CHANDRASHEKAR HEMANTH ,BENGALURU vs. INCOME TAX OFFICER WARD 7(2)(4) BANGALORE, BENGALURU

The impugned order is riddled with mistakes apparent from the records and therefore bad in law; 9. The impugned order as such is bad in law in so far not considering the facts of the case, non-applying the principles of natural justice, and hence fit for quashing. (Total tax effect: Rs.14,89,021/-) On the basis of the above grounds and other grounds which may be urged at the time of hearing with the consent of the Honorable Tribunal, it is prayed that the order passed under section 250, to the extent it is against the Appellant, be quashed and the relief sought to be granted.”

The brief facts of the case are that the assessee is an individual and filed his return of income on 28/03/2018 declaring a total income of Rs. 4,64,440/-. The assessee is running a hotel in the name and style of Pleasant stay Inn. Thereafter, the case of the assessee was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) were issued. Thereafter, the assessee had suomoto offered a sum of Rs. 3 Lakhs as his unexplained money u/s. 69A of the Act. The AO stated that the assessee had made a claim of setting off of brought forward losses of Rs. 45,18,838/- which was originally accepted by the CPC while processing the return. Now the AO made an allegation that the assessee is not entitled for set off the above said losses for the reason that the assessee had filed their return of income for the A.Y. 2016-17 belatedly. Therefore the AO disallowed the said set off. As against the said order, the assessee filed an appeal before the Ld.CIT(A) and contended that the losses brought forward and set off during A.Y. 2017-18 is not related to the losses of 2016-17 whereas it relates to the A.Y 2012-13 and 2013-14 for which periods the assessee had filed their return of income in time. The assessee therefore claimed that the finding of the AO is not correct and prayed to allow the appeal. The Ld.CIT(A) without considering the various records submitted before him, had come to a wrong conclusion that the assessee had filed their return of income for the A.Y. 2016-17 on 28/03/2018 i.e. beyond the time prescribed u/s. 139(1) of the Act and therefore the assessee is not entitled for set off as per section 80 of the Act.

The Ld.CIT(A) further held that the losses pertain to A.Ys. 2012-13 and 2013-14 was not determined since the return for the A.Y. 2016-17 was filed belatedly and therefore the assessee is not entitled to carry forward the loses and set off with the income for the A.Y. 2017-18. As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

At the time of hearing, the Ld.AR submitted that the disallowance of the set off of the losses was not put in the show cause notice by the AO and also the Ld.CIT(A) had not granted a personal hearing in spite of the request made before him and therefore the orders are liable to be set aside. Further, the Ld.AR submitted that the AO as well as the Ld.CIT(A) had misunderstood the provision and on that basis, rejected the claim of set off which is not correct. The sections 72(1), 73(2), 73A(2), 74(1) or (3) and 74A(3) and 80 of the Act were relied on by the Ld.AR and contended that the losses in respect of the previous years could be set off against the current

We have heard the arguments of both sides and perused the materials available on record.

On perusing the assessment order, the assessee’s case was selected for scrutiny for the purpose of verifying the substantial cash deposits in bank account during the year and to that effect notices were issued and details were called for. But all of a sudden, in paragraph 7 of the assessment order, the AO had disallowed the set off of loses of Rs. 45,18,838/- but before disallowing the set off, it seems that the AO had not issued any show cause notice but made the assessment. Therefore, we are of the view that the AO had not put on notice about the disallowance before passing the assessment order.

As seen from the above statement, the assessee had incurred a loss of Rs. 44,78,802/- for the A.Y 2012-13 which was accepted by the AO since the return was filed on 01/10/2012 well before the last date for filing the returns. Similarly, the assessee had incurred a loss of Rs. 44,89,220/- in respect of the A.Y. 2013-14 for which also, the assessee filed their return of income in time and therefore both the losses of Rs. 89,68,022/- were available for brought forward and set off against any profits arose in the subsequent years. The assessee in the assessment year 2014-15 had earned an income of Rs. 12,41,729/- and for the A.Y. 2015-16, a sum of Rs. 3,25,224/- and for the A.Y. 2016-17, a sum of Rs. 36,65,795/- and after adjusting the said losses with the incomes earned during the above said three years, the total loss available for set off is Rs. 37,35,274/-. As rightly pointed out by the assessee, mistakenly, the income for the A.Y. 2014-15 were also taken as loss while filing the return for A.Y. 2017-18 and the A.Y. 2013-14 as Rs. 40,31,055/- whereas the actual loss incurred for the above said A.Y. is Rs. 44,89,220/-. In respect of the A.Y. 2013-14, the assessee had claimed a lesser amount as loss whereas in respect of the A.Y. 2014-15, the assessee had shown a wrong figure as losses when there is no actual loss incurred during that year but only income was available for set off during that year. We have also perused the relevant extract of ITR for the A.Ys. 2013-14, 2014-15, 2015-16 & 2016-17 and in all the returns, the said losses were properly shown in the returns and a portion of the losses were set off as against the profits earned during the years 2014-15, 2015-16 and 2016-17. After adjusting the losses in the earlier years, the balance loss which is available for set off is about Rs. 37,35,274/- whereas mistakenly, the assessee had shown a sum of Rs. 45,18,838/- as the carry forward loss. The said wrong claim was also accepted by the CPC and the set off was granted in the A.Y. 2017-18.

On perusing the details filed by the assessee and the copies of the ITRs filed in respect of the A.Ys. 2013-14, 2014-15, 2015-16 and 2016-17, we are able to ascertain that the losses are only related to the A.Ys. 2012-13 and 2013-14 which was carried forward after adjusting the profits available during the subsequent years. There is no dispute with regard to the fact that the return of income for the A.Ys. 2012-13 and 2013-14 were filed in time and in that A.Ys., the losses were determined by the AO and therefore the said losses can be carried forward upto a period of 8 years as stated in sections 72(1), 73(2), 73A(2), 74(1) or (3) and 74A(3) and 80 of the Act. In the present case on hand, the AO as well as the Ld.CIT(A) was under the impression that the return for the A.Y. 2016-17 was belatedly filed and therefore the losses carried forward was not determined during the A.Y. 2016-17 and therefore the losses could not be carried forward and set off against the profits available during the A.Y. 2017-18. Both the authorities failed to consider the fact that the AO had determined the losses in respect of the said A.Ys. based on the return filed by the assessee and therefore the loses were correctly determined by the AO during the relevant assessment years and therefore the said losses can be carried forward and set off against the profits available in the subsequent years. The authorities had also failed to note that the losses are not related to the A.Y. 2016-17 whereas it related to the A.Ys. 2012-13 and 2013-14 which was properly determined by the AO since the returns were filed in time. If the assessee had claimed the losses incurred during the A.Y. 2016-17, for which period the return was belatedly, then the authorities are correct in disallowing the said losses whereas in the present case, the losses related to the A.Ys. 2012-13 and 2013-14 which were properly determined by the AO by considering the returns filed in time and therefore the AO as well as the Ld.CIT(A) had decided the issue erroneously as against the provisions of the Act.

We have also perused section 80 of the Act which speaks about the submission of return for losses. “Submission of return for losses. 80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub- section (3) of section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (2) of section 73A or sub- section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A.”

We have also perused the order of the Hon’ble Allahabad Bench of this Tribunal reported in (2022) 134 taxmann.com 212 wherein it was clearly held as under: “14. We have considered contentions of both the parties and perused the material on record. The assessee is engaged in the business of manufacturing of Glass. The solitary issue in this appeal is with respect to carry forward and set off of brought forward business losses and unabsorbed depreciation. Before proceeding further, it will be profitable at this stage to reproduce relevant provisions of the 1961 Act , which were in force at relevant time under consideration viz. ay: 2012-13: "Depreciation 32(1) **** (2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year , or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub- section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.] Carry forward and set off of business losses. 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 ; [* * *] (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- 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. Submission of return for losses.

Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed [in accordance with the provisions of sub- section (3) of section 139], 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]. Return of income. 139. (1) to (2)*** (3) If any person who [***] 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 sub-section (3) of section 74A], he may furnish, within the time allowed under sub- section (1) [***], 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 Act shall apply as if it were a return under sub-section (1). We have observed that admittedly the assessee filed its return of income for the impugned assessment year 2012- 13 ,on 29.03.2014 , which return of income was filed belatedly beyond the time prescribed u/s 139(1) of the 1961 Act. The assessee declared business loss of Rs. 2,15,19,363/- in the return of income filed with Revenue, while the AO in proceedings conducted u/143(3) read with Section 143(2) of the 1961 Act , assessed income of the assessee at Rs. 27,20,480/-. The AO denied the benefit of set off of brought forwardbusiness losses of earlier years and un- absorbed depreciation , against the income assessed for the year under consideration. The ld. CIT(A) granted partial relief to the assessee so far as additions to the income made by the AO under various heads, and we have also adjudicated vide this common order two issues raised by assessee in its appeal in for ay: 2012-13 which also concerns with additions made by the AO, in preceding para's of this order. These adjudication by appellate authorities have bearing on the assessed income computed under Chapter- IVD and consequently assessed total income of the assessee, for impugned assessment year . So far as carried forward of business losses for the current year under consideration is concerned, it is fairly conceded by ld. Counsel for the assessee and rightly so, that in view of Section 80 and 139(3) of the 1961 Act, the assessee will not be eligible to carry forward current year business losses to subsequent years, as the return of income for the impugned ay:2012-13 was filed belatedly beyond the time stipulated for filing of return of income u/s 139(1) of the 1961 Act . Conjoint reading of Section 80 and 139(3) of the 1961 Act , in our considered view will clearly reveals that it requires for current year business losses to be carried forward to subsequent years for being eligible to be set off against business income of subsequent years, the return of income for the current year has to be mandatorily filed within time stipulated u/s 139(1) of the 1961 Act. In our considered view, the aforesaid provisions u/s 80 and 139(3) cannot be stretched to debar already existing assessed business losses of preceding years to be also hit and not allowed to be set off against the business income of the current year or in case of shortfall of business income of the current year, to be carried forward to subsequent years merely because the current year return of income was filed belatedly beyond the time prescribed u/s 139(1).However, obviously the conditions u/s 80 and 139(3) has to be met in each of the earlier relevant years to which said business loss belongs to be allowed to be carried forward and set off against business income of subsequent years , and the same is also regulated by Section 72(3) which sets the outer limit of eight years for being business losses to be eligible to be set off against business income of subsequent assessment years. However so far as unabsorbed depreciation is concerned , in view of Section 32(2) of the 1961 Act, if the full effect cannot be given to depreciation u/s 32(1) allowable for the year owing to there being no profits or gains chargeable for the year under consideration under Chapter IV-D, or owing to profits or gains chargeable to tax under Chapter IV-D being less than depreciation allowance u/s 32(1), than, inter- alia, subject to provisions of Section 72(2), the unabsorbed depreciation of the current previous year shall be added to the depreciation allowable u/s 32(1) of the succeeding previous year and deemed to be part of the succeeding previous year to be set off against business income of the succeeding previous year and so on. There is no provision of the 1961 statute which is brought to our notice by rival parties which prohibits carry forward of unabsorbed depreciation even if return of income is filed belatedly for the current year beyond the due date stipulated u/s 139(1) of the 1961 Act. Reference is drawn to decision of ITAT, Delhi Bench decision in for ay: 2012-13, vide order dated 23.07.2020 in the case of Addl. CIT v. Nortel Networks India Private Limited. So far as issue of earlier year brought forward business losses and unabsorbed depreciation is concerned, we are of the considered view that the assessee will be entitled to set off against business income of the current year and there is no bar to earlier year brought forward losses and unabsorbed depreciation to be adjusted against current year business income , even if current year return of income is filed belatedly beyond the due date prescribed u/s 139(1) of the 1961 Act. Similarly, earlier year brought forward business losses and unabsorbed depreciation ( to the extent not set off against current year business income) shall be allowed to be carry forward to the succeeding year viz. ay: 2013-14 and so on, and their carry forward to subsequent years will not be affected merely because the return of income for ay: 2012-13 was filed belatedly beyond the time prescribed u/s 139(1) of the 1961 Act. However, the overall carry forward of business losses shall be subject to period of eight assessment years immediately succeeding the assessment year for which the loss was first computed, as is stipulated u/s 72(3) of the 1961 Act, 32(2) of the 1961 Act, after its amendment by Finance Act, 2001. Reference is drawn to the decision(s) of Hon'ble Gujarat High Court in the case of General Motors India Private Limited v. DCIT , reported in (2012) 25 taxmann.com 364(Guj. HC), Hon'ble Madras High Court decision in the case of CIT v. KMC Speciality Hospitals India Private Limited reported in (2021) 130 taxmann.com 215(Mad. HC). Reference is also drawn to dismissal of SLP by Hon'ble Supreme Court in the case of Pr. CIT v. Petrofils Co-operative Limited , reported in (2021) 130 taxmann.com 191(SC), wherein SLP was dismissed by Hon'ble Supreme Court filed by Revenue against the decision of Hon'ble Gujarat High Court holding that unabsorbed depreciation pertaining to assessment year 1997-98 could be allowed to be carried forward and set off after a period of eight years without any limit whatsoever in accordance with Section 32(2) as amended by Finance Act , 2001. The Hon'ble Gujarat High Court in the case of Pr. CIT v. Petrofils Co-operative Limited, reported in (2021) 130 taxmann.com 190(Guj HC) followed its earlier decision in the case of General Motors India Private Limited(supra). Further, needless to say that all the earlier year brought forwards business losses which assessee is seeking to set off and carry forward, should be assessed business losses and the return of income for those years ought to have been filed by the assessee within the time stipulated u/s 139(1) and ought not to be belated return of income filed beyond the due date prescribed u/s 139(1), otherwise it will be hit by provision of Section 80 and 139(3) of the 1961 Act. So far as quantum of brought forward business losses and unabsorbed depreciation which were assessed to be carried forward to subsequent years and its period of allowability is concerned, we are of the considered view that these facts requiresverification by Assessing Officer from the record , and the material on record available before us is not sufficient to give conclusive finding on these facts, and hence we are setting aside this matter to the file of AO for verification of facts and quantum of allowability of brought forward business losses and unabsorbed depreciation, and while allowing the carry forward of business losses , the AO shall also verify that the return of income was filed by assesseein time within due date prescribed u/s 139(1) for those years and the loss assessed by Revenue to be carried forward for each of the years and period of allowabilityof business loss for eight assessment years as is available u/s 72(3) of the 1961 Act. The assessee has also grievance that unabsorbed deprecation amount is wrongly mentioned in grounds of appeal filed with tribunal, this aspect shall also be verified by the AO from records and correct amount be accordingly considered after due verification of records.Needless to say that the AO shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law , to carry on directions as per our order. The AO shall admit all necessary evidences/explanation filed by assessee in support of its contentions and adjudicate the same on merits in accordance with law. The AO is directed to pass detailed and reasoned order . This ground of appeal is partly allowed for statistical purposes. We order accordingly.”