2025 (3) TMI 916 - AT - Income Tax

Disallowing the set-off of brought forward losses due to the alleged belated filing of the return - HELD THAT - Loss should be determined in pursuance of the return filed within the due date and in such circumstances the assessee is entitled to carry forward the losses and set off the same as against the profits earned in the subsequent years. Admittedly in the present case the loss in respect of the assessment years 2012-13 and 2013-14 were determined by the AO pursuant to the return of income filed during the years and also the returns were filed in time and therefore as per the section 80 the assessee is entitled for carry forward the losses and set off the same against the profits available in the subsequent years. The above provision speaks about the determination of the losses in the earlier previous years and not the determination of loss in the immediately preceding year and therefore the orders of the lower authorities are not in accordance with the provision. Assessee is entitled for set off of the carried forward losses incurred during the A.Ys. 2012-13 and 2013-14 for which period the assessee filed their return of income in time. As a result we set aside the order of the lower authorities and allowed the grounds raised by the assessee and directed the AO to allow the set off of loses incurred during the A.Ys 2012-13 and 2013-14. At the time of argument the AR also brought to our notice that some mistakes have crept in the calculation of the losses and we have also perused the said details and satisfied ourselves that there are some mistakes in the calculation of the losses and therefore the same should be rectified and the correct amount of loss should be given set off during the A.Y. 2017-18. In order to quantify the correct amount of losses we are remitting this issue to the file of the AO with the direction to quantify the exact amount of loss incurred after adjusting the profits earned during the subsequent years and thereafter grant the set off for the carried forward of losses incurred during the A.Ys. 2012-13 and 2013-14.

ISSUES PRESENTED and CONSIDERED

The Tribunal considered several core legal issues in this appeal:

Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] erred in disallowing the set-off of brought forward losses due to the alleged belated filing of the return for the assessment year (AY) 2016-17.
Whether the disallowance of set-off of losses without issuing a show cause notice violates the principles of natural justice.
Whether the AO and CIT(A) correctly interpreted the provisions of Section 80 regarding the carry forward and set-off of losses.
Whether the arithmetical mistakes in the computation of losses require rectification.

ISSUE-WISE DETAILED ANALYSIS

1. Disallowance of Set-off of Losses Due to Alleged Belated Filing

Relevant Legal Framework and Precedents: The Tribunal referred to Sections 72(1), 73(2), 73A(2), 74(1) or (3), 74A(3), and 80 of the Income Tax Act, which govern the carry forward and set-off of business losses and unabsorbed depreciation. It also referenced a decision by the Allahabad Bench of the Tribunal.
Court's Interpretation and Reasoning: The Tribunal found that the AO and CIT(A) incorrectly assumed the losses pertained to AY 2016-17 and were disallowed due to the belated filing of the return for that year. The Tribunal clarified that the losses were from AYs 2012-13 and 2013-14, for which returns were filed timely.
Key Evidence and Findings: The Tribunal reviewed the returns filed for AYs 2012-13 and 2013-14, confirming that losses were determined and carried forward correctly as per the law.
Application of Law to Facts: The Tribunal applied Section 80, which allows losses determined from timely filed returns to be carried forward and set off in subsequent years.
Treatment of Competing Arguments: The Tribunal dismissed the lower authorities' reasoning that the belated filing for AY 2016-17 affected the carry forward of losses from previous years.
Conclusions: The Tribunal concluded that the assessee is entitled to set off the carried forward losses from AYs 2012-13 and 2013-14.

2. Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that parties be given an opportunity to be heard before a decision affecting their rights is made.
Court's Interpretation and Reasoning: The Tribunal noted that the AO did not issue a show cause notice before disallowing the set-off of losses, which constituted a violation of natural justice.
Key Evidence and Findings: The absence of a show cause notice was evident from the records.
Application of Law to Facts: The Tribunal held that the AO's failure to provide notice before disallowing the set-off was procedurally improper.
Treatment of Competing Arguments: The Tribunal sided with the assessee's contention that the lack of notice was a procedural defect.
Conclusions: The Tribunal found the disallowance of the set-off without notice to be procedurally flawed.

3. Arithmetical Mistakes in Loss Computation

Relevant Legal Framework and Precedents: The Tribunal considered the need to rectify computational errors to ensure accurate tax assessments.
Court's Interpretation and Reasoning: The Tribunal acknowledged the presence of arithmetical mistakes in the computation of losses and directed rectification.
Key Evidence and Findings: The Tribunal reviewed the computation details and identified discrepancies in the reported losses.
Application of Law to Facts: The Tribunal directed the AO to rectify the mistakes and determine the correct amount of losses available for set-off.
Treatment of Competing Arguments: The Tribunal agreed with the assessee's argument regarding the need for rectification of errors.
Conclusions: The Tribunal remitted the issue to the AO for rectification of computational errors.

SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The above said order of the Tribunal is very much applicable to the present facts of the case and therefore we are also applying the principle laid down by the Hon'ble Allahabad Tribunal."
Core Principles Established: Losses determined from returns filed within the due date can be carried forward and set off in subsequent years, regardless of the filing status of returns in intervening years.
Final Determinations on Each Issue: The Tribunal allowed the appeal for statistical purposes, directing the AO to allow the set-off of losses from AYs 2012-13 and 2013-14 and to rectify computational errors.

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