Income Tax Appellate Tribunal - Kolkata
Asstt. Cit vs M.K. Chatterjee on 27 September, 2002
Equivalent citations: [2003]86ITD90(KOL)
ORDER
Per Pramod Kumar, A.M This appeal, filed by the revenue, is directed against order dated 18-11-1997 passed by the Commissioner (Appeals)-VIII, Kolkata. Solitary grievance of the revenue, in substance, is that on the facts and in the circumstances of the case, Commissioner (Appeals) erred directing the assessing officer to allow the set-off of loss amounting to Rs. 1,63,408, incurred in previous year relevant to the assessment year 1987-88, against the income of the assessee for the assessment year 1990-91 ie. year in appeal before us.
2. The issue requiring our adjudication is set out in a narrow compass of undisputed facts. The assessee had filed an admittedly belated income tax return for the assessment year 1987-88 and it was for this reason of the return having been filed after the time allowed under section 139(1) of the Income Tax Act that the assessing officer took the stand that the loss incurred by the assessee in previous year relevant to the assessment year 1987-88 is ineligible for being carried forward for set off against incomes, if any, of the subsequent years. However, assessee's income tax return for the assessment year 1990-91, which reflected a positive income in the relevant previous year, claimed set-off of the loss returned by the assessee in the assessment year 1987-88. During the course of scrutiny assessment proceedings of assessee's this income tax return, i.e., for the assessment year 1990-91, the assessing officer rejected assessee's claim for set-off of business loss, returned by the assessee in the assessment year 1988-89, against this year's income. In doing so, the assessing officer observed as follows :
"The assessee's income is set off with the loss which is carried forward from the earlier years but the loss is actually originated during the assessment year 1987-88, but the return of the assessment year 1987-88 was not filed in time as specified in section 139(3). So the business loss is not allowed to be set off for the assessment year 1988-89 and onwards."
Aggrieved inter alia by the set-off of the loss thus declined, the assessee carried the matter in appeal before the Commissioner (Appeals). The Commissioner (Appeals) took note of the assessing officer's stand that since the assessee did not file the income-tax return for the assessment year 1987-88 in time, as specified in section 139(3) of the Income Tax Act, the business loss was not allowed to be set off for the assessment year 1988-89 and onwards, and, therefore, the loss was not set off against the income of this year. Learned Commissioner (Appeals) then observed that since amendment in section 80 was made with effect from 1-4-1989 and this amendment was clearly not retrospective, declining carry forward of losses in case of belated returns pertaining to assessment years earlier than assessment year 1989-90 was not sustainable in law. Learned Commissioner (Appeals) also relied upon the judgment of Hon'ble Calcutta High Court in the case of Presidency Medical Centre (P) Ltd. v. CIT (1977) 108 ITR 838 (Cal) and observed that in view of this judgment as also the judgment of Hon'ble Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P) Ltd. (1970) 77 ITR 518 (SC), loss for the assessment year 1987-88, which amounted to Rs. 1,63,408, is required to be set off in this assessment year.
3. Revenue is aggrieved and in appeal before us.
4. We have heard the rival contentions, perused the orders of the authorities below and deliberated upon the legal provisions as well as judicial precedents on issue in appeal before us.
5. The neatly identified legal issue, in our considered opinion, is whether the loss incurred by an assessee, in previous year relevant to the assessment year 1987-88 and which is otherwise eligible for being carried forward for set off, can be allowed for carry forward and set off even in cases where the related income tax return is filed beyond the time limit set out on section 139(1) of the Income Tax Act. However, before we address ourselves to this core issue, we have to deal with the question of Commissioner (Appeals)'s jurisdiction to adjudicate on carry forward of loss incurred in the previous year relevant to assessment year 1987-88, particularly when the Commissioner (Appeals) was only in se is in of the matter relating to assessment year 1990-91. Enthusiastic Departmental Representative contends that the issue of carry forward and set-off of business loss incurred in previous year relevant to assessment year 1987-88 could not have been adjudicated upon by the learned Commissioner (Appeals) while dealing with appeal pertaining to an assessment year other than assessment year 1987-88 itself. In other words, according to revenue, on the facts of this case, Commissioner (Appeals) was denuded of his powers to decide as to whether or not loss incurred in earlier years can be set off against income of the present year. In case assessee was aggrieved of assessing officer's not allowing carry forward of loss for the assessment year 1987-88, this grievance could have been adjudicated in appellate proceedings for that assessment year itself. We were thus urged to vacate the impugned directions of the Commissioner (Appeals) on this ground itself. On the other hand, on this issue of jurisdiction, learned counsel for the assessee placed his reliance on the order of the Commissioner (Appeals).
6. To resolve this controversy, we find guidance from a judicial precedent directly on the issue. Hon'ble Supreme Court, in the case of CIT v. Manmohan Das (1966) 59 ITR 699 (SC), were in se is in of a materially identical situation. The question that came up for the consideration of their Lordships was "whether the assessee could claim a set-off of the loss suffered by him in the preceding year 1950-51 against the profits in the year under consideration, i.e., 1951-52, having failed to prefer an appeal against the refusal by the Income Tax Officer making the assessment for the year 1950-51 to allow the assessee to carry forward the loss... ". Their Lordships had no hesitation in answering this question emphatically in affirmative, by observing as under:
"The... question presents little difficulty ... whether the loss of profits or gains in any year may be carried forward to the following year and set off against the profits and gains of the same business, profession or vocation under section 24(2) has to be determined by the Income Tax Officer who deals with the assessment of the subsequent year. It is for the Income Tax Officer dealing with the assessment in subsequent year to determine whether the loss of the previous year may be set off against profits of that year. A decision recorded by the Income Tax Officer who computes loss in the previous year... that the loss cannot be set off against the income of the subsequent year is not binding on the assessee".
The above observations were in the context of section 24(2) of the Income Tax Act, 1922 but the provisions of section 72 of 1961 Act are undisputedly in pari materia with section 24(2) of 1922 Act and, as observed in Sampath lyengar's Law on income-tax (9th Edition; Volume 3; page 3609) "the change in phraseology in the provisions of the section is essentially of a clarificatory nature". Therefore, in our considered view, there is no doubt that these observations also hold good in the context of the legal provisions as they stand now.
7. In the light of the above deliberations, the objection raised by the revenue is not sustainable in law. In our considered view, even though the assessee may not have appealed against assessing officer's declining the carry forward' of loss in the assessment year in which the loss was incurred the assessee is not denuded of his right to claim the set-off of such loss in the year in which he has an income against which the loss can be set off. To our understanding, correct legal position is that such a claim is required to be adjudicated on merits and it cannot be simply brushed aside on the ground that the assessee did not raise any grievance in the assessment year to which the loss pertains. No doubt that the quantification of loss, which is done under section 157, read with section 80, cannot be challenged later but the availability of this loss for the carry forward and set off in later years is a question that, as discussed above, will fall for determination in relevant later year or years.
8. We, therefore, reject the revenue's plea that Commissioner (Appeals) was denuded of the powers, while dealing with an appeal for the assessment year 1990-91 to adjudicate on the question as to whether the loss incurred in previous year relevant to the assessment year 1987-88 could be set off against the income in the assessment year 1990-91. Accordingly, we proceed to examine the claim on merits.
9. We may mention that section 80, as it stood at the relevant point of time, provided as follows:
Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed, within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income Tax Officer 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) of section 74.
It is very important to note that the expression "time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income Tax Officer" was substituted for "return filed under section 139' with effect from 1-4-1985. Even this expression i.e. "time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income Tax Officer" in the aforesaid provision was, by the virtue of Direct Tax Laws (Amendment) Act, 1987 and with effect from 1-4-1989, substituted by the expression in accordance with the provisions of sub-section (3) of section 139".
10. When one is to see the amendment by the virtue of Direct Taxes (Amendment) Act, 1987 in isolation and without taking into account the restriction already on the statute book in section 80, prima facie a view may seem possible that it is only with effect from 1-4-1989 that returns filed under section 139(4) will not be eligible for the benefit of carry forward of losses, since, the returns under section 139(4), up to that point of time, could be treated as returns validly filed under section 139 and, consequently, the same shall be eligible for carry forward in terms of the provisions of section 80 of the Act, as it stood at that point of time, and in the light of the judgment of Hon'ble Supreme Court in the case of Kulu Valley Transport Co. (P) Ltd. (supra). However, such an interpretation can be only be inherently oblivious of the restriction placed in section 80 which, with effect from 1-4-1985, laid down that in order to avail the benefit of set off, loss return has to be a return filed 'under sub-section (1) of section 139'and, therefore, merely return being filed under section 139, after 1-4-1985, did not suffice.
11. Hon'ble Supreme Court, in Kulu Valley Transport Co. Ltd.'s case (supra) were dealing with only the provisions of section 22(2A) of 1922 Act, which are in pari materia with the provisions of section 139(3) of the 1961 Act, and there were no restrictions, as in section 80 now, on assessee's right to carry forward of losses. It may further be noticed that even the expression "time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income Tax Officer" was brought on the statute book with effect from 1-4-1985, vide Taxation Laws (Amendment) Act, 1984, and it substitute the expression 'return filed under section 139. The legal provisions applicable with effect from 1-4-1985 were, thus, neither in pari materia with the law under the 1922 Act, or the law under the 1961 Act till the point of time when this amendment in section 80 came in force. We are of the considered view that Their Lordships of Hon'ble Supreme Court, in the case of Kulu Valley Transport Co. (P) Ltd. (supra), and Their Lordships of Hon'ble Calcutta High Court, in the case of Presidency Medical Centre (P) Ltd. (supra), were dealing with the legal provisions which are not in pari materia with the legal position, after amendment in section 80 of 1961 Act by Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985, and, accordingly, these judgments have no application on the issue in appeal before -us.
12. While dealing with the pre-amendment law and referring to the Hon'ble Supreme Court's judgment in the case of Kulu Valley Transport Co. (P) Ltd. (supra), Sampat Iyengar's commentary on the Income Tax Law (7th Edition 1983 (1985 Reprint) at page 2557) observes that "the decision of minority (sic) will govern and be applicable even under the 1961 Act, as the provisions of section 139 are materially identical with those of section 22 of the 1922 Act and as, further, there is nothing in the language of section 80 to lead to a different conclusion" (Emphasis herein italicised in print supplied). However, once the amendment is brought about in section 80 and this amendment substitutes 'return filed under section 139' with .return filed, within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income Tax Officer", the situation is not the same inasmuch as section 80 now specifically provides that in order to avail the benefit of carry forward of loss, the relevant return must be filed with time allowed under section 139(1) or within extended time allowed by the Income Tax Officer.
13. Section 22(2A) of the 1922 Act, scope of which was subject-matter of consideration before the Honble Supreme Court in Kulu Valley Transport Co. (P) Ltd.'s case (supra), provided as follows:
If any person, who has not been served with a notice under subsection (2) has sustained a loss of profits or gains in any year under the head 'Profits and gains of business, profession, or vocation', and such loss or any part thereof would ordinarily have been carried forward under sub-section (2) of section 24, he shall, if he is to be entitled to the benefit of the carry forward of loss in any subsequent assessment, furnish within the time specified in the general notice given under subsection (1) or within such further time as the Income Tax Officer in any case may allow, all the particulars required under the prescribed form of return of total income... in the same manner as he would have furnished a return under sub-section (1) had his income exceeded the maximum amount not liable to income-tax in his case, and all the provisions of this Act shall apply as if it were a return under subsection (1)."
14. The aforesaid provisions of 1922 Act are in pari materia with the provisions of section 139(3) as it stood at the relevant point of time and which, for the sake of ready reference, is reproduced below:
If any person, who has not been served with a notice under sub-section (2) 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) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) within such further time which, on an application made in the prescribed manner, the Income Tax Officer may, in his discretion allow, 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).
15. The implications of section 22(2A) of the 1922 Act and of section 139(3) of the 1961 Act being identical, and the restriction on carry forward of losses under section 80 restricted to rather broad category of 'returns filed under section 139', the observations of Their Lordships in the context of section 2(22A) continued to be valid, with respect to returns filed under section 139(4), till the amendment in section 80 was brought about with effect from 1-4-1985. The case before the Hon'ble Calcutta High Court in Presidency Medical Centre (P) Ltd.'s case (supra), being for the assessment year 1964-65, was also of pre-amended section 80 (assessment years earlier than 1985-86) and, therefore, the restriction brought in force in section 80, to allow carry forward of losses only for returns filed under section 139(1) as against the return filed in any of the sub-sections of section 139 till that point of time, had not come to be effective. As far as Kulu Valley Transport Co (P) Ltd.'s case (supra) is concerned, the provisions regarding restrictions on assessee's right to carry forward the losses, as envisaged in section 80 of 1961 Act, were not in force anyway.
16. In the case of Presidency Medical Centre (P) Ltd. (supra), the issue before the Hon'ble jurisdictional High Court were dealing with the assessment year 1964-65 and the issue before Their Lordships related to assessing officer's declining to carry forward the loss on the ground that ,,as notice under section 139(2) was not served and the return showing loss was not filed within the time allowed under section 139 of the Income Tax Act, 1961". Their Lordships of Hon'ble Jurisdictional High Court, in this case, followed the decision of the Hon'ble Supreme Court in the case of Kulu Valley Transport Co. (P) Ltd. (supra) which primarily dealt with the interpretation of section 22(2A) of the 1922 Act, which is materially identical to section 139(3) of 1961 Act, and which broadly proceeded on the reasoning that section 139(4) should be read as proviso to section 139(1) and that a compliance to the provisions of section 139(4) should be treated as compliance with section 139(1). In other words, a return filed under section 139(4) should also be treated as a return validly filed under section 139 and the carry forward of loss should accordingly be allowed. I may mention that the majority judgment by Hon'ble Supreme Court rejected the objection of Shah, J. the dissenting Judge, that the aforesaid reasoning would render section 139(3) otiose. The majority judgment in this case inter alia read as follows:
Now, the question which was submitted for the opinion of the High Court in the present case, consisted of two parts, viz., (1) whether the loss returned by the assessee for the assessment years in question was required in law to be determined by the Income Tax Officer and (2) whether those losses could be carried forward after being set off under section 24(2) of the Act. The first part of the question stood concluded by the decision of this court in Ranchhoddas Karsondas' case. The Income Tax Officer could have ignored the return and had to determine those losses. Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in section 22 under which losses have to be determined for the purpose of section 24(2). The question which immediately arises is, whether section 22(2A) places any limitation on that right. (Emphasis here italicised in print supplied to highlight its contrast with the applicable legal position under section 80 of 1961 Act whereby right to carry forward is restricted to the returns filed under subsection (1) of section 139). This sub-section which has been reproduced before simply says that in order to get the benefit of section 24(2) the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which return has to be submitted. It can well be said that section 22(3) is merely a proviso to section 22(1). Thus a return submitted at any time before the assessment is made is valid return. In considering whether a return made is within time sub-section (1) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must considered as having been made within the time prescribed of it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with, section 22(1) also must be held to have been complied with. If compliance has been made with the latter provision the requirements of section 22(2A) would stand satisfied.
17. The proposition thus adopted was that a return of loss could be filed at any time within the time limit laid down under section 139(4) and yet, notwithstanding the provisions of section 139(3), the assessee will be entitled for the benefit of carry forward of losses in the income tax returns so filed. The assessment years in Kulu Valley Transport Co. (P) Ltd. case (supra) and in Presidency Medical Centre (P) Ltd. case (supra), however, were 1954-55 and 1964-65 respectively. Those were the years in which section 80 was not in force in the form in which it was in force in the relevant assessment year and the restriction of the return having been filed under section 139(1) was not in existence. In this view of the matter, and for the elaborate reasons set out above, we are of the considered view that the assessee derives no benefit from these judgments.
18. We also find that in the case of Krishna Chandra Dutta (Cookme) (P) Ltd. v. CIT (1993) 204 ITR 23 (Cal.), one of the questions before Their Lordships of Hon'ble Calcutta High Court was:
"Whether the Tribunal was right in holding that the return for the assessment year 1983-84 having been filed on 2-7-1985, the amended provision of section 80 effective from 1-4-1985, was applicable and hence the loss determined was not to be carried forward ?"
19. It was in this context that Their Lordships, vide order. dated 31st March, 1993, inter alia observed as follows:
"As regards the second question (i.e., the question reproduced above), it may be said that the amendment in section 80 is effective from 1-4-1985, requiring a return of loss to be filed under section 139(1) as a prerequisite for determination of loss for purpose of carry forward and set off. The amendment cannot apply retrospectively. It is admitted position that, in this case, the assessment year involved in 1983-84.
Therefore the return filed under section 139(4) is not governed by the amended section 80. It is the unamended section 80 that should govern the assessee's case for the instant assessment year being a year earlier than the assessment year 1985-86. It cannot be disputed that the decision of this court in Presidency Medical Centre (P) Ltd. v. CIT (1977) 108 ITR 838 (Cal), shall squarely apply to this case and, accordingly, the loss determined on the basis of a return under section 139 is entitled to the benefit of the carry forward and set off. The amendment has not affected the position of law as declared by the said decision in respect of loss arising from assessment year earlier than the assessment year 1985-86. Our attention was brought to an instruction of the Board (Instruction No. 1607 (F. No. 225/240/78-II/A-II), dated 14-3-1985), wherein the Board has directed that the disqualification for carry forward and set-off of loss determined in pursuance of a belated return shall be effective in respect of the assessment year subsequent to the assessment year 1984-85. Our attention has also been drawn to paragraphs 14.1, 14.2 and 14.3 of Circular No. 397 (1985) 152 ITR (St.) 29) dated 16-10-1984. The extract of the relevant portion of the said Circular is set out below (See 152 ITR (St.) 36):
Submission of return for losses - section 80 '14.1 Under the existing provisions of section 80 relating to submission of return for losses, no loss is allowed to be carried forward and set off under section 72(1), 73(2), 74(1) or 74A(3) unless such loss has been determined in pursuance of a return filed under section 139.
14,2 The Amending Act has amended section 80 of the Act to provide that such loss shall not be allowed to be carried forward and set off unless such loss is determined in pursuance of a return filed within the time allowed under section 139(1) for furnishing a voluntary return of income or within such further time as may be allowed by the Income tax Officer.
14.3 The amendment takes effect from 1-4-1985, and will, accordingly, apply in relation to any loss for assessment year 1985-86 and subsequent years. (Section 18 of the Amending Act).' We find that the position as clarified by the Board is based on the correct construction of the provisions. We also share the view that the amendment shall apply to loss arising in assessment year 1985-86 and not in the earlier years.
In the premises, the second question is answered in the negatived and in favour of the assessee."
20. Once Hon'ble Jurisdictional High Court puts its seal of approval on the above extracted "position as clarified by the Board" as being "based on the correct construction of the provisions" and observes that Their Lordships share the view that the amendment shall apply to loss arising in assessment year 1985-86 (onwards)", this Tribunal, in our considered view, is duty bound to respectfully follow that position. This also supports the position, as laid down in the aforementioned Central Board of Direct Taxes circular, that "the Amending Act has amended section 80 of the Act (with effect from 1-4-1985) to provide that such loss shall not be allowed to be carried forward and set off unless such loss is determined in pursuance of a return filed within the time allowed under section 139(1) for furnishing a voluntary return of income or within such further time as may be allowed by the Income Tax Officer". Let us not forget that at the time of issuance of this Central Board of Direct Taxes circular, amendment with effect from 1-4-1989 was nowhere in sight.
21. A question then arises as to why the amendment in section 80, by the virtue of Direct Taxes (Amendment) Act and effective 1-4-1989, was made at all. To recapitulate, the expression "within time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income Tax Officer" appearing in section 80 of the Act was substituted the expression "return filed in accordance with the provisions of sub-section (3) of section 139' by the virtue of Direct Tax Laws (Amendment) Act, 1987.
22. Direct Taxes (Amendment) Bill, 1987 (168 ITR St. 177 at page 249) describes this amendment as in the category of 'amendments of a consequential nature'. Similarly, 'Notes on Clauses' (168 ITR St. 301, at page 357) also observe that this amendment is of a consequential nature'. It may also be recalled that by the virtue of the amendment brought about by this very legislation, amongst other things, clause (c) was inserted in proviso to section 139(10) and this clause (c) was worded as "(c) a return of loss which has been furnished in accordance with the provisions of subsection (3) (of section 139)". It may also be recalled that by the virtue of section 139(10), as it stood prior to the aforesaid insertion of clause (c), a loss return was not to be treated as non est, being a return disclosing income lower than the maximum amount not chargeable to tax, unless it was 'a return of loss furnished before the 31st day of July of the assessment year relevant to the previous year during which loss was sustained'. In other words, whereas a definite date was given in earlier proviso to section 139(10) itself, because of staggering of dates of filing of returns for various classes of assessee, which was done by the virtue of Direct Taxes (Amendment) Act, 1987, the reference to '3l st July' became redundant. It may also be recalled that the concept of 'allowing such further time as may be allowed by the Income Tax Officer' was also already given decent burial by legislative amendment taking away Income Tax Officer's powers of extending, in his discretion, the time for furnishing a return of loss. It was in this background that the mention of 'time as may be allowed under section 139(1)' and mention of 'such further time as may be allowed by the Income Tax Officer' in the statute book was no longer unwarranted. In any event, there is nothing to suggest that the amendment brought about in section 80 with effect from 1-4-1989 had anything to do with the losses in case of belated returns being rendered ineligible for set off in subsequent years. As the 'notes on clauses' unambiguously indicates, this amendment was merely a consequential amendment in nature and, in our considered view, nothing more needs to be read into this amendment.
23. As we conclude, we must, in all fairness, place on record the fact that there is a judicial precedent, in the case of CIT v. Doogar Tools (P) Ltd. (1998) 232 ITR 616 (MP) in favour of the assessee though, jurisdictional High Court having taken a different view as elaborated earlier in this order, we do not have the liberty to be guided by the same. We are, therefore, unable to subscribe to the proposition thus advanced by the Hon'ble M.P. High Court that "the decision of Hon'ble Supreme Court in the case of Kulu Valley Transport Co. (P) Ltd. (supra) was good law till the assessment year 1988-89". Once Honble Jurisdictional High Court takes a view, even in conflict with the esteemed views of any non-jurisdictional High Court, it is no longer open to the Tribunal to take any other view of the matter than the one taken by the Hon'ble Jurisdiction High Court. We leave it at that.
24. In the light of above discussions, we are of the considered view that the assessee was not entitled for carry forward and set-off of the loss incurred in the previous year relevant to the assessment year 1987-88, as the income-tax return filed for the assessment year was filed beyond the time limit set out in section 139(1) and, accordingly, restriction placed in section 80 of the Act rendered the loss ineligible for carry forward and set off. In this view of the matter, in our considered opinion, Commissioner (Appeals) erred in holding that the loss for the assessment year 1987-88, which amounted to Rs. 1,63,408, is required to be set off in this assessment year. To this extent, we vacate the order of the Commissioner (Appeals) and restore the order of the assessing officer.
25. In the result, revenue's appeal is allowed.