Income Tax Appellate Tribunal - Kolkata
Deputy Commissioner Of Income-Tax vs Shaktigarh Textiles And Industries ... on 27 June, 1994
Equivalent citations: [1995]53ITD60(KOL)
ORDER
R.V. Easwar, Judicial Member
1. The only ground raised in this appeal by the revenue is as under:
That on the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer to allow carry forward of assessed losses as per law in respect of the assessment years 1976-77, 1977-78, 1981-82, 1982-83, 1984-85, 1985-86 and 1986-87 (aggregating in all to Rs. 93,02,292 and accompanied by the loss for the assessment year 1987-88 total amount comes to Rs. 1,04,80,560.
2. The assessee's accounting year ended on 31-3-1987. The return of income was filed on 28-12-1987. In the return the assessee declared a loss of Rs. 11,78,263 for the year and also claimed carry forward of the unabsorbed losses and allowances determined in the earlier years, amounting to Rs. 93,02,292. The assessing officer completed the assessment on 30-11-1988 Under Section 143(1) of the Act. He determined the total loss, including the brought forward losses and allowances, at Rs. 1,04,80,560. He, however, made the following observations at the end of the assessment order:
As the return of income filed on 28.12.1987 is not furnished according to the provisions of Section 139(3) of the I.T. Act, the unabsorbed loss of Rs. 1,04,80,560 is not to be carried forward.
Issue D.N. and copy of order.
3. On receipt of the assessment order, the assessee made a request for rectification of the same by petition dated 24-1-1989. The petition is reproduced below:
The Dy. Commissioner of Income-tax Dated 24th January, '89 Special Range-14, Calcutta. Dear Sir,
Sub : Your order Under Section 143(1) dated 30-11-1988 - Rectification of -Request for.
P.A. No. 11-000-CQ-9681 ________________ CAL/DC. spl. R-14 We are in receipt of a copy of your order Under Section 143(1) referred to above.
At the bottom of the order you have stated that 'as the return was filed on 28-12-1987, the unabsorbed loss of Rs. 1,04,80,560 is not to be carried forward. We respectfully submit that the said observation is not correct and needs to be modified. Under Section 139(1) the return was due to be filed by 31-7-1987, but as the necessary particulars for preparation and submission of the return could not be complied by that time, we submitted an application in the prescribed form on 29-7-1987 requesting for extension of time upto 31-12-1987. The return was filed on 28-12-1987. Therefore, the return was filed within the extended time. Therefore, the loss determined for the year is liable to be carried forward.
Further, the loss of Rs. 1,04,80,560 is not for asst. year 1987-88 alone, but for several years comprised of the following :
(a) Unabsorbed business loss for the asst. years 1976-77 to 1986-87 Rs. 20,89,026
(b) Unabsorbed depreciation for the asst. years 1976-77 to 1986-87 Rs. 61,24,779 Rs. 28,167
(c) Unabsorbed investment allowance for the asst. years 1981-82, 1982-83, Rs. 10,60,320 1985-86 and 1986-87 Rs. 93,02,292
(d) Loss for the current year i.e., Rs. 11,78,263 Asst. year 1987-88 wholly comprising -------------
of unabsorbed depreciation Rs. 1,04,80,555
Rs. 1,04,80,560
Therefore, your observation in the assessment order for this year (Asst. Year 1987-88) denying the carry forward of the past losses and/or depreciation etc. is uncalled for and is of no effect. The same, therefore, needs to be expunged from the assessment order.
As regards the loss for the year under assessment, the same being wholly comprised of unabsorbed depreciation is not hit by the provisions of Section 139(3) and Section 80 and, therefore, has to be carried forward under the provisions of Section 32(2).
We, therefore, request you to kindly rectify your order by expunging the last para of the assessment order reading as 'as the return of income filed on 28-12-1987, the unabsorbed loss of Rs. 1,04,80,560 is not to be carried forward.' Thanking you, Yours faithfully, for Shaktigarh Textile & Industries Ltd.
Sd/Illegible (S.K Hada) Managing Director.
The Assessing Officer, however, by order dated 21-2-1990 rejected the petition for rectification. According to him the points mentioned by the assessee in the petition were not mistakes apparent from the record and, therefore, Section 154 of the Act could not be invoked.
4. Aggrieved by the order dated 21-2-1990 the assessee preferred an appeal to the CIT(A). The CIT(A) was of the view that the Assessing Officer did not have the power to refuse to carry forward the losses which were already determined in the assessments for the earlier years on the ground that the return for the year had not been filed in time. He further took the view that the loss of Rs. 11,78,263 for the year under appeal consisted only of unabsorbed depreciation and unabsorbed investment allowance. He further found that the assessee had applied for extension to file the return of income up to 31-12-1987 by Form No. 6 filed on 29-7-1987 and the Assessing Officer not having rejected the application, it must be taken that the time to file the return was extended and in this view of the matter the return should be taken to be a return filed Under Section 139(3). He, therefore,directed the Assessing Officer (0 to entertain the assessee's claim regarding carry forward of unabsorbed depreciation and unabsorbed investment allowance for the year under appeal and (ii) to allow carry forward of the past losses to the subsequent years. In effect the CIT(A) directed the Assessing Officer to accept the assessee's petition and modify or amend the assessment accordingly.
5. The revenue is in appeal. It was argued by the learned departmental representative that the return should have been filed Under Section 139(3) within 31-7-1987 and since it was not filed within that date the losses, whether they are past losses or losses for the year under appeal, cannot be carried forward to the subsequent years. He also drew our attention to the provisions of Section 139(10), proviso (d), which came into force from the assessment year 1986-87 onwards. He further submitted that the entire loss of the earlier years merged with the losses of the current year and, therefore, they can be carried forward only if the return is filed in time. On this reasoning the learned D.R. pleaded for reversing the order of the CIT(A).
6. The learned counsel for the assessee strongly supported the order of the CIT(A). He pointed out that there was no power under Section 143(1) to reject the carry forward of the losses and allowances determined in the earlier years and inasmuch as the order under Section 143(1) purported to do so there is a mistake apparent from the record requiring rectification. Adverting to the reference by the learned D.R. to Section 139(3) he pointed out that Section 80, as it stood at the relevant time, permitted loss returns to be filed within the time extended by the Assessing Officer. In the present case the assessee's application for extension of time was not rejected by the Assessing Officer which means that the time has been extended as held by the Calcutta High Court in the case of CIT v. Janata Film Exchange (P.) Ltd. [1993] 202 ITR 532. Therefore, even from this point of view the return was filed within the time sought for. Regarding the reference to Section 139(10), the learned counsel for the assessee objected on the ground that a new case was being made out by the department for the first time before the Tribunal which cannot be permitted since the question was whether the provisions of Section 154 were applicable on the stated facts. Even assuming that Section 139(10) can be called in aid the loss of Rs. 1,04,80,560 was not the loss of the current year and under that section only if the assessee wants a carry forward of the loss of the current year he need to file the return within 31st July. In the present case, however, there is no "loss" since the figure of Rs. 11,78,263 represented only unabsorbed depreciation for the current year which is different from loss. According to the learned counsel for the assessee, whichever way the matter was looked at, the provisions of Section 139(10) were not applicable.
7. On a careful consideration of the rival contentions, we are of the view that the contentions of Mr. Poddar for the assessee have to be accepted. Section 143(1) as it stood at the relevant time, did not in terms authorise the Assessing Officer or confer upon him the power in express terms to reject the carry forward of past losses and allowances which have been already determined in the assessments for the earlier years. The section gave authority to the Assessing Officer only to make limited adjustments. It expressly provided only for adjustments of an arithmetical nature and for giving effect to the carry forward of the past losses and allowances by adjusting them against the profits, if any, for the current year. Under Section 157 of the Act, when it is established in the course of the assessment that a loss has taken place which the assessee is entitled to have carried forward to the subsequent years, the Assessing Officer is under an obligation to notify the assessee by an order in writing the amount of the loss computed by him. Such computation, if not objected to by the assessee, becomes final. Once such losses have been computed, the provisions of Sections 72, 73(2), 74(3), etc. make it mandatory for the Assessing Officer to carry forward the same to the subsequent years for being set off against the income for the subsequent years. So far as the losses in speculation business, non-speculation business, the loss under the head 'capital gains' and loss from running of horse races are concerned, once they have been determined in the assessments, a corresponding right is conferred upon the assessee to have them carried forward to the subsequent years and set off against the income. This right is of course subject to certain conditions prescribed by those Sections In respect of the allowances such as depreciation allowance, investment allowance, etc. the position is the same. Such a right to have the losses carried forward to the subsequent years cannot be taken away by the Assessing Officer who deals with the assessment for a subsequent year under the provisions of Section 143(1). The power to refuse to carry forward the past losses and allowances, determined in the earlier assessments, to the subsequent assessment years is alien to the provisions of Section 143(1) and to the power or authority conferred upon the Assessing Officer. He is entitled under this section only to make limited adjustments to the return submitted by the assessee. Even under Section 80 or Section 139(3) of the Act, as these provisions stood at the relevant time, the assessing officer could only refuse to carry forward the loss for the year to the subsequent years if the return was not filed in time and it is very doubtful whether such power can be exercised under Section 143(1). It is, therefore, not possible to countenance the view taken by the Assessing Officer in the present case that acting under Section 143(1) of the Act, he could set at naught the results of the past assessments by refusing to carry forward the past losses' and allowances to the subsequent years and defeat the vested right conferred upon the assessee to have those losses carried forward to the succeeding years. In our view it is clear from the provisions of Section 143(1) that no such power is contemplated. The assessee was, therefore, right in requesting the Assessing Officer to expunge the last few lines of the assessment order quoted in the earlier portion of our order refusing to carry forward the unabsorbed losses and allowances.
8. The above view of ours would be sufficient to dispose of the appeal. However, in deference to the elaborate arguments advanced by both the sides we would briefly notice them. Mr. Poddar submitted that there is a well-marked distinction between "loss" and unabsorbed depreciation and other allowances. This is true. A reference to the following authorities would show that under the income-tax parlance the two expressions are understood in different ways:
1. CIT v. Concord Industries Ltd. [1979] 119 ITR 458 (Mad.)
2. CIT v. Kalpaka Enterprises (P.) Ltd. [1986] 157 ITR 658 (Ker.)
3. CIT v. Shri Subhlaxmi Mais Ltd. [1983] 143 ITR 863 (Guj.)
4. CIT v. Estate and Finance Ltd. [1978] 111 ITR 119 (Bom.)
5. CIT v. Virmani Industries (P.) Ltd. [1974] 97 ITR 461 (All.)
6. Hyderabad Construction Co. Ltd. v. CIT [1981] 129 ITR 51 (AP)
7. CIT v. Kishanlal & Sons (Udyog) (P.) Ltd. [1985] 154 ITR 735 (Cal.)
8. Eastern Cold Storage (P.) Ltd. v. CIT [1983] 139 ITR 664 (Cal.) (at p. 677).
It is in recognition of the above position that even Sections 80 & 139(3) refer only to the losses Under Sections 72, 73, 74 and 74A and meticulously avoid any reference to unabsorbed allowances such as depreciation allowance, investment allowance, etc. which are referred to in Sections 32(2), 32A(2), etc. Therefore, the assumption of the assessing officer that the losses and the unabsorbed allowances can be treated on par and dealt with as such by invoking the provisions of Section 139(3) is wholly unwarranted in law. Since this assumption goes against the scheme of the Income-tax Act, it constitutes a mistake apparent from the record which ought to be rectified. It was also pointed out on behalf of the assessee that at the material time though under Section 139(3) a return claiming a loss had to be filed before the 31st July, under Section 80 as it stood at the material time, the assessee was allowed to file the return of loss within the time extended by the assessing officer by virtue of his powers under Section 139(1). In the present case the assessee had applied for extension of time up to 31-12-1987 and had filed the return on 28-12-1987. As per the judgment of the Calcutta High Court in the case of Janata Film Exchange (P.) Ltd. (supra) if no communication rejecting the application is received by the assessee it must be assumed that the time has been extended as prayed for. In the present case these facts are not disputed. Therefore, the Assessing Officer must be assumed to have granted time till 31-12-1987 under Section 139(1) read with Section 80 and, therefore, the return filed by the assessee must be taken to be within time. Even on this ground the carry-forward cannot be denied. These observations of ours however must always be conditioned by the position in law that whether it is Section 80 or Section 139(3), the compliance therewith is necessary only if the loss arises under Sections 72, 73, 74 and 74A and such compliance is not necessary if the assessee seeks carry forward of the unabsorbed allowances.
9. Mr. Poddar also objected to the reference by the departmental representative to Section 139(10). The objection has to be sustained because the Assessing Officer did not purport to act under that provision but only referred to Section 139(3). We have already seen that even under Section 139(3) the return is in time. Even otherwise under the proviso (d) to Section 139(10) the requirement is that the return of loss should be submitted before 31st July only where the loss is sustained during the relevant accounting year. There is no requirement under the proviso that even in respect of loss brought forward from the earlier years the return should be submitted before 31st July. Secondly, the proviso does not refer to unabsorbed allowances at all. Therefore, if at all the proviso applies to the present case it can apply only in respect of Rs. 11,78,263 and if we consider the legal position, even this figure represents only unabsorbed depreciation for the year and not a loss. That rules out the application of proviso (d) to Section 139(10) completely.
10. As already stated our decision wholly rests on the power of the Assessing Officer to refuse to carry forward the unabsorbed allowances and losses. In our view no such power is given to the Assessing Officer under Section 143(1). We have already given our reasons in support of this conclusion. We may make it clear that our decision in respect of the other points raised before us were only in deference to the arguments raised before us. In our view the assessment order contained a mistake inasmuch as it refused to carry forward the unabsorbed loss and allowances amounting to Rs. 1,04,80,560 to the subsequent years. This was beyond the authority of the Assessing Officer. Inasmuch as he had acted in excess of his authority there is a clear mistake apparent from the record which requires rectification. The only way in which the mistake can be rectified is by expunging the offending observations. We, therefore, direct the Assessing Officer to rectify the mistake as prayed for by the assessee.
11. For the aforesaid reasons we uphold the order of the CIT(A) and dismiss the appeal filed by the revenue.