1983 (1) TMI 154 - AT - Income Tax

Issues Involved:

1. Validity of the assessment orders for the years 1976-77 and 1977-78 under Section 263 of the Income-tax Act, 1961.
2. Right to carry forward and set off business loss, unabsorbed depreciation, and relief under Section 80J.
3. Jurisdiction of the Commissioner under Section 263 to cancel the assessments.
4. Effect of returns filed in response to notices under Sections 139(2) and 148.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Orders for 1976-77 and 1977-78:

The assessee, a firm, filed returns for the assessment years 1976-77 and 1977-78 in response to notices under Sections 148 and 139(2), respectively. The Income Tax Officer (ITO) computed the losses, unabsorbed depreciation, and relief under Section 80J for both years. The Commissioner, under Section 263, cancelled the assessment for 1976-77 and set aside the assessment for 1977-78, citing that the losses were computed on returns filed beyond the time limit, thus prejudicing the revenue.

2. Right to Carry Forward and Set Off Business Loss, Unabsorbed Depreciation, and Relief under Section 80J:

The assessee's counsel admitted that losses determined from belated returns could not be set off under Section 80. However, he argued that the computation of unabsorbed depreciation and relief under Section 80J should be allowed for set off in later years, citing decisions from the Allahabad High Court in Addl. CIT v. Sheetalaya, Calcutta High Court in Indian Aluminium Co. Ltd. v. CIT, and Madras High Court in CIT v. Bluemount Ceramics Ltd.

3. Jurisdiction of the Commissioner under Section 263:

The Tribunal analyzed whether the Commissioner's jurisdiction under Section 263 was justified. It found that the mere computation of losses by the ITO did not ipso facto entitle the assessee to set off those losses in later years unless warranted by law. The Tribunal emphasized that the Commissioner's jurisdiction should be based on real and substantive prejudice to the revenue, not on conjectural or prospective prejudice. The Tribunal concluded that the basic requirement for jurisdiction under Section 263, i.e., the assessment being prejudicial to the revenue, was not satisfied.

4. Effect of Returns Filed in Response to Notices under Sections 139(2) and 148:

For the assessment year 1976-77, the Tribunal noted that the return was filed in response to a notice under Section 148, which applies where taxable income has escaped assessment. The ITO's computation of income was deemed necessary to determine whether there was taxable income. The Tribunal found that the ITO's computation was neither wrong nor unjustified in law, and there was no excessive loss computation or other mistakes.

For the assessment year 1977-78, the return was filed in response to a notice under Section 139(2), and a subsequent notice under Section 148 was redundant. The Tribunal observed that the ITO's computation of losses and allowances was justified. The Tribunal also noted that the ITO's listing of losses to be carried forward was a formality and did not bind the authorities in later years.

Conclusion:

The Tribunal set aside the Commissioner's orders for both assessment years, restoring the ITO's assessments. It emphasized that the computation of losses, unabsorbed depreciation, and relief under Section 80J in the assessment years under consideration did not automatically entitle the assessee to set off these amounts in later years unless warranted by law. The Tribunal found no real prejudice to the revenue in the assessments for the years 1976-77 and 1977-78, thus cancelling the Commissioner's orders under Section 263.

Result:

Both appeals were allowed, and the orders of the Commissioner were set aside.

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