1. Following question of law has been referred for opinion of this Court by the Tribunal, Chandigarh Bench, Chandigarh, arising out of its order dt. 8th April, 1983 in ITA No. 1076/Asr/1979, in respect of asst. yr. 1975-76:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in annulling the order passed by the CIT u/s 263 of the IT Act, 1961

2. Facts noticed by the Tribunal in the statement of case are that:

The assessee held certain machinery and was in possession of a permit obtained from the Textile Commr. for the working of 1200 spindles for the manufacture of woollen worsted yarn. The said 1200 spindles were a part of the machinery to be sold vide an agreement dt. 26th July, 1974. The assessee sold some machinery which was detailed in Annex. A with the said agreement, besides also sold the permit in respect of 1200 spindles. The agreement as per which the said machinery and permit were sold, finds place in para 2 of the Tribunals order. In the course of filing the return, the assessee worked out the profit u/s 41(2) amounting to Rs. 51,067 and capital gains amounting to Rs. 55,006 subject to statutory deduction and returned the same in its total income. Besides in Part III of the return, the assessee had shown a sum of Rs. 1 lakh on account of sale of permit from the Textile Commr. in respect of 1200 spindles and marked the same as the amount receivable on account of goodwill. The ITO accepted the return filed by the assessee with the following observations in the relevant assessment order pertaining to profit u/s 41(2) and capital gain in respect of sale of part of machinery:

...During the relevant previous year, the assessee-firm sold a part of the machinery and thereon earned profit u/s 41(2) as well as capital gains. After examining the accounts and discussion with the assessee, net income is assessed at Rs. 99,000.

The amount of Rs. 98,380 returned by the assessee included the computation of profit u/s 41(2) and capital gains on sale of machinery. The CIT on the strength of the audit note and basis of proforma for proposal u/s 263 made by theO, extracted and placed in para 8 of the Tribunals order with Section 263(1) about the same, initiated proceedings.

When this action of the CIT came to be disputed by the assessee before the Tribunal, the Tribunal placed in its order the agreement, the fact that the assessee had disclosed in Part III of its return sale of spindles and amount of goodwill earned thereon and Section 63(1)(sic) and also the proforma and held that the CIT was in error while assuming jurisdiction u/s 263 on the type of objection made by the audit and, therefore, annulled the said order u/s 263 in the light of the detailed discussion available in the Tribunals order.

3. We have heard learned Counsel for the parties and perused the record.

4. Learned Counsel for the Revenue submitted that invocation of jurisdiction u/s 263 of the IT Act, 1961 (for short, the) was justified as consideration for the machinery sold was Rs. 3,50,000 and not Rs. 2,50,000. It was submitted that in the agreement, it was nowhere specified that a sum of Rs. 1 lac was consideration for the permit for 1200 spindles.

5. On the other hand, learned Counsel for the assessee submitted that as per statement of case itself, the assessee had sold the permit in respect of 1200 spindles also and in Part III of the return, a sum of Rs. 1 lac was shown as sale of permit.

6. Learned Counsel for the assessee submitted that jurisdiction u/s 263 of the could not be exercised by the CIT, as rightly held by the Tribunal. It was submitted that the order of the AO could not be held to be erroneous or prejudicial to the interest of the Revenue. Reliance has been placed on judgments in Jeewanlal (1929) Ltd. Vs. Additional Commissioner of Income Tax and Others, , to submit that CIT can exercise power u/s 263 of the only on application of his own mind and not merely on a note of an audit party; Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, , to submit that opinion of internal audit party on point of law did not constitute information for purposes of Section 147(b) of the; Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, to submit that transfer of goodwill does not give rise to a capital gain; Commissioner of Income Tax Vs. New Suraj Transport Corporation (P.) Ltd., to submit that route permit was a self-generating asset and consideration for its transfer was not assessable as capital gains; Commissioner of Income Tax Vs. V. Prakashan, to the same effect and Raylon Silk Mills Vs. Commissioner of Income Tax, to submit that self-generated goodwill did not attract capital gains.

7. A reference to the provisions of Section 263 of theshows that jurisdiction thereunder can be exercised if the CIT finds that the order of the AO was erroneous and prejudicial to the interest of Revenue. Mere audit objection and merely because a different view could be taken, were not enough to say that the order of the AO was erroneous or prejudicial to the interest of the Revenue. The jurisdiction could be exercised if the CIT was satisfied that the basis for exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the CIT for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation.

8. In the present case, the Tribunal has held that the assessee had disclosed that out of sale consideration, a sum of Rs. 1 lac was to be received for sale of permit. If that is so, there was no error in the view taken by the AO and no case was made out for invoking jurisdiction u/s 263 of the.

9. In view of the above, the question referred is answered against the Revenue and in favour of the assessee.

Reference is disposed of accordingly.