RAJIV GUPTA vs. C I T

This order shall dispose of ITA Nos.292 and 305 of 2007, as according to the learned counsel for the parties, the issues raised herein are identical. However, the facts have been taken from ITA No.305 of 2007. 2. ITA No.305 of 2007 has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 20.3.2007, Annexure A.1 passed by the Income Tax Appellate Tribunal “A” Bench Chandigarh in ITA No.442/CHD/2005 for the assessment year 1997-98. It was admitted on 5.11.2007 for determination of the following substantial question of law:- “Whether under the facts and circumstances of the case and under the established legal principles of law, the ITAT was Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh justified in confirming the action of the authorities below in allowing the rectification of subsequent orders without rectifying the initial order from where the dispute in question arose?”

A few facts relevant for the decision of the controversy involved, as narrated in ITA No.305 of 2007 may be noticed. The assessee is Director of M/s Monga Brox. Limited and resident of Ludhiana. He filed income tax return for the assessment year 1996-97 on 24.12.1996 declaring total income of ` 1,98,630/-. He claimed certain deductions and set off of loss. On 25.3.1997, the Assessing Officer issued notice under Section 143 (2) of the Act to the assessee. During the course of assessment proceedings, the Assessing Officer observed that certain expenses were being paid to the assessee as perquisites by the company which were to be taken as part of the income. The assessee admitted liability and these perquisites were added to the income of the assessee. Thereafter, the Assessing Officer considered loss under the head 'Capital gain' amounting to ` 2,41,799/- and allowed the capital loss to be carried forward. The assessee filed income tax return for the assessment year 1997-98 on 3.2.1998 declaring total income of `2,53,850/-. The assessee claimed deductions and set off of loss as were allowed to be carried forward in the previous return. On 4.5.1998, the Assessing Officer issued notice under section 143(2) of the Act to the assessee and after hearing the assessee, the Assessing Officer adjusted loss under the head 'Capital gain' amounting to ` 24,608/- and allowed the balance loss amounting to ` 2,17,191/- to be carried forward in the next assessment year. On 13.3.2003, the Assessing Officer observed that the return for the assessment year 1996-97 was filed by the assessee on Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh 24.12.1996 and thus was not entitled to the benefit of carrying forward losses. The Assessing Officer issued notice to the assessee as to why the mistake being apparent from the record be not rectified and the adjustment of brought forward long term capital loss against the income under the same head for the assessment year 1997-98 be not disallowed. The assessee attended the proceedings but the Assessing Officer rejected all the pleas. Against the order passed by the Assessing Officer dated 13.3.2003 under Section 154 of the Act, the assessee filed appeal before the Commissioner of income Tax (Appeals) Ludhiana [CIT(A)]. Vide order dated 16.2.2005, Annexure A.4, the CIT(A) confirmed the order passed by the Assessing Officer. Still not satisfied, the assessee preferred appeal before the Tribunal. Vide order dated 20.3.2007, Annexure A.1, the Tribunal dismissed the appeal. Hence the present appeals by the assessee.

Learned counsel for the appellant-assessee submitted that the disallowance of set off of capital loss for the assessment year 1996-97 in the current assessment year i.e.1997-98 without rectifying the assessment order of 1996-97 was unsustainable. In other words, according to the learned counsel, the Assessing Officer could not do so without first rectifying the order passed for the assessment year 1996-97 wherein the loss of ` 2,41,799/- under the head 'capital gain' was allowed to be carried forward under Section 143(3) of the Act. He drew support from the judgment of the Gujarat High Court in Saurashtra Cement and chemical Industries Limited v. CIT Gujarat-V (1980) 123 ITR 669 (Guj.).

On the other hand, learned counsel for the revenue supported the order passed by the Tribunal. Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh

After hearing learned counsel for the parties, we do not find any merit in the appeals.

It would be expedient to refer to Sections 72, 80 and 139 (3) of the Act, which read thus:- "72.(1) Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year : Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year ; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on : Provided that where the whole or any part of such loss is sustained in any such business as is referred to in Section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re- Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh established, reconstructed or revived, and-- (a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year ; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding. (2) Where any allowance or part thereof is, under Sub-section (2) of Section 32 or Sub-section (4) of Section 35, to be carried forward, effect shall first be given to the provisions of this section. (3) No loss (other than the loss referred to in the proviso to Sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.

Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed within the time allowed under Sub-section (1) of Section 139 or within such further time as may be allowed by the Income-tax Officer, shall be carried forward and set off under Sub-section (1) of Section 72 or Sub-section (2) of Section 73 or Sub-section (1) or Sub-section (3) of Section 74 or Sub-section (3) of Section 74A. 139.(3) If any person who has not been served with a notice under Sub-section (2) has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under Sub-section (1) of Section 72, or Sub-section (2) of Section 73, or Sub-section (1) or Sub-section (3) of Section 74, or Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh Sub-section (3) of Section 74A, he may furnish, within the time allowed under Sub-section (1) or by the thirty-first day of July of the assessment year relevant to the previous year during which the loss was sustained, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under Sub-section (1).”

Section 72 of the Act deals with carry forward and set off of business loss. It provides that where the net result of the computation under the head "Profits and gains" of business or profession is a loss and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of Section 71, so much of the loss as has not been so set off, shall be carried forward to the following assessment year and shall be set off against the profits and gains, if any, of any business or profession for that assessment year subject to other provisions of Chapter VI. In Sub-section (2) effect is to be given to the provisions of Section 72 over any allowance or part thereof under Sections 32(2) and 35(4) to be carried forward. Under Sub-section (3), the period for which loss can be carried forward is eight years.

The mandate under Section 80 of the Act is that the losses under Sections 72(1), 73(2), 74(1), 74(3) and 74A(3), if not determined in pursuance of a return filed, shall not be carried forward and set off.

Section 139(3) of the Act enacts that if the assessee who has sustained a loss under the head "Profits and gains of business" or "Capital gains" and claims to carry forward a loss, return can be filed in the prescribed form and verified in the prescribed manner and containing such Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh other particulars as may be prescribed, and that all the provisions of the Act shall apply as if it were a return under Sub-section (1).

An irresistible conclusion on the conjoint reading of the aforesaid provisions would be that a business loss cannot be carried forward unless it has been determined in pursuance of a return filed under Section 139(1) of the Act. In order to be entitled to carry forward a business loss, the assessee must submit a return under Section 139(3) of the Act which is required to be in terms of Section 139(1) of the Act.

In the present case, the asseessee had not filed the return for the assessment year 1996-97 within the time allowed for the return to be filed under section 139(1) of the Act as the return was filed on 24.12.1996. Therefore, the revenue had sought to deny benefit of carry forward and set off of capital loss of that assessment year during the assessment year 1997-98. The contention of the assessee that the same could not be done without rectifying the assessment order for the assessment year 1996-97 for which limitation has now expired, does not come to the rescue of the assessee in the present factual matrix as we find that even otherwise, the assessee was not entitled for set off and carry forward of capital loss of assessment year 1996-97 during the assessment year 1997-98. It was not disputed that the return for the assessment year 1997-98 was filed on 3.2.1998 and thus, it could not be held to be return filed under Section 139(3) of the Act which was required to be filed within the time allowed under sub section (1) of Section 139 of the Act. Once that was so, in terms of Sections 80 and 139(3) of the Act, the assessee was not entitled to set off and carry forward of losses of assessment year 1996-97 in assessment year 1997-98 and thereafter. For the sake of argument, it may be noticed that the said plea as has been raised by the assessee would have been available to him, had the assessee filed the return for the assessment year 1997-98 within the time allowed under Section 139(1) of the Act. Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh Once it is held that the assessee was not allowed to set off the capital loss of the assessment year 1996-97 in the assessment year 1997-98, equally the same could not have been allowed to be carried forward and set off in the assessment year 1999-2000. Further, the Tribunal while declining the aforesaid plea vide order dated 20.3.2007, Annexure A.1 noticed as under:- “12. As is evident from section 139(3), if any person has sustained a loss under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and is desirous of carrying forward the said loss, he is required to file the return within the time allowed under sub section (1) of section 139. In this case, it is not disputed that the return of income for assessment year 1996-97 i.e. the year in which the assessee had declared a long term capital loss of ` 2,41,759/- was not filed within the time allowed under section 139(1) and accordingly the return for the said assessment year was not filed in accordance with the provisions of section 139(3) were not applicable. In our view, the contention advanced on behalf of the assessee that since the assessee had declared positive income under the head 'Profits and gains of business' provisions of section 139(3) are not attracted in this case, is bereft of any substance. The language of section 139(3) as well as section 80 is unambiguous. The provisions do not speak of a loss return but a loss suffered under the head 'Profits and gains of business or profession' or under the head 'Capital gains'. In the case, the assessee had declared long term capital loss in assessment year 1996-97. If the assessee was desirous of carrying forward the said loss to be set off against the long term capital gains of subsequent year (s) then the return of income for that year was required to be filed within the time allowed under section 139(1). If the loss is declared under the head 'Profits and Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh gains of the business' or under the head 'Capital and gains' in a return filed after the expiry of time specified under section 139(1) the same would not be entitled to be carried forward and set off in accordance with the relevant provisions of the Act. Therefore, it is evident from the provisions of the Act that the assessee in law, was not entitled to carry forward and set off of long term capital loss suffered in assessment year 1996-97 in so far as the return of income for that assessment year was not filed within the time allowed under section 139(1) and consequently not in accordance with the provisions of section 139(3). We are, therefore, of the considered view that the long term capital loss disclosed in the return of income filed for assessment year 1996-97 [which was filed after the specified period indicated in section 139(1)] was not permissible to be carried forward and set off in accordance with the relevant provisions of Act.

The only question that remains for our consideration is as to whether the Assessing Officer had the power to deny the set off of capital loss suffered in assessment year 1996- 97 in subsequent assessment years notwithstanding the fact that in the assessment order for assessment year 1996-97 the Assessing Officer had specifically mentioned that the long term capital loss of ` 2,41,759/- is allowed to be carried forward. It is not disputed before us that the said assessment order for assessment year 1996-97 has not been modified either by the Assessing Office or by any appellate or superior authorities. As pointed out earlier, the learned counsel for the assessee has relied upon two decisions of Chandigarh bench of the Tribunal to support his contentions that the Assessing Officer is not entitled to modify the orders for the subsequent assessment years without modifying the order for assessment year 1996-97. One of the decisions is in the case of DCIT v. M/s Asia Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh Resorts, Parwanoo (supra) [ITA No.488/Chandi/2002 dated 31.7.2006] (copy of the order is placed on record), a perusal of which reveals that the facts in that case are distinguishable with the facts of the present case. The issue involved in that case was the determination of unabsorbed depreciation to be set off in assessment year 1996-97. The Assessing Officer in exercise of his powers under Section 154 modified the unabsorbed depreciation and carry forward of losses pertaining to earlier years. In that case, it was held that unabsorbed depreciation and unabsorbed losses had been determined by the Assessing Officer vide order dated 17.4.1995 in earlier year. The said order had not been modified at any stage. The Tribunal, therefore held that in assessment year 1996-97 the figure of loss/unabsorbed depreciation determined earlier could not be modified without modifying the earlier orders in which such loss or unabsorbed depreciation was determined by the Assessing Officer. In the present case, the determination of loss is not a matter of dispute. There is no mistake alleged in the computation of long term capital loss in assessment year 1996-97. Had there been any mistake in the computation of long term capital loss in assessment year 1996-97, the Assessing Officer undoubtedly could not modify the figure of loss in assessment year 1997-98 or in assessment year 1999-2000 either under Section 143(3) or under section 154. So however, the issue involved in the present appeal is somewhat different. The long term capital loss has been determined in assessment year 1996-97 the quantum of which is not disturbed. We reiterate that the said loss determined in assessment year 1996-97 cannot be modified in the assessment year 1997-98. So however, the assessee had sought set off of capital loss suffered in assessment year 1996-97 against the long term capital loss suffered in Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh assessment year 1996-97 against the long term capital gain in assessment year 1997-98 and in assessment year 1999- 2000. Originally the Assessing Officer while framing assessment under Section 143(3) for assessment year 1997- 98 as well as for assessment year 1999-2000 has allowed the set off of the said loss against long term capital gain. Subsequently, notices under section 154 were issued to the assessee on the ground that there was a mistake in allowing the set off long term capital loss pertaining to assessment year 1996-97 as the said loss had not been determined in pursuance of a return filed within the time allowed under section 139(1). As indicated earlier Section 139(3) read with section 80 prohibts the set off of such losses in subsequent years. The action of the Assessing Officer in allowing the set off of the long term capital loss of assessment year 1996-97 not determined in pursuance to the return filed in accordance with the provisions of section 139(3), was a mistake apparent from record. In this case, the mistake apparent from record was a mistake of law. It is also pertinent to mention that the Assessing Officer while deciding the cases for assessment years 1997-98 and 1999-2000 was entitled to look into the record of the assessee for assessment year 1996-97 also to consider the claim of the assessee. As held by the Supreme Court in the case of Maharana Mills (Pvt.) Limited v. ITO (supra), [(1959) 36 ITR 350] the record for the purpose of section 154 would include record of the previous year as well as the record of the subsequent assessment year pertaining to the assessee. Moreover, in order to give effect to provisions of section 74 of the Income Tax Act, 1961, the Assessing Officer was required to verify that the loss which was sought to be set off had been determined in pursuance to a return filed in accordance with the provisions of section 139(3). For such verification, it was Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh necessary for the Assessing Officer to look into the record of the assessee for assessment year 1996-97 in which the loss was disclosed and determined. When the Assessing Officer made assessment under section 143(3) for assessment year 1997-98 as well as for assessment year 1999-2000 he did not consider the restriction placed under section 74, section 80 read with section 139(3) of the Income Tax Act, 1961. Subsequently when the mistake was discovered the Assessing Officer promptly effected rectification under section 154 for both the assessment years after giving opportunity to the assessee, modified assessment orders for assessment years 1997-98 and 1999- 2000 accordingly. The Hon'ble Punjab and Haryana High Court in the case of Sirsa Industries v. CIT and another (supra) [ (1984) 147 ITR 238] have held that a mistake of law which was glaring and obvious, could be rectified under section 154. In the present case, the Assessing Officer had committed a mistake of law which was glaring and obvious. Therefore. the Assessing Officer, in our view was justified in rectifying the assessment orders for assessment years 1997-98 and 1999-2000 giving effect to provisions of section 74 read with section 80 and section 139(3).”

Adverting to the judgment relied upon by learned counsel for the respondent in Saurashtra Cement and Chemical Industries Limited's case (supra), in that case, the assessee had claimed deduction under section 80J of the Act. The Assessing Officer had sought to deny the same in the succeeding year without disturbing the relief which was granted for the initial year. Deduction under Section 80J is admissible for particular number of years. Once the assessee was entitled for deduction in the first year itself, he was equally entitled in subsequent years and the Assessing Singh Gurbax 2014.04.11 12:11 integrity of this document High Court Chandigarh Officer was unjustified in declining the same without disturbing the benefit in the initial year. The present case relates to set off and carry forward of capital loss. The situation herein being different, therefore, no advantage can be derived by the assessee from the said judgment.

The substantial question of law, thus, stands answered accordingly. Consequently, finding no merit in the appeals, the same are hereby dismissed. (Ajay Kumar Mittal) Judge February 24, 2014 (Anita Chaudhry) 'gs' Judge