DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI ABHIJIT SURESH JADHAV,, PUNE

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

This appeal filed by the Revenue is emanating out of the order 1. of Commissioner of Income Tax (A) – 3, Pune dt.10.09.2015 for the assessment year 2011-12.

Assessee is a partner in various firms and is also having rental income. Assessee filed his return of income for AY. 2011-12 on 23.03.2013 declaring total income of Rs.2,67,77,785/-. The case was

selected for scrutiny and thereafter assessment was framed u/s

143(3) of the Act vide order dt.28.03.2014 and the total income was

determined at Rs.3,15,50,948/- Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who vide order

dt.10.09.2005 (in appeal No.PN/CIT(A)-3/DCIT Cir-3,Pn/120/2014-

15) granted substantial relief to the assessee. Aggrieved by the order

of Ld.CIT(A), Revenue is now in appeal before us and has raised the

following grounds :

“On the facts and in circumstances of the case and in law 1. The order of the Ld.CIT(A) is contrary to law and to the facts and circumstances of the case. 2. On the facts and in circumstances of the case and in law, the Ld.CIT(A) erred in allowing carry forward of loss by treating the loss return as valid even though filed beyond due date. 3. For these and such other grounds as may be argued at the time of the hearing, the order of Ld.CIT(A) may be vacated and that of the AO to be restored.”

together.

the return of income filed by the assessee noticed that assessee had

set of brought forward of losses of Rs.47,73,163/- pertaining to

A.Y.2010-11 against the income for A.Y. 2011-12. He noticed that the

return of income for A.Y. 2010-11 was filed beyond the due date

prescribed u/s 139(1) of the Act. He was of the view that only if the

return is filed within the due date prescribed u/s 139(1) of the Act

then assessee is eligible to set off carry forward of losses. He

accordingly denied the claim of set off of carry forward losses to the

assessee. Aggrieved by the order of AO, assessee carried the matter

before Ld.CIT(A), who granted substantial relief to assessee by

observing as under :

“3.3 I have considered the submission of the appellant and perused the material available on record. The Assessing Officer held that the business losses pertaining to the previous year, i.e.2010-11 to the tune of Rs.47,73,163/- were brought forward and set off against the income in the current assessment year, i.e. 2011-12. The Assessing Officer noted that in A.Y. 2010-11 the return of loss was filed beyond due date as per section 139(1) and, therefore, following the provisions of section 139(3) and placing reliance on the judgment in the case of ACIT Vs. Dynavision Ltd. (88 ITD 213) (Chennai). The loss could not be allowed to be carried forward hence, there was no question of allowing any set off of income against losses carried forward for A.Y. 2010-11.

3.4 During the appellate hearing the appellant has submitted that the question of determination of loss should have been fairly dealt with in the assessment for A.Y. 2010-11. However, since the Assessing Officer has given a finding in A.Y. 2011-12, therefore, the matter is being dealt with on merits.

3.5 An appreciation of the facts of the case shows that the appellant filed his return of income for A.Y. 2010-11 on 15-10-2010, which was within time (due date being extended) as per the provisions of section 139(1). Subsequently, the appellant found that it had neglected to consider the loss on sale of some land at Agalambe in the original return filed on 15-10-2010. Thereafter the return was revised on 28- 04-2010 which is within the time allowed u/s.139(5) and the above loss of Rs.47,73,163/- was claimed as carried forward to the A.Y. 2011-12.

3.5.1 The Assessing Officer has placed reliance on the provisions of section 80 and 139 (3) of the Income Tax Act. Section 80 deals with submission of return of income for claim of loss and says that a return has to be filed within time prescribed as per provisions of sub-section (3) of section 139, to be allowed to be carried forward for set off u/s.72,73, 74 or 74A. Reference made to section 139(3) and section 80 shows that if a person who has sustained loss under the head ‘profits & gains of business & profession’ or ‘capital gains’ and claims the carry forward of such loss u/s.72,73,74 or 74A then he may furnish within the time allowed u/s.139(1) a return of loss and the provisions of the Act shall apply as if it were a return under sub-section (1) of section 139. Section 139 states that if a carry forward of loss has to be claimed then the return has to be submitted within time given u/s.139(1). There is no power vested in the Assessing Officer to extend the time for furnishing the loss return. It appears that the legislative intent here is to make filing of return mandatory for assessees who wish to carry forward the loss.

3.6 As the section itself quotes, once the return has been filed within the time allowed u/s.139(1), within due date, then other provisions of section 139 apply. The question in the case of the appellant is when the original return filed well within the due date, is a return with positive income, then can such a return be revised to claim loss subsequently. It is seen that there is no bar when a positive income is revised to enhance the income or to even reduce the income. In a similar way if a loss return is filed u/s.139(3) there is no bar if the loss is enhanced or the loss is reduced by filing of revised return. The objection of the Assessing Officer is if a positive income is revised to a

loss then it cannot be allowed to be carried forward. The appellant claims that since revised return is filed within time prescribed u/s.139(5), the Assessing Officer should have considered the revised return while framing the assessment order.

3.6.1. In the case of Sujan Textile Pvt. Ltd. Vs. ACIT (2004) 88 ITD 317 (Mad.) the following propositions were upheld. 1. Once the return of income is filed u/s 139(3), for procedure of assessment the said return is deemed to be return of income filed u/s 139(1). 2. Once the return filed u/s 139(3) is treated as return filed u/s 139(1) the assessee gets the benefit of filing the revised return u/s 139(5).

The operative portion of the order is reproduced herein below :

“7. We heard both sides in detail. An assessee is eligible to claim the benefit of carry forward of unabsorbed business loss on condition that a return of loss is filed under Section 139(3). This condition is laid down in Section 80 of the IT Act. Section 139(3) enables an assessee to file a loss return. Once a return is filed under Section 139(3), for the procedure of assessment, the said assessment is deemed as a return filed under Section 139(1). Once a return filed under Section 139(3) is treated as a return under Sub-section (1), the assessee gets the benefit of filing a revised return under Sub-section (5). The revised return is to be filed within the time provided for it. Therefore, it is permissible to read Sub-section (3) along with Sub-section (5) of Section 139. When read so, it is to be seen that it is permissible to file even a revised return. Whether the revised return is a loss return or an income return, it has to be filed within the time-provided. Once a revised return is filed under Sub-section (5), it replaces the return earlier filed by the assessee. If the assessee has filed a return under Sub-section (1), filing of the revised return under Sub-section (5) replaces the original return filed under Sub-section (1). Likewise, if the assessee has filed the loss return under Sub-section (3), and when a revised loss return is filed under Sub-section (5), the revised loss return replaces the original loss return filed under Sub-section (3). Therefore it is not proper to presume that there is no provision for filing a revised loss return. The only point to be looked into is whether the revised loss return was filed within the time provided under Sub-section (5) of Section 139. By filing a revised loss return under Sub-section (5), the factum of filing a loss return under Sub-section (3) is not lost, but what happens if the revised return replaces the original return. That procedural process provided under Section 139 does not in any way affects Section 80 or vice-versa. The equation between Section 139(3) and Section 80 is independent. Section 80 provides that the loss determined by an AO in pursuance of the loss return filed under Section 139(3) shall be carried forward for the succeeding assessment years. The operation of Section 80 ends there. The inter se relation between Sub-sections (1), (3) and (5) of Section 139does not have an equation or inter-linkage with Section 80 of the IT Act. Therefore, if the assessee has filed a loss return under Sub-section (3) of Section 139 within the period provided under the Act, and if the assessee has filed a revised loss return under Sub-section (5) thereof, again within the prescribed time-limit, the AO is bound to take cognizance of the revised return, because the original return is replaced by the revised return.

3.6.2. In the case of Nalwa Investment Ltd. (2010) 322 ITR 0233, the Delhi High Court allowed the loss claimed during assessment procedure holding that the Assessing Officer cannot refuse to allow loss being not claimed within the meaning of section 139(3). The decision of the Delhi High Court is now final as departmental SLP has been dismissed. Even though in the case before the Hon’ble High Court the original return had been filed u/s 139(3), the losses claimed for the first time during assessment proceedings were allowed concurring with the Tribunal’s observation reproduced herein below :

“……..The Tribunal went on to observe while allowing the claim of loss by the assessee that the fact that in the return filed by the assessee wherein the assessee does not take a proper position, cannot be a ground to take advantage of the ignorance of the assessee if the assessee is otherwise entitled to relief and/or claim of loss as in the instant case. Keeping the aforesaid rationale in mind the Tribunal vide order dated 05.06.2000 had directed the Assessing Officer to allow the assessee‟s claim of loss on sale of SRNCDs at the rate of Rs 111/- as a business loss. It is evident that the Assessing Officer (Jt. Commissioner of Income Tax) in the second round while giving effect to the orders of the Tribunal dated 05.06.2000 was determining the income/loss in pursuance of an original return filed by the assessee under Section 139 of the Act. In the return the assessee had claimed erroneously a loss to a lesser extent that is at Rs 91/- against DWs as against SRNCDs which was corrected pursuant to a stand taken before conclusion of proceedings by the Assessing Officer in the first round and a stand which was sustained by the Tribunal by its order dated 05.06.2000. In view of the said circumstances obtaining in the present case the Tribunal in the second round vide the impugned judgment has correctly held in our opinion, that both the CIT(A) and the Assessing Officer had misdirected themselves in law in preventing the carry ITA335/2006 Page 15 of 18 forward and the set off of the assessed loss against subsequent profits as the conditions prescribed for triggering the provisions of Section 80 of the Act were not present in the instant case.”

3.6.3. Finally, the Mumbai ITAT ‘D’ Bench in the case of Ramesh S. Shah Vs. ACIT 143 TTJ 166 (Mum.) was faced with exactly the same question as in the case of the appellant and held that where the assessee had filed original return of income u/s 139(1) declaring the income and claim for carry forward of loss was made only in revised return u/s 139(5) there was no justification to deny the carry forward of loss. The operative portion of the decision is reproduced herein below :

“10……………In our humble opinion correct interpretation of s. 80, as per the language used by the legislature, condition for filing revised return of loss under s. 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 s. 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 s. 80. Sec. 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-s. (3) of s. 139. It is pertinent to note here that legislature has dealt with two specific situations (i) under s. 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 s. 139(1). So far as s. 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 language used in sub-s. (3) of s. 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-s. (1) of s. 139 casts 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 s. 70 or 71 of the Act. We have to interpret the provisions of any statute to make the same workable to the logical ends. As per the provisions of sub-s. (5) of s. 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-ss. (1) and (3) of s. 139 provide 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 AO to allow the assessee to carry forward the loss.”

3.7 In view of the above facts and ratio of judicial decision (supra) grounds of appeal no.1 to 5 are allowed.”

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal before

us.

filed the return of income for A.Y. 2010-11 within the prescribed

time, the assessee is not eligible to set off brought forward business

losses of A.Y. 2010-11 against the income of A.Y. 2011-12. He

therefore submitted that the return filed by the assessee cannot be

said to be a return u/s 139(1) of the Act and therefore Ld.CIT(A) has

wrongly held that assessee is eligible to claim set off brought forward

business losses. In support of his contentions, he relied on the

decision of Vishakhapatnam Tribunal in the case of M. Narendranath

Vs. ACIT reported in (2005) 147 Taxman 58 and the decision of

Bangalore Tribunal in the case of Karnataka Forest Development

Corp. Ltd., Vs. CIT reported in (2012) 23 Taxmann.com 314 (Bang).

He thus supported the order of AO. Ld.A.R. on the other hand,

reiterated the submissions made before AO and Ld.CIT(A) and also

relied on the decisions submitted before Ld.CIT(A). He further

submitted that Hon’ble Gujarat High Court in the case of PCIT Vs.

Babubhai Ramanbhai Patel reported in (2017) 84 taxmann.com 32

(Guj) has held that when assessee has filed original return u/s 139(1)

of the Act and revised the same within the prescribed period u/s

139(5) of the Act, the claim of carry forward of losses raised in the

first time in the return was to be allowed. He also placed reliance on

the decision in the case of Ramesh R. Shah Vs. ACIT reported in 143

TTJ 166 (Mum). He thus supported the order of Ld.CIT(A).

on record. The issue in the present case is with respect to

allowability of claim of set of brought forward losses. We find that

Ld.CIT(A) while deciding the issue in favour of the assessee has noted

that the assessee had originally filed the return of income for

A.Y.2010-11 on 15.10.2010 which was within the time (due date

being extended) as per the provisions of Sec.139(1) of the Act.

Subsequently on realizing that the loss of Rs.47,73,163/- which was

inadvertently not claimed, assessee filed the revised return within the

time prescribed u/s 139(5) of the Act and the loss of Rs.47,73,163/-

was claimed and assessee had carried it forward to A.Y. 2010-11.

The contention of the Revenue is that only the return filed in

accordance with the provisions of Sec.139(3) of the Act would be

considered as for as carry forward of loss is concerned. We find

that Hon’ble Gujarat High Court in the case of PCIT Vs. Babubhai

Ramanbhai Patel (supra) has held that where the assessee has filed

original return u/s 139(1) of the Act and revised it within the

prescribed period u/s 139(5) of the Act, then claim of carry forward of

losses for the first time in the revised return was to be allowed. The

relevant findings of the Hon’ble Gujarat High Court in the case of

PCIT Vs. Babubhai Ramanbhai Patel (supra) are as under :

“5. Under sub-section (1) of section 139, every person whose income for the previous year exceeds the maximum amount not chargeable to tax, is required to file a return before the due date. Sub-section (3) of section 139 provides that any person who has sustained a loss and claims that the loss should be carried forward would file a return o loss within the time prescribed under sub-section (1) and thereupon all the provisions of the Act shall apply as if it was a return under sub- section (1) of section 139 of the Act. Under sub-section (4) of section 139, a person who has not furnished a return within the time allowed under sub-section (1), may still furnish a return at any time before the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Sub-section (5) of section 139 provides that any person having furnished a return under sub-section (1) or sub-section (4) discovers any omission or a wrong statement therein, he may furnish a revised return any time before the expiry of one year from the end of relevant assessment year or before the completion of the assessment whichever is earlier. ]

Order pronounced on 6th day of July, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 6th July, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.