2011 (7) TMI 399 - AT - Income Tax

Carried forward of loss determined under section 74 read with section 80 - long-term capital loss - The assessee filed original return u/s 139(1) in which the positive income was declared - Even as per the assessment order positive income is determined as the assessee could not set off the loss on the sale of the shares of Phiolx Pharma Ltd. in the year itself - As per the language used in section 139(3), it is contemplated that when the assessee files the original return, at that time, there should be loss and the assessee desires to claim said loss to be carried forward and set off in future assessment years - Held that - Sub-section 139(1) cast statutory obligation on the assessee when there is positive income - As the assessee filed its original return declaring the positive income and hence, subsequent revised return is valid return also and therefore the assessee is entitled to carry forward of long-term capital loss - Thus, direct the Assessing Officer to allow the assessee to carry forward the loss.

Summary

Issues Involved:

1. Validity of the revised return filed by the assessee.
2. Eligibility to carry forward long-term capital loss as per sections 74 and 80 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the revised return filed by the assessee:

The assessee filed the original return of income under section 139(1) of the Income Tax Act on 28-10-2005, declaring a total income of Rs. 94,09,046. This return was processed under section 143(1) on 15-12-2005. Subsequently, the assessee filed a revised return on 28-3-2006, claiming a long-term capital loss of Rs. 1,82,27,039, which was not claimed in the original return. The Assessing Officer (AO) had reservations about allowing this claim, stating that the revised return should have been filed under section 139(1) and referred to section 80, which mandates that no loss which has not been determined in pursuance of a return filed in accordance with section 139(3) shall be allowed to be carried forward.

The Tribunal examined whether the revised return filed by the assessee was valid under section 139(5). It was noted that the original return was filed within the prescribed time limit, and the revised return was also filed within the timeframe allowed under section 139(5). The Tribunal concluded that the revised return was valid as per the provisions of section 139(5), which allows an assessee to revise a return if any omission or wrong statement is discovered, provided it is done within one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

2. Eligibility to carry forward long-term capital loss as per sections 74 and 80 of the Income Tax Act:

The AO and the CIT(A) both denied the carry forward of the long-term capital loss claimed in the revised return, interpreting section 80 to mean that the loss must be determined in a return filed under section 139(3). The Tribunal examined the provisions of section 139(3) and section 80. Section 139(3) pertains to the filing of a return of loss if the assessee desires to carry forward the loss, and section 80 stipulates that no loss which has not been determined in a return filed in accordance with section 139(3) shall be carried forward.

The Tribunal noted that the original return filed by the assessee declared a positive income, and the revised return also declared a positive income, with the long-term capital loss being claimed for the first time. The Tribunal opined that section 80 should not be interpreted in a manner that frustrates the objective of allowing the carry forward of losses. It was emphasized that section 80 is a cap on the right of the assessee when there is no taxable income but only a loss, and the return of income declaring the loss is not filed as per section 139(3).

In this case, the assessee filed the original return declaring positive income and later revised it to include the long-term capital loss. The Tribunal held that the revised return is valid and the assessee is entitled to carry forward the long-term capital loss. The Tribunal directed the AO to allow the carry forward of the loss, stating that the provisions of sections 139(1) and 139(3) apply to different situations and there is no conflict in their applicability.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the revised return filed was valid and the assessee is entitled to carry forward the long-term capital loss as claimed in the revised return.