1988 (9) TMI 91 - AT - Income Tax

Issues Involved:
1. Whether the authorities were justified in refusing to bring forward and set off the loss of Rs. 3,05,190 pertaining to the assessment year (asst. yr.) 1983-84 against the income for asst. yr. 1984-85.

Detailed Analysis:

1. Filing of Return and Determination of Loss:
The assessee, a private limited company, filed its return for asst. yr. 1983-84 on 17th June 1983, within the stipulated time under section 139(3) of the Income Tax Act, 1961. The return declared a loss of Rs. 3,05,190. Despite this timely filing, the Income Tax Officer (ITO) did not take any action to determine the loss within the prescribed period, making the assessment time-barred by 31st March 1986. However, the ITO accepted the carry forward of unabsorbed depreciation, investment allowance, and section 80J deficiency for asst. yr. 1983-84, but refused to carry forward the loss of Rs. 3,05,190, citing that the loss had not been determined.

2. Appeal to CIT(A):
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the ITO's decision. The CIT(A) acknowledged that while it seemed inequitable not to allow the loss due to the ITO's failure to determine it, the law did not provide for such a situation. The CIT(A) also chose not to follow the decision of the Cochin Bench of the Income Tax Tribunal in M.M. Paul vs. ITO, which had allowed the carry forward of loss under similar circumstances.

3. Relevant Provisions of the IT Act:
- Section 139(3) allows a person who has suffered losses to file a return of loss within the time allowed under section 139(1).
- Section 143 outlines the process for assessment, including the possibility of acceptance without requiring the presence of the assessee (section 143(1)) or after obtaining clarifications (section 143(3)).
- Section 157 mandates that if the resultant figure is a loss, the ITO must notify the assessee in writing.
- Section 80 prohibits the carry forward of losses unless the return is filed within the time allowed and the loss is determined by the ITO.

4. Legal Presumption and ITO's Duty:
The combined effect of these provisions suggests that if a return is filed within the prescribed time, the ITO must determine the loss and communicate it to the assessee. If the ITO fails to complete the assessment within the time limit, the loss cannot be carried forward unless it is determined and notified.

5. Analysis of Present Case:
In this case, the return was filed within the time limit, and the ITO accepted the claims for unabsorbed depreciation, investment allowance, and section 80J deficiency for asst. yr. 1983-84. This acceptance implies that the ITO had accepted the return under section 143(1). Therefore, it is logical to infer that the ITO should have also accepted the loss of Rs. 3,05,190 and carried it forward to asst. yr. 1984-85.

6. Case Law and General Propositions:
The case law cited by both parties did not directly apply to the present facts. The judgment clarifies that the inference drawn from the facts of this case does not establish a general rule that a loss return filed within the prescribed time must always be carried forward if the ITO fails to act. Each case must be evaluated based on its specific facts.

Conclusion:
The Tribunal concluded that the ITO's action of carrying forward three out of four items constituting the total minus income indicates that the return was not ignored. Therefore, the loss of Rs. 3,05,190 should also have been carried forward. The assessee's appeal was accepted, and the ITO was directed to carry forward the loss as per the return for asst. yr. 1983-84.

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