1991 (1) TMI 221 - AT - Income Tax

Summary

Issues:
1. Validity of reassessment proceedings under section 147(a) of the Income Tax Act, 1961.
2. Determination of the timing of capital loss arising from the seizure of shares during hostilities.
3. Allowance of carry forward of capital loss for set off against capital gains in subsequent years.
4. Jurisdictional facts for invoking section 147(a) by the Income Tax Officer (ITO).
5. Impact of compensation received on the computation of capital loss.

Analysis:

1. Validity of reassessment proceedings under section 147(a):
The Central Income Tax Appellate Tribunal (ITAT) examined the initiation of reassessment proceedings under section 147(a) by the ITO. The ITAT upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] that the initiation of reassessment was not valid. The ITAT concurred with the CIT(A) that all material facts were disclosed to the ITO during the original assessment, precluding the need for invoking section 147(a). The ITAT relied on the Supreme Court decisions in Calcutta Discount Co. Ltd. and CIT vs. Dinesh Chandra H. Shah to support this conclusion.

2. Timing of capital loss from the seizure of shares:
Regarding the timing of the capital loss arising from the seizure of shares during hostilities, the ITAT held that the loss accrued only upon the payment of compensation by the Government of India in March 1972. The ITAT emphasized that the capital loss could only be considered when the compensation was settled, as per the definition of transfer in section 2(47) of the Income Tax Act. The ITAT referred to the Supreme Court's decision in R.B. Jodha Mal Kuthiala vs. CIT to support this interpretation.

3. Allowance of carry forward of capital loss:
The ITAT affirmed the CIT(A)'s decision to allow the carry forward of the capital loss for set off against capital gains in subsequent years. The ITAT reasoned that the capital loss should be considered only when the compensation was received, and the CIT(A)'s decision was consistent with this principle.

4. Jurisdictional facts for invoking section 147(a):
The ITAT concluded that the ITO did not have a valid basis for invoking section 147(a) of the Income Tax Act. The ITO's assumption that the capital loss arose simultaneously with the outbreak of hostilities lacked a clear basis. The ITAT highlighted that the ITO failed to provide reasons or reference relevant provisions to support the reassessment under section 147(a).

5. Impact of compensation received on capital loss computation:
The ITAT emphasized that the computation of capital loss hinged on the receipt of compensation by the assessee. Since the compensation was ex gratia and not a legal entitlement, the capital loss could only be determined upon receiving such compensation. The ITAT referenced the Supreme Court's decision in CIT vs. B.C. Srinivasa Setty to underscore the necessity for quantifiable data to compute capital gains or losses accurately.

In conclusion, the ITAT dismissed all three departmental appeals, affirming the decisions of the CIT(A) and rejecting the department's contentions. The ITAT upheld the allowance of carry forward of capital loss and emphasized the importance of factual disclosure and proper computation in determining capital gains and losses.