Commissioner of Income Tax vs Pandora Pvt. Ltd.

Arijit Pasayat, C.J.—At the instance of the Revenue, the following question has been referred by the Income Tax Appellate Tribunal, Delhi Bench "B" (for short "the Tribunal"), u/s 256(1) of the Income Tax Act, 1961 (in short the "Act"), for opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that u/s 80J(3), the assessee was authorised to claim deduction u/s 80J at any time within a period of seven years from the initial assessment year ?"

Since the question depends upon the interpretation of Section 80J(3), reference to the factual aspects in detail is unnecessary.

The reference relates to the assessment year 1971-72. The assessee, a private limited company, filed a return showing income of Rs. 8,164. In the original return no claim u/s 80) of the Act was made. Subsequently, a revised return was filed on July 29, 1972, in which a claim was made. In the revised return the assessed claimed carry forward and set off of relief u/s 80J in respect of the assessment years 1965-66 to 1969-70 against the income for the assessment year 1971-72. The Assessing Officer did not pass any order on the revised income. In appeal before the Appellate Assistant Commissioner (in short "the AAC"), it was contended that the assessee-company had set up an industrial undertaking to commence production in the previous year ending on June 30, 1965, and, as such, it was entitled to deduction u/s 80J for the assessment year 1966-67 and four succeeding assessment years. It was the assessor�s stand that claim for deduction could be made for six years from the start of the previous year relevant to the assessment year commencing on or April 1, 1967. The Appellate Assistant Commissioner did not accept this stand. He was of the view that if a person failed to make such claim in the initial assessment year or even in respect of the aforesaid preceding assessment years no claim of deduction u/s 80J of the Act could be made for earlier years. The matter was carried in appeal before the Tribunal. It was held by the Tribunal that the provisions of Section 80J should be construed liberally and, Therefore, there was no bar for the assessed to make deduction within seven years from the end of the initial assessment year. At the instance of the Revenue, the aforesaid reference was called for and has been made.

Learned counsel for the Revenue submitted that the true import of Section 80J(3) has not been considered by the Tribunal. There was no appearance on behalf of the assessed when the matter was called. The question came up for consideration of the Karnataka High Court in Raja Industrial Works, Sringeri Vs. Assistant Collector of Central Excise Davangere and Others, . The following observation was made by the said High Court (page 556) :

"We are in respectful agreement with the view taken in all these cases that the right of an assessed to carry forward and set off u/s 80J(3) of the Act arises where there is profit in the subsequent year. But to carry forward and set off, the loss is to be computed in the previous year. If loss is not computed for the previous year, there is nothing for the assessed to carry forward and set off against the income for the subsequent year. The Income Tax Officer, computing the loss for the previous year cannot determine whether the loss so computed can or cannot be set off against the income of the subsequent year. It necessarily follows that the Income Tax Officer who deals with the assessment for the subsequent year and who is competent to carry forward the loss cannot compute the loss in the previous year. It is only when the loss in the previous year is computed, the Income Tax Officer dealing with the assessment for the subsequent year can decide whether that loss may be carried forward and set off against the income of the subsequent year. As rightly pointed out by Sri Srinivasan, Section 80J(1) and (3) have to be read together and not in isolation. We have first to ascertain the scope and ambit of Section 80J(1) and it is only thereafter consider the scope and ambit of Section 80J(3). It, Therefore, follows that there has to be computation of loss u/s 80J(1) and it is only the deficiency that can be carried forward and set off u/s 80J(3)."

In our considered opinion the position in law has been correctly stated by the Karnataka High Court and we are in agreement with the view expressed: Our answer to the question referred, Therefore, is in the negative, in favor of the Revenue and against the assessee.

The reference is accordingly disposed of.