TMI Blog1981 (11) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax ? and (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in maintaining the impugned order passed by the CIT u/s. 263 of the Income-tax Act, 1961 ? " The case as stated by the Tribunal is as follows: The assessee, an individual, returned an income of Rs. 17,354 for the assessment year 1973-74. The ITO computed the income at Rs. 1,19,760. The variation between the income returned and income assessed was more than Rs. 1,00,000. The ITO admittedly did not comply with the provisions of s. 144B of the I.T. Act, which enjoined him to forward a draft of the proposed assessment order to the assessee and invite objections, if any. The assessee had claimed a business loss of Rs. 1,00,899 which included a loss of Rs. 98,000, being the cost price of 980 shares in Vigbore Company Ltd. The assessee had claimed that the said company had gone into liquidation and there was no hope of getting any amount from the liquidator. The ITO disallowed the claim of the assessee as a business loss but he computed Rs. 99,875 as capital loss and directed that this long-term capital loss could be carried forward for set of against long-term capital gains in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, certainly it is in the interests of the Revenue that this irregularity be cured ". Thus, according to the Tribunal the order of the ITO was erroneous in so far as it was prejudicial to the interests of the Revenue and the Commissioner was justified in exercising his jurisdiction under s. 263 of the Act. On the second issue about the allowance of the capital loss, the Tribunal referred to the argument advanced by the assessee's counsel about the extended definition of the word " transfer " in s. 2(47) of the Act and observed thus: " There is force in this contention, but still it would have to be verified as to whether the assessee's right to recover the compensation for holding these shares had been totally extinguished." The Tribunal was of the opinion that the facts brought before the ITO did not indicate that the assessee's right to any amount of compensation had been completely extinguished and, therefore, this question could be decided only after further enquiry. Thus the Tribunal upheld the order of the Commissioner setting aside the assessment and directing the ITO to make a fresh assessment according to law after giving a reasonable opportunity to the assessee. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment after following the correct procedure. The Madhya Pradesh High Court in Banarsidas Bhanot and Sons v. CIT [1981] 129 ITR 488, has considered this question and held that non-compliance with the provisions of s. 144B of the Act is only a procedural irregularity and no question of jurisdiction is involved in such cases. However, the first argument, viz., that an assessment order without compliance with the procedure laid down in s. 144B of the Act is erroneous but not prejudicial to the interests of the Revenue conferring revisional jurisdiction on the Commissioner under s. 263(1) of the Act has force. Under s. 263(1) two pre-requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous. Second is that the error must be such that it is prejudicial to the interests of the Revenue. If the order is erroneous but it is not prejudicial to the interests of the Revenue, the Commissioner cannot exercise the revisional jurisdiction under s. 263(1) of the Act. It was an admitted position that the order passed by the ITO was erroneous because it was incumbent on him to follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the same as a capital loss and directed that the same could be set off against capital gains of the future assessment years. The Commissioner was of the opinion that the liquidation of the company in which the assessee had 980 shares did not amount to a " transfer " of the capital assets and, therefore, there could not be any allowance of capital loss. The contention of the assessee before the Tribunal was that the liquidation of the company in question resulted in the extinguishment of the assets of the assessee and thus it was a case of transfer within the meaning assigned to it under s. 2(47) of the I.T. Act. This contention was not fully upheld by the Tribunal which while referring to this argument observed as follows: " There is force in this contention but still it would have to be verified as to whether the assessee's right to recover the compensation for holding these shares had been totally extinguished. " Shri Choudhary, learned counsel for the assessee, contended that the Commissioner had erred in holding that there was no transfer as a result of the liquidation of the company in which the assessee had its shares. He also contended that the Tribunal had reversed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result in a transfer of capital assets within the meaning of s. 2(47) of the I.T. Act, 1961. The Tribunal merely made a tentative observation that the contention of the assessee had some force, but this observation could not be treated as a finding that the liquidation of the company, Vigbore Co. Ltd., amounted to an extinguishment of the rights of the assessee and, therefore, a transfer within the meaning of s. 2(47) of the Act. Indeed, the question was left open advisedly. In CIT v. R. M. Amin [1977] 106 ITR 368, their Lordships of the Supreme Court considered the scope of the definition of the word " transfer " under s. 2(47) of the I.T. Act. The facts in R. M. Amin's case were somewhat similar and the statement of law made therein applies to the facts of the case under reference. The Supreme Court was of the view that the observations in CIT v. Madurai Mills Co. [1973] 89 ITR 45 (SC) reproduced below, made with reference to the provisions of the .1922 Act as amended in 1956, held the field under the Act of 1961 also (p. 373 of 106 ITR): " When a shareholder receives money representing his share on distribution of the net assets of the company in liquidation, he receives that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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