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2014 (8) TMI 687 - HC - Income TaxRectification of order Set off and carry forward of Long Term Capital Loss - Whether the Tribunal was justified in confirming the action of the authorities below in allowing the rectification of subsequent orders without rectifying the initial order from where the dispute in question arose Held that - A business loss cannot be carried forward unless it has been determined in pursuance of a return filed u/s 139(1) of the Act - In order to be entitled to carry forward a business loss, the assessee must submit a return u/s 139(3) of the Act which is required to be in terms of section 139(1) of the Act - the assessee had not filed the return for the AY 1996-97 within the time allowed for the return to be filed u/s 139(1) of the Act as the return was filed on December 24, 1996. The Tribunal was rightly of the view that the assessee was not entitled to carry forward and set off of long-term capital loss suffered in the AY 1996-97 in so far as the return of income for that assessment year was not filed within the time allowed u/s 139(1) and, consequently, not in accordance with the provisions of section 139(3) - the long-term capital loss disclosed in the return of income filed for the AY 1996-97 was not permissible to be carried forward and set off in accordance with the relevant provisions of Act. The AO in exercise of his powers u/s 154 modified the unabsorbed depreciation and carry forward of losses pertaining to earlier years - in the AY 1996-97 the figure of loss/unabsorbed depreciation determined earlier could not be modified without modifying the earlier orders in which such loss or unabsorbed depreciation was determined by the AO - There is no mistake alleged in the computation of long-term capital loss in the AY 1996-97 the loss determined in the AY 1996-97 cannot be modified in the AY 1997-98 - the assessee had sought set off of capital loss suffered in the AY 1996-97 against the long-term capital loss suffered in the AY 1996-97 against the long term capital gain in the assessment year 1997-98 and in the assessment year 1999-2000 - when the mistake was discovered the AO promptly effected rectification u/s 154 for both the AYs after giving opportunity to the assessee, modified the assessment orders for the AYs 1997-98 and 1999-2000 Relying upon Sirsa Industries v. CIT 1983 (4) TMI 29 - PUNJAB AND HARYANA High Court - a mistake of law which was glaring and obvious, could be rectified under section 154 the AO had committed a mistake of law which was glaring and obvious thus, the AO was justified in rectifying the assessment orders for the AYs 1997-98 and 1999-2000 giving effect to the provisions of section 74 read with section 80 and section 139(3) Decided against Assessee.
Issues Involved:
1. Justification of the Income-tax Appellate Tribunal in allowing rectification of subsequent orders without rectifying the initial order from where the dispute originated. Issue-wise Detailed Analysis: 1. Justification of the Income-tax Appellate Tribunal in allowing rectification of subsequent orders without rectifying the initial order from where the dispute originated: The appellant-assessee filed an appeal under section 260A of the Income-tax Act, 1961, challenging the order of the Income-tax Appellate Tribunal (ITAT) which confirmed the rectification of subsequent orders without rectifying the initial order from where the dispute arose. The core issue was whether the ITAT was justified in confirming the action of the authorities below in allowing rectification of subsequent orders without first rectifying the initial order. The assessee, a director of M/s. Monga Brox. Ltd., filed an income-tax return for the assessment year 1996-97 on December 24, 1996, declaring a total income of Rs. 1,98,630 and claimed certain deductions and set off of loss. The Assessing Officer (AO) issued a notice under section 143(2) of the Act and included certain perquisites as part of the income. The AO allowed the capital loss to be carried forward. For the assessment year 1997-98, the assessee filed a return on February 3, 1998, declaring a total income of Rs. 2,53,850 and claimed deductions and set off of loss carried forward from the previous year. The AO adjusted the loss under the head "Capital gains" and allowed the balance loss to be carried forward. On March 13, 2003, the AO observed that the return for the assessment year 1996-97 was filed late and thus the assessee was not entitled to the benefit of carrying forward losses. The AO issued a notice to rectify this mistake apparent from the record and disallowed the adjustment of brought forward long-term capital loss against the income for the assessment year 1997-98. The assessee's pleas were rejected by the AO, and the Commissioner of Income-tax (Appeals) [CIT(A)] confirmed this order. The ITAT also dismissed the assessee's appeal. The learned counsel for the appellant-assessee argued that disallowance of set off of capital loss for 1996-97 in the current assessment year without rectifying the assessment order of 1996-97 was unsustainable. The counsel relied on the judgment of the Gujarat High Court in Saurashtra Cement and Chemical Industries Ltd. v. CIT [1980] 123 ITR 669 (Guj). The court examined sections 72, 80, and 139(3) of the Act. Section 72 deals with the carry forward and set off of business loss, section 80 mandates that losses not determined in pursuance of a return filed shall not be carried forward and set off, and section 139(3) allows an assessee to file a return for carrying forward a loss within the time allowed under section 139(1). The court concluded that a business loss cannot be carried forward unless determined in pursuance of a return filed under section 139(1). The assessee had not filed the return for the assessment year 1996-97 within the time allowed under section 139(1), thus was not entitled to carry forward and set off the capital loss in the assessment year 1997-98. The return for the assessment year 1997-98 was also filed late, disqualifying the assessee from set off and carry forward of losses from 1996-97. The ITAT observed that the assessee's return for 1996-97 was not filed within the time allowed under section 139(1), and thus the loss could not be carried forward. The ITAT also noted that the AO had the power to deny the set off of capital loss in subsequent years even if the initial assessment order was not modified, as the mistake was apparent from the record and involved a mistake of law. The court distinguished the case from Saurashtra Cement and Chemical Industries Ltd., noting that the present case related to set off and carry forward of capital loss, and the factual matrix was different. The court held that the assessee was not entitled to carry forward and set off the capital loss of 1996-97 in subsequent years due to non-compliance with the filing requirements under section 139(1). Thus, the substantial question of law was answered against the assessee, and the appeals were dismissed.
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