2023 (8) TMI 1506 - AT - Income Tax

Disallowance of carry forward of current year business losses of specified business claimed u/s 35AD to the subsequent assessment year - claim denied for the reason that return of income has been filed much after the due date as prescribed u/s 139(1) and necessary guidance has been drawn from the provisions of Section 139(3) read with Section 80 of the Act. HELD THAT - There is no legal and justifiable basis for the AO/CPC to deny the assessee the carry forward of current year business loss of specified business u/s 35D as so computed by the AO for being set off against eligible profits in the subsequent years. It is for the AO examining the return of income for the subsequent year where the assessee seeks set off of the brought forward losses to take into consideration whether the return of income for the year of incurrence of losses of the specified business has been filed within prescribed due date or not and then, take appropriate action as per law. We therefore set-aside the order of the ld CIT(A) and direct the AO/CPC to remove the directions as far as it relates to denial of carry forward and set off of losses is concerned. Coming to the submission of CIT/DR that practically, there is no mechanism where the AO for the subsequent assessment year can verify whether the return of previous assessment year(s) has been filed within the prescribed due date, we find that appropriate documentation needs to be maintained by the department and in particular, the necessary modification is required in the form for furnishing return of income where in due date of filing of return of income and actual date of filing of return of income for the relevant assessment years should also be provided along with particulars relating to losses to be carry forward and set off. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Contravention of provisions of Section 250(6) of the Income Tax Act, 1961.
2. Disallowance of carry forward losses claimed under Section 35AD.
3. Confirmation of AO's action of not allowing carry forward of loss under Section 35AD.

Issue-wise Detailed Analysis:

1. Contravention of Provisions of Section 250(6) of the Income Tax Act, 1961:
The appellant contended that the CIT(A) erred in passing the order in contravention of Section 250(6) of the Income Tax Act, 1961. The Tribunal reviewed the procedural aspects and found no substantial procedural errors that would contravene Section 250(6). The Tribunal's focus was more on the substantive issues related to the carry forward of losses.

2. Disallowance of Carry Forward Losses Claimed Under Section 35AD:
The appellant argued against the CIT(A)'s confirmation of the AO's decision to disallow the carry forward of losses amounting to Rs. 8,36,02,091/- under Section 35AD. The Tribunal examined the statutory provisions and the settled legal position. It was argued that the AO for the subsequent year should determine the set-off of losses, not the AO for the current year. The Tribunal referred to Section 80, which states that losses not determined in pursuance of a return filed in accordance with Section 139(3) shall not be carried forward and set off. The appellant's return was filed after the due date, violating Section 139(1), thus justifying the AO's disallowance.

3. Confirmation of AO's Action of Not Allowing Carry Forward of Loss Under Section 35AD:
The Tribunal reviewed the AO's and CIT(A)'s actions in light of judicial precedents. The Tribunal cited the Hon'ble Supreme Court's decision in CIT Vs. Manmohan Das, which held that it is the AO dealing with the assessment in the subsequent year who should determine whether the loss of the previous year may be set off. The Tribunal also referenced decisions from Coordinate Benches in similar cases, supporting the appellant's position that the AO for the subsequent year should handle the set-off determination. The Tribunal concluded that the AO/CPC had no jurisdiction to deny the carry forward of losses for the current year and directed the AO/CPC to remove the directions denying the carry forward and set off of losses.

Conclusion:
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO/CPC to remove the directions denying the carry forward and set off of losses. The Tribunal emphasized the need for appropriate documentation and modifications in the return filing process to ensure compliance with statutory provisions. The order was pronounced in the open court on 07/08/2023.