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Facts
The assessee filed a return of income for AY 2018-19 showing a total loss. The AO disallowed the business loss of Rs. 19,26,39,748/-, citing that the return was filed late under Section 139(3) and thus the loss could not be carried forward. The AO also disallowed other expenses and imposed a penalty under Section 270A. The CIT(A) dismissed the appeal ex-parte.
Held
The Tribunal held that the CIT(A)'s order was not sustainable as it was passed ex-parte without proper adjudication and without adhering to mandatory procedures. The Tribunal set aside the issue to the CIT(A) for fresh adjudication on merits, particularly regarding the penalty under Section 270A.
Key Issues
Whether the disallowance of business loss due to late filing of return is justified, and if the penalty under Section 270A is imposable. Also, whether the CIT(A) followed the proper procedure while dismissing the appeal ex-parte.
Sections Cited
139(1), 139(3), 143(2), 143(3), 270A, 80, 250(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI VIKRAM SINGH YADAV
The assessee is in against the order of the Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 23.09.2024 passed for assessment year 2018-19. The assessee has taken eleven grounds of appeal
, however, his grievance revolves around a single fold namely, ld. CIT(A) has erred in confirming the penalty amounting to A.Y.2018-19
2. Rs.3,36,99,161/- which was imposed by the AO under Section 270A of the Income Tax Act.
The brief facts of the case are that assessee has filed its return of income for assessment year 2018-19 on 02.02.2019 declaring a total loss of Rs.23,85,13,392/- and had claimed a refund of Rs.13,19,040/-. The case of the assessee was selected for scrutiny assessment and notice under Section 143(2) of the Act was issued and served upon the assessee.
On scrutiny of the accounts, it revealed to the AO that in this current year, assessee has loss of Rs.23,85,13,392/-and out of that a sum of Rs.4,58,73,644/- represent the unabsorbed depreciation. The AO was of the view that business loss of Rs.19,26,39,748/- is not allowable to the assessee because the return under Section 139(1) was not filed within the time limit provided in Section 139(3) of the Income Tax Act. The AO further observed that as per Section 80 of the Income Tax Act if return is not filed within the time limited provided in Section 139(3), then current loss will not be permissible to the assessee to carry forward for further years. Accordingly, he disallowed this loss. Apart from this A.Y.2018-19 3 loss, he disallowed an expenditure of Rs.3,80,353/-. This amount represent an expenditure incurred on payment of some penalty. Similarly, he disallowed a sum of Rs.17,27,710/- which represent the employees contribution not deposited to their PF and ESI accounts within due date.
Hence, according to the ld. AO, this amount is not permissible to the assessee as deduction. The assessee did not challenge these disallowances in appeal but ld. AO has initiated the penalty proceedings under Section 270A on account of under reporting of the income. The AO has ultimately imposed the penalty of Rs.3,36,99,161/-. The AO has made the total of these disallowances namely, Rs.19,26,39,748/- + Rs.3,80,353/- and + Rs.17,27,710/- which comes out to Rs.19,47,47,811/-. He first calculated the tax on this addition to the income of the assessee, then applied the surcharge and cess. It gives rise to a total tax at Rs.6,73,98,322/-. On this amount, he calculated the penalty @ 50% and in this way, a penalty of Rs.3,36,99,161/- has been imposed upon the assessee.
ITA No.1049/CHD/2024 A.Y.2018-19 4
3. Appeal to the ld. CIT(A) did not bring any relief to the assessee.
The ld. CIT(A) has dismissed the appeal ex-parte for want of prosecution without adjudicating the issue on merit.
5. The ld. Counsel for the assessee while impugning the orders of Revenue authorities submitted that after the imposition of penalty and against the demand order, assessee has filed an application which explains the case of the assessee. This letter is available on page number 253 of the Paper Book. It gives complete background and as to how the penalty is not imposable upon the assessee. We deem it appropriate to take note of this letter which read as under :
To, The Deputy Commissioner of Income Tax Circle-1 Ludhiana Sir,
Re : Shiva Speciality Yarns Limited. Ludhiana Adjustment of Demands Assessment Year 2018-19 PAN - AADCP8621J
With reference to your Demand Notice No. ITBA/RCV/F/17/2024-25-1068973251(1) dated 23.09.2024, it is submitted as under:-
ITA No.1049/CHD/2024 A.Y.2018-19 5
The assessee had filed appeal, against the penalty imposed u/s.270A of the Income Tax Act, 1961 at Rs. 3,36,99,161/-. Inadvertently, it appears the CIT Appeals (NFAC), Delhi was not aware of the short adjournment application filed by the appellant.
The CIT (Appeal) on the presumption of non attendance by the appellant dismissed the Appeal of the appellant on 23.09.2024.
2. The appellant had filed Grievance Petition under "High Pitch Scrutiny Assessment Scheme' of the CBDT on 28.12.2022 against the arbitrary and illegal penalty order. The appellate had stated the actual facts are contrary to those stated in penalty order and the default being of technical nature in the computer filing system of the CBDT, the appellant is being unlawfully penalized with no tax avoidance. The application was considered and discussed by your predecessor and the appellant's contention agreed based on the examination of the ITR filing system.
BRIEF FACTS The assessee filed its return of Total Income showing loss of Rs.23,85,13,392/- The loss was on account of :- Business Loss Rs.19,26,39,748/- Unabsorbed depreciation 4,58,73,644/- Rs.23,85,13,392/- The Return of Income was filed on 02.02.2019 and being filed after due date under section 139(3) of the Income Tax Act. 1961. the returned loss was to be ignored and not carried forward in view of the Provisions of Sec.80 of the Income Tax Act. 1961 (Chapter VI - Aggregation of Income and set off losses). However, the loss was to be computed and assessed.
The E-assessment u/s. 143(3) was made on 03.03.2021 - ignoring and disallowing the business loss of Rs. 19,26,39,748/- on the Plea as per the provisions of Section 80, it cannot be carry forward.
It is totally wrong, baseless and against the law - As there are two aspects of assessment :- 1. Assessment and determination of Loss 2. Whether Assessed Loss can be carry forward - Its carry forward amount
The provisions of toss are contained in Chapter - VI (Aggregation of Income and set off losses) Section 80 of the Income Tax Act, 1961 concerned with carry forward of losses. They are not concerned with determination of income or loss for the year.
The Assessing Officer in his overzealousness wrongly, illegally and without any basis ignored and disallowed the business loss out of the total loss claimed in the return of A.Y.2018-19 6
Total Income filed by the assessee on the plea that the Return of Total Income is filed late not in accordance with provisions of section 139(3) of the Income Tax Act, 1.96.1. The assessee himself filed the computation of total income (Copy enclosed) (Pg 1-3) to show that the assessable, business loss is Rs. 19,26,39,748/-and it is not to be carried forward to next year.
In the succeeding Assessment Year 2019-20, the assessee had not claimed this business loss as brought forward on filing his return on 31.10.2019. Copy of Income Tax Return Form - VI (Pg.4-85) for the assessment year 2019-20 filed on 31.10.2019 is enclosed. A perusal of Schedule BFLA of the Return Form at page 57 (Pq. 77 of this letter) shows that the assessee has not claimed any brought forward loss from assessment year 2018-19. We are enclosing copy of the Intimation Order dated 28.04.2020 (Pg 86-109) for the assessment year 2019-20 which shows in Annexure -Schedule CFL that assessee has not claimed any brought forward business loss from assessment year 2018-19. The assessable business loss was Rs.19,26,39,748/- which has been illegally disallowed on the plea, that it cannot be carried forward. It is correct that it can not be carried forward. But the assessable loss was Rs. 1.9,26,39,748/- to be determined on assessment by the Assessing Officer. Whether the assessed loss is to be carried forward to next year and the determination of Assessable Loss are different question; The assessment is made of the income or loss for the assessment year. Whether, it is to be carried forward or not is another matter. The action of the Assessing Officer of NFAC in wrongly disallowing the loss is illegal, baseless and against law as the loss for the year is to be determined. Whether it is to be carried forward of not, it is as per the applicable provisions of Chapter-VI. It is not to be disallowed on the plea that it cannot be carried forward/ FURTHER
The assessee filed his return of total income through Software (Smart Tax) which is approved by the Central Board of Direct Taxes. The assessee's filled the complete data which automatically transfers the data to department utility.. The business loss ignored by the Smart Tax Software was not ignored by the department utility in Schedule CFL in the ITR-VI Form of return of income. As such, it showed it to be carried forward. (Pg...168)
The profit and loss figure filed by us in the Software get entered into Schedule BP which automatically generates :- Part B - TI - Computation of total income Schedule CYLA and Schedule CFL
ITA No.1049/CHD/2024 A.Y.2018-19 7
These figures are not editable figures. It is not the fault of the assessee. Nor was the assessee's companys intention to claim and neither it did claim any carry forward of the loss under consideration, which is a fact as per the following documents on record:-
As per the computation of income filed for this assessment year 2018-19, without claiming carry forward of losses. Filing of return for the next assessment year 2019-20 on 31.10.2019 without claiming carry forward of business loss under consideration (Return enclosed above) Copy of the Income Tax Intimation u/s.143(1A) of the Income Tax Act, 1961 for assessment year 2019-20 enclosed above. Copy of Statutory Auditor Report in Form 3CA and 3CD dated 30.10.2019 for assessment year 2019-20 which at sl. no.32.a shows not brought forward loss from assessment year 2018- 19 filed with return of total income on 31.10.2019
The points for consideration are :- - whether the loss was to be assessed ? - carry forward to be NIL? and NOT - Disallowance of loss on the account it is not to be carried forward - as done by the Assessing Officer NFAC. The Assessing Officer is of the wrong belief that as the carried forward of loss is not permitted, the loss claimed by the assessee is to be ignored and disallowed without considering that the assessment of the Return is concerned with : - Determination & Assessment of Income/Loss which are distinct activities and separate from. - Whether it is to be carried forward to next years. - The Assessment / Loss is not effected, if it is not to be carried forward. The Assessing Officer has ignored the basic provisions of income tax. He should have assessed loss and commented, whether carry forward of losses is to be allowed.
Subsequently, the assessee was levied huge penalty of Rs. 3,36,99,161/-under section 270A of the Income Tax Act, 1961 on 23.03.2022 (Pg ) on the ground that assessee's return of loss was reduced after making additions of Rs.19,47,47,811/-, as per the provisions of section 80. The provisions of section 80 are concerned with carry forward of losses which the assessee has not claimed in the next years and it was the fault of the department utility. The assessee is being penalized wrongly for no fault of his or any intention to avoid taxes. It is a case of illegal, baseless and against the law disallowance of business loss on wrong interpretation of law. The assessee in the year under consideration and in the A.Y.2018-19 8 next, assessment years has not gained any tax benefit by filing the return of loss, which is to be assessed.
IMPORTANT - DEFECT IN INCOME TAX DEPARTMENT SYSTEM PERSISTING
Even, in the month of December, 2022, if any assessee files returns of business loss for the assessment year 2018-19 on department utility months after due date It is showing carry forward of losses to succeeding Assessment Years. It is not the assessee fault.
We are enclosing herewith dummy return computed on department utility in December. 2022 Pg 180-220 4. The appellant has never claimed carry forward of the loss. We are enclosing herewith copy of the Income Tax Return Form VI (Page 4-85) for the assessment year 2019-20 filed on 31.10.2019. Perusal of Schedule BFLA of this Return Form at Page 61(Page of this letter) shows that the appellant has not claim any brought forward loss from assessment year 2018-19.
The appellant was in heavy losses from assessment year 2010-11 to 2020-21. The appellant company was under heavy debt and all the credit facilities with various banks were declared as NPA (Non Performing Assets). Further, the Assets of the Company were sold by the Bank to Assets Recovery Company. The company is making all efforts to come out of it. We are enclosing copy of computation for the assessment year 2023-24. A perusal of the same will show that till date losses of about Rs. 40.00 crores are still being carry forward. We will be unable to meet such huge demand which though outstanding is a creation of the circumstances.
6. Further, on the basis of various orders, refunds were determined due to the appellant as under:- Assessment Year Amount 2009-10 Rs.45,34,517 (Plus) 2010-11 5,72,422 2014-15 10,13,001 2018-19 13,00,000 (Plus) Copy of Rectification Order, & Computation Sheet enclosed. The above amounts will be more than 20% of the Income Tax due. Pg 221-225. Please adjust the above refunds, this request is made on account of the present situation in which the appellant is today for no fault of his.
We are filing Appeal with the Income Tax Appellate Tribunal, Chandigarh along with urgent request for early hearing of the Appeal. We are confident that on merits being a technical matter of default by the Department Software, the appeal of the appellant will be allowed.
Thanking you much in advance.”
ITA No.1049/CHD/2024 A.Y.2018-19 9
Apart from this letter, ld. Counsel for the assessee drew our attention towards computation of income which is available at page No. 11 to 107 of the Paper Book. He drew our attention towards page No.12. The assessee has shown loss from business/profession at Rs.19,96,39,853/-. On page No.13, the assessee has made the following computation (relevant part) :
Business Loss (-) 199639853 Current Business loss setoff with other heads -------------------- Business loss to be ignored 7000105 as return is not filed on time 192639748 Business Depreciation to be carried forward 45873644 Current Losses Ignored as Return is Not Filed On Time According to the ld. Counsel for the assessee, it has other income which is Rs.12,57,590/-. It has profit on sale of fixed assets etc. On the strength of this letter reproduced above, it was submitted that the software of the Revenue was not accepting the claim made in the return that business loss be not carried forward and it be ignored. As and when such details are being fed on the software, it automatically made it as carried forward. Thus, according to the ld.
Counsel for the assessee, the AO was required to determine the quantum of loss. The applicability of Section 80 is only A.Y.2018-19 10 to the extent that if return was not filed within the time limit under Section 139(3) then such determined loss will not be carried forward. The assessee itself has not carried forward this loss nor it has claimed adjustment of this loss in the subsequent years which was claimed as brought forward.
The AO has erred in not perusing the computation of income properly which was filed by the assessee. The ld. CIT(A) has not even served the proper notice upon the assessee and has not gone through any of the details filed by the assessee before upholding the levy of penalty by dismissing the appeal for want of prosecution.
7. With the assistance of ld. Representative, we have gone through the record carefully. Sub-section (6) of Section 250 provides, “The order of the Joint Commissioner(Appeals) or the Commissioner (Appeals) disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision”. The ld. Commissioner was supposed to call for the complete assessment record, then he ought to have determine the point in dispute and thereafter ought to have record reasons in support of those points, but in the present case he totally failed to adhere the mandatory procedure contemplated in A.Y.2018-19 11 Section 250(6). Therefore, the impugned order of the ld. CIT(A) is not sustainable. We deem it appropriate to set aside these issues to the file of ld. CIT(A) for fresh adjudication. The ld. CIT(A) will look into the facts narrated by us in this order alongwith the other facts available on the record before deciding the issue whether assessee deserves to be visited with any penalty under Section 270A of the Income Tax Act. The ld. CIT(A) shall decide the appeal within five months on receipt of this order on or bring this order to the notice of CIT(A) by the assessee. The reason for above direction is that assessment is of A.Y. 2018-19 and demand is to be recovered from the assessee
In result, appeal of the assessee is allowed for statistical purposes.
Order pronounced on 22.01.2025.