Ajit K.Sengupta, J. - (1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following two questions of law for opinion of this court : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Income-tax Officer validly initiated proceedings under Section 147(b) of the Income-tax Act, 1961, for reassessment for the assessment year 1969-70 ?
(2.) " If the answer to question No. 1 is in the affirmative, then whether, on the facts and in the circumstances of the case and on a proper interpretation of Section 70(2)(i), Section 71(3) and Section 74(1)(a)(ii) of the Income-tax Act, 1961, the Tribunal was right in giving precedence to Section 72(1) over Section 74(1)(a)(ii) of the Act and holding that the capital loss of Rs. 2,14,181 arising from the sale of short-term capital assets should be first set off against capital gains 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 ? " 2. 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 year and the balance of Rs. 66,959 was deducted from the loss relating to short-term capital assets, i.e., Rs. 2,14,131, leaving a balance of Rs. 1,47,172 of the loss relating to short-term capital assets. The said balance of loss relating to short-term capital assets was deducted from income from various other sources.
(3.) Subsequent to the original assessment, the Revenue Audit Party had reported in L.A.R. No. 252 dated October 10, 1972, that the total income had been under assessed as the long-term capital loss brought forward from the assessment years 1967-68 and 1968-69 had been wrongly set off against capital gains relating to assets other than short-term capital assets of the year. In consequence of the above opinion, the Income-tax Officer initiated proceeding under Section 147(b) of the Income-tax Act, 1961. In this re-computation of the income, the Income-tax Officer first set off the gains relating to assets other than short-term capital assets against loss relating to short-term capital assets and the balance of loss of Rs. 79,291 was set off under section 71(3) of the Act against income under other heads.;