ITO 11(2)(2), MUMBAI vs. DR. DHRUMAN DESAI, MUMBAI

During the course of assessment proceedings, the assessee filed a “Revised computation of income” on 20-09-2011, in which the assessee claimed loss of Rs.1.49 crores from F & O transactions as his business loss and accordingly declared NIL income. The assessee submitted that the F & O transactions have been funded by the capital gains arising on sale shares received as gift from his father. Further the assessee also claimed that the loss, to the extent not set off by the income of the current year should be carried forward.

The assessing officer placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Goetze (India) Ltd Vs. CIT (284 ITR 323) and held he is not empowered to entertain claims raised otherwise than by filing revised return of income. The AO also held that the loss, even if it is entertained, cannot be carried forward in the succeeding year, since the assessee did not claim the loss by filing the revised return of income as mandated u/s 139(3) of the Act.

The Ld CIT(A), however, took the view that the revised computation filed during assessment proceedings amounts to filing of return within stipulated time. He further held that the mistake in not making the claim in the return of income does not debar the assessee to claim the same in assessment proceedings. He further referred to the Circular No.14 (XL-35) dated 11/04/1995, wherein it is stated that the department must not take advantage of ignorance of the assessee as to his rights. The Ld CIT(A) also placed reliance on the decision rendered by the Hon’ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers & Shareholders Pvt Ltd (ITA No.3908 of 2010) and the decision rendered by the ITAT in the case of Chicago Pneumatic India Ltd Vs. DCIT (15 SOT 252)(Mum) and accordingly directed the AO to consider the revised computation of income furnished by the assessee during the course of assessment proceedings and allow the set off of loss from F & O transactions against the professional income/other income. He also held that the unabsorbed loss shall be allowed to be carried forward.

The revenue is aggrieved by the said decision of Ld CIT(A).

We heard the parties and perused the record. At this juncture, we would like to refer to the relevant provisions of the Act. Section 139(1) provides for filing of return of income within the due date prescribed in that section. Section 139(3) relates to the return of loss and the same reads as under:- “139(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 provisions of this Act shall apply as if it were a return under sub-section (1).” Section 139(5) provides for filing of revised return of income and the same reads as under:-

“139(5) If any person, having furnished a return under sub- section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier.” It may be noticed that the Act provides for filing of return of income u/s 139(1) of the Act and the loss returns are covered by sec. 139(3) of the Act. If the loss return is filed u/s 139(3) of the Act, all the provisions of the Act shall apply as if it were a return filed u/s 139(1) of the Act. If an assessee notices any omission or any wrong statement in the return furnished u/s 139(1) of the Act, he is entitled to file a revised return u/s 139(5) of the Act. However, the Act provides a time limit for filing such revised returns, i.e., before the expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier. Consequently, if the assessee fails to revise the return of income within the time limit prescribed u/s 139(5) of the Act, he is not entitled to revise his return of income at all.

In the instant case, the assessment year involved is AY 2009-10. One year from the end of the year expires on 31.3.2011. The assessment has been completed by the AO on 29.12.2011. Hence the revised return could have been filed by the assessee by 31.3.2011, since that period expires earlier. However, it is an admitted fact that the assessee has not filed any revised return of income.

We have noticed that the assessee has omitted to disclose the loss arising on F & O transactions in the original return of income filed u/s 139(1) of the Act. Upon discovery of such omission, it was incumbent upon the assessee to file a revised return of income within the time limit prescribed u/s 139(5) of the Act. The effect of filing of revised return of income is that it shall substitute the original return of income and accordingly, the AO shall proceed to assess the total income on the basis of revised return of income.

In the instant case, as noticed earlier, the assessee has not filed any revised return of income upon discovering his omission to disclose the loss incurred in F & O transactions. The assessee brought to the notice of the AO for the first time on 20-09-2011 through a revised computation of income. We have noticed earlier that the assessee was entitled to furnish a revised return of income on or before 31.03.2011, which the assessee has failed to do. There should not be any doubt that the assessee could not have filed any revised return of income after 31.3.2011, meaning thereby, the assessee has lost his right to file revised return of income for the year under consideration. Having lost the right so, in our view, the assessee could not have made good the same by filing revised computation of income and thus claim carry forward of loss. The said action of the assessee, in our view, defeats the statutory mandate prescribed in sec. 139(5) read with section 139(3) of the Act.

We notice from the assessment order that the assessing officer has considered the revised computation of income and assessed the income declared therein, but refused to consider the loss occurred in F&O transactions. We have noticed that the revised computation of income has been filed beyond the time limit prescribed for filing revised return of income u/s 139(5) of the Act and we have held that the assessee is not entitled to make good his omission to file revised return of income by filing the revised computation of income, since the said action of the assessee would defeat the statutory mandate of the provisions of sec. 139(5) r.w.s. 139(3) of the Act. Accordingly, we are of the view that the assessing officer was justified in ignoring the loss occurred in F & O transactions and declared in the revised computation of income, since the said claim has been made beyond the time limit prescribed u/s 139(5) of the Act.

For the reasons stated above, the assessee shall not be entitled to claim carry forward of losses also, since we have held that the assessee could not make good the right lost by him. Since the assessing officer did not admit the loss, which was found to be justified by us, the question of carry forward of unabsorbed loss does not arise at all. In this regard, it is pertinent to refer to the provisions of sec. 80 of the Act, which reads as under:- “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 (1) or sub-section (3) of section 74 or sub-section (3) of section 74A.” The above said provisions clearly state that the loss, which has not been determined in pursuance of a return filed in accordance with the return filed in accordance with the provisions of sec. 139(3)...., shall not be carried forward. As stated earlier, the return filed u/s 139(3) / 139(1) could be revised by filing a revised return of income u/s 139(5) of the Act within the time limit prescribed in that section. Since the assessee has not filed any revised return of income and since the assessing officer has not entertained the loss declared in the F & O transaction, the question of allowing carry forward of loss does not arise. Further, the provisions of sec. 80 also shall prohibit carry forward of loss, since it has not been determined by the assessing officer. Accordingly, we set aside the order of Ld CIT(A) on the issue of carry forward of loss also.

Before us, the assessee placed reliance on the decision rendered by Hon’ble Karnataka High Court in the case of CIT Vs. Srinivasa builders (2014)(369 ITR 69). A perusal of the said decision would show that the issue before the Hon’ble Karnataka High Court about the scope of rectification order passed u/s 154 of the Act. The next decision relied upon by the Ld A.R was the decision rendered by Hon’ble Delhi High Court in the case of CIT Vs. Nalwa Investment Ltd (2010)(322 ITR 233). The facts prevailing in the case before Hon’ble Delhi High Court are distinguishable. The assessee before Hon’ble Delhi High Court declared loss from certain transactions and during the course of assessment proceedings, it sought to enhance the loss. The AO rejected the claim, but the Tribunal allowed the claim. The AO, while giving effect to the order of the Tribunal, has held that the assessee shall not be entitled to carry forward the loss, since the loss was determined by him u/s 254 of the Act while filing return of income. Hence the controversy before the Hon’ble Delhi High Court was (i) whether the loss determined by the AO while giving effect to the order of the Tribunal shall be treated a loss determined in pursuance of Return of loss filed u/s 139(3) of the Act and (ii) whether the AO has exceeded his jurisdiction while giving effect to the order passed by the Tribunal. Hence, the questions before Hon’ble Delhi High Court were totally different question. Even otherwise, the assessee therein sought for enhancement of loss already declared by it in the original return of income, which is not the case before us.

The Ld A.R also placed reliance on the order dated 17.8.2011 passed by the co-ordinate bench in the case of Mr. Mukund N Shah in ITA No.4311/Mum/2009. We have carefully perused the same and find that the said decision also does not come to the support of the assessee. The assessee before the Tribunal filed a return of income declaring a total income of Rs.30,00,223/-. Later he realised that he has failed to disclose long term capital loss and accordingly filed a revised return of income within the time limit prescribed u/s 139(5) of the Act. The AO took the view that the assessee could revise the loss, only if the return of loss was filed u/s 139(3) of the Act. In the instant case, the assessee has not filed any revised return of income nor did he furnish the revised computation of income before the due date prescribed u/s 139(5) of the Act.

Hence the case laws relied upon by the assessee do not support the case of the assessee. Accordingly, we set aside the order of Ld CIT(A) and restore the order of the assessing officer.

In the result, the appeal filed by the revenue is allowed.