Judgment :- K. A. THANIKKACHALAM, J. At the instance of the Department, the Tribunal has referred the following question for the opinion of this court under section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the Inspecting Assistant Commissioner had no jurisdiction to impose the penalty under section 271(1)(c) in this case and accordingly in canceling the penalty of Rs. 26, 404/51, 553 for the assessment year 1966-67/1971-72 ?" * The point for consideration is whether the Inspecting Assistant Commissioner had jurisdiction to impose penalty under section 271(1)(c) in this case for the assessment years 1966-67 and 1971-72. The Tribunal relying upon the decision of the Karnataka High Court in the case of R. Abdul Azeez v. CIT 1981 (128) ITR 547, 1981 (6) TAXMAN 33 held that there was no jurisdiction on the part of the Inspecting Assistant Commissioner after amendment to levy penalty under section 271(1)(c) of the Act in the present case especially after the amendment to section 274 of the Income-tax Act with effect from April 1, 1976, as per the Taxation Laws (Amendment) Act, 1975, which has taken away the jurisdiction of the Inspecting Assistant Commissioner. The decision of the Karnataka High Court was reversed by the Supreme Court in the case of CIT v. Smt. R. Sharadamma 1996 AIR(SC) 3199, 1996 (219) ITR 671, 1996 (3) Scale 343 B, 1996 (8) SCC 388 , 1996 (133) CTR 136, 1996 (85) TAXMAN 679, 1996 (4) JT 90 , 1996 (133) CTR(SC) 136 wherein it was held that : "Once the Inspecting Assistant Commissioner was thus seized of the matter, he did not lose season thereof on account of the deletion of sub-section (2) of section 274 by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. The Inspecting Assistant Commissioner did not lose the jurisdiction to continue with the proceedings pending before him on March 31, 1976. He was entitled to continue with those proceedings and Dass appropriate orders according to law." In the present case, the penalty had been levied on March 27, 1976, for the assessment years 1966-67 and 1971-72. The assessment was completed on March 26, 1976. Reference by the Income-tax Officer was made on March 26, 1976. He was entitled to continue with those proceedings and Dass appropriate orders according to law." In the present case, the penalty had been levied on March 27, 1976, for the assessment years 1966-67 and 1971-72. The assessment was completed on March 26, 1976. Reference by the Income-tax Officer was made on March 26, 1976. On these facts and in view of the decision of the Supreme Court cited supra the order passed by the Tribunal is unsustainable. Accordingly, we answer the question referred to us in the negative and in favour of the Department. Since the levy of penalty was not dealt with on the merits, the Tribunal is directed to dispose of the case on the merits in accordance with law and after giving opportunity of being heard to the parties concerned. No costs.