2012 (5) TMI 462 - AT - Income Tax

Confirmation of addition of Rs.2,62,184/- paid in cash out of total disallowance of Rs.5,55,284/- made for purchase of car assessee purchased car for Rs.5.55 lakhs. Loan of Rs.2.93 lakhs was arranged from Standard Chartered Bank and the remaining amount of Rs.2.62 was claimed to have been contributed out of own funds - Held that - The explanation given for the cash payment is devoid of any merit as the capital account of the assessee for the year in question does not show the withdrawal for the purchase of car - car is not appearing on the asset side of the balance sheet of the assessee against assessee. Disallowance of set off of brought forward business loss - AO rejected the set off as it was not claimed in the original return of income and could not be allowed in the return filed in response to notice u/s.153A Held that - Once loss is determined in the return file u/s.139(3), the assessee becomes eligible for set off against the income of the subsequent years irrespective of the fact whether the returns of such later years are filed u/s.139(1) or not - Sec. 80 read with sec. 139(3) requires the submission of return for loss before the due date - the return filed in response to notice u/s.153A is treated as the return filed u/s.139 in favour of assessee. Disallowance of set off of brought forward business loss for assessment year 2001-02 Held that - Brought forward business loss has to be mandatorily set off against the income of the subsequent year, whether or not it is below the taxable limit - the necessary details about the income for assessment years 2003-04 to 2006-07 are not available on record the impugned order is set aside and restore the matter to the file of AO for deciding afresh.

Summary

Issues:
1. Addition of cash payment for purchase of car.
2. Disallowance of set off of brought forward business loss for A.Y. 2002-03.
3. Disallowance of set off of brought forward business loss for A.Y. 2007-08.

Issue 1: Addition of Cash Payment for Purchase of Car (A.Y. 2002-03):
The appellant contested the addition of Rs.2,62,184 paid in cash for the purchase of a car out of the total disallowance of Rs.5,55,284. The appellant claimed to have contributed the cash from earnings, with the remaining amount financed through a loan. The AO disallowed the contribution, leading to the appeal. The tribunal noted that the appellant failed to file the return within the prescribed time, hindering the verification of the claimed source of funds. The tribunal found discrepancies in the appellant's explanation and financial records, justifying the sustained addition.

Issue 2: Disallowance of Set Off of Brought Forward Business Loss for A.Y. 2002-03:
The appellant sought to set off a business loss from A.Y. 2001-02 against the current year's income. The AO and CIT(A) denied the set off, citing the return filing timeline. However, the tribunal held that once a loss is determined in a filed return, the set off is permissible in subsequent years, irrespective of filing deadlines. The tribunal emphasized the application of Sec. 80 and Sec. 139(3) for loss carryforwards, allowing the set off in this case and directing the AO to reconsider the matter.

Issue 3: Disallowance of Set Off of Brought Forward Business Loss for A.Y. 2007-08:
The appellant contested the disallowance of setting off the business loss from A.Y. 2001-02 against the current year's income. The tribunal reiterated the principles established in the A.Y. 2002-03 case, emphasizing the mandatory set off of brought forward losses against subsequent year's income. However, due to missing income details for A.Y. 2003-04 to 2006-07, the tribunal directed the AO to review the matter, ensuring proper compliance with the set off provisions and granting the appellant a fair hearing.

In conclusion, the tribunal partially allowed the appeals for statistical purposes, addressing the issues of cash payment addition for the car purchase and the disallowance of set off of brought forward business losses for both A.Y. 2002-03 and A.Y. 2007-08. The judgments emphasized the legal requirements for loss set offs and directed the AO to reevaluate the matters in accordance with the law and after providing the appellant with a reasonable opportunity to present their case.