Joginder Paul (HUF) vs Commissioner of Income Tax

Ajay Kumar Mittal, J.—This appeal u/s 260A of the income tax Act, 1961 (for short "the Act") has been filed by the Assessee against the order dated July 12, 2004, passed by the income tax Appellate Tribunal, Chandigarh Bench "B" Chandigarh, (in short "the Tribunal") in I.T.A. No. 544/Chandi/2002, for the assessment year 1999-2000.

The present appeal was admitted for determination of the following question of law for the opinion of this Court:

Whether the Assessee will be entitled to the benefit for carry forward of loss to be set off in subsequent years even if the return of loss is filed beyond the time prescribed u/s 139(3) of the income tax Act, 1961 ?

During the assessment year 1996-97, the Assessee declared long-term capital loss of Rs. 1,66,680 in the return filed on December 24, 1996 whereas in view of the provisions of Section 139(1) the return claiming loss was required to be filed on or before August 31, 1996. The Assessee for the assessment year 1999-2000 declared long-term capital gains on the sale of shares at Rs. 2,04,909 against which the Assessee had sought to adjust the long-term capital loss of Rs. 1,66,680 relating to the assessment year 1996-97. According to the Assessee, the loss for the assessment year 1996-97 was carried forward to the assessment years 1997-98 and 1998-99 and in the computation chart of total income filed along with the return for the aforesaid two years, a note was appended to carry forward the long-term capital loss of Rs. 1,66,680 in the subsequent years. The income returned in the assessment year 1998-99 was accepted by the Assessing Officer and, thus, the loss of Rs. 1,66,680 was impliedly allowed to be carried forward to the current year, i.e., the assessment year 1999-2000. The Assessee was disallowed the setting off of the loss claimed by him as according to the Assessing Officer the provisions of Section 80 read with Section 139(3) of the Act had not been complied with by the Assessee, inasmuch as the return for the assessment year 1996-97 was not filed within the time allowed u/s 139(1) of the Act.

The Appellant preferred appeal before the Commissioner of income tax (Appeals) (in short "CIT(A)") challenging the order of the Assessing Officer. It was contended that the Assessing Officer was not right in disallowing the claim. The Commissioner of income tax (Appeals) did not accept the pleas raised on behalf of the Assessee and held that the Assessing Officer was fully justified in not allowing the set off of the loss claimed by the Assessee and consequently dismissed the Assessee''s appeal vide order dated May 9, 2002 (annexure A-4). The Assessee preferred a second appeal before the income tax Appellate Tribunal Chandigarh Bench "A" Chandigarh (in short "the Tribunal"). The Tribunal also did not accept the submissions raised on behalf of the Assessee and consequently dismissed the appeal of the Assessee putting its seal of affirmation on the findings recorded by the authorities below.

This is how the Assessee-Appellant is in appeal before us.

We have heard learned Counsel for the parties and have perused the record.

Learned Counsel for the Appellant submitted that the loss for the assessment year 1996-97 was allowed to be carried forward by the Assessing Officer during the assessment years 1997-98 and 1998-99 and, therefore, the Tribunal was not justified in disallowing the set off of the loss claimed by the Assessee in the assessment year 1999-2000 without revising the earlier orders passed in respect of the assessment years 1996-97, 1997-98 and 1998-99. Learned Counsel in support of the submission placed reliance on various judgments, viz., Commissioner of Income Tax Vs. H.P. Lohia, , Saurashtra Cement and Chemical Industries Ltd. Vs. Commissioner of Income Tax, Gujarat-V, , Satyanarayan Bhalotia Vs. Commissioner of Income Tax, , M/s. Radhasoami Satsang Saomi Bagh, Agra Vs. Commissioner of Income Tax, , Commissioner of Income Tax Vs. Lakhani Footwear Ltd., and Madan Roller Flour Mills v. CIT (2008) 4 DTR Judgments 41. On the other hand, learned Counsel for the Revenue supported the order of the Tribunal.

We have given our thoughtful consideration to the submissions made by the learned Counsel for the parties and express our inability to agree to the submissions raised on behalf of the Assessee. The question whether the Assessee who failed to file return of loss within the time prescribed u/s 139 of the Act, can be allowed to carry forward the loss to be set off in subsequent years was the subject-matter of consideration of this Court in Commissioner of Income Tax Vs. Haryana Hotels Ltd., , wherein it was held as under (page 529):

An irresistible conclusion on the conjoint reading of the aforesaid provisions would be that a business loss cannot be carried forward unless it has been determined in pursuance of a return filed u/s 139 of the Act. In order to be entitled to carry forward a business loss, the Assessee must submit a return u/s 139(3) of the Act and have an assessment made for the year in which he has incurred the loss. The Assessing Officer has to notify to the Assessee by an order in writing the amount of the business loss as computed by him which the Assessee is entitled to have carried forward. Where the business loss determined has not been notified to the Assessee by the Assessing Officer, the Assessee can have it determined in a subsequent year in which the business loss is to be set off.

It was an admitted fact as is apparent from a perusal of the order of the Commissioner of income tax (Appeals) that no valid return for the assessment year 1986-87 had been made by the Assessee and accordingly no assessment could be made and the business losses could not be notified to the Assessee. Once it is established that no valid return had been filed by the Assessee for the assessment year 1986-87, the Assessee cannot be allowed to set off the business losses of earlier years during the assessment year 1987-88. The Tribunal, thus, clearly erred in allowing set off of business losses for the earlier assessment years 1984-85 and 1985-86 during the assessment year 1987-88.

Admittedly, the Assessee had not filed return declaring long-term capital loss for the assessment year 1996-97 in terms of Section 139(3) of the Act within time and, therefore, it shall not be entitled to carry forward such loss to be set off in subsequent years. The mere filing of returns for the assessment years 1997-98 and 1998-99 by the Assessee depicting that long-term capital loss is to be carried forward, in the absence of specific order by the Assessing Officer, shall not entail any right in favour of the Assessee. The counsel for the Assessee was unable to refer to any assessment order passed by the Assessing Officer, i.e., for the assessment years 1996-97, 1997-98 and 1998-99 wherein benefit of carry forward of long-term capital loss was granted to the Assessee by the Assessing Officer. Rather on a query put by the court, viz., was there any specific order passed by the Assessing Officer, the counsel for the Assessee candidly admitted that no such order was passed by the Assessing Officer in that behalf. The submission of the counsel that when the assessment order was passed by the Assessing Officer it would impliedly constitute permission to carry forward of long-term capital loss, is against the mandate of Section 80 of the Act which prescribes that the losses under Sections 72(1), 73(2), 74(1), 74(3) and 74A(3), if not determined in pursuance of a return filed u/s 139(3), shall not be carried forward and set off. The judgments relied upon by the counsel for the Assessee, thus, have no applicability to the facts of the present case. Accordingly, the question of law reproduced earlier is answered against the Assessee.

Consequently, the appeal is dismissed.