2009 (2) TMI 42 - HC - Income Tax

Loss on sale of debentures - whether the loss determined by the AO being different from the loss as claimed by the assessee in the return can be carried forward in view of the provisions of Section 80 r.w.s. 139(3) - Whether tribunal has erred in law in holding that the AO had exceeded its jurisdiction in not allowing the carrying forward of the loss after the tribunal had issued directions in the earlier round - both the questions are answered in favour of the assessee and against the Revenue

Issues Involved:
1. Whether the loss determined by the Assessing Officer, being different from the loss as claimed by the assessee in the return, can be carried forward in view of the provisions of Section 80 read with Section 139(3) of the Income Tax Act, 1961.
2. Whether the tribunal erred in law in holding that the Assessing Officer had exceeded its jurisdiction in not allowing the carrying forward of the loss after the tribunal had issued directions in the earlier round.

Detailed Analysis:

Issue 1: Carry Forward of Loss Determined by Assessing Officer
- The court examined whether the loss determined by the Assessing Officer, which differed from the loss claimed by the assessee in the return, could be carried forward under Section 80 read with Section 139(3) of the Income Tax Act, 1961.
- The assessee, an investment company, had filed a return for the assessment year 1995-96, initially claiming a short-term capital loss of Rs 91/- per Detachable Warrant (DW). During the assessment proceedings, the assessee revised the claim to a loss of Rs 111/- per Secured Redeemable Non-Convertible Debenture (SRNCD) transferred to UTI, which was disallowed by the Assessing Officer as not genuine.
- The Tribunal, in an earlier round, reversed the Assessing Officer's decision, recognizing the loss as a business loss and directing the Assessing Officer to allow the deduction.
- The Assessing Officer, while giving effect to the Tribunal's order, allowed the loss but did not permit its carry forward, arguing it was not determined in pursuance of a return filed under Section 139(3).
- The Tribunal, in the impugned judgment, held that the loss was determined in pursuance of the original return filed under Section 139 and could be carried forward.
- The court agreed with the Tribunal, emphasizing that the assessee had filed the return within the prescribed time and the loss was claimed, albeit initially as a capital loss. The Tribunal's directive to allow the loss as a business loss was based on the true legal effect of the transaction, not the initial erroneous claim.

Issue 2: Jurisdiction of Assessing Officer
- The court examined whether the Assessing Officer exceeded his jurisdiction by not allowing the carry forward of the loss after the Tribunal had issued directions in the earlier round.
- The Tribunal had directed the Assessing Officer to allow the business loss at Rs 111/- per SRNCD. The Assessing Officer, while giving effect to this order, allowed the loss but restricted its carry forward, claiming it was not determined in pursuance of a return filed under Section 139(3).
- The Tribunal, in the impugned judgment, held that the Assessing Officer had exceeded his jurisdiction by not allowing the carry forward of the loss, as the Tribunal's direction was binding and the Assessing Officer had no jurisdiction to raise or consider a new issue.
- The court concurred, stating that the Assessing Officer was required to give full effect to the Tribunal's order and the provisions of law, thereby allowing the carry forward of the assessed loss.

Conclusion:
- The court concluded that the Tribunal correctly appreciated the provisions of Section 80 read with Section 139(3) and allowed the carry forward of the loss for set off against future income.
- The Tribunal's judgment was upheld, and both questions were answered in favor of the assessee and against the Revenue.
- The appeal was dismissed with no orders as to cost.

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