2019 (4) TMI 403 - AT - Income Tax

Rectification of mistake u/s 154 - Reopening of assessment u/s 147 - reopening after expiry of 4 years - whether there was no failure on the part of the assessee to disclose any material or information necessary for assessment 143(3) - determination of claim of losses while passing order u/s. 143(3) for the assessment year 2006-07 on the basis of the original return of income filed by the assessee - HELD THAT - Referring provisions of section 147 we find that the AO has failed to substantiate that how there was escapement of income after expiry of 4 years as there was no failure on the part of the assessee to disclose any material or information necessary for assessment 143(3) of the act. No substance in the decision of CIT(A) holding without any reason that the order passed u/s. 154 by the assessing officer on 26-11-2010 allowing carry forward of loss was not sustainable in law. We observe that the assessing officer has completed the assessment for the assessment year 2005-06 on 06-12-2007 and addition to income was made u/s 40(a)(ia) as the amount of TDS was paid after the specified due date. Therefore, the assessee has filed the revised return of income for the assessment year 2006- 07 within the stipulated time claiming increased amount of losses, however, the assessing officer inadvertently determined the claim of losses while passing order u/s. 143(3) for the assessment year 2006-07 on the basis of the original return of income filed by the assessee. When the matter was brought to the notice of the assessee as elaborated above he has rectified the apparent error by passing order u/s. 154 of the act in the assessment year 2007-08 vide which the claim of the losses of the assessee was allowed. AO has rectified the mistake u/s. 154 of the act and correctly allowed the claim of set off of carried forward business/depreciation, therefore, we are not inclined with the unjustified finding of the CIT(A). Considering we allow the ground of appeal of the assessee for assessment years 2007-08 to assessment year 2008-09. In the result, all the grounds appeal of the assessee are allowed.

Issues Involved:
1. Reopening of Assessment under Section 147 of the Income Tax Act.
2. Validity of Revised Return of Income.
3. Set-off and Carry Forward of Business Losses and Unabsorbed Depreciation.
4. Rectification of Mistake under Section 154 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income Tax Act:
The assessee contested the reopening of the assessment under Section 147, arguing that no income had escaped assessment or was under-assessed. The tribunal noted that the original assessment for the year 2007-08 was completed under Section 143(3), and the reopening was initiated after four years. The tribunal emphasized that the Assessing Officer (AO) must substantiate how there was an escapement of income, especially after the expiry of four years, and must demonstrate any failure on the part of the assessee to disclose material facts necessary for the assessment. The tribunal found no such failure by the assessee and thus deemed the reopening unjustified.

2. Validity of Revised Return of Income:
The assessee had filed a revised return for the assessment year 2006-07, declaring a loss of ?1,05,16,191 after considering disallowances under Section 40(a)(ia) for the assessment year 2005-06. The AO initially allowed a carry forward loss of ?11,29,510 based on the original return. However, the revised return was filed within the stipulated time, and neither the AO nor the CIT(A) challenged its validity or pointed out any defects. The tribunal observed that the AO inadvertently did not consider the revised return while passing the order under Section 143(3) for the assessment year 2006-07.

3. Set-off and Carry Forward of Business Losses and Unabsorbed Depreciation:
The tribunal noted that the assessee had filed the return for the assessment year 2007-08, setting off losses from the assessment year 2006-07. The AO later rectified the mistake under Section 154, allowing the set-off of business losses and unabsorbed depreciation. The tribunal found that the AO had correctly allowed the carry forward and set-off of losses and depreciation as per the revised return, and there was no failure on the part of the assessee to disclose material facts.

4. Rectification of Mistake under Section 154 of the Income Tax Act:
The AO passed an order under Section 154 for the assessment year 2007-08, allowing the set-off of brought forward losses and unabsorbed depreciation. The CIT(A) held that the order under Section 154 was not sustainable in law. However, the tribunal disagreed, stating that the AO had rectified the apparent error correctly and allowed the claim of set-off of carried forward business losses and depreciation. The tribunal found the CIT(A)'s decision unjustified and allowed the assessee's appeal.

Conclusion:
The tribunal allowed all the grounds of appeal filed by the assessee for the assessment years 2007-08 to 2008-09. The tribunal found that the reopening of the assessment under Section 147 was unjustified, the revised return of income was valid, and the set-off and carry forward of business losses and unabsorbed depreciation were correctly allowed. The rectification of the mistake under Section 154 was also deemed appropriate. The tribunal pronounced the order in favor of the assessee on 28-01-2019.

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