2019 (12) TMI 976 - AT - Income Tax

Not accepting the revised return of income and disallowing the claim of loss - Submission of return for losses - Whether the assessee can claim the losses for the current year in the return revised under section 139(5)? - Whether the loss on account of FDR s maintained with MMCBL and written off is eligible for deduction under the head business and profession? - HELD THAT - A return filed under section 139(3) of the Act is considered a return filed under section 139(1) of the Act and accordingly all the provisions of subsection (1) of 139 of the Act shall be applied to the return filed under section 139(3) of the Act. Thus there remains no ambiguity that a return filed under section 139(3) of the Act is considered a return filed under section 139(1) of the Act and accordingly we hold that the same can be revised under section 139(5) of the Act. Similarly we also note that there is no specific denial under section 80 of the Act that the return filed under section 139(3) of the Act which is considered the return filed under section 139(1) of the Act cannot be revised under section 139(5) of the Act. Once a return filed under section 139(3) of the Act has been considered a return filed in the section 139(1) of the Act which implies that all the provisions of section 139 of the Act will be equally applicable. In holding so we find support and guidance from the judgment of Hon ble High Court of Gujarat in the case of PCIT Vs. Babubhai Ramanbhai Patel 2017 (7) TMI 744 - GUJARAT HIGH COURT We hold that the assessee cannot be denied the benefit of the loss to be allowed carried forward under the provisions of subsection 139(3) read with section 80 of the Act in a situation where the loss was claimed in the revised return of income. On this technical count the assessee succeeds. Eligible for deduction for the FDR s written off against the business income of the assessee - HELD THAT - Any loss on account of FDR s written off cannot be denied merely on the ground that the impugned interest income was offered under the head income from other sources. We also note that the activity of the assessee for investing its money as FDR s is a normal business activity despite the interest thereon is offered to tax under the head income from other sources - See BIHAR STATE CO-OPERATIVE BANK LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1960 (2) TMI 8 - SUPREME COURT - We also note that the investment written off by the insurance company was allowed as deduction treating the same as business loss. Thus we hold that the impugned loss claimed by the assessee is allowable deduction under the head business and profession. Hence the ground of appeal of the assessee is allowed. Not allowing the carry forward of the business loss - HELD THAT - If any loss is not be allowed to be carried forward as discussed above then the revenue has the power to deny the claim of the assessee in that very year only. If the revenue has omitted to do so the remedy provided under the Act for the revenue to invoke the provisions of section 154 of the Act or 263 of the Act or 147 of the Act for that very assessment year as the case may be and depending upon the facts and circumstances. However the Revenue has no remedy/power to disturb such claim of the assessee in any other assessment year. There were several assessments carried out by the Revenue pertaining to the assessment years 2007-08 2009-10 and 2010-11 but claim of the assessee was not disturbed in these assessment years. Thus the issue in the case on hand has reached the finality and the same cannot be disturbed until and unless there is a mechanism provided under the Act. Hence we hold that claim for the brought forward losses for the earlier years cannot be denied to the assessee in the year under consideration. Thus the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Acceptance of revised return filed by the appellant.
2. Disallowance of the claim of loss due to irrecoverable deposits with Madhavpura Mercantile Co-operative Bank Ltd.
3. Validity of the explanation for claiming the loss in the relevant assessment year.
4. Allowance to carry forward and set off of losses from previous assessment years.

Detailed Analysis:

1. Acceptance of Revised Return:
The appellant, a cooperative society engaged in banking, filed its original return on 31 August 2012, declaring an income of Rs. 65,74,118, which was set off against brought forward losses. Subsequently, the appellant revised its return on 20 March 2014 under section 139(4) of the Income Tax Act, claiming a business loss of Rs. 1,56,71,108 due to FDRs written off with MMCBL. The revised return resulted in a loss of Rs. 90,96,990 for the current year, which was carried forward. The AO rejected the revised return on technical grounds, citing that losses must be determined in a return filed under section 139(3) to be carried forward. The CIT(A) upheld this view, stating that the revised return was invalid as it was not filed within the time specified under section 139(1).

The tribunal, however, concluded that a return filed under section 139(3) is considered a return under section 139(1) and can be revised under section 139(5). The tribunal referenced judgments from the Gujarat High Court and the Madras High Court, which supported the view that revised returns are permissible under the Act.

2. Disallowance of Loss Claim:
The AO disallowed the loss claim of Rs. 1,56,71,108, arguing that the loss was already accounted for in the investment depreciation reserve fund and bad and doubtful debt fund, leading to potential double deduction. The AO also noted that the loss was not recorded in the books of accounts, and the loss was known to the appellant for years. The CIT(A) concurred, stating that the RBI's letter was advisory and not binding, and the appellant had already claimed statutory deductions under section 36(1)(viia).

The tribunal found that the loss was genuine and arose in the course of business, with the interest income from FDRs previously taxed. The tribunal cited a previous ITAT decision allowing similar losses and a Supreme Court judgment affirming that funds laid out as deposits remain part of the circulating capital of a bank. Therefore, the tribunal allowed the loss as a deduction under the head business and profession.

3. Validity of Explanation for Claiming Loss:
The appellant claimed the loss in the year under consideration based on an RBI advisory letter. The CIT(A) rejected this, arguing that the loss should have been claimed when the appellant became aware of the FDRs' status. The tribunal, however, accepted the appellant's explanation, emphasizing that the loss was claimed following the RBI's advisory and was a legitimate business loss.

4. Carry Forward and Set Off of Losses:
The AO disallowed the carry forward of losses from AY 2005-06 and 2006-07, stating that the income was deductible under section 80P and not taxable. The CIT(A) upheld this, referencing a Supreme Court decision that losses from non-taxable sources cannot be carried forward. The tribunal disagreed, noting that the losses were allowed to be carried forward in previous assessments and the issue had reached finality. Thus, the tribunal allowed the carry forward of the losses.

Conclusion:
The tribunal allowed both appeals, permitting the revised return, recognizing the loss claim, and allowing the carry forward of previous losses. The tribunal directed the AO to adjudicate the issues in light of its findings.