1985 (5) TMI 117 - AT - Income Tax

Application For Extension, Assessment Year, Carry Forward And Set Off, Set Off Of Loss, Supreme Court

Issues Involved
1. Justification of the ITO in setting off the loss of Rs. 47,160 for the assessment year 1979-80 in the assessment year 1980-81.
2. Validity of the Commissioner's revision of the assessment under section 263 of the Income-tax Act, 1961.

Detailed Analysis

Issue 1: Justification of the ITO in Setting Off the Loss
The primary issue is whether the Income Tax Officer (ITO) was justified in setting off the loss of Rs. 47,160 from the assessment year 1979-80 against the income for the assessment year 1980-81. The ITO had completed the assessment for the year 1980-81 under section 143(1) of the Income-tax Act, 1961, and allowed the set-off of the loss.

The Commissioner, upon scrutinizing the assessment records, found that the return for the assessment year 1979-80 was filed late on 19-7-1980, beyond the due date of 30-6-1979, and without any application for an extension of time. The Commissioner held that the loss return did not conform to the statutory requirements of section 139(3) of the Act, especially after the amendment effective from 1-4-1971, which added the words 'or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow'. Thus, the Commissioner concluded that the loss could not be carried forward and set off due to non-compliance with section 80 of the Act.

The assessee argued that the return filed under section 139(4) should be considered valid for set-off purposes, citing the Supreme Court decision in CIT v. Kulu Valley Transport Co. (P.) Ltd. and other precedents. The assessee contended that the ITO was bound to carry forward and set off the loss as per section 80.

Issue 2: Validity of the Commissioner's Revision Under Section 263
The Commissioner did not accept the assessee's contentions and held that the right to carry forward and set off the loss was available only if the return was filed within the time allowed under section 139(1) or within such further time allowed by the ITO upon an application. Since the return was filed late without an application for an extension, the Commissioner concluded that the requirements of section 139(3) were not met, and thus revised the assessment under section 263, enhancing the income by Rs. 47,160.

The assessee's representative argued that the rationale of the Supreme Court's decision in Kulu Valley Transport Co. (P.) Ltd.'s case was still applicable, despite the amendment to section 139(3). He cited several cases, including Telster Advertising (P.) Ltd. v. CIT and Co-operative Marketing Society Ltd. v. CIT, which supported the view that belated returns should be considered valid for loss set-off. He also referred to the Tribunal's decision in ITO v. Ratanlal Bhangadia, where it was held that the provisions of the 1961 Act were in pari materia with those of the 1922 Act, and the Supreme Court's decision remained applicable.

The departmental representative argued that the legal position had changed post-amendment and that the Supreme Court's decision in Kulu Valley Transport Co. (P.) Ltd.'s case did not apply to the amended section 139(3).

Tribunal's Decision
The Tribunal carefully considered the submissions and authorities cited. It referenced the Hyderabad Bench's decision in Ratanlal Bhangadia's case, which had similar arguments and concluded that the Supreme Court's decision in Kulu Valley Transport Co. (P.) Ltd.'s case was still valid law despite the amendment. The Tribunal found no substantial difference between section 22(2A) of the 1922 Act and section 139(3) of the 1961 Act, even after the amendment.

The Tribunal noted that the earlier Board's instruction dated 28-8-1970, which was based on the Supreme Court's decision, laid down the correct legal position. Even though this instruction was withdrawn by a later instruction dated 20-9-1983, the earlier instruction was in force on the first day of the assessment year 1980-81 and thus applicable.

The Tribunal concluded that the ITO was justified in setting off the loss for the assessment year 1979-80 in the assessment year 1980-81. It vacated the Commissioner's order under section 263 and allowed the assessee's appeal.

Conclusion
The appeal filed by the assessee is allowed, and the Tribunal vacates the Commissioner's order under section 263, thereby upholding the ITO's action of setting off the loss of Rs. 47,160 for the assessment year 1979-80 against the income for the assessment year 1980-81.

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