2025 (4) TMI 1347 - AT - Income Tax

Carry forward of business loss - whether the return of income was filed within the due date as prescribed u/s. 139(1) or it was filed beyond the due date prescribed u/s. 139(1) of the Act? - HELD THAT - By clause (a)(ii) of Explanation 2 to Section 139(1) that when a person (other than a company) whose accounts are required to be audited under this Act i.e. Income-tax Act 1961 or under any other law for the time being in force the due date is 30th September of the assessment year. The word used is required to be audited under the 1961 Act or under any other law for the time being in force the due date for filing of return of income is 30th September of the assessment year. Thus once the Partner of such LLP which otherwise is not required to get its accounts audited vide first proviso to Rule 24(8) would be required to get its accounts audited vide second proviso to Rule 24(8) as the partners have decided to get its accounts audited even if it was not required to get its accounts audited vide first proviso then in such case the same shall be audited in accordance with LLP Rules 2009. Section 34(4) of The LLP Act 2008 is also become relevant as it stipulates that the accounts of LLP shall be audited in accordance with such Rules as may be prescribed. Thus once the partners of LLP invokes second proviso to Rule 24(8) then the accounts of such LLP shall be required to be audited in accordance with LLP Rules 2009 and then the same shall satisfy the condition as is stipulated in Explanation-2 to Section 139(1) and the due date u/s 139(1) for filing return of income in the instant case shall be 30.09.2019. The assessee having filed the return of income on 17.09.2019 has filed the return of income within due date as prescribed u/s. 139(1) and keeping in view the provisions of section 139(3) the assessee is eligible to carry forward loss. Thus the appeal of the assessee stands allowed.

Summary

The core legal questions considered in this appeal revolve around the timeliness of the return of income filed by the assessee and the consequent eligibility to carry forward business losses under the Income-tax Act, 1961. Specifically, the issues are:

1. Whether the return of income filed on 17.09.2019 was within the due date prescribed under Section 139(1) of the Income-tax Act, 1961, given the assessee's status as a Limited Liability Partnership (LLP) and the audit requirements under the LLP Act, 2008 and LLP Rules, 2009.

2. Whether the assessee was required to get its accounts audited under the LLP Rules, 2009 or under Section 44AB of the Income-tax Act, 1961, thereby affecting the due date for filing the return.

3. The correct interpretation and application of Rule 24(8) of the LLP Rules, 2009, particularly the provisos relating to audit exemption based on turnover and contribution thresholds, and the effect of partners' decision to get accounts audited despite exemption.

4. The applicability of Explanation 2 to Section 139(1) of the Income-tax Act, 1961, which prescribes different due dates for filing returns depending on audit requirements.

Issue-wise Detailed Analysis:

Issue 1: Timeliness of Return Filing under Section 139(1) of the Income-tax Act, 1961

The legal framework under Section 139(1) prescribes the due date for filing return of income, with Explanation 2 specifying that the due date is 30th September of the assessment year for persons whose accounts are required to be audited under the Act or any other law. The assessee filed the return on 17.09.2019.

The Revenue treated the return as belated since the extended due date was considered 31.08.2019, denying carry forward of business losses under Section 139(3), which disallows carry forward if the return is belated.

The assessee argued that since its accounts were audited under the LLP Act and LLP Rules, the due date was 30.09.2019, making the return timely.

The Court examined the audit report dated 03.09.2019, the LLP Form No. 8 filed with MCA on 30.10.2019, and the capital contribution of Rs. 1 crore as per the LLP agreement and MCA filings. It found that the partners had decided to get the accounts audited despite exemption under LLP Rules.

Applying Explanation 2 to Section 139(1), since the accounts were audited under another law (LLP Act), the due date was 30.09.2019. Hence, the return filed on 17.09.2019 was within due date.

Issue 2: Requirement of Audit under LLP Rules, 2009 and Section 44AB of the Income-tax Act, 1961

Section 34(4) of the LLP Act, 2008 mandates audit of LLP accounts as per prescribed rules. Rule 24(8) of LLP Rules, 2009 exempts LLPs from audit if turnover does not exceed Rs. 40 lakhs or contribution does not exceed Rs. 25 lakhs (using "OR" between criteria).

The assessee had turnover of Rs. Nil and contribution exceeding Rs. 1 crore. Under the first proviso to Rule 24(8), the LLP would be exempt from audit if either turnover or contribution is below threshold. Since turnover was Nil (below Rs. 40 lakhs), the LLP was prima facie exempt.

However, the second proviso to Rule 24(8) allows partners to voluntarily decide to get accounts audited, in which case audit must be conducted as per LLP Rules. The assessee's partners chose this option, and audit was conducted accordingly.

The Court held that this voluntary audit satisfies the requirement of accounts being audited under "any other law," triggering the extended due date under Section 139(1).

Regarding Section 44AB of the Income-tax Act, the assessee was not liable for audit as turnover was Nil, and the audit under LLP Rules sufficed for the purpose of due date determination.

Issue 3: Interpretation of Rule 24(8) of LLP Rules, 2009

The Court analyzed the language of Rule 24(8) and its provisos. It emphasized the use of "OR" between turnover and contribution thresholds, meaning exemption from audit applies if either condition is met.

The Court noted that the statute does not limit the contribution condition to turnover or contribution during the financial year but applies generally. The Court rejected the Revenue's approach that the contribution must be below Rs. 25 lakhs during the financial year, clarifying that the statute's plain language does not support such reading.

The Court also explained the purpose of the second proviso, which allows LLPs exempt under the first proviso to voluntarily opt for audit, thus bringing their accounts within the audit regime.

This interpretation resolved the apparent anomaly where an LLP with high turnover but low contribution could avoid audit, by recognizing the voluntary audit option.

Issue 4: Application of Explanation 2 to Section 139(1) of the Income-tax Act, 1961

The Court held that Explanation 2(a)(ii) applies when accounts are required to be audited under the Income-tax Act or any other law. Since the LLP's accounts were audited under LLP Rules (another law), the due date for filing return was 30.09.2019.

This interpretation aligned with the legislative intent to allow extended due dates for those required to undergo audit, ensuring adequate time for compliance.

Treatment of Competing Arguments

The Revenue's argument that the assessee was exempt from audit due to turnover below Rs. 40 lakhs was accepted in principle but overridden by the partners' voluntary decision to get accounts audited. The Revenue's reliance on turnover alone was insufficient to deny audit status.

The assessee's submission that the audit report was issued under LLP Act and LLP Rules was supported by documentary evidence, including audit report, LLP Form No. 8, and LLP agreement.

The Court found the Revenue's mechanical application of audit exemption and due dates inconsistent with the statutory provisions and facts.

Conclusions

The Court concluded that the assessee's return of income filed on 17.09.2019 was within the due date of 30.09.2019 prescribed under Section 139(1), considering the audit requirements under LLP Rules, 2009.

Accordingly, the return was not belated, and the assessee was entitled to carry forward the business loss of Rs. 16,96,486/- to subsequent years under Section 139(3).

Significant Holdings:

"The word used in the first proviso between the two criteria to claim exemption from the requirement of audit is 'OR'. Thus, if any of aforesaid conditions are met i.e. if either turnover during the financial year is not exceeding Rs. 40 lacs, there is no requirement to get the accounts audited under LLP Act, 2008 read with LLP Rules, 2009."

"Once the partners of such LLP decides to get the accounts audited, the accounts then shall be required to be audited as per 2009 Rules, which in fact was audited by HAHG & Associates, Chartered Accountant in the instant case. It carries the force of law."

"When a person (other than a company) whose accounts are required to be audited under this Act i.e. Income-tax Act, 1961 or under any other law for the time being in force, the due date is 30th September of the assessment year."

"The assessee having filed the return of income on 17.09.2019, has filed the return of income within due date as prescribed u/s. 139(1), and keeping in view the provisions of section 139(3), the assessee is eligible to carry forward loss of Rs. 16,86,486/-."

Core principles established include the interpretation of audit exemption under LLP Rules, the effect of voluntary audit on due dates for filing returns, and the consequent eligibility for carry forward of losses under the Income-tax Act.

Final determination: The appeal was allowed, directing that the return filed on 17.09.2019 be treated as timely filed, and the business loss of Rs. 16,96,486/- be allowed to be carried forward to subsequent years.