G. C. BHARUKA, J.

( 1 ) ON an application made by the Commissioner of Income-tax under Section 256 (1) of the income-tax Act, 1961 (in short, "the Act"), the Tribunal has referred the following questions of law seeking opinion of this court :

" (i) Whether, on the facts and circumstances of the case, the Tribunal was right in setting aside the order of the Commissioner under Section 263 ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was nothing wrong in the asses-see valuing the closing stock at cost instead of at market price ? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that there was no transfer of capital assets of the firm to the partners even though the assessee-firm stood dissolved on December 18, 1987 ?"

( 2 ) IN order to answer the above questions of law, we need to narrate the relevant facts to the extent those are found necessary for the purpose. The present reference relates to the assessment year 1989-90.

( 3 ) SOME time in 1939, the late S. Raghuram Prabhu started the business of manufacturing beedies. Subsequently, his brother-in-law, Sri M

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