- (1.) The respondent-assessee was a registered firm engaged in the business of sale of scrap of ship materials. The firm was constituted with two partners, i.e., mother and son. During the period under consideration, the firm was dissolved on 01.02.1993 on account of the death of one of the partners. At the time of dissolution, the firm had valued the closing stock at cost price. The respondent-assessee filed return of income showing total income of Rs.16,41,760/- for assessment year 1993-1994. The relevant previous year is financial year 1992-1993. On this return, the assessment order was passed by the Assessing Officer on 24.02.1995 under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'Act') accepting the method of valuation adopted by the respondent-assessee. Subsequently, the Commissioner of Income Tax (CIT) in exercise of his revisional jurisdiction under section 263 of the Act issued show cause notice dated 27.02.1997 and directed the Assessing Officer to value the closing stock at the time of dissolution at the market price. He further observed in his order that the Assessing Officer had erred while passing the assessment order for the year 1993-1994. According to him, during the accounting year under consideration, the firm was dissolved, and therefore, the closing stock was to be valued at market rate in view of the decision of this Court in the case of 'A.L.A. Firm v. Commissioner of Income Tax [(1991) 189 ITR 285]. So, he added the average gross profit of 15 per cent to the disclosed value of the closing of Rs.12 crores and the same resulted in addition of Rs.1,82 crores.
(2.) The respondent-assessee questioned the validity of the order passed under Section 263 of the Act taking the plea that revisional jurisdiction could not be exercised in this manner. However, the CIT rejected the contention of the assessee and set aside the assessment order with a direction to the Assessing Officer to pass fresh order in accordance with the direction given in the order passed by CIT. This order of CIT is dated 20.03.1997. The assessee challenged the said order dated 20.03.1997 by filing appeal before the Income Tax Appellate Tribunal (ITAT). ITAT dismissed the appeal on 28.04.2000. This order of ITAT was challenged before the High Court in the form of statutory appeal under Section 260A of the Act. The High Court has accepted the contention of the assessee and, thereby, set aside the revisional order dated 20.03.1997 passed by CIT. Against this order, the instant appeal arises.
(3.) We have heard learned counsel for the parties. Though detailed submissions are made, it is sufficient to note that learned counsel for the Revenue has basically rested his arguments adopting the reasons given by the ITAT whereas learned counsel for the assessee submitted that having regard to the discussion contained in the judgment of the High Court, the same should be upheld.;