Ajit Kumar Sengupta, J. - (1.) At the instance of the Commissioner, West Bengal II, Calcutta, the following question of law has been referred to this court for the assessment year 1963-64 under Section 256(2) of the Income-tax Act, 1961 ("the Act") : "Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 263 and Section 256(1) of the Act, the Tribunal misdirected itself in law in holding that inasmuch as the question of law said to arise out of the order of the Tribunal for the earlier assessment years had been referred at the instance of the Commissioner to the High Court, the Commissioner could not have considered the order of the Income-tax Officer as erroneous in so far as it was prejudicial to the interests of the Revenue and, in that view, cancelling the order of the Commissioner made under Section 263?"
(2.) The facts of the case are as follows :
(3.) The assessee claimed before the Income-tax Officer that it was an investor in shares and that the profit or loss arising from the sale of shares was a capital gain or capital loss. The Income-tax Officer found that similar claims made by the assessee in earlier years had been rejected by him and the assessee had been held to be a dealer in shares. He, accordingly, rejected the assessee's claim for this year also. The net result of the dealings in shares was a loss of Rs. 17,405. The Income-tax Officer completed the assessment by treating this loss to be a business loss. The Commissioner subsequently found that the assessee's claim that it was an investor in shares had been accepted by the Tribunal in the appeals for the assessment years 1957-58 to 1961-62. The Commissioner, therefore, felt that the loss of Rs. 17,405 suffered by the assessee in share dealings during this year should have been held to be a capital loss and not a business loss, as held by the Income-tax Officer, while making the assessment. He, therefore, considered the assessment order to be erroneous and prejudicial to the interests of the Revenue and required the assessee to show cause as to why an order under Section 263 be not made. The assessee claimed that the Tribunal's order for the assessment years 1957-58 to 1961-62 had not been accepted by the Department and the Commissioner was, therefore, not justified in initiating action under Section 263 on the basis of the Tribunal's order, The assessee also pointed out that, on giving effect to the Tribunal's order for the earlier years, the assessee would be found to have suffered a substantial amount of short-term capital loss which would have to be set off in this year and in subsequent years. The assessee, therefore, requested that the proceedings under Section 263 should be dropped. The Commissioner found no substance in the submissions of the assessee. The assessee had itself claimed that it was an investor in shares and this claim had been accepted by the Tribunal. The Commissioner, therefore, felt that there was no reason why the loss suffered in share dealings in the year should not be held to be a capital loss. The fact that past losses would have to be set off against the income of this year could not be a valid ground against passing an order under Section 263. The Commissioner, therefore, passed an order under Section 263. The loss of Rs. 17,485 was found to comprise the following : JUDGEMENT_368_ITR186_1990Html1.htm;