TMI Blog1975 (4) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of the losses arising from the same transaction, is valid and justified in law ? " The facts are common to all the questions. Hindu Bank Karur Ltd. was carrying on banking business. We are concerned in this reference with the calendar year 1962, which is the previous year for the assessment year 1963-64. On 12th August, 1962, there was an agreement between the assessee-bank and the Canara Industrial and Banking Syndicate Ltd., hereinafter called the Syndicate Bank. The Syndicate Bank was to take over from the assessee-bank all its liabilities including contingent liabilities and account the entire assets except the surplus assets amounting to Rs. 3,59,010, such surplus assets being left with the assessee in cash. The liabilities were taken over at their face value. The assets like G. P. Notes and shares were taken over at the market value. The furniture, fixtures, stationery, etc., were taken over at reasonable market value. The other assets including loans and advances were taken over at a value mutually agreed upon after making necessary provisions for bad and doubtful debts. After making necessary provision for income-tax and such other contingent liabilities, there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in particular, the loss of Rs. 75,161, mentioned above. He held that the said loss had not arisen in the course of the banking business of the assessee and that it had arisen by the cessation of the said business. He, therefore, disallowed it as capital loss. The result was that even after making the adjustment to the returned income including the disallowance of the loss of Rs. 75,161, there was a net loss of Rs. 1,564. The Income-tax Officer declared the company as not liable to tax. Since the business had been stopped on 26th August, 1962, he held that the loss would lapse. The assessee did not take any proceeding to contest the assessment so made, obviously because the result was only a loss and any appeal regarding the said disallowance of Rs. 75,161 was not likely to make any impact financially. The Commissioner of Income-tax went through this order of the Income-tax Officer and he was of the view that the Income-tax Officer had not considered the profit chargeable under section 41(2) of the Income-tax Act in respect of the furniture and fixtures transferred to the Syndicate Bank. As the order of the Income-tax Officer was, thus, in his view, erroneous in law and prejudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to Rs. 53,779 and held that the assessee's claim that no particular price or consideration was attributable to the transfer of the furniture and fixtures was not correct. On the question as to whether the assessee was eligible for the adjustment of the loss of Rs. 75,161 the Tribunal held that the assessee had accepted the Income-tax Officer's finding regarding the loss of Rs. 75,161 and could not now question the said finding. It held also that the Commissioner in the proceedings under section 263 could only seek to set right or remove the prejudice caused to the revenue and that the matters concluded by the Income-tax Officer in his assessment order to the prejudice of the assessee could not be considered in the proceedings under section 263 of the Act. The result was that the Commissioner's order was confirmed. It was on the above facts that the three questions already set out have been referred to this court. The first question raises the point as to whether the assessment of Rs. 25,045 as upheld by the Tribunal under section 41(2) of the Act was valid in law. Section 41(2) in so far as it is material runs as follows : " Where any...... furniture which is owned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten down value of the furniture contemplated by section 41(2) of the Act, and was rightly brought to tax under section 41(2) of the Act. We now turn to question No. 2. The point raised in this question is whether there was any prejudice to the interest of the revenue in the instant case to justify the interference under section 263 of the Income-tax Act. Section 263 runs as follows : " 263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, be may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. " The predecessor of this provision in the Indian Income-tax Act of 1922 was section 33B. In the case of an assessment, the assessee alone has a right of appeal before the Appellate Assistant Commissioner. Where there is any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d made investment thereof and had earned income therefrom. She claimed to have invested the amounts available with her with another firm. The Income-tax Officer substantially accepted the returns after making some modifications to the income returned. For the assessment year 1960-61, the return was filed on 20th July, 1960. The Income-tax Officer made an assessment on 10th July, 1961. The assessee had claimed she had income from speculation and interest on investment. The Income-tax Officer had not investigated into the source, but assessed her on the income. The Commissioner took proceedings under section 33B and held that the Income-tax Officer, who made the assessments, had no jurisdiction over the assessee, that he was not justified in accepting the claim of initial capital without any evidence being placed on record and that he was not justified in accepting the cases of speculation without any evidence. For the assessment years 1955-56 to 1959-60, the proceedings under section 33B had become time-barred. He, therefore, cancelled the assessment only for 1960-61 and directed the Income-tax Officer to make a fresh assessment. The Tribunal held on appeal against the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. The point raised by the learned counsel for the assessee is that section 263, which we have already extracted, enables the Commissioner to call for and examine the records of any proceeding and if he considered that any order passed by the Income-tax Officer was erroneous in so far as it was prejudicial to the interests of the revenue, then he could, after giving the assessee the necessary opportunity, pass such order on the assessment as the circumstances of the case justified. The submission was that the entire assessment was open before the Commissioner of Income-tax when he invoked section 263. For the revenue the submission was that the Commissioner had no doubt to go through the order passed by the Income-tax Officer, but he had to go through the order for the purpose of section 263 of the Act only to find out whether there was any error which was prejudicial to the interests of the revenue. If there was any other error, then in the submission of the learned counsel for the revenue, the matter had to be agitated by the assessee under a different proceeding. The real point is whether in the proceedings taken by the Commissioner to set right the errors in so fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been assessed on an amount or to a sum not lower than what he would rightly be liable for even if the income alleged to have escaped assessment had been taken into account. Thus, the rigour of the principle that the assessment as a whole is not open for reconsideration was relaxed in favour of the assessee under section 152(2). Even that provision is not available in cases were section 147(a) is invoked. If Parliament was so minded, it would have enacted a similar provision in section 263 on the same lines as section 152(2) of the Act. As this has not been done, we are unable to accept the claim of the assessee that he could resist the proceedings under section 263 of the Act by seeking to show that there was some other benefit in favour of the revenue which was prejudicial to the assessee. The words erroneous in so far as it was prejudicial to the interests of the revenue have to be taken together. It is not any error that the Commissioner can rectify under section 263. His power is restricted to the errors in so far as they are prejudicial to the interests of the revenue. If there was any other error, it was necessary for the assessee to take up other proceeding. Any other cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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