2020 (2) TMI 485 - AT - Income Tax

Revision u/s 263 - defective return of income - non filing of Audit report with the ITR - Loss claimed to be carried forward as per section 139(3) r.w.s. 80 - whether the return of income filed originally is to be treated as defective return of income so as to deny the benefit of carry forward of loss to the assessee in terms of section 139(1) r/w sections 139(3) and 80 of the Act. ? - HELD THAT - In the facts of the present case, the assessee itself has removed the defect without being intimated by the Assessing Officer. Therefore, the original return of income cannot be treated as invalid as there is no failure on the part of the assessee to remove the defect within the time limit permitted by the Assessing Officer. In fact, the provisions of section 139(9) of the Act have never been pressed into action in the instant case Since the assessee has already filed the audit report, there is no question of Assessing Officer issuing a defect notice now in terms of section 139(9) of the Act for non filing of audit report. Therefore, exercise of power under section 263 of the Act to revise the assessment order simply for the purpose of going through the process of complying with the provisions of section 139(9) in our view, is a futile exercise. Non-filing of the audit report along with the original return of income is a technical error which is subject to rectification in terms of section 139(9) of the Act. Since, the defect has already been rectified, there is no purpose of again restoring the issue to the Assessing Officer for fresh adjudication considering the fact that the only issue on which the learned Commissioner held the assessment order to be erroneous and prejudicial to the interests of Revenue is inadmissibility of claim of carry forward of loss due to non filing of audit report, which allegedly, made the return of income of income filed under section 139(1) defective. Therefore, in our view, the exercise of power under section 263 of the Act in the present case is without justification, hence, invalid. - Decided in favour of assessee.

Summary

Issues:
Validity of carry forward of business loss due to alleged defective original return of income.

Analysis:
The appeal arose from an order dated 29th March 2019 under section 263 of the Income Tax Act, 1961, concerning the assessment year 2013-14. The assessee, a resident company engaged in civil contract work, initially declared a loss of ?68,58,22,875, later revised to ?47,73,22,997. The Commissioner of Income Tax (CIT) found the original return of income filed by the assessee to be defective due to the audit report being filed after the due date, leading to a potential short levy of tax. The CIT issued a show cause notice under section 263, directing the Assessing Officer to re-examine the issue of carry forward of loss. The CIT held that failure to examine the eligibility of the assessee to carry forward the loss rendered the assessment order erroneous and prejudicial to revenue. The CIT set aside the assessment order for re-evaluation.

The assessee contended that the original return of income was filed within the due date, and the defect was rectified by filing the audit report with the revised return. The assessee argued that the claim for carry forward of loss should be allowed as per the Act. The Departmental Representative argued that the original return without the audit report was defective, making the assessee ineligible for carry forward of loss. The Assessing Officer's failure to consider this rendered the assessment order erroneous. The Departmental Representative supported the CIT's decision to revise the assessment order.

The Tribunal analyzed the provisions of the Act concerning the filing of returns, audit reports, and the treatment of defective returns. It noted that the Assessing Officer did not declare the original return defective or provide an opportunity to rectify the alleged defect. The Tribunal found that the defect in the original return was removed by filing the audit report with the revised return, making the original return valid. The Tribunal concluded that the exercise of power under section 263 to revise the assessment order was unjustified and invalidated the CIT's order. The Tribunal upheld the validity of the carry forward of loss claimed by the assessee and allowed the appeal.

In conclusion, the Tribunal quashed the order passed under section 263, restoring the original assessment order. The Tribunal held that the original return of income was valid, and the assessee was eligible for the carry forward of business loss. The exercise of power under section 263 was deemed unjustified, and the appeal was allowed.