Co-operative Marketing Society Ltd. vs Commissioner of Income Tax

G.G. Sohani, J.—By this reference u/s 256(1) of the income tax Act, 1961 (''the Act''), the Tribunal, Indore Bench, has referred the following questions of law to this Court for its opinion : 1. On the facts and in the circumstances of the case, whether the Tribunal is right in law in holding that the AAC was justified in declining to allow the benefit of carry forward and set off of the losses computed by the ITO in respect of the assessment years 1972-73 and 1973-74?

On the facts and in the circumstances of the case, whether the assessee is entitled to carry forward the set off of the losses under the provisions of the income tax Act, 1961 ?

Whether the substantial provisions of section 139 are inherently attracted in proceedings u/s 148 read with section 147 in view of the specific reference of section 139 in section 148, viz., "and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section" and in view of this legal position, whether the assessee is entitled to carry for ward and set off of the losses in terms of section 80 of the income tax Act since the returns filed as consequence to proceedings u/s 148 imply, attract and invoke the provisions of section 139(2) of the Income- tax Act, 1961 ?

The material facts giving rise to this reference briefly are as follows : For the assessment years 1972-73 and 1973-74 notices u/s 148 of the Act were served on the assessee on 29-8-1974. The assessee filed returns of its income for the said years on 20-2-1975 declaring losses. The ITO computed the losses of the assessee for the assessment year 1972-73 at Rs. 1,35,000 and for the assessment year 1973-74 at Rs. 1,32,000 but he declined to carry forward these losses for the purpose of set off during the subsequent years on the ground that the returns were not filed within time allowed by the provisions of section 139 of the Act. On appeal, the AAC upheld the decision of the ITO. On further appeal, the Tribunal held that the returns of income for the assessment years in question were filed by the assessee after service of notice u/s 148 and in these circumstances, the returns could not be said to have been filed by the assessee in pursuance of the provisions of section 139. The Tribunal also rejected the contention advanced on behalf of the assessee that the returns were filed by the assessee u/s 139(4)(a). In this view of the matter, the Tribunal dismissed the appeal. Aggrieved by the order passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid questions of law have been referred to this Court for its opinion.

Now, though three questions have been referred by the Tribunal, the answer to Question No. 1 will be decisive. That answer will turnover the construction of section 80 of the Act, which reads as under :

Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed u/s 139, shall be carried forward and set off under sub-section (1) of section 72 or subsection (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74A.

From the aforesaid provision, it is clear that, in order that loss can be carried forward and set off u/s 72(1) or 73(2) or 74(1) of the Act, such loss should have been determined in pursuance of a return filed u/s 139. The question for consideration, therefore, is whether in the instant case, loss can be said to have been determined in pursuance of a return filed u/s 139.

Now, in the instant case, the assessee filed returns in response to notices issued 1o the assessee u/s 148. It is not disputed that the assessee had not filed any return of its income nor was it assessed for the relevant assessment years before notices were issued u/s 148. Section 148 reads as under:

(1) Before making the assessment, reassessment or recomputation u/s 147, the income tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The income tax Officer shall, before issuing any notice under this section, record his reasons for doing so.

The aforesaid provisions make it clear that the provisions of the Act shall, so far as may be, apply as if the notice were issued u/s 139(2). It was urged on behalf of the assessee that there was nothing in the language of section 80, which rendered the provisions of section 139(2) inapplicable in the case of a return filed by an assessee to whom notice had been issued u/s 148, to file return to enable the ITO to assess the income of the assessee as he had not been assessed till then and had failed to file return u/s 139(1). It is, however, not necessary to deal with this aspect of the matter any further because in the instant case, there is another aspect of the matter which, in our opinion, is decisive. It is admitted by the department that return had been filed by the assessee before the end of the period specified in clause (b) of sub-section (4) of section 139. It is true that the provisions of section 139(3) cannot be said to have been complied with by the assessee but as held by the Supreme Court in Commissioner of Income Tax, Punjab Vs. Kulu Valley Transport Co. P. Ltd., sub-sections (1) and (4) of section 139 are to be read together and an assessee would be entitled to carry forward the loss if he has filed return after the period prescribed by sub-section (1) of section 139 but within the time allowed under sub-section (4) of section 139. In the instant case, returns have been filed within the time allowed under sub-section (4) of section 139. Hence, the loss determined by the ITO for the relevant assessment years can be said to be loss determined in pursuance of returns filed u/s 139. In this view of the matter, it must be held that the Tribunal was not right in law in holding that the AAC was justified in law in declining to allow the benefit of carry forward and set off of the losses computed by the ITO in respect of the assessment years 1972-73 and 1973-74.

For all these reasons, our answer to Question No. 1 referred to this Court by the Tribunal is in the negative and against the revenue. In view of our answer to Question No. 1, it is not necessary to answer Question Nos. 2 and 3. Reference answered accordingly. Parties shall bear their own costs of this reference.