THE KOLAR & CHICKBALLAPUR DISTRICT CO-OP BANK LTD. vs. A.C.I.T., BANGALORE

This appeal by the assessee is against the order dated 7.10.2013 of the CIT(Appeals)-V, Bangalore relating to assessment year 2006-07.

There is a delay of about 60 days in filing the appeal by the assessee. The reasons for delay have been explained by the assessee in the application for condonation of delay. It has been stated therein that the impugned order of the CIT(A) was received by the assessee on 14.11.2013 and in normal course appeal ought to have been filed before the Tribunal on or before 13.1.2014. However, the appeal was filed only on 14.3.2014 resulting in a delay of 62 days in filing the appeal. It has been further stated that the assessee is managed and operated by Department of Co- operative Societies, Government of Karnataka, since 2004. Further to the directives of Govt., election was to be conducted to elect Governing Body of the Bank in Nov. 2014. There were controversies in the election results and cases were filed in the High Court of Karnataka by various factions challenging the election. The CEO of the assessee is the Deputy Registrar of Co-operative Societies and is a deputed Government Officer on behalf of Govt. of Karnataka. He had to appear before the High Court on almost every alternate day and could not involve in the affairs of banking activities including income tax matters. The election results were declared on 3.3.2014. Thereafter, the assessee filed an appeal on 14.3.2014. Hence the delay in filing appeal before the Tribunal.

The contents of the application for condonation of delay have been verified by Mr. Venkateshappa M., the CEO of the assessee. Considering the reasons given the application for condonation of delay, we are satisfied that the delay was occasioned due to a reasonable and sufficient cause.

The only issue that arises for consideration in this appeal is with regard to benefit of carry forward of set off of loss for A.Y. 2004-05. The facts and circumstances under which the aforesaid issue arises for consideration are as follows.

The assessee is a co-operative bank assessed in the status of AOP and carries on banking business. For the A.Y. 2005-06, the assessee filed a return of income on 31.10.2006 declaring total income of Nil. The return was processed u/s. 143(1) of the Act on 17.12.2006. Thereafter, order u/s. 143(3) of the Act was passed on 28.11.2008, accepting NIL income returned by the assessee. The computation of total income made by the AO was as follows:-

The AO, thereafter, issued notice u/s. 154 of the Act dated 5.1.2010. According to the show cause notice u/s. 154, the AO was of the view that carry forward loss relating to A.Y. 2003-04 & 2004-05 ought not to have been allowed as the assessee had filed the return of income for those years beyond the time contemplated u/s. 139(1) of the Act. U/s. 139(3) of the Act, any person who has sustained a loss in the previous year under the head 'profit and gains of business or profession' and claims for the loss or any part thereof to be carried forward u/s. 72(1) & (3) or 74A(3), then he has to file a return of loss in the prescribed form within the time allowed u/s. 139(1) of the Act. In the event of failure to file the return as aforesaid, assessee cannot seek to claim carry forward of loss for set off in the subsequent assessment years, as laid down in section 80 of the Act.

The loss incurred by the assessee which is available for carry forward in the various assessment years are as follows:-

The return of loss for the A.Y. 2004-05 was filed by the assessee on 2.11.2004. The due date for filing the return of income u/s. 139(1) of the Act was 31.10.2004. According to the AO, since the return of income was filed by the assessee on 1.11.2004 / 2.11.2004, it is not a return filed within the due date as prescribed u/s. 139(1) of the act. Therefore, the assessee was not entitled to carry forward of loss for A.Y. 2004-05. In the order passed u/s. 143(3) of the Act, the loss of Rs.5,23,18,280 which was the loss for A.Y. 2004-05 was allowed to be set off, which was an error apparent on the face of record. The AO accordingly proposed to revise the total income of the assessee by withdrawing set off of loss to the extent of Rs.5,23,18,280.

The assessee submitted before the AO that the due date for filing return of income in terms of section 139(1) of the Act for A.Y. 2004-05 was 31.10.2004 which happened to be a Sunday. The due date therefore automatically becomes 1.11.2004. The assessee pointed out that in the State of Karnataka, 1st November of every calendar year is a public holiday on account of Karnataka Rajyotsava Day. All State Govt. office, Banks are closed on this day. Assessee being a co-operative bank was also closed on 1.11.2004 being a public holiday. Assessee was under bonafide belief that Income Tax Department is closed on 1st November. The assessee submitted that time laid down in section 139(1) is not mandatory, but directory in nature. The AO, however, did not accept the claim of assessee and he passed an order u/s. 154 of the Act withdrawing set off of loss for A.Y. 2004-05, which resulted in a taxable total income of Rs.2,93,99,289.

On appeal by the assessee, the CIT(Appeals) confirmed the order of AO.

Aggrieved by the order of CIT(A), the assessee has preferred the present appeal before the Tribunal.

We have heard the rival submissions. Provisions of section 72(1) of the Act read thus:-

It is seen from the records that ld. counsel for the assessee has filed before us a copy of return of income filed by the assessee for A.Y. 2004- 05. The computation of total income and determination of total loss by the assessee is annexed to this order as ANNEXURE-I. The return so filed by the assessee is accepted by the AO and intimation u/s. 143(1) was issued which is annexed to this order as ANNEXURE-II.

Section 80 of the Act provides as follows:-

A reading of the provisions of section 72(1) of the Act would show that where a loss under the head 'profits and gains of business or profession' cannot be set off against income under any head of income u/s. 71 of the Act, so much of the loss can be carried forward and set off against the 'profits and gains of business or profession' of the following assessment year and if the loss is not set off in the following assessment year, can be carried forward to the next assessment year and so on. Section 80 starts with a non-obstante clause and it overrides all other provisions contained in Chapter VI of the act, which deal with aggregation of income and setoff of carry forward loss. A reading of the provisions of section 80 would show that for a loss to be capable of set off in a subsequent assessment year, the return for that year ought to have been filed in accordance with the provisions of section 139(3) of the Act i.e., on or before the due date for filing return of income. In fact, the said condition is also necessary for carry forward of loss for set off in future years. Admittedly, in the case of assessee, the return of income was not filed within the due date and therefore the loss for A.Y. 2004-05 has not been determined in accordance with the provisions of sub-section (3) of 139 for A.Y. 2004-05. Such a loss cannot be therefore set off against the profits of A.Y. 2006-07. In terms of section 119(2)(b) of the Act, the CBDT alone has the power to condone the lapse on the part of assessee in not filing the return of income for the A.Y. 2004-05 within the statutory time permitted u/s. 139(3) of the Act. In this case, the time for making such application to CBDT had expired by the time the AO issued show cause notice u/s. 154 to the assessee for the A.Y. 2006-07. Thus, the assessee was taken by surprise and could not exercise the remedies in law, even though it had very genuine and reasonable cause for not filing return of income for A.Y. 2004-05 on or before the due date u/s. 139(1) of the Act. It is not possible to allow relief to the assessee based on equitable considerations, since equity and tax laws are strangers to each other.

The ld. counsel for the assessee placed reliance on the decision of ITAT Hyderabad Bench in the case of ITO V. S. Venkataiah, for the A.Y. 2008-09, order dated 31.5.2012. The aforesaid decision was rendered in the context of section 80AC of the Act, which provides that deduction under Chapter VIA will not be allowed to the assessee, who has not filed return of income for the relevant assessment year on or before the due date specified u/s. 139(1) of the Act. We have perused the said decision and we find that the said decision is not rendered in the context of section 80 of the Act. In view of the specific provisions of section 80 of the Act, we are of the view that claim of the assessee cannot be entertained. We are of the view that the revenue authorities were justified in denying the claim of set off of loss for A.Y. 2004-05 in the assessment of income for A.Y. 2006-07. We accordingly dismiss the appeal by the assessee.

In the result the appeal by the Assessee is dismissed.