K.RAVIRAJA PANDIAN,J. - (1.)THE question referred to us is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the order under Section 263 passed by the CIT?' The assessment year is 1986 -87.

(2.)IN respect of the assessment proceedings for the above assessment year, the assessee declared the cost of construction of a cinema theatre viz., 'Mahalakshmi Palace' at Rs. 10,53,000. The value declared by the assessee was based on the registered valuer's report. The AO accepted the value of the theatre as declared by the assessee and completed the assessment. Later on, the CIT on the premise that on enquiry he came to know that the assessee had availed a loan of Rs. 47 lakhs from Jayalakshmi Leasing Company declaring the value of the theatre at Rs. 27,40,000, after giving the assessee an opportunity of being heard, set aside the order of assessment and directed the AO to make fresh assessment after verification and enquiry. The assessee questioned the order of the CIT in appeal before the Tribunal by contending that the invocation of the provision under Section 263 of the Act by the CIT is not sustainable in law, since there was no information relating to any proceedings under the IT Act available before the AO which show that the assessment as framed was erroneous and prejudicial to the Revenue.
It was also contended that raising of the loan by the assessee from Jayalakshmi Leasing Company was not part of the proceedings under the IT Act and the same is extraneous to the assessment proceedings. Hence, the invocation of the power under Section 263 of the Act is bad in law.

(3.)THE Tribunal after considering the issue accepted the contention of the assessee and set aside the order of the CIT. Hence, the reference as stated above.