JUDGMENT :

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-