1985 (7) TMI 119 - AT - Income Tax

Issues Involved:
1. Carry forward and set off of losses.
2. Jurisdiction of the ITO in reducing the loss.
3. Interpretation of the term 'assessable' under Section 72 of the Income-tax Act, 1961.
4. Impact of barred assessments by limitation on carry forward losses.

Detailed Analysis:

1. Carry forward and set off of losses:
The primary issue in these appeals for the assessment years 1979-80 and 1980-81 revolves around the carry forward and set off of losses. The assessee claimed that the loss determined for the assessment year 1976-77 (Rs. 5,31,351) should be carried forward and set off against the income for the assessment years 1979-80 and 1980-81 without reducing it by the profits for the assessment years 1977-78 and 1978-79. The Income Tax Officer (ITO) did not accept this submission and reduced the loss for 1976-77 by the profits earned in 1977-78 and 1978-79, determining the loss to be carried forward at Rs. 3,19,184 for 1979-80 and Rs. 2,43,590 for 1980-81.

2. Jurisdiction of the ITO in reducing the loss:
The assessee argued that since the assessments for 1977-78 and 1978-79 had become barred by limitation, the ITO had no jurisdiction to reduce the loss determined for 1976-77. The Commissioner (Appeals) rejected this contention, stating that the barred assessments did not affect the resultant loss shown in the returns for those years. The department had lost the right to examine the claim on merit, but the assessee's claim to carry forward the entire loss for 1976-77 was not tenable.

3. Interpretation of the term 'assessable' under Section 72 of the Income-tax Act, 1961:
The assessee's counsel argued that the term 'assessable' should mean what is subjected to the process of assessment and cannot be considered without an assessment made by the ITO. Since the assessments for 1977-78 and 1978-79 were barred by limitation, the profits shown in the returns for these years should be ignored, and the gross loss for 1976-77 should be allowed to be carried forward. The department's representative countered that the term 'assessable' means 'liable to assessment' and includes profits and gains returned by the assessee, even if not actually assessed. Thus, the profits for 1977-78 and 1978-79 should reduce the loss carried forward.

4. Impact of barred assessments by limitation on carry forward losses:
The Tribunal considered the provisions of sections 72 and 80 of the Income-tax Act, which state that losses can only be carried forward if determined in pursuance of a return filed under section 139. The Supreme Court's decisions in Jaipur Udyog Ltd. v. CIT and CIT v. Harprasad & Co. (P.) Ltd. were cited to emphasize that the concept of carry forward involves the notion of set off against profits of subsequent years. The Tribunal concluded that the term 'assessable' means 'liable to assessment' and that the profits and gains disclosed in the returns for 1977-78 and 1978-79, though not actually assessed, were assessable and should reduce the loss carried forward.

Conclusion:
The Tribunal upheld the ITO's decision to reduce the loss for 1976-77 by the profits for 1977-78 and 1978-79, determining the loss to be carried forward at Rs. 3,19,184 for 1979-80 and Rs. 2,43,590 for 1980-81. The appeals were dismissed, affirming that the carry forward and set off of losses must consider assessable profits, even if not actually assessed due to barred assessments.

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