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2016 (3) TMI 1013 - AT - Income TaxDisallowance of carry forward of loss - Held that - Since no claim of set off of loss is made by the assessee in this year the action of AO in rejecting to allow carry forwarded is not tenable as it preempts the future quasi-judicial powers of the AO who has to actually set off of the loss if and when there are profits. Therefore, the remarks/ findings of the ld. AO denying claim of carryover of earlier losses and unabsorbed depreciation are expunged. The legality of claim of set off will be considered by AO who will deal with the aspect of set off. See Manmohan Das 1965 (11) TMI 33 - SUPREME Court . Thus the grounds of the assessee to this extent are allowed.
Issues Involved:
1. The action of the CIT(A) in confirming the AO's decision to disallow the carry forward of loss. 2. The action of the CIT(A) in confirming the AO's order under section 154 without providing a reasonable opportunity for a hearing. 3. The applicability of the Sick Industrial Companies (Special Provisions) Act, 1985, and related BIFR orders on the carry forward of losses. 4. The treatment of unabsorbed depreciation in the context of belated filing of returns. Detailed Analysis: Issue 1: Disallowance of Carry Forward of Loss The assessee filed a return of loss on 28-12-2001, which was processed under section 143(1) on 22-03-2002. The AO rejected the carry forward of losses because the return was filed beyond the time limit specified under section 139(1). The assessee argued that the delay was due to pending audits and sought rectification under section 154, citing BIFR orders that extended the filing deadline to 31-12-2001. However, the AO rejected this application, stating that the return was not filed within the time allowed under section 139(1) and that the CBDT circular No. 576 did not support the assessee's claim. The CIT(A) upheld the AO's decision, noting that the BIFR scheme applied only up to FY 1999-2000 and not for AY 2001-02. Issue 2: Order Under Section 154 Without Hearing The assessee contended that the AO passed the order under section 154 without providing a reasonable opportunity for a hearing. This issue became moot as the primary issue of carry forward of loss was addressed on its merits. Issue 3: Applicability of Sick Industrial Companies (Special Provisions) Act, 1985 The assessee argued that the BIFR scheme, which extended the filing deadline, should allow the carry forward of losses. The CIT(A) for AY 2000-01 accepted this argument, noting that the BIFR scheme had an overriding effect over the provisions of the IT Act. However, for AY 2001-02, the same CIT(A) did not apply this reasoning, leading to inconsistency. The ITAT found that the CIT(A)'s order for AY 2000-01, which the Revenue accepted, should have been followed for AY 2001-02. The ITAT held that the CIT(A) should have allowed the application under section 154, recognizing the BIFR scheme's overriding effect. Issue 4: Treatment of Unabsorbed Depreciation The assessee contended that unabsorbed depreciation should be allowed irrespective of the belated filing of the return. The ITAT referred to the case of CIT vs. Govind Nagar Sugar Ltd., where it was held that unabsorbed depreciation becomes part of the depreciation of the subsequent year and can be set off against any income, regardless of the timely filing of the earlier year's return. The ITAT upheld this view, allowing the carry forward of unabsorbed depreciation. Conclusion: The ITAT allowed the assessee's appeal regarding the carry forward of losses and unabsorbed depreciation, following the CIT(A)'s earlier decision for AY 2000-01 and the precedent set by higher courts. The appeal under section 154 became infructuous due to the decision on merits. The ITAT emphasized the importance of consistency in legal decisions and the overriding effect of the BIFR scheme over the IT Act. Result: - Appeal No. 481/JP/2013: Allowed - Appeal No. 482/JP/2013: Dismissed Order pronounced in the open court on 12/02/2016.
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