2014 (4) TMI 1006 - HC - Income Tax

Validity of order u/s 154 of the Act Rectification of order - Benefit of carry forward of business loss u/s 80 of the Act Original return filed not a loss return u/s 139(3) of the Act - Held that - The assessee had filed return of income declaring the total income on 6-1-1998 - the Assessing Authority once again determined total loss and allowed it to be carried forward - the order allowing the loss to be carried forward was modified invoking Section 154 of the Act - The reasoning of the Appellate Authority that the assessee has not declared the loss within the time specified u/s 139(1) and 139(3) of the Act is factually incorrect the business loss was allowed to be carried forward - The assessee has not violated any of the conditions u/s 80 of the Act - The assessee had shown positive income in the returns, but in the assessment, the business loss was determined by the AO thus, the assessee is entitled for the benefit of carry forward of business loss - Whether loss ultimately determined by the Assessing Officer was liable to be carried forward or not, is a debatable issue Invocation of section 154 is not available for the AO thus, the order of the Tribunal is upheld Decided against Revenue.

Summary

Issues:
1. Rectification proceedings disallowing carry forward of loss under Section 80 of the Income Tax Act due to belated filing of return.
2. Original return not being a loss return and violation of Section 139(3) of the Act despite filing a revised return.

Analysis:
1. The appeal involved a challenge by the Revenue against an order passed by the Tribunal allowing the benefit of carry forward of business loss to the respondent-assessee for the assessment year 1997-98. The Assessing Officer had initially allowed the business loss to be carried forward but later issued a notice under Section 154 of the Act to rectify this decision, citing the belated filing of the return by the assessee. The Tribunal, after detailed consideration, found in favor of the assessee, leading to the Revenue's appeal.

2. The key contention raised by the Revenue was based on the amendment to Section 80 of the Act, which stated that only losses determined in pursuance of a return filed within the specified time could be carried forward. The Revenue argued that since the assessee did not file the return showing business loss within the prescribed time limit, the benefit of carry forward should be withdrawn. On the other hand, the respondent-assessee argued that the initial return filed did not declare the business loss, and it was only determined during assessment under Section 143(3) of the Act. Therefore, the benefit of carry forward should be allowed.

3. Upon careful consideration of the arguments and the impugned order, the Court observed that the assessee had indeed filed the return declaring total income within the required timeframe. The Assessing Authority had assessed the income, including the business loss, which was then allowed to be carried forward. The Court noted that the assessee had not violated any conditions under Section 80 of the Act and was entitled to the benefit of carry forward. The Court deemed the issue of whether the loss determined by the Assessing Officer should be carried forward as a debatable one, making Section 154 inapplicable for rectification in this case.

4. Ultimately, the Court held in favor of the respondent-assessee, dismissing the appeal by the Revenue and confirming the Tribunal's order. The substantial questions of law framed were decided against the Revenue, upholding the assessee's entitlement to the benefit of carrying forward the business loss.