2012 (5) TMI 443 - AT - Income Tax

Set Off of Losses - rectification application u/s 154 seeking set off of brought forward loss and carry forward of the balance loss rejected stating that set off of losses cannot be a matter of rectification - in electronic processing of e-return filed by assessee, loss set off was shown at Zero - Held that - Copy of return as well as the processing done by the CPC clearly shows that the assessee had claimed set off of losses amounting to Rs. 9.53 crores out of total carry forwarded losses of Rs.12.43 crores. Further the assessee had also filed the copy of return for earlier years which shows that the losses were returned in those years. Once the losses have bee claimed the same were required to be allowed as set off after verification that such losses were determined losses - Decided in favor of assessee. AO and appellate authority passed orders while performing their duty, therefore, this is not a fit case for levy of cost.

Summary

Issues:
1. Rectification of order to adjust brought forward losses.
2. Set off of carry forward losses against current year income.
3. Imposition of exemplary costs due to inconvenience caused by appeals.

Issue 1: Rectification of order to adjust brought forward losses
The assessee filed a return through electronic media declaring an income of Rs. 9,53,75,262/- with carry forwarded losses of Rs. 12,43,94,853/-. A loss of Rs. 9,53,75,262/- was set off during the year, and the balance was to be carried forward. However, the electronic processing showed the loss set off as zero. The assessee applied for rectification under section 154 of the Income-tax Act, which was rejected on the grounds that no loss was claimed. On appeal, it was argued that the losses from earlier years should have been allowed to be set off against the current income. The CIT(A) rejected the application, stating that the rectification scope was limited and set off of losses cannot be a matter of rectification post-1.6.1999. The Tribunal found that the assessee had indeed claimed set off of losses and directed the Assessing Officer to verify and allow the set off as well as carry forward of such losses.

Issue 2: Set off of carry forward losses against current year income
The Tribunal observed that the assessee had claimed set off of losses amounting to Rs. 9,53,75,262/- out of total carry forwarded losses of Rs. 12,43,94,853/-. The Tribunal noted that the assessee had also filed returns for earlier years showing losses. Referring to a previous judgment, the Tribunal held that if losses had been determined, they should be allowed as set off against current income. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to verify and allow the set off and carry forward of losses.

Issue 3: Imposition of exemplary costs due to inconvenience caused by appeals
The assessee requested exemplary costs under subsection (2B) of section 254 of the Income-tax Act, citing unjustified inconvenience due to appeals at various levels. The Tribunal declined to impose costs, stating that the Assessing Officer and appellate authorities were performing their statutory duties. However, the Tribunal highlighted the need for coordination between assessing authorities and the Central Processing Authority to avoid unnecessary demands and litigation. The Tribunal urged the CBDT to address these issues promptly to prevent further unnecessary disputes. The appeal was partly allowed by the Tribunal.

This judgment highlights the importance of correctly allowing set off of carry forward losses against current income, emphasizing the need for coordination between tax authorities to prevent unnecessary disputes and litigation.