2002 (12) TMI 59 - HC - Income Tax

Benefit of carry forward of loss - Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the Assessing Officer has to entertain the return which was filed belatedly and to allow carry forward of loss for the assessment year 1986-87? - We, hold that the return filed by the assessee is within the time prescribed under section 139(3) of the Act and once we hold that the return, though it is a loss return, was filed within the time prescribed, the assessee is entitled to the benefit of carry forward of loss. We, therefore, hold that the view of the Appellate Tribunal that the assessee was entitled to carry forward of loss for the assessment year 1986-87 does not suffer from any infirmity and the view of the Appellate Tribunal is justified in law. Accordingly, we answer the question of law referred to us in the affirmative, in favour of the assessee and against the Revenue.

Summary

Issues:
- Dispute over the benefit of carry forward of loss for the assessment year 1986-87.
- Validity of the return filed by the firm within the prescribed time.
- Interpretation of the application for extension of time and communication from the Assessing Officer.

Analysis:
The firm filed its income tax return claiming a loss for the assessment year 1986-87. The Assessing Officer rejected the return under section 139(10) of the Income-tax Act, stating it was a non est return, thus denying the benefit of carry forward of loss. The Commissioner of Income-tax (Appeals) ruled in favor of the firm, allowing the benefit of carry forward of loss, including depreciation loss, and deemed the Assessing Officer's order as under section 143(3) of the Act, making the appeal maintainable.

The Revenue challenged this decision before the Appellate Tribunal, which upheld that the appeal was maintainable and the firm was entitled to the benefit of carry forward of its business loss. The Tribunal's decision was further contested in the High Court, where the key question was whether the Assessing Officer was correct in law to entertain the belatedly filed return and allow the carry forward of loss for the assessment year 1986-87.

The High Court reviewed the facts and found that although the return should have been filed by June 30, 1986, the firm applied for an extension until December 31, 1986, which was accepted by the Commissioner of Income-tax (Appeals). The Court emphasized that when the Income-tax Officer does not reject an application for extension and fails to communicate a decision, the assessee can presume the extension is granted. Citing precedents, the Court held that in such cases, the time sought for can be presumed to be granted if there is no response within a reasonable period.

Additionally, the Court considered a circular issued by the Central Board of Direct Taxes, stating that if a loss return was filed within the prescribed period, the benefit of carry forward of loss would not be denied. Relying on this circular and previous court decisions, the High Court concluded that the firm's return was filed within the prescribed time, entitling it to the benefit of carry forward of loss for the assessment year 1986-87.

In light of the above analysis, the High Court affirmed the decision of the Appellate Tribunal, ruling in favor of the firm and against the Revenue. The Court held that the firm was entitled to the benefit of carry forward of loss for the assessment year 1986-87 as the return was filed within the prescribed time, as per the provisions of the Income-tax Act.