JUDGMENT

RANGANATHAN, J. - This is the assessees appeal from a judgment of the Madras High Court dated January 10, 1975 answering three questions referred to it by the Income Tax Appellate Tribunal in favour of the revenue and against the assessee. The reference related to the assessment year 1961-62, the previous year in respect of which commenced on April 13, 1960. The judgment of the High Court is reported as A. L. A. Firm v. CIT ((1976) 102 ITR 622 (Mad)).

2. The appellant-assessee is a partnership firm. Since 1949, it was carrying on, in Malaya, a moneylending business and, as part of and incidental to the said business, a business in the purchase and sale of house properties, gardens and estates. It had been reconstituted under a deed dated March 26, 1960. The firms accounts for the year 1960-61, which commenced on April 13, 1960, would normally have come to a close on or about April 13, 1961. However, the firm closed its accounts as on March 13, 1961 with effect from which date it was dissolved. Along with its income tax return for the assessment year 1961-62 filed on April 10, 1962, the assessee filed a profit and loss account and certain other statements. In the profit and loss account, a sum of $ 1,01,248 was shown as "difference on revaluation of estates, gardens and house properties" on the dissolution of the firm on March 13, 1961, such difference being $ 70,500 in respect of "house properties" and $ 30,748 in respect of estates and gardens. In the memo of adjustment for income tax purposes, however, the above sum was deducted on the ground that it was not assessable either as revenue or capital. A statement was also made before the officer that partner Ramanathan Chettiar, forming one group and the other partners forming another group, were carrying on business separately with the assets and liabilities that fell to their shares on the dissolution of the firm.

3. The Income Tax Officer (ITO) issued a notice under Section 23(2) on the same day (April 10, 1962) posting the hearing for the same day and completed the assessment also on the same day, after making a petty addition of Rs. 2083 paid as property tax in Malaya, and recording the following note :

"Audit assessment - Lakshmanan appears - return filed - I.T. 86 acknowledged in list of books - scrutinised - order dictated."

4. For the subsequent assessment year 1962-63, the assessee filed a return showing nil income along with a letter pointing out that the firm had been dissolved on March 13, 1961. Thereafter, on September 8, 1963, the ITO wrote a letter to the assessee to the effect that the revaluation difference of $ 1,01,248 should have been brought to tax in the assessment year 1961-62 in view of the decision of the Madras High Court in G. R. Ramachari & Co. v. CIT ((1961) 41 ITR 142 (Mad)). He called for the basis for the valuation and also for the assessees objections. The assessee sent a reply stating that no profit or loss could be assessed on a revaluation of assets. Relying on a circular of the Central Board of Revenue dated June 21, 1956, it was urged that the assessee was gradually winding up its business in Malaya and that, therefore, the surplus would only be capital gains. It was urged that the revaluation had been at a market price prevalent since January 1, 1954 and that, therefore, no capital gains were chargeable to tax. The ITO followed up his letter by a notice under Section 148 read with Section 147(b). The assessee objected to the reassessment on two grounds : (1) that the circumstances did not justify the initiation of proceedings under Section 147(b); and (2) that no assessable profits arose to the firm on the revaluation of assets on the eve of the dissolution of the firm. Overruling these objections, the ITO completed a reassessment on the firm after adding back the sum of Rs. 1,58,057 (the equivalent of $ 1,01,248) to the previously assessed income. The assessees successive appeals to the Appellate Assistant Commissioner and the A