TMI Blog1984 (11) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ins of Rs. 1,34,840 arising from the sale of long-term capital assets and that thereafter the balance of Rs. 79,291 of the said capital loss of Rs. 2,34,131 was to be set off against income coming under other heads of income? " The assessee is a company and the relevant assessment year is 1969-70. The original assessment was completed on March 31, 1971, on a total income of Rs. 7,38,030. The assessee had income from house property, business, other sources and capital gains. In the original assessment, in computing the capital gains, profits relating to capital assets other than short-term capital assets were computed at Rs. 1,34,840 and loss relating to short-term capital assets was arrived at Rs. 2,14,131 and, this apart, losses of Rs. 62,606 and Rs. 5,275 relating to the assessment years 1968-69 and 1969-70, respectively, on account of capital assets other than short-term capital assets were brought forward for consideration in the instant assessment year. Sum total of such brought forward losses amounted to Rs. 67,881 which the Income-tax Officer in the original assessment deducted from the gains relating to capital assets other than short-term capital assets of the instant ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. It was also contended that the loss relating to the loss other than short-term capital assets brought forward from the preceding years should be set off first against gains relating to assets other than short-term capital assets assessable for the year. The Appellate Assistant Commissioner rejected the contention of the assessee and held that the provisions of law in this regard are clear. Under section 70(2)(i), any loss arising from a transfer of a short-term capital asset may be set off and adjusted against income, if any, of the year from another short-term capital asset and/or a long-term capital asset. In his opinion, the Income-tax Officer was correct in law in setting off long-term capital gains of Rs. 1,34,840 against short-term capital loss of Rs. 2,14,131 and the balance of short-term capital loss of Rs. 79,291 set off under section 71(3) against income under other heads of Rs. 23,70,241. Thus the order of reassessment was confirmed and the appeal was dismissed. The assessee preferred an appeal before the Appellate Tribunal. It was contended that the Revenue Audit Party is not a higher authority, and their opinion based on facts already available on record at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act held that what the law requires is that the computation of income under different heads for a particular assessment year should first be worked out and then the question, if the circumstances so demand, will arise as to aggregation of income and set off or carry forward of loss. Section 70 provides the machinery for set off of loss from one source against income from another source under the same head of income. Therefore, capital gains arising from assets, whether short-term capital assets or assets other than short-term capital assets should first be computed and then only the question will arise for giving the benefit of set off of loss under one head against income from another in accordance with the provisions of section 71. According to the Tribunal, it is mandatory for the Income-tax Officer to compute the income under different heads for a particular assessment year first and then the benefit of losses carried forward from the preceding years under the head " Capital gains " would be set off against capital gains of the relevant assessment year. Hereto the losses under the head " Capital gains " carried forward from the preceding years can only be set off agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer. " Mr. Bagchi has submitted that the Income-tax Officer has not proceeded on the opinion of the audit party. He only became aware of the correct state of law. Thus, he rightly invoked section 147(b). We have considered the rival submissions. In our judgment, the contention raised on behalf of the Revenue cannot be accepted in view of the principles laid down by the Supreme Court in the aforesaid judgment. The Tribunal upheld the legality of the initiation of the reassessment proceeding in this case following the decision of the Delhi High Court in the case of CIT v. H. H. Smt. Chand Kanwarji [1972] 84 ITR 584, which was overruled by the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary. It shows that there is a divergence of opinion and there is a controversy in law. Unless the controversy is settled by any judicial pronouncement, the Income-tax Officer cannot, solely relying on the opinion of the Revenue Audit Party, reopen the assessment. It may be that the view taken on the interpretation of sections 70 to 74 is the correct view but it is not for the Revenue Audit Party to interpret the law. If the Income-tax Officer failed to apply the provisions of sections 70 to 74 to the facts of this case, the Revenue Audit Party could have drawn the attention of the Income-tax Officer to the provisions of sections 70 to 74 and thereafter the Income-tax Officer would have determined for himself the effect and consequence of the provision of sections 70 to 74 of the Act. This has not been done in this case. We are, therefore, unable to uphold the view taken by the Tribunal on the initiation of the proceeding under section 147(b). In the result, the first question referred to us is answered in the negative and in favour of the assessee and against the Revenue. In view of our answer to the first question in the negative, the second question does not survive. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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