2018 (12) TMI 835 - HC - Income Tax

Rectification application u/s 154 - refuse set off of the loss carried forward - Tribunal s order setting aside the rectification on the ground of change of opinion - period of limitation - Held that - Admittedly, the assessment of 1985-86 as completed under Section 143(3) remains as such and carry forward is hence permitted. There can be no rectification made for the said assessment year for the limitation having expired. Further, even in the subject assessment years, the limitation under Section 154 has expired. The notice as seen from the appeals and the rectification order was first issued on 04.12.1995. The four year period from the end of the assessment years of 1987-88, 1989-90 and 1990-91 stands expired respectively on 31.03.1992, 31.03.1994 and 31.03.1995. All the proceedings were initiated beyond the four year period. In such circumstances, we refuse to answer the question regarding the change of opinion. We also uphold the order of the Tribunal setting aside the rectification under Section 154 for the subject assessment years. I.T.Appeals are rejected.

Issues:
1. Sustainability of Tribunal's order setting aside rectification under Section 154 of the Income Tax Act, 1961 based on change of opinion.
2. Validity of allowing carry forward of loss in assessment year 1985-86 despite filing return beyond due date.
3. Expiry of limitation under Section 154 for the subject assessment years 1987-88, 1989-90, and 1990-91.

Issue 1: Sustainability of Tribunal's Order:
The Department appealed against the Income Tax Appellate Tribunal's order questioning the sustainability of setting aside the rectification under Section 154 of the Income Tax Act, 1961 solely on the basis of a change of opinion. The Tribunal considered the assessment year 1985-86, where the carry forward of loss was the subject of rectification. The Tribunal's decision was based on the fact that the rectification for subsequent years could not be refused without rectifying the order of the initial year. Additionally, the limitation under Section 154 had expired for the subject assessment years, leading the Court to uphold the Tribunal's decision and reject the appeals.

Issue 2: Validity of Allowance of Loss Carry Forward:
The assessee had filed a return for the assessment year 1985-86 after the due date under Section 139(1). Despite this, the assessment was completed under Section 143(3), allowing the carry forward of the loss from that year. However, Section 80 under Chapter-VI prohibited such carry forward and set off of losses for years where the return was filed beyond the due date. The Court noted that the carry forward of loss from 1985-86, as permitted in the assessment under Section 143(3), remained valid. Without rectifying the order for that year, refusing set off for subsequent years was not permissible. The Court emphasized that rectification for the assessment year 1985-86 could not be made due to the expiration of the limitation.

Issue 3: Expiry of Limitation under Section 154:
For the subject assessment years 1987-88, 1989-90, and 1990-91, the limitation under Section 154 had expired. The notice for rectification was issued on 04.12.1995, exceeding the four-year period from the end of the assessment years. The Court highlighted that all proceedings were initiated beyond the four-year limit, with the respective periods expiring on 31.03.1992, 31.03.1994, and 31.03.1995. Due to the expiration of the limitation, the Court refused to address the change of opinion question and upheld the Tribunal's decision to set aside the rectification under Section 154 for the subject assessment years.

In conclusion, the High Court of Kerala upheld the Tribunal's decision to set aside the rectification under Section 154 of the Income Tax Act, 1961 based on the expiration of the limitation period and the legal constraints regarding the carry forward of losses from the assessment year 1985-86. The Court rejected the appeals, emphasizing the importance of adhering to statutory provisions and timelines in tax assessments.

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