1981 (11) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order without following the procedure u/s 144B.
2. Computation of capital loss and its set-off against future capital gains.
3. Justification of the CIT's order u/s 263 of the I.T. Act, 1961.

Summary:

Issue 1: Validity of the Assessment Order without Following Procedure u/s 144B
The Tribunal held that the assessment order passed by the ITO without following the procedure u/s 144B was erroneous and prejudicial to the interests of the Revenue, thus giving rise to the jurisdiction of the Commissioner of Income-tax u/s 263 of the I.T. Act, 1961. However, the High Court disagreed, stating that non-compliance with s. 144B is a procedural irregularity and not a jurisdictional error. The Court emphasized that the error must be prejudicial to the interests of the Revenue, which was not the case here as the assessment was higher than the returned income. Therefore, the Tribunal was not right in holding that the order was prejudicial to the interests of the Revenue.

Issue 2: Computation of Capital Loss and Set-off Against Future Capital Gains
The ITO computed a capital loss and directed it to be set off against future capital gains. The Commissioner argued that there was no transfer of capital assets, thus no capital loss. The Tribunal noted the argument about the extended definition of "transfer" u/s 2(47) but did not conclusively determine whether the assessee's rights were extinguished. The High Court referred to the Supreme Court's decision in CIT v. R. M. Amin, which held that liquidation does not amount to a transfer of capital assets. Thus, the High Court concluded that the order of assessment computing the capital loss was erroneous and prejudicial to the interests of the Revenue, giving rise to the jurisdiction of the Commissioner.

Issue 3: Justification of the CIT's Order u/s 263
Since the High Court answered question No. 2 in favor of the Revenue, it also held that the Tribunal was right in maintaining the impugned order passed by the CIT u/s 263 of the I.T. Act, 1961. Therefore, question No. 3 was answered in the affirmative, in favor of the Revenue and against the assessee.

Conclusion:
The High Court concluded that the Tribunal erred in holding that the assessment order without following s. 144B was prejudicial to the interests of the Revenue. However, it upheld the Commissioner's jurisdiction u/s 263 regarding the computation of capital loss, as the liquidation did not constitute a transfer of capital assets. Consequently, the Tribunal's decision to maintain the CIT's order was justified.