- (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following two questions of law under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act", for opinion to this court : "1. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in upholding the order passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961, dated March 16, 1985, treating the Income-tax Officer's order as erroneous and prejudicial to the interests of the Revenue ? 2. Whether the Appellate Tribunal was justified to hold that the Commissioner of Income-tax acted within his power to initiate proceedings under Section 263 of the Income-tax Act ?"
(2.) The reference relates to the assessment year 1981-82.
(3.) Briefly stated the facts giving rise to the present reference are as follows : The applicant is a registered firm. The assessment was completed by the Income-tax Officer on March 19, 1983, under Section 143(3) of the Act. Subsequently, it was found by the internal audit party that the accounts of two partners, namely, Shri Kashi Nath and Shri Krishna Gopal, as appearing in the books of the applicant firm were debited on March 22, 1980, with the help of transfer entries by Rs. 80,000 and Rs. 1,75,000, respectively, by crediting a sum of Rs. 2,55,000 to the account of M/s, M. M. Enterprises, a sister concern of the applicant firm, whose partners are close relatives of Shri Kashi Nath and Shri Krishna Gopal. Acting on the basis of the said report of the internal audit party the Commissioner of Income-tax examined the records and after coming to the conclusion that the assessment order was erroneous and also prejudicial to the interests of the Revenue initiated proceedings under Section 263 of the Act. After giving opportunity of hearing to the applicant and taking into consideration the submission made therein the Commissioner of Income-tax had set aside the assessment order and had directed the interest of Rs. 37,750 allowed to M/s. M.M. Enterprises in a sum of Rs. 2,55,000 as not allowable. He directed the Income-tax Officer to recompute the income of the applicant by disallowing a sum of Rs. 37,750. The order of the Commissioner of Income-tax was upheld by the Tribunal.;