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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
Per N V Vasudevan, Vice President This appeal by the assessee is against the order of CIT(Appeals), National Faceless Assessment Centre, Delhi [NFAC] dated 30.06.2022 for the assessment year 2017-18.
The Assessee is an Individual and a Partner in the Firm V M Pal & Co (PAN:AACFV9074F). It is not in dispute that the Firm is liable for tax audit in the Assessment Year 2017-18. For the Assessment Year 2017-18, the due date for filing the return by the Assessee was 07/11/2017, by virtue of being a Partner in a Firm Liable for Tax Audit. (Vide explanation 2 (a)(iii) to the fourth Proviso of Section 139(1) of the Income Tax Act, 1961, the
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due date for Asst Year 2017-18 was 07/11/2017 vide Notification F.No.225/270/2017/ITA.II dated 31.10.2018
The assessee filed the return of income for AY 2017-18 in Form ITR- 3 on 29.10.2017 and was within due date by virtue of Para 2 above. The Assessee then filed a Revised Return on 29.03.2018, as he found that some claims on Donation 80G had got omitted. The Assessee received Intimation under Section 143(1)(a) dated June 2, 2018 accepting the Revised Return filed on 29.03.2018. In this Intimation also there is a mention that the due date of filing of the Return by the Assessee is 07/11/2017.
On November 7, 2018, the Assessee realised that he had forgotten to claim the Long Term Capital Loss and hence filed a Second Revised Return making the claim and to carry forward the Long Term Capital Loss of Rs.892,835. In this revised return also, the assessee indicated that he is a partner in a firm which is subjected to tax audit. Against the Second Revised return, the Assessee received notice on 19.01.2019 for Adjustments to income towards mismatch of P&L account and income schedules as well as disallowance of carry forward loss, because the Assessing officer believed that the due date of filing of original return is 31.08.2017 and not 07.11.2017
A further third revised return was filed by the assessee on 19.02.2019 to rectify the Adjustments proposed and also indicated in the third Revised Return that the Assessee is a partner in a Firm which is subjected to tax audit and the carry forward of loss should be permitted.
In April 2019, the Assessee received an intimation under section 143(1)(a) approving all the reversals of adjustments proposed, except the Due date of filing as 07.11.2017 was not accepted by the Assessing Officer
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and the Carry forward loss was disallowed. The Assessee filed for Rectification and reprocessing of return of income under section 154 of the Income Tax Act 1961. The Assessee has received an order u/s 154 dated 23.6.2019, rejecting the claim by the Assessee and has disallowed carry forward of loss on the grounds that the return of income was not filed before the due date for filing u/s.139(1) by the assessee.
The CIT(Appeals), following the decision of the ITAT Visakhapatnam Bench in the case of M. Narendranath (Indl.) v. ACIT, [2005] 94 TTJ Visakha 284 held that the assessee was required to file return of income claiming loss in terms of section 139(3) of the Income-tax Act, 1961 [the Act] and that the provisions of section 139(5) are not applicable to a revised return where loss is claimed. Besides the above, the CIT(Appeals) also held that the issue was debatable and cannot be said to be a mistake apparent from the record. The appeal of the assessee was accordingly dismissed by the CIT(Appeals).
Aggrieved by the order of the CIT(Appeals), the assessee is in appeal before the Tribunal.
We have heard the rival submissions. The ld. counsel for the assessee brought to our notice a decision of the Mumbai Bench of the Tribunal in the case of Ramesh R. Shah v. ACIT, [2011] 12 taxmann.com 501 (Mumbai) wherein a view, contrary to the view taken by the Visakhapatnam Bench of the ITAT which was relied upon by the CIT(Appeals), was taken. Apart from the above, it was submitted that while processing the return u/s. 139(1)(a) of the Act, the AO was not competent to make an adjustment on an issue which was debatable.
The ld. DR relied on the order of the CIT(Appeals).
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We have considered the rival submissions. Section 143(1)(a)(i) to (vi) provides for the following adjustments to be made while processing the return electronically:-
“143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure 68[or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under 69[section 10AA or under any of the provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub- section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:” 12. It could be seen from clause (iii) of section 143(1)(a) that loss claimed can be disallowed only if the return of the previous year for which
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set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139. Those provisions are clearly applicable only when a claim of set off is made and not to claim for carry forward of loss as in the present case. Insofar as the claim of the assessee for carry forward of loss is concerned, it could never be an item of adjustment contemplated in any one of the clauses (i) to (vi) of section 143(1)(a). Hence, the contention of the assessee that the issue was debatable and not amenable to adjustment u/s.143(1)(a) of the Act has force.
Apart from the above, we find that the Mumbai Bench of the ITAT after considering the decision of the Vishakapatnam Bench in the case of M. Narendranath (Indl.) [supra] held as follows:-
“9. In the background of these facts, we have to examine whether the assessee is entitled to claim of the carry forward of the long-term capital loss as per the revised return filed on 28-3- 2006. We have already stated that the original return was filed by the assessee is well within the time and there is no controversy on this aspect. Subsequently, the assessee filed the revised return and claimed that same is filed under sub-section (5) to section 139. As per the provisions of section 139(5) if the assessee has furnished the return under section 139(1) and subsequently discloses any wrong statement therein or which in his opinion is wrong then he can revise the return at any time before the expiry of the one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. So far as the time limit prescribed under sub-section (5) to section 139 is concerned, the Assessing Officer is not disputing the same. Only issue is in respect of interpretation of sub-section (3) of section 80. As per provisions of sub-section (3) of section 139, if the assessee incurred loss in any previous year under the head 'Profit and gains of business or profession' or 'Capital gain' and claims that the said loss or part thereof should be carried forward under section 72, 73 or 74 etc. then he should file the said return within a time stipulated under section 139(1) of the Act. As per
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section 80, to claim the carry forward of the loss, there are two conditions:- (1) the return of income claiming the loss must be filed within the time limit prescribed under section 139(3) read with section 139(1) and; (2) the said loss must have been determined. 10. In the present case, the Assessing Officer has serious reservation for allowing the assessee to carry forward long-term capital loss by interpreting the provisions of section 80 read with section 139(3). In this background, can it be said that the assessee has not fulfilled conditions laid down in section 80 and hence, it is not permissible to allow to carry forward of the capital loss. In the present case, the assessee filed original return under section 139(1) in which the positive income was declared. Even as per the assessment order positive income is determined as the assessee could not set off the loss on the sale of the shares of Phiolx Pharma Ltd. in the year itself. He claimed the same to be carry forward. In our humble opinion correct interpretation of section 80, as per the language used by the Legislature, condition for filing revised return of loss under section 139(3) is confined to the cases where there is only a loss in the original return filed by the assessee and no positive income and assessee desires to take benefit of carry forward of said loss. Once, assessee declares positive income in original return filed under section 139(1) but subsequently finds some mistake or wrong statement and files revised return declaring loss then can he be deprived of the benefit of carry forward of such loss? In our humble opinion, if we accept interpretation given by the authorities below, it would frustrate the object of section 80. Section 80 is a cap on the right of the assessee, when the assessee claims that he has no taxable income but only a loss but does not file the return of income declaring the said loss as provided in sub-section (3) of section 139. It is pertinent to note here that Legislature has dealt with two specific situations (i ) under section 139(1), if the assessee has a taxable income chargeable to tax then it is a statutory obligation to file the return of income within the time allowed under section 139(1). So far as section 139(3) is concerned, it only provides for filing the return of loss if the assessee desires that the same should be carried forward and set off in future. As per the
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language used in sub-section (3) to section 139, it is contemplated that when the assessee files the original return, at that time, there should be loss and the assessee desires to claim said loss to be carried forward and set off in future assessment years. Sub- section (1) of section 139 cast statutory obligation on the assessee when there is positive income. In the present case, admittedly, the assessee filed the return of income declaring the positive income and even in the revised return, the assessee has declared the positive income as the loss in respect of the sale of shares, which could not be set off, inter-source or inter-head under section 70 or 71 of the Act. 11. We have to interpret the provisions of any statute to make the same workable to the logical ends. As per the provisions of sub- section (5) to section 139, in both the situations where the assessee has filed the return of positive income as well as return of loss at the first instance as per the time limit prescribed and subsequently, files the revised return then the revised return is treated as valid return. In the present case, as the assessee filed its original return declaring the positive income and hence, in our opinion, subsequent revised return is valid return also and the assessee is entitled to carry forward of 'long-term capital loss'. Sub-sections (1) and (3) of section 139 provides for the different situations and in our opinion, there is no conflict in applicability of both the provisions as both the provisions are applicable in the different situations. We are, therefore, of the opinion that there is no justification to deny the assessee to carry forward the loss. We, accordingly, direct the Assessing Officer to allow the assessee to carry forward the loss.” 14. The law laid down above is that Section 80 is a cap on the right of the assessee, when the assessee claims that he has no taxable income but only a loss but does not file the return of income declaring the said loss as provided in sub-section (3) of section 139. Under section 139(1), if the assessee has a taxable income chargeable to tax then it is a statutory obligation to file the return of income within the time allowed under section 139(1). So far as section 139(3) is concerned, it only provides for filing the return of loss if the assessee desires that the same should be
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carried forward and set off in future. As per the language used in sub- section (3) to section 139, it is contemplated that when the assessee files the original return, at that time, there should be loss and the assessee desires to claim said loss to be carried forward and set off in future assessment years. Sub-section (1) of section 139 cast statutory obligation on the assessee when there is positive income. In the present case, admittedly, the assessee filed the return of income declaring the positive income and even in the revised return, the assessee has declared the positive income as the loss in respect of the sale of shares, which could not be set off, inter-source or inter-head under section 70 or 71 of the Act. As per the provisions of sub-section (5) to section 139, in both the situations where the assessee has filed the return of positive income as well as return of loss at the first instance as per the time limit prescribed and subsequently, files the revised return then the revised return is treated as valid return. In the present case, as the assessee filed its original return declaring the positive income and hence, in our opinion, subsequent revised return is valid return also and the assessee is entitled to carry forward of 'long-term capital loss'. Sub-sections (1) and (3) of section 139 provides for the different situations and in our opinion, there is no conflict in applicability of both the provisions as both the provisions are applicable in the different situations. In the light of the aforesaid decision of the Mumbai Bench of the Tribunal, we are of the view that the issue with regard to carry forward of short term capital loss claimed by the assessee should be directed to be examined by the AO afresh in the light of the observations made above. Accordingly, we allow the appeal of the assessee for statistical purposes.
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In the result, the appeal of the assessee is allowed for statistical purposes.
Pronounced in the open court on this 28th day of October, 2022.
Sd/- Sd/- ( CHANDRA POOJARI ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT
Bangalore, Dated, the 28th October, 2022.
/Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.