2019 (9) TMI 808 - AT - Income Tax

Rectification application u/s 154 - carry forward of the losses - HELD THAT - We set-aside the impugned order and direct AO to consider the aforesaid claim u/s 154 as urged by assessee before us. AO is directed to allow the carry forward of the losses, if found admissible as per law, after due verification. The assessee is directed to substantiate the same including quantification thereof.

Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under Section 154 of the Income Tax Act was erroneous and against the principles of natural justice.
2. Whether the assessee should be allowed to carry forward the long-term capital loss (LTCL) of ?3,26,31,579.

Issue-wise Detailed Analysis:

1. Error in the Order Under Section 154:
The appellant contended that the Ld. CIT(A) erred in confirming the AO's order under Section 154, which was claimed to be bad in law and against the principles of natural justice. The AO had rejected the rectification application on the grounds that the LTCL was not claimed in the return filed under Section 139(1) and that the figures of LTCL in the statement of computation of income were mentioned as Nil. As per Section 80 read with Section 139(3), any loss not determined in a return filed within the time allowed under Section 139(1) shall not be allowed to be carried forward.

The Ld. CIT(A) upheld the AO's decision, noting that the appellant conceded the facts noted by the AO were correct and that the issue was not covered under Section 154. The CIT(A) cited judicial precedents, including Banswara Syntex and Saurashtra Kutch Stock Exchange, to support the view that a mistake apparent from the record must be manifest, plain, or obvious and not subject to debate.

2. Carry Forward of Long-Term Capital Loss:
The appellant argued that the LTCL of ?3,26,31,579 should be allowed to be carried forward as the relevant facts were undisputed and on record. The loss arose from the conversion of investments into stock-in-trade, which was sold during the year, and the resultant gains were offered as Business Income. The appellant claimed that the omission to carry forward the loss was a mistake apparent from the record, warranting rectification under Section 154.

The tribunal examined the facts and found that the conversion of investments into stock-in-trade was duly reported and noted by the AO in the quantum assessment order. The resultant gains were assessed as Business Income, and the loss on sale of share investment was reflected under the head expenditure in the Profit & Loss account. The tribunal concluded that the claim was not new but sprang from existing records, making the plea of inadvertent error plausible and bona fide.

Legal Precedents and Circulars:
The tribunal referred to various judicial pronouncements and CBDT Circular No. 14(XL-35) dated 11/04/1955, which emphasized that officers should not take advantage of an assessee's ignorance and should assist taxpayers in claiming and securing reliefs. Key cases cited included Sanchit Software and Solutions P. Ltd. Vs. CIT(A), CIT V/s Nalwa Investment Ltd., and CIT Vs. K.N. Oil Industries, which supported the view that mistakes apparent from the record could be rectified under Section 154 even if the relief was not claimed in the return.

Conclusion:
The tribunal set aside the impugned order and directed the AO to consider the claim under Section 154. The AO was instructed to allow the carry forward of losses, if admissible as per law, after due verification. The assessee was directed to substantiate the claim, including its quantification.

Order:
The appeal was allowed, and the order was pronounced in the open court on 16th September 2019.

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