COMMISSIONER OF INCOME TAX Vs. SARA ENTERPRISES

JUDGEMENT

(1.) AT the instance of the Department, the Tribunal referred the following two questions, for the opinion of this Court, under s. 256(1) of the IT Act, 1961 :

(2.) THE assessee is a firm with five partners. THE assessment for the asst. yr. 1976-77 was completed by the ITO on 2nd November, 1977, under s. 143(3) of the IT Act, 1961. In the course of assessment proceedings, penal action under s. 271(1)(c) of the Act was initiated for the detailed reasons stated in the assessment order. THE ITO subsequently dropped the penalty proceedings on 22nd March, 1980, on the ground that the assessment was made on agreed basis and the assessee did not go on appeal against the assessment. THE CIT (Administration) scrutinised the records in the exercise of his powers vested in him under s. 263 of the IT Act, 1961. On his scrutiny, he found that the ITO had, without considering the various facts and circumstances of the case, which led to the initiation of the penal proceedings under s. 271(1)(c), dropped the same. He, therefore, felt that the order of the ITO in dropping the penalty proceedings was erroneous and prejudicial to the interests of the Revenue. Accordingly, the CIT initiated proceedings under s. 263 of the IT Act, 1961, and after hearing the assessee, set aside the order passed by the ITO and directed the latter to consider the case in the light of the observations made by him in his order and pass appropriate orders in accordance with law.

(3.) UNDER these circumstances, it is open to the assessee to contest the order passed by the CIT under s. 263 of the IT Act, on the merits, while the Tribunal proceeds to pass the consequential order in pursuance of the order passed by this Court in this tax case.