THE COMMISSIONER OF INCOME TAX vs. M/S SRINIVASA BUILDERS

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ITA/683/2007HC KarnatakaKAHC01056599200711 February 2014Bench: B.MANOHAR,DILIP B.BHOSALE10 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial questions of law were against the Revenue and in favour of the assessee. The Court found that the assessee had filed a return declaring income well in time on 06.01.1998. The business loss of Rs. 74,85,743/- was determined by the Assessing Officer during the assessment under Section 143(3). The Court noted that the reasoning of the lower authorities that the assessee had not declared the loss within the time specified under Sections 139(1) and 139(3) was factually incorrect. The assessee had shown positive income in the return, and the business loss was determined subsequently during the assessment. The Court opined that whether the loss ultimately determined was liable to be carried forward was a debatable issue, and invoking Section 154 was not permissible for such a debatable issue. The Court found no infirmity or irregularity in the order passed by the ITAT and accordingly dismissed the appeal, confirming the ITAT's order.

What were the facts?

The Revenue (Commissioner of Income-Tax and Deputy Commissioner of Income Tax) has filed an appeal under Section 260-A of the Income Tax Act, 1961, against the order dated 13.04.2007 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1997-98. The ITAT had allowed the assessee's (M/s. Srinivasa Builders) appeal, setting aside the order of the Commissioner of Income-Tax (Appeals) and quashing the rectification proceedings initiated by the Assessing Officer. The assessee initially filed a return declaring an income of Rs. 5,29,270/-. The assessment under Section 143(3) concluded with a business loss of Rs. 74,84,234/-, which was allowed to be carried forward. Subsequently, the Assessing Officer initiated proceedings under Section 154 to withdraw this benefit, citing the return being belated. The assessee's objections were overruled, and the appeal to the First Appellate Authority was dismissed. The ITAT then allowed the assessee's appeal.

What were the issues?

1. Whether the Tribunal was correct in holding that rectification proceedings disallowing carry forward of loss under Section 80 of the Act due to belated filing of the return amounted to a debatable issue, rendering jurisdiction under Section 154 impermissible? 2. Whether the Tribunal was correct in holding that the original return filed was not a loss return and there was no violation of Section 139(3) of the Act, despite the assessee filing a revised return and seeking condonation of delay for a belated return? Assessee's contentions: The assessee argued that the original return filed on 06.01.1998 declared an income of Rs. 5,29,270/-. The business loss was determined during the assessment under Section 143(3). Therefore, the loss should be carried forward under Section 80. The assessee contended that they did not declare a business loss in the original return, and thus were entitled to the benefit of carry forward. They sought dismissal of the appeal. Revenue's contentions: The Revenue contended that due to the amendment of Section 80 by the Direct Tax Laws (Amendment) Act, 1987, effective from 01.04.1989, no loss can be carried forward unless determined in pursuance of a return filed within the time allowed under Section 139(1). Since the assessee did not file the return showing business loss within the prescribed time limit, the Assessing Officer was justified in invoking Section 154 to withdraw the benefit. The Revenue argued that the Tribunal's reasoning was contrary to law.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 154,Section 80,Section 143(3),Section 139(1),Section 139(3)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 11TH DAY OF FEBRUARY 2014

PRESENT

THE HON'BLE MR.JUSTICE DILIP B.BHOSALE

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

ITA NO.683/2007

BETWEEN:

1.

The Commissioner of Income-Tax, Central Circle, C.R Building, Queens Road, Bangalore.

2.

The Deputy Commissioner of Income Tax, Central Circle -2(1), C.R Building, Queens Road, Bangalore.

…Appellants

(By Sri.K.V.Aravind, Advocate)

AND:

M/s. Srinivasa Builders, No.17, M.G.Road, Bangalore.

…. Respondent

(By Sri.S.Parthasarathi, Advocate a/w Sri.Mallaharao.K., Advocate)

This ITA is filed under Sec.260-A of Income Tax Act 1961, arising out of order dated 13/04/2007 passed in ITA No.314/BNG/2005, for the Assessment Year 1997-98, praying that this Hon'ble Court may be pleased to:

i. formulate the substantial questions of law stated therein,

ii. allow the appeal and set aside the order passed by the ITAT Bangalore in ITA.No.314/BNG/2005 dated 13/04/2007 confirm the orders of the Assistant Commissioner of Income Tax Circle-2(1), Bangalore.

This appeal coming on for Hearing this day, B.Manohar.J., delivered the following:

J U D G M E N T

The Revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) challenging the order dated 13th April 2007 made in ITA 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 154 providing initiated by Assessing authority.

2.

The respondent-assessee is a Firm and they filed return of income for the assessment year 1997-98 on 6-1-1998 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 6.6.2001. Subsequently, the Assessing Officer issued notice under Section 154 of the Act to rectify the order dated 6-6-2001, 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 over-ruling the said objections by its order dated 10-10-2003 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.

3.

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.

4.

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 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 u/s.154 of the Act was not permissible?

2.

Whether the Tribunal was correct in holding that the original return filed was not a loss return and there were no violation of provision 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?

5.

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 w.e.f. 1-4-1989, 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.

6.

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 6-1-1998, 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.

7.

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

8.

The records clearly disclose that the assessee had filed return of income declaring the total income on 6-1-1998. 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 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 139(3) of the Act which is

factually incorrect. On the other hand, the assessee had declared 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.

9.

Accordingly, the appeal is dismissed confirming the order passed by the appellate Tribunal.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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