Carry forward of loss should be allowed liberally.

[CA DEV KUMAR KOTHARI]

Carryforward of loss should be allowed liberally. Extension to file Return of Income or Loss should be allowed and considered liberally old provisions can be re-introduced to authorize the AO to allow extension. A case of un-necessary litigation by revenue even when extension was allowed by BIFR.

Relevant important provisions:

Sections 32, 79,80, 139 of the Income –tax Act, 1961.

Recent judgments:

PRINCIPAL COMMISSIONER OF INCOME TAX 7 NEW DELHI VERSUS M/S RAJASTHAN EXPLOSIVES AND CHEMICALS LTD 2018 (8) TMI 1157 - SUPREME COURT OF INDIA  

read with

PRINCIPAL COMMISSIONER OF INCOME-TAX VERSUS RAJASTHAN EXPLOSIVES AND CHEMICALS LTD. 2017 (11) TMI 1555 - DELHI HIGH COURT

Extension for ease of doing business:

Loss to assessee due to delay:

By delay in filing of Returns assesse already suffer many disadvantages and losses like reduced interest on refund and increased interest burden in case tax is payable. Chances of penalty being levied and, prosecution being launched etc.

Some difficulties may cause delay:

Therefore, it is not in interest of anyone to delay in filing of returns. However, in some situations it becomes difficult to file returns on time. In case of situation of losses, working become more difficult for any organization big or small.

Ease of doing business for loss making situations:

Therefore, for providing ease of doing business, in case of difficult situations causing losses, old provisions should be re-introduced to authorize the AO to allow extension for filing of ROI. This is because in many situations assesse has reasonable cause for delay in filing of ROI.

Extension subject to interest:

Extension can be allowed subject to payment of interest for delayed period and no interest on refund for delayed period, this is as per existing law. This has been practice followed even in case of general extension of due date on last many occasions.

Situation of loss:

In case an assesse suffers losses, his financial and administrative conditions are also affected badly. In such situation timely compliance become difficult. This can be due to several reasons like:

a. Changes in concerned persons who are responsible for compliance,

b. Due to delay in payments service providers loose interest in work,

c. There are strikes, go slow motion etc. due to poor working and payment conditions.

d. Other matters to survive crisis take priority.

Extension of time to file return of income or return of loss:

In long past there was provision for extension of time by the AO. On an application made in prescribed form and on showing reasonable cause the AO was authorized to allow and extend period for filing of return of income / loss. However, such powers were removed and now assesse has to file ROI containing allowable losses, within time allowed u.s. 139(1) reads with s.139(3). In case of delayed filing of Return loss is not to be carried forward. Only option available to assesse is to approach CBDT for relaxation in this regard. Such option is not very useful because small businessman cannot afford to approach CBDT for carry forward of small losses. Only big assesse having huge losses with prospects of earning in near future can afford to approach CBDT for extension of time. However, how successful will be assessed to get and extension from CBDT is also very contingent.

Therefore, power to the AO is desirable for extension of time to file Return.

Recent case of un-necessary litigation by revenue, though extension was allowed by BIFR

In case of Rajasthan Explosives, we find that revenue had indulged into litigation up tot the Supreme Court, in an attempt of disallowing loss and depreciation both.

This is in spite of fact that the BIFR has granted extension of time to file return of loss after duly considering difficult circumstances in which the old and new management of assesse were placed for considerable time.

Regarding disallowing loss due to depreciation the litigation was totally unjust, because un-absorbed depreciation is allowed as part of current depreciation and the requirement of filing return of loss within time allowed u.s. 139(1)/ 139(3) is not applicable.

Summary and analysis:

Tax authorities disallowed loss and deprecation to be carried forwarded by rejecting return of loss which were filed late.

Assessee applied for rectification which was denied by AO and CIT(A).

Tribunal allowed carry forward of losses.

High Court opined that both the lower authorities did not give sufficient weightage to the fact that BIFR extended the period for filing the returns till December 31, 2001 and dismissed appeal.

Department preferred appeal before honorable Delhi High Court though this was only a question of fact:

It can be said that the order of Tribunal was based on facts and law. Facts found were final. Therefore, on this issue revenue should not have appealed. However, revenue also preferred appeal against judgment of High Court before the Supreme Court and following five sr. Counsels appeared on behalf of revenue the Petitioner(s) :

 Mr. Vikramjit Banerjeee, ASG,

 Ms. Niranjana Singh, Adv.,

 Ms. Diksha Rai, Adv.,

 Mr. Anshul Gupta, Adv and

 Mrs. Anil Katiyar, AOR

After hearing counsels of revenue, honorable Supreme Court noted and held as follows:

Heard learned counsel for the petitioner.

Delay condoned.

We do not find any merit in this petition.

The Special Leave Petition is accordingly dismissed.

Pending applications, if any, shall stand disposed of.

Un-necessary litigation:

This shows the case of un-necessary litigation and brain drain at cost of public money. Furthermore this approach of revenue is making law more complex and more un-certain. When as per law BIFR had allowed extension, that had a purpose duly recognized under law, therefore, there should not have been denial of loss even in assessment.

Allowing liberally carry forward in other cases:

For carry forward of loss, a liberal approach should be adopted. Revenue must have approach to tax real income over a period of time, in fact over life period of assesse and not only in any year when assesse earns profit and losses suffered in past are disregarded.

In case of losses, there are difficulties, therefore, liberal provision should be applied for carry forward and set off of losses.

Denial of losses to be set off in case of changes in shareholding of closely held companies should also be liberalized and losses in case of companies should be allowed even if there is change in shareholding because company is a separate assesse. For revival of closely held companies, changes in shareholding can be necessary.