2011 (6) TMI 110 - AT - Income Tax

Carry forward unabsorbed loss - Reopened assessment u/s 147 - As per the decision of the Hon ble Apex Court in the case of Sun Engineering Works (P.) Ltd. (1992 -TMI - 5381 - SUPREME Court) could have relevance during the assessment/appellate proceedings - But once the order of the appellate authorities in quantum appeal have become final and the effect have been given thereto and loss is determined thereby, the same has to be carried forward to the subsequent years as per the provisions of the Income-tax Act - The revenue cannot invoke decision of Hon ble Apex Court in Sun Engineering Works (P.) Ltd. to deny carry forward of loss finally determined, which loss is to be carried forward as per the section 72 and the only condition for carry forward of loss is the determination of the loss under the head Profit and Gains of business or profession or under the head Capital Gain - Admittedly, the loss is determined under the head Profit and Gains of Business and therefore, the same is to be allowed to be carried forward as per section 72 - Hence, direct the Assessing Officer to allow carried forward of business loss as per section 72 of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Carry forward of unabsorbed depreciation loss.
2. Carry forward of business loss.

Issue-wise Detailed Analysis:

1. Carry Forward of Unabsorbed Depreciation Loss:

The revenue contended that the CIT(A) erred in directing the Assessing Officer to allow the claim of carry forward unabsorbed depreciation loss, relying on Explanation 5 to section 32, which was introduced with effect from 1-4-2002, whereas the assessment year involved is 1999-2000. The revenue argued that as per section 80 of the IT Act, loss can only be carried forward if determined in pursuance of a return filed under section 139(3). Since the assessee had not filed a return of loss, the carry forward of the loss could not be allowed.

The assessee countered that the return of income was filed before the due date prescribed under section 139(1), and the appellate proceedings are a continuation of the assessment proceedings. Thus, when the loss is determined after the appellate proceedings, it should be carried forward and set off in subsequent years. The assessee also argued that unabsorbed depreciation automatically becomes the depreciation of the subsequent year as per section 32(2), without any specific conditions to be fulfilled.

The tribunal held that for the carry forward of unabsorbed depreciation, the only condition is that full effect cannot be given to depreciation allowable under section 32(1) due to insufficient profit. No other condition is required for the carry forward of unabsorbed depreciation. The tribunal concluded that the CIT(A) was correct in directing the Assessing Officer to carry forward unabsorbed depreciation, as per section 32(2).

2. Carry Forward of Business Loss:

The assessee argued that the CIT(A) erred in upholding the Assessing Officer's decision not to allow the carry forward of business loss computed in the order under section 154. The assessee contended that the business loss arose due to the consequential effect of the earlier year's ITAT's orders and not due to a fresh claim made in the return filed under section 148. The assessee also argued that the return was filed under section 139(1) declaring NIL income, and the loss determined should be allowed to be carried forward.

The tribunal noted that section 72 of the Income-tax Act entitles the assessee to carry forward and set off business loss, provided the net result of computation under the head "Profits and Gains of Business or Profession" is a loss. Section 139(3) requires the return of loss to be filed within the time allowed under section 139(1). The tribunal found that the assessee had filed the return of income before the due date, and thus, the revenue could not deny the benefit of carry forward of business loss under section 139(3).

The tribunal also addressed the reliance on the decision of the Hon'ble Apex Court in the case of Sun Engineering Works (P.) Ltd., which held that in reassessment proceedings, the assessee cannot claim benefits not claimed in the original assessment. However, the tribunal clarified that this decision was relevant during assessment/appellate proceedings and not for denying the carry forward of loss determined after giving effect to appellate orders.

The tribunal concluded that the loss determined after the appellate proceedings must be carried forward as per section 72, and directed the Assessing Officer to allow the carry forward of business loss.

Conclusion:

The tribunal dismissed the revenue's appeal and the assessee's cross-objection, while allowing the assessee's appeal, directing the carry forward of both unabsorbed depreciation and business loss as per the provisions of the Income-tax Act.