SHRI GAYATRI CONSTRUCTIONS,NELLORE vs. DCIT., CIRCLE-1, NELLORE

First, we take up assessee’s appeal for A.Y. 2016-17 in ITA No.294/Hyd/2021. The grounds raised by the assessee read as under :

The Ld.CIT(A) ought to have appreciated the fact that return filed under Section 153A during the AY 2016-17 takes the place of the original return under Section 139, for the purposes of all other provisions of the Act and accordingly, the loss relating to AY 2016-17 can be carried forward and adjusted against capital gain in subsequent years.

The brief facts of the case are that, the assessee, who is an individual filed original return of income under Section 139(1) of the Income Tax Act, 1961 (for short “the Act”) for the assessment year 2016-17 on 28.10.2016, declaring total income of Rs. 47,80,270/-. A search and seizure action under Section 132 of the Income Tax Act, 1961 was conducted in the case of M/s. Goldstone Infratech Ltd. and other associated companies on 09.11.2017. The assessee was one of the persons whose residential premises was covered under Section 132 of the Income Tax Act. Consequent to search, a notice under Section 153A of the Act, dated 16.05.2019 was issued and served on the assessee. In response to notice, the assessee filed the return of income on 15.06.2019, declaring total income of Rs. 47,80,270/-. The case was selected for scrutiny and the assessment has been completed under Section 143(3) r.w.s. 153A of the Income Tax Act on 27.12.2019 and determined the total income at Rs. 47,80,270/- by accepting the income returned by the assessee.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A).

Before the Ld. CIT(A), the assessee submitted that, although the assessee has returned the total income of Rs. 47,80,270/- and the capital loss of Rs. 3,47,754/-, but the A.O. erred in not allowing carry forward of capital loss to subsequent assessment year. The assessee further contended that, although the assessee has filed belated return on 28.10.2016 under Section 139(4) of the Act, but subsequent to search, the assessee had filed return in response to notice under Section 153A of the Act, within the time allowed under the Act, and therefore, once return filed under Section 153A is within the time allowed under the Act, then it replaces the original return and consequently, all other provisions 139(1) of the Income Tax Act, 1961. Therefore, he ought to have allowed the carry forward capital loss claimed by the assessee.

The Ld. CIT(A), after considering the relevant submissions of the assessee, held that, as per the provisions of Section 139(3) of the Income Tax Act, 1961, there is no merit in the contention of the assessee because of restrictive provisions contained in Section 80 of the Act, which prohibits carry forward of losses to the subsequent year, once the return of income has not been filed on or before the due date provided under Section 139(3) of the Act. Therefore, the Ld. CIT(A) rejected the claim of the assessee.

The Learned Counsel for the assessee Shri P. Murali Mohan Rao, C.A. submitted that, although there is no consequential effect for not allowing the set-off of losses for the year under consideration, but the effect is for the subsequent assessment year 2017-18, where the assessee has claimed set-off of brought- forward capital loss of Rs. 3,47,754/-, however, the A.O. has not allowed the said loss. Therefore, he submitted that, the A.O. ought to have allowed carry-forward of capital loss to subsequent assessment years.

The Learned Counsel for the assessee, further referring to the decision of the Hon’ble High Court of Calcutta in the case of Pr. CIT Vs. Seven Star Steels Ltd (2025) 174 taxmann.com 492, submitted that, the operation of Section 139(3) qua time available for filing of a return in order to avail the benefit of carrying forward any loss stands extended till a return is called for under Section 153A(1)(a), and such return is filed, provided return is filed within the time indicated in relevant notice under Section 153A(1)(a) of the Act. Since the assessee had filed return of income within 30 days from the date of issuance of notice under Section 153A of the Act, the A.O. ought to have allowed carry-forward of capital loss to subsequent assessment years.

The Learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the Ld. CIT(A), submitted that, it is an admitted fact that, the assessee has filed belated return for the assessment year under consideration, which is beyond the due date provided under Section 139(1) of the Income Tax Act. As per Section 139(3) of the Act, if the original return is not furnished on or before the due date provided under Section 139(1), then the assessee cannot carry forward any loss to subsequent assessment years. The argument of the learned counsel for the assessee in light of the decision of the Hon’ble High Court of Calcutta in the case of Pr. CIT Vs. Seven Star Steels Ltd (supra), is devoid of merit, going by the facts of the above case. The Hon’ble High Court, considering the peculiar facts of the said case, has held that, return filed in response to notice under Section 153A partakes the nature of return filed in response to return under Section 139(1) of the Act, and the assessee can claim the benefit of carry forward of losses. Further, the above issue has been now settled by the decision of Hon’ble Supreme Court in the case of Pr. CIT Vs. Wipro Limited (2022) 140 taxmann.com 223 (SC), wherein, in paragraph 9 of the judgment, it was clearly held that, the revised return filed by the assessee under Section 139(5) can only substitute the original return filed under Section 139(1) and cannot transform into a return under Section 139(3) in order to avail benefit of carry forward and set-off any loss under Section 80 of the Income Tax Act. The learned counsel for the Revenue case of DCIT Vs. HES Infra Pvt. Ltd., (ITA Nos.603 to 606/Hyd/2016 dt.31.07.2023) submitted that, the Coordinate bench of the Tribunal has considered the very same issue and held that, the assessee cannot be permitted to raise fresh issue in the assessment or return filed under Section 153A of the Act. Since the assessee is making a fresh claim of carry forward of losses and set-off of losses in these assessment years, the claim of the assessee is not in accordance with the provisions of Section 80 r.w.s. 139(3) of the Income Tax Act, 1961, and thus, the A.O. has rightly disallowed the claim of the assessee. The Ld. CIT(A), after considering the relevant facts, has rightly upheld the order of the A.O. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by both the parties in support of their contentions. Admittedly, the assessee has furnished original return of income for the assessment year 2016-17 on 28.10.2016, which is beyond the due date provided under Section 139(1) of the Act. It is also an admitted fact that, the assessee has furnished return in response to notice under Section 153A of the Act on 15.06.2019, which is within 30 days from the date of issuance of notice. The assessee claims that, he had reported capital loss of Rs. 3,47,754/- and the same has not been allowed by the A.O. to be carry forward to the subsequent assessment years. According to the learned counsel for the assessee, even though the original return was filed belatedly, but once the return in response to notice under Section 153A is filed on or before the due date, then said return replaces the original return filed under Section 139(1) of the Act, and all provisions of the Act, are applicable as if, such return was filed on or before the due date provided under Section 139(1) of the Income Tax Act, 1961. In this regard, he referred to the decision of Hon’ble Calcutta High Court in the case of Pr. CIT Vs. Seven Star Steels Ltd (supra). We find that, the set-off of brought-forward losses and carry forward of unabsorbed depreciation and business losses are governed by Section 72 r.w.s. 80 of the Income Tax Act, 1961. As per Section 80 of the Act, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of Section 139(3) shall be carry forward and set off under Section 72(1) or 73(2) or 74(1) of the Act. In other words, as per the provisions of Section 80 of the Act, loss cannot be allowed to be carried forward, unless the return of income is furnished in terms of Section 139(3) of the Act, on or before the due date provided under Section 139(1) of the Act. In the present case, there is no dispute with regard to the fact that, the original return of income filed by the assessee for A.Y. 2016-17 is belated and not within the due date provided under Section 139(1) of the Act. Therefore, in our considered view, as per the provisions of Section 72 r.w.s. 80 of the Act, the assessee cannot carry forward capital loss to subsequent assessment year. This legal principle is supported by the decision of the Hon’ble Supreme Court in the case of Pr. CIT Vs. Wipro Ltd. (supra), wherein at paragraph 9 of the order, it has been clearly held that, the revised return filed by the assessee under Section 139(5) can only substitute its original return filed under Section 139(1) and cannot transform it into a return under Section 139(3), in order to avail the benefit of carry forward or set-off of any loss under Section 80 of the Act. Therefore, we are of the considered view that, there is no error in the orders passed by the A.O. for the assessment year in question and not allowing the carry forward of capital loss claimed by the assessee.

Coming back to the decision relied upon in the case of Pr. CIT Vs. Seven Star Steels Ltd (supra). The Hon’ble Calcutta High Court considered the issue of return filed under Section 153A(1)(a) of the Act, in light of provisions of Section 139(3) and held that, the operation of section 139(3) qua time available for filing return in order to avail the benefit of carrying forward of any loss stands extended till a return is called for under Section 153A(1)(a), and such return is filed, provided, return is filed within the time indicated in relevant notice under Section 153A(1)(a) of the Act, the assessee can carry forward the loss. We have gone through the relevant case laws relied upon by the assessee and upon perusal of the facts, we find that, the peculiar facts of the above case, the Hon’ble High Court of Calcutta came to the conclusion that, provisions of Section 139(5) are not applicable to the facts and circumstances of the present case. Since the revised return was not filed on account of any omission or wrong statement or omission contained therein and the delay occurred on account of and amalgamation from the NCLT. The Hon’ble High Court of Calcutta further relied upon the Division Bench decision in the case of Shrikant Mohta Vs. CIT (2019) 414 ITR 270 and once again in the above case, search operation was conducted on 02.09.2004 and the due date for filing return of income under Section 139(1) was on 31.10.2004 and under those facts, held that, the obligation to file the return remained suspended, in view of the clear opening words of Section 153A(1) of the Act, till such time that the notice was issued under clause (a) of such sub- section. If such is the meaning of Section 153A of the Act, the operation of section 139(3) of the Act qua the time available for filing a return in order to avail of the benefit of carrying forward of any loss extended till a return is called for under Section 153A(1)(a) of the Act and such return is filed, provided the return is filed within the time indicated in relevant notice under Section 153A(1)(a) of the Act. First of all, the facts of the case before the Hon’ble Calcutta High Court are peculiar in nature and considering the said facts, it was held that, Section 139(5) is not applicable to the facts and circumstances of the above case. Further, the Hon’ble Supreme Court in the case of Pr. CIT Vs. Wipro Ltd. has categorically held that, unless the return of income was filed under Section 139(1), the operation of Section 139(3) cannot be precedented. Since the Hon’ble Supreme Court has settled the issue, in our considered view, the case law relied upon by the assessee in the case of Pr. CIT Vs. Seven Star Steels Ltd (supra) is not applicable to the facts of the present case and thus, rejected.

In this view of the matter and considering the facts and circumstances of the case, in our considered view, there is no error in the reasons given by the A.O. and Ld. CIT(A) to disallow the carry forward of the capital loss to the subsequent assessment years. Therefore, we are inclined to uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the assessee.

In the result, the appeal of the assessee for A.Y. 2016-17 is dismissed.

Coming to the assessment year 2017-18, the assessee has reported net short-term capital gain of Rs. 1,02,734/- after claiming the set-off of brought forward short-term capital loss of Rs. 3,47,754/-. The A.O. denied the set-off of brought forward capital loss of Rs. 3,47,754/- on the ground that, the assessee has failed to file return of income for A.Y. 2016-17 on or before the due date of filing the return, i.e., 31.08.2016, and the assessee’s short- term capital loss of Rs. 4,68,763/- was not allowed by the A.O. We find that, an identical issue has been considered by us in the assessee’s own case for the assessment year 2016-17 in where we have held that, unless the assessee files return of income on or before the due date provided under Section 139(1), the assessee cannot claim carry forward of losses and set-off against income in subsequent assessment years in view of clear provisions of Section 139(3) and Section 80 of the Income Tax Act, 1961. Since the assessee does not have any carry-forward capital loss for the assessment year under consideration, the set-off claimed by the assessee for Rs. 3,47,754/- against short-term capital gain is rightly disallowed by the A.O. The Ld. CIT(A), after considering the relevant facts, has rightly upheld the reasons given by the A.O. to deny the set-off of brought-forward capital loss. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the assessee.

In the result, the appeal of assessee for A.Y. 2017-18 is dismissed.

To sum up, both the appeals filed by the assessee are dismissed.