1998 (9) TMI 127 - AT - Income Tax

Summary

Issues Involved:
1. Legality of the CIT(Appeals) cancelling the order passed under section 154 of the Income-tax Act, 1961.
2. Validity of the Assessing Officer's rectification of the business loss carry forward in the hands of the partners.
3. Applicability and interpretation of section 80 of the Income-tax Act, 1961.
4. Impact of the return filing under the Amnesty Scheme on the determination and carry forward of business loss.

Issue-wise Detailed Analysis:

1. Legality of the CIT(Appeals) cancelling the order passed under section 154 of the Income-tax Act, 1961:
The CIT(Appeals) cancelled the rectification order passed under section 154 of the Act. The CIT(A) appreciated the arguments that the Act does not restrict the carry forward and set off of losses in the hands of the partners who are distinct entities from the firm. Section 158 requires the Assessing Officer to determine the business loss of the registered firm and allocate it among the partners, leaving nothing with the firm to carry forward and set off.

2. Validity of the Assessing Officer's rectification of the business loss carry forward in the hands of the partners:
The Assessing Officer realized that the business loss could not be determined since the return was not filed within the prescribed period under section 139(1) or within the time allowed by the Assessing Officer. Consequently, the loss could not be apportioned and allowed to be carried forward in the hands of the partners. The rectification was made under section 154 to correct this mistake. The Tribunal found force in the revenue's arguments, noting that the Assessing Officer was within his rights to rectify the mistake as it was a mistake of law.

3. Applicability and interpretation of section 80 of the Income-tax Act, 1961:
Section 80 places a bar on the carry forward and set off of non-speculative and speculative business losses if the return is not filed within the time allowed under sub-section (1) of section 139 or within such further time as allowed by the Income-tax Officer. The Tribunal highlighted that the return was not filed within the prescribed time, and the return filed under the Amnesty Scheme does not partake the character of a return filed under section 139(1). Therefore, the business loss could not be determined or allocated for carry forward.

4. Impact of the return filing under the Amnesty Scheme on the determination and carry forward of business loss:
The Tribunal noted that there is no provision in the Act or elsewhere that the return filed under the Amnesty Scheme can be treated as a return filed in pursuance of the requirement of section 80. The Tribunal referred to the Supreme Court's decision in CIT v. Jadavji Narsidas & Co. and the Andhra Pradesh High Court's decision in Palakol Co-operative Sugars Ltd., which supported the view that the loss cannot be determined unless the return is filed within the prescribed time.

Conclusion:
The Tribunal concluded that the business loss was wrongly determined in the original assessment and rectified under section 154 was permissible. The CIT(A)'s order was set aside, and the rectification order of the Assessing Officer was restored. The appeal by the revenue was allowed.