Ajit K. Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court for the assessment year 1972-73 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Commissioner of Income-tax had not lost jurisdiction to initiate proceedings under Section 263 of the Income-tax Act, 1961 ?"
(2.) Shortly stated, the facts are that aggrieved by certain disallowances made by the Income-tax Officer in the assessment for the year under reference made on March 15, 1975, the assessee had preferred an appeal before the Appellate Assistant Commissioner and challenged the disallowance of Rs. 15,493 out of general charges account, Rs. 11,778 claimed as bad debt and Rs. 28,214 under Section 40(c) of the Act. The Appellate Assistant Commissioner, in his order dated July 30, 1976, upheld the action of the Income-tax Officer in respect of the first two items and, accepting the assessee's submissions, deleted Rs. 28,214 from the total income of the assessee.
(3.) On a scrutiny of the income-tax records, the Commissioner of Income-tax observed that (1) the Income-tax Officer had not included Rs. 68,386 in the total income of the assessee, representing the profit under Section 41(2) of the Act in respect of the house property situated at 8, Old Court House Street, Calcutta, which was sold by the assessee in the relevant accounting year, (ii) the capita! gains that arose to the assessee in respect of the said house property was Rs. 3,29,788 and not Rs. 3,00,000 as worked out by the Income-tax Officer, and (iii) the Income-tax Officer had wrongly allowed deduction of Rs. 1,200 per annum being entertainment allowance paid to each of the three directors of the assessee which should have been disallowed under Section 37(2B) of the Act. He, therefore, concluded that the order passed by the Income-tax Officer on March 15, 19713, was erroneous and prejudicial to the interests of the Revenue. Under the circumstances, on February 22, 1977, the Commissioner of Income tax issued a notice under Section 263 of the Act on the assessee calling upon it to show cause why a suitable order under that section should not be passed.;