessee under Section 148. The return filed by the assessee showed an income of Rs. 51,450. The Income-tax Officer, after discussing the facts in the assessment year 1966-67 and the order of the Tribunal for that year, came to the conclusion that the assessee did not disclose fully and truly all material facts in the assessment year 1963-64 and resting upon the finding of the Tribunal, made an addition of Rs. 77,786 as income from other sources, for the cost of construction.;