2021 (1) TMI 163 - AT - Income Tax

Set off of loss - collection of demand raised by declining the set off and imposition of penalties for non-payment of such demands - denying the assessee set off of loss against the income of subsequent years, even during the period when the loss returned by him remains intact, he is being visited with the consequences of denial of a claim even when the claim is yet to denied- fully or partially - HELD THAT - As the things as on now, the assessment proceedings for the assessment year 2014-15 are not yet finalized, and, therefore, any determination of tax liability, on the assumption that the claim of loss in the said income tax return is untenable in law, is certainly uncalled for, and, at the minimum, premature. This is, however, precisely what the Assessing Officer ends up doing when he declines the set off of the loss, as claimed by the assessee, in the income tax return for the assessment year 2014-15. In our considered view, therefore, the set off of the loss claimed by the assessee, at this stage, cannot indeed be declined. Refund becoming due to the assessee even as a related assessment , having crucial bearing on the refund, is in progress. When one carefully looks at the scheme of Section 240, the apprehensions seem to be perhaps ill conceived. In the present case, the coordinate bench decision, by virtue of which the assessment under section 143(3) was remanded to the Assessing Officer, was passed on 4th October 2019, whereas the related income tax returns for the present assessment years were filed by the assessee much before that date. The refunds, if any due to the assessee, have thus become due as a result of the appellate order dated 4th October 2019 and, to borrow the words of section 240, by the order aforesaid, an assessment is set aside or cancelled and an order of fresh assessment is directed to be made . A view is indeed possible that even though the assessment set aside and directed to made afresh may be of an year other than the assessment year in which the refund has arisen, refund will become due only on such fresh assessment being made. There does, therefore, seem to be a prima facie valid school of thought that in such a situation, as in the present case, refund of taxes for the present assessment years must wait the finalization of the assessment for the assessment year 2014-15 because of which the refund may arise. Viewed thus, the apprehension of the learned Departmental Representative, therefore, does not seem valid. In any case, the remanded assessment is to be finalized, as learned Departmental Representative himself accepts, within less than three months from today, and, therefore, this situation of uncertainty is too transitory and too short by any standard. As soon as the remanded assessment is finalized, any variations in the assessed loss/income will have to be taken into account by suitably amending these set off claims in these years as well. We uphold the plea of the assessee that so far as set off of loss returned by the assessee in the assessment year 2014-15 is concerned, the same cannot be declined by the Assessing Officer in the assessment yea₹ 2016-17 and 2017-18, if otherwise admissible, only for the reason that the assessment for the assessment year 2014-15 is in progress. We direct the Assessing Officer to allow, for the time being, the claim for set off of loss brought forward, in the light of the above observations.

Issues Involved:
1. Claim of set off of unabsorbed business losses for AY 2014-15 against income for AYs 2016-17 and 2017-18.
2. Legitimacy of the Assessing Officer's action in declining the set off of losses during the pendency of remanded assessment proceedings.
3. Interpretation of Section 240 regarding the refund process during pending assessment proceedings.

Issue-wise Detailed Analysis:

1. Claim of Set Off of Unabsorbed Business Losses:
The primary issue revolves around whether the assessee can claim the set off of unabsorbed business losses from AY 2014-15 in subsequent assessment years (AY 2016-17 and AY 2017-18) while the assessment for AY 2014-15 is still pending. The assessee had claimed losses of ?80,99,58,751 for AY 2014-15, which were converted into a positive income of ?6,55,22,160 by the Assessing Officer. The assessee sought to set off these losses in AY 2016-17 and AY 2017-18, which the Assessing Officer denied, stating that the unabsorbed loss for AY 2014-15 does not exist as the assessment was completed with a positive income.

2. Legitimacy of the Assessing Officer's Action:
The Tribunal considered whether the Assessing Officer's denial of the set off was justified. The assessee argued that the denial of set off during the pendency of remanded assessment proceedings was premature and without legal authority. The Tribunal agreed, stating that the determination of tax liability based on the assumption that the loss claim is untenable is uncalled for and premature. The Tribunal held that the set off of the loss claimed by the assessee cannot be declined at this stage.

3. Interpretation of Section 240:
The Tribunal examined whether the refund process should be deferred until the finalization of the remanded assessment proceedings. The Tribunal referred to Section 240, which provides that refunds become due only on the making of fresh assessments when the original assessment is set aside or cancelled. The Tribunal noted that the refunds for the present assessment years became due as a result of the appellate order dated 4th October 2019, and the law does not require the assessment in which the refund arises to be the one set aside. The Tribunal concluded that the Assessing Officer's apprehension about the refund process was ill-conceived and that the set off should be allowed temporarily, subject to adjustments after the finalization of the remanded assessment.

Conclusion:
The Tribunal upheld the assessee's plea, directing the Assessing Officer to allow the set off of the loss brought forward from AY 2014-15 for AY 2016-17 and AY 2017-18. However, it clarified that this direction should not be construed as a directive for granting refunds, and the Assessing Officer must consider the refund's permissibility under Section 240 after providing a reasonable opportunity for hearing to the assessee. The same directions were applied to the other assessee, Shelf Drilling J T Angel Limited, with variations in figures.

Result:
All four appeals were allowed in the terms indicated above, with the judgment pronounced on 5th January 2021.

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