Income Tax Appellate Tribunal - Indore
Assistant Commissioner Of Income-Tax vs Electrical Transformer Co. on 16 September, 1998
Equivalent citations: [1999]70ITD48(INDORE)
ORDER
Shri S. K. Yadav, JM
1. This appeal is preferred by the revenue against the order of the CIT (Appeals) pertaining to the assessment year 1986-87 on a substantive ground that the CIT (Appeals) has erred in cancelling the order passed under section 154 of the Income-tax Act, 1961 by the Assessing Officer whereby he has withdrawn carry forward of loss from the hands of the partners.
2. This appeal was taken up for consideration on 2-9-1998 but none appeared on behalf of the assessee. However, written submissions along-with power of attorney have been filed on behalf of the assessee. Following the provisions of rule 25 of the Income-tax Appellate Tribunals Rules, we proceeded with the hearing of the appeal and the revenue was heard.
3. The facts relating to the issue are that the assessee has filed the return of income declaring loss therein at Rs. 6,39,944 on 31-3-1987 under the Amnesty Scheme beyond the period prescribed under section 139(1) of the Act. The original return was processed and the business loss was determined by the Assessing Officer vide its order dated 6th November, 1987. The business loss was also apportioned among the partners for being set off/carried forward in their respective hands by passing a specific order under section 158 of the Act. Subsequently, the Assessing Officer realised his mistake that since the return was not filed within the prescribed period under 'section 139(1) or within the time allowed by the Assessing Officer, the business loss could not be determined in the hands of the firm and once the determination of the business loss is not possible by virtue of section 80, it cannot be apportioned and allowed to be carried forward in the hands of the partners for being set off against the income of the subsequent years. Accordingly, he modified his order under section 154 of the Act and directed that the business loss of Rs. 2,88,938 shall not be carried forward in the hands of the partners for being set off against the income of the subsequent years. A copy of the order was also sent to the respective Assessing Officer who held jurisdiction over the partners. This rectification order was challenged by the assessee before the CIT (Appeals).
4. The CIT (Appeals) cancelled the rectification order passed under section 154 of the Act after appreciating the arguments of the assessee that the Act does not restrict the carry forward and set off of losses in the hands of the partners who are distinct entities other than the firm and section 158 of the Act only requires the Assessing Officer to determine the business loss of the registered firm and to allocate the same in the hands of the partners and after such allocation of loss, there remains nothing with the firm to carry forward and set off.
5. Before us the learned Departmental Representative has strongly argued that the Assessing Officer has simply rectified a mistake occurred in the order on account of wrong application of the relevant provisions of law. When the Assessing Officer realised the mistake in the order, he suo motu made rectification after affording an opportunity of being heard to the assessee. Since it is a mistake of law, the Assessing Officer was well within its right to rectify the same. He further invited our attention, to the amendment brought in section 80 of the Act with effect from 1-4-1985 by the Taxation Laws (Amendment) Act, 1984 whereby the words "under section 139" were substituted by "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" and it was contended that this section is a non obstante clause and has overriding effect over all sections quoted in Chapter VI. He further relied on the judgment of the Andhra Pradesh High Court in the case of Palakol Cooperative Sugars Ltd v. ITO [1993] 202 ITR 681 in which their Lordships have held that section 80 provides that a loss which has not been determined in pursuance with a return filed within the time allowed under sub-section (1) of section 139 or within such further time, which may be allowed by the Income-tax Officer, should not be carried forward and set off under sections 72, 73, 74 and 74A of the Act. This section begins with a non obstante clause and gives overriding effect to the provisions of section 80 over the other provisions of the Chapter in which it is placed. Section 80 occurs in Chapter VI which deals with "aggregation of income and set off or carry forward of loss". Therefore, from a combined reading of sub-section (4) of section 139 and section 80 of the Act, it follows that, unless the return is 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 loss cannot be determined much less can it be carried forward and set off under the above provisions. Mr. Gupta further contended that admittedly the return was not Wed within the period prescribed under section 139 of the Act or time allowed by the Assessing Officer. However in the Act it has been mentioned that the return filed under the Amnesty Scheme can be treated as return filed within the period prescribed under section 139(1) of the Act or the time allowed by the Assessing Officer. Moreover, no circular was issued by the CBDT to this effect. Once it is proved that the return has not been filed within the period prescribed under section 139(1) of the Act or time allowed by the Assessing Officer, the business loss cannot be determined while framing the assessment and when the business loss was not determined, it cannot be allocated in the hands of the partners for its carry forward to subsequent years.
6. On consideration of the submissions of the revenue and from a careful perusal of written submissions of the assessee, we find force in the arguments of the revenue. From a careful perusal of section 80 of the Act we find that some radical changes were brought in this section from time to time and because of that, the applicability of this section was seriously affected. Section 80 places a bar on carry forward and set off of non-speculative and speculative business losses under sections 72(1) and 73(2) of the Act, respectively. Prior to the amendment brought by Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985, section 80 appeared in the statute as under :-
"Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under 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) of section 74 or sub-section (3) of section 74A."
This provision was exhaustively interpreted by the Apex Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd [1970] 77 ITR 518 in which their Lordships have held that if section 139(4) was complied with, section 139(1) must also be held to have been complied with and where compliance was made with section 139(4), the requirement of section 139(3) would stand satisfied. Thus, prior to the amendment by Taxation Laws (Amendment) Act, 1984 with effect from 1st April, 1985 the business loss was allowed to be carried forward and set off if the return of loss was filed within the time allowed under subsection (1), (2), (3) or (4) of section 139 of the Act. Any of these sub-sections would qualify the assessee for determination and carry forward of loss but by virtue of the amendment brought by the Taxation Laws (Amendment) Act, 1984, the words under section 139" were substituted by "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". This amended provision of section 80 stood applicable from the assessment year 1985-86. After 1985-86 and till 1989-90 the assessee would only be entitled for determination and carry forward of losses if the return was filed within the time allowed by section 139(1) or extended time allowed by the Assessing Officer. The discretion of the Assessing Officer for allowing time was taken away by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 by substituting the words "in accordance with the provisions of sub-section (3) of section 139" for the words" 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". However, we are not concerned with the amendments brought by the Direct Tax Laws (Amendment) Act, 1987 as the assessment year involved in the instant case is 1986-87. For the sake of brevity we reproduce the relevant provisions of section 80 applicable to the assessee's case :-
"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 or sub-section (3) of section 74A."
7. From a bare reading of this section, it appears to us that no business loss can be determined and allowed to 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 or sub-section (3) of section 74A of the Act if a return of business loss is not 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. Since this section begins with the non obstante clause and gives an overriding effect to the provisions of section 80 over other provisions of this Chapter, in which it is placed, no business loss can be allowed to be carried forward or set off unless and until the requisite conditions illustrated in this section are fulfilled.
8. It is not out of place to mention here that in the instant case the return of loss was not filed within the period prescribed under section 139(1) of the Act or the time allowed by the Assessing Officer. Though the return was filed under the Amnesty Scheme, but we do not find anywhere either in the Act or elsewhere that the return filed under the Amnesty Scheme can partake the character of return filed in pursuance with the requirement of section 80 of the Act. Once the basic requirement for determination of loss is not fulfilled, it was not incumbent upon the Assessing Officer to determine a loss of the firm and to allocate the same among the partners. While dealing with the case of CIT v. Jadavji Narsidas & Co. [1963] 48 ITR 41 their Lordships of the Supreme Court have held that where a firm suffers a loss and does not file any return under section 139, it is not incumbent upon the Assessing Officer to compute the loss of the firm and to allocate the same among the partners so as to enable them to set off the said share of loss against their other income. Similar view was expressed by the Hon'ble Andhra Pradesh High Court in the case of Palakol Co-operative Sugars Ltd. (supra) in which their Lordships have categorically observed that from a combined reading of sections 139 and 80, the loss cannot be determined unless the return is filed within the time allowed under sub-section (1) of section 139 or within such further time, as may be allowed by the ITO.
9. The learned counsel for the assessee has strongly placed reliance on the judgment of the Madhya Pradesh High Court in the case of CIT v. Dogar Tools (P.) Ltd. [1998] 232 ITR 616 in which their Lordships have held that the decision of the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra) was good law till the assessment year 1988-89. From a careful perusal of the judgment it appears to us that the correct position of the amendment brought in section 80 at different point of time, was not placed before the Hon'ble High Court during the course of arguments. The judgment of the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra) was held to be a good law till the assessment year 1984-85 as from 1985-86 the amendment was brought to this section through Taxation Laws (Amendment) Act, 1984 by substituting the words Within time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Assessing Officer" in place of the words "under section 139". This amendment was brought to the statute to meet the situation created by the decision of the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd (supra). After this amendment, the return filed under section 139(4) cannot be treated to have been filed within the period prescribed under section 139(1) or the extended period allowed by the Assessing Officer. Unfortunately, the attention of the Hon'ble High Court was not invited to the amendments brought in section 80 of the Act with effect from 1-4-1985 by Taxation Laws (Amendment) Act, 1984 whereby the liberty to file a return under any of the sub-sections of section 39 was withdrawn by the Legislature by substituting the words "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" for "under section 139".
10. From a careful perusal of the judgment of the Hon'ble High Court it appears to us that the parties concerned have invited the attention of their Lordships to the amendment in this section brought by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 whereby the Legislature has withdrawn the powers of the Assessing Officer for extending the period for filing of return by substituting the words "in accordance with the provisions of sub-section (3) of section 139" for "within the time allowed under sub-section (1) of section 139 or within such further time as may be allowed by the Income-tax Act". Moreover, from these judgments we are not able to find out the correct facts whether the return was filed under section 139(4) or within the time allowed by the Assessing Officer for filing the return. As such, we are unable to hold that the facts of the case of Dogar Tools (P.) Ltd (supra) are identical with the facts of the present case. In these circumstances, we are of the view that these judgments do not render any assistance in favour of the assessee.
11. From a careful perusal of record and in the light of the foregoing discussions, we are of the view that the business loss was wrongly determined in the original assessment by the Assessing Officer in the light of the relevant provisions of law, which was later on rectified by the Assessing Officer by passing an order under section 154 of the Act. The error crept in the assessment order was a mistake of law as the Assessing Officer has ignored the relevant provisions of section 80 while determining the business loss of the assessee. As such, the rectification made by the Assessing Officer in the assessment order is permissible under section 154 of the Act as the relevant provisions of section 80 at the relevant point of time are quite unambiguous and no second interpretation can be made except that which was followed by the Assessing Officer during the course of rectification. In the case of M. K. Venkalachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143, their Lordships of the Supreme Court have held that a glaring and obvious mistake of law can be rectified under section 35 of the Act para materia with section 154 of the present Act as much as a mistake of fact apparent from record. A similar view was expressed by the Karnataka High Court in the case of Addl. CIT v. India Tin Industries (P.) Ltd [1987] 166 ITR 454. In this case their Lordships have held that if mistake occurred by over-looking mandatory provisions of law, which leaves no discretion to the taxing authorities, it can be rectified under section 154 of the Act. Since in the instant case, the provisions of section 80 are quite unambiguous which were not followed by the Assessing Officer while framing the original assessment, he was well within his rights to make rectification in its order and to frame the assessment compatible with section 80 of the Act.
12. Having regard to the above observations, we do not find any illegality in the order passed under section 154 of the Act. Moreover, we are not convinced with the observation of the CIT(A) who has straight away accepted the arguments or the assessee without assigning any specific reasons. We, therefore, do not find ourselves in agreement with the observations of the CIT(A). Accordingly, the order, of the CIT(A) is set aside and the rectification order of the Assessing Officer is hereby restored.
13. In the result, the appeal is allowed.