2005 (8) TMI 70 - HC - Income Tax

Carry forward of business loss - 1. Whether, Tribunal is right in law in holding that the assessee is entitled to carry forward of business loss relying on the Supreme Court s decision in the case of CIT v. Kulu Valley Transport Co. P. Ltd. (which was rendered under the old Act) - 2. Whether the Tribunal is justified in law in allowing carry forward of loss when as per the amended provision of section 139(3) by the Taxation Laws (Amendment) Act, 1970, the loss return filed beyond the time prescribed by section 139(3) cannot be considered as having been filed within the time allowed under section 139(4)? - In CIT v. Kulu Valley Transport Co. P. Ltd., SC held that sub-sections (1) and (4) of section 139 are to be read together, and hence the assessee would be entitled to carry forward a loss, if he has filed the return after the period prescribed by sub-section (1), but within the time allowed under sub-section (4). This view has been followed by the Gauhati High Court in CIT v. Naginimara Veneer and Saw Mills P. Ltd.; the Calcutta High Court in Basant Kumar Bajoria v. CIT and the Orissa High Court in CIT v. Orissa Metal Industries P. Ltd. - In view of the above, the reference is decided in the affirmative, i.e., in favour of the assessee and against the Department

Summary

Issues:
1. Entitlement to carry forward business loss under Income-tax Act, 1961.
2. Interpretation of provisions under section 139(3) and 139(4) regarding filing of return of loss.

Analysis:
Issue 1: The primary issue in this case revolves around the entitlement of the assessee to carry forward a business loss for the assessment year 1984-1985 under the Income-tax Act, 1961. The Department raised a question regarding the correctness of allowing the carry forward of the loss based on the Supreme Court's decision in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518. The Assessing Officer initially assessed the loss at "nil" due to the late filing of the return by the assessee. However, the Commissioner of Income-tax (Appeals) ruled in favor of the assessee, stating that the return was filed within the time allowed under section 139(4) of the Act, thereby entitling the assessee to the benefit of carrying forward and setting off the business loss in subsequent years.

Issue 2: The second issue pertains to the interpretation of provisions under section 139(3) and 139(4) concerning the filing of a return of loss. The amended provision of section 139(3) by the Taxation Laws (Amendment) Act, 1970, raised a question of whether a return filed beyond the time prescribed by section 139(3) could be considered as filed within the time allowed under section 139(4). The court highlighted the historical changes in the law between 1971 and 1989, where the Assessing Officer was empowered to extend the time for filing a return of loss. The court emphasized the importance of reading sub-sections (1) and (4) of section 139 together, as established in the Supreme Court decision in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518, which was consistently followed by various High Courts.

In conclusion, the court decided in favor of the assessee, affirming their entitlement to carry forward the business loss for the assessment year 1984-1985. The judgment highlighted the significance of timely filing of returns and the interpretation of provisions under section 139(3) and 139(4) in determining the eligibility for carrying forward losses. The decision was based on established legal precedents and the historical evolution of relevant tax laws during the specified period.