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Issues involved:
1. Assessment of firm's income and partners' income for the assessment year 1964-65. 2. Whether penalty proceedings should have been initiated under sections 273 and 271(1)(c) for partners. Assessment of firm's income and partners' income: The High Court of Delhi addressed the assessment of M/s. Precision Metal Works and its partners for the assessment year 1964-65. The Income-tax Officer had not added a sum of Rs. 40,750 to the firm's income, which was surrendered by the partners. Instead, the Officer added this amount to the personal income of each partner. The Additional Commissioner of Income-tax found the Officer's order prejudicial to revenue due to various reasons, including failure to invoke section 145 for black market transactions and not considering all deposits made by partners. Consequently, the order was set aside, and a fresh assessment was directed. However, the Tribunal concluded that the Officer had examined the cash credits and added back the unexplained amount to the partners' personal income. The Tribunal held that the sum should not be added to the firm's income as it had been accepted as the partners' income. The Court agreed, emphasizing that the sum should be taxed where it belonged, and not doing so would result in taxing the wrong person on the wrong amount. Therefore, the assessment on the firm was upheld, and the first question was answered in the negative. Penalty proceedings for partners: Regarding the initiation of penalty proceedings under sections 273 and 271(1)(c) for the partners, the Tribunal ruled that this matter fell outside the Commissioner's jurisdiction. Citing a previous court decision, it was established that the Commissioner cannot set aside an assessment order to direct penalty proceedings. Consequently, the second question was answered in favor of the assessee, and each party was left to bear their own costs in all three references.
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