Commissioner of Income Tax vs Srintvasa Builders

B. Manohar, J.—The Revenue has preferred this appeal under section 260A of the Income-tax Act, 1961 (for short "the Act"), challenging the order dated April 13, 2007, made in I.T.A. No. 314/Bang/2005 passed by the Income-tax Appellate Tribunal, Bangalore Bench "A" (for short "the Tribunal") for the assessment year 1997-98 whereby the Tribunal allowed the appeal filed by the assessee and set aside the order passed by the Commissioner of Income-tax (Appeals)-VI, Bangalore (for short "the first appellate authority") and quashed the section 154 proceeding initiated by the assessing authority. The respondent-assessee is a firm and they filed return of income for the assessment year 1997-98 on January 6, 1998, declaring income of Rs. 5,29,270. The assessment was concluded under section 143(3) of the Act and assessed the business loss of Rs. 74,84,234. The said business loss was allowed to be carried forward as per the order dated June 6, 2001. Subsequently, the Assessing Officer issued a notice under section 154 of the Act to rectify the order dated June 6, 2001, withdrawing the benefit of carry forward of business loss stating that the return filed by the assessee was belated. As per section 80 of the Act, the benefit of carry forward of business loss is allowed only if the said loss has been determined in pursuance of the return filed within the prescribed time limit under section 139(1) of the Act. The respondent-assessee filed objections to the notice issued under section 154 of the Act. The assessing authority overruling the said objections by his order dated October 10, 2003, held that the assessee is not entitled for carry forward of the loss since the returns has not been filed within the prescribed time limit under section 139(1) of the Act. Being aggrieved by the order passed by the assessing authority, the respondent-assessee preferred an appeal before the first appellate authority. The appellate authority, after considering the matter in detail, dismissed the appeal filed by the assessee. Being aggrieved by the order passed by the first appellate authority, the assessee preferred an appeal before the Tribunal.

The Appellate Tribunal, after considering the matter in detail, found that the assessee is entitled for benefit of carry forward of the business loss and set aside the order passed by the assessing authority as well as the appellate authority. Being aggrieved by the order passed by the Tribunal, the Revenue has preferred this appeal.

The appeal is admitted to consider the following substantial questions of law:

"1. Whether the Tribunal was correct in holding that the rectification proceedings disallowing the carry forward of loss on account of section 80 of the Act in view of the belated filing of the return would amount to a debatable issue and jurisdiction under section 154 of the Act was not permissible?

Whether the Tribunal was correct in holding that the original return filed was not a loss return and there were no violation of the provisions of section 139(3) of the Act despite the assessee filing a revised return and approaching the Board by filing an application for condonation of delay to seek permission to file belated return?"

Sri K.V. Aravind, learned counsel appearing for the appellants, contended that in view of the amendment of section 80 by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, no loss shall be allowed to carry forward and set off, for and from the assessment year 1989-90. Only such loss as determined in pursuance of return filed "within the time allowed" under section 139(1) of the Act. Therefore, he contended that the Assessing Officer was justified in invoking section 154 and withdrawing the benefit of carry forward of business loss. In the instant case, the assessee has not filed the return showing the business loss within the prescribed time limit. Hence, he is not entitled for carry forward of business loss. The reasoning given by the Tribunal is contrary to law and sought for allowing the appeal.

On the other hand, Sri S. Parthasarathi, learned counsel appearing for the respondent-assessee, argued in support of the order passed by the Appellate Tribunal and contended that in the return filed on January 6, 1998, the assessee had declared the income of Rs. 5,29,270. The assessment was concluded under section 143(3) of the Act and the Assessing Officer declared the business loss. Hence, the said business loss has to be carried forward under section 80 of the Act. The assessee did not declare the business loss. In the absence of the same, the assessee is entitled for the benefit of carry forward of business loss and sought for dismissal of the appeal.

We have carefully considered the arguments addressed by the learned counsel for the parties and perused the order impugned.

The records clearly disclose that the assessee had filed the return of income declaring the total income on January 6, 1998. The assessing authority assessed the income under section 143(3) of the Act and declared the total business loss of Rs. 74,85,743 and also denied some other benefits. The said order was questioned before the first appellate authority, wherein the first appellate authority confirmed the order passed by the Assessing Officer. Against the said order, the assessee preferred an appeal before the Tribunal. The Tribunal allowed the appeal granting partial relief. In order to give effect to the said order, the assessing authority once again determined the total loss of Rs. 74,85,743 and allowed the same to be carried forward. Subsequently, the said order allowing the loss to be carried forward was modified invoking section 154 of the Act. The reasoning of the appellate authority that the assessee has not declared the loss within the time specified under section 139(1) and section 139(3) of the Act which is factually incorrect. On the other hand, the assessee had declared the income of Rs. 5,29,270 for the relevant assessment year well in time. During the course of assessment, it was found that there is business loss. Accordingly, the said business loss was allowed to be carried forward. The assessee has not violated any of the conditions under section 80 of the Act. The assessee had shown positive income in the returns but in the assessment, the business loss was determined by the Assessing Officer. This being the factual position, in our opinion, the assessee is entitled for the benefit of carry forward of business loss. Whether loss ultimately determined by the Assessing Officer was liable to be carried forward or not is a debatable issue. Invoking the provision of section 154 is not available for the Assessing Officer. We find no infirmity or irregularity in the order passed by the Tribunal. Hence, the substantial questions of law framed are held against the Revenue and in favour of the assessee. Accordingly, the appeal is dismissed confirming the order passed by the Appellate Tribunal.