2022 (9) TMI 965 - AT - Income Tax

Set off of brought forward loss - Removal of defects in the original return - determination of date of filing of ITR - Adjustment of long term capital gain against B/F assessed long term loss - notice u/s 139(9) of the Act was issued to the assessee to rectify the defects in the return filed therein - HELD THAT - Undisputed fact a notice u/s. 139(9) of the Act was issued to the assessee wherein assessee was called upon to remove the defects in the return of income filed u/s.139(1) - Consequent to the notice u/s. 139(9) of the Act, assessee corrected the defects in the original return of income by filing the revised return, within the prescribed period stated in the notice u/s. 139(9) of the Act. Sub Section (9) of Section 139 of the Act is attracted when the AO considers the return of income filed by the assessee to be defective. If the AO considers the return of income to be defective, he is required to intimate such defects to the assessee and give him an opportunity to rectify such defect within a period of 15 days from the date of such intimation or within such further time as granted by the AO. If the defects are not removed within 15 days or such extended time granted by AO, then the return of income shall be treated as invalid return and the provisions of the Act would apply as if the assessee has failed to furnish his return of income. Once the defects which existed into original return of income are removed within 15 days or such extended time granted by AO, the original return upon removal of defects u/s. 139(9) of the Act becomes a valid return. Once the defects in the original return of income have been removed, then seen in the light of the ratio of Hon'ble Bombay High Court decision 2009 (4) TMI 108 - BOMBAY HIGH COURT it would relate back to the original date of filing of return of income, which was within the prescribed time and therefore the benefits of filing the return of income u/s. 139(1) of the Act shall follow. In such a situation, I am of the view that the CPC and CIT(A) was not justified in denying the benefit of setting of brought forward losses of A.Y. 2016-17 while computing the total taxable income for A.Y. 2017-18. We direct that the benefit of carry forward of losses of A.Y. 2016-17 be allowed for set off against the income for A.Y. 2017-18 to the assessee. Thus the ground of assessee is allowed.

Summary

Issues:
1. Disallowance of the claim of set off of brought forward loss.
2. Interpretation of filing original and revised return of income.
3. Validity of carry forward of losses for set off against income.

Analysis:
1. The case involved an appeal by the assessee against the order disallowing the claim of set off of brought forward loss for the Assessment Year 2017-18. The original return of income for the previous year was filed within the due date, but a notice under section 139(9) was issued to rectify defects. The revised return was filed after the due date, leading to the disallowance by the Commissioner of Income Tax (Appeals) (CIT(A)) and the Central Processing Centre (CPC).

2. The dispute centered around the interpretation of filing original and revised returns of income. The assessee argued that the revised return filed to rectify defects should be considered as a continuation of the original return, allowing the benefit of carry forward of losses. The CIT(A) and CPC, however, held that since the revised return was filed after the due date, the benefit could not be allowed.

3. The Tribunal analyzed the provisions of Section 139(9) of the Income Tax Act, which deals with rectification of defective returns. Citing a precedent from the Hon'ble Bombay High Court, the Tribunal held that once defects in the original return are rectified within the specified time, it relates back to the original filing date. Therefore, the Tribunal concluded that the assessee should be allowed the benefit of setting off brought forward losses from the previous year against the income for the current year.

4. Consequently, the Tribunal set aside the order of the CIT(A) and directed that the benefit of carry forward of losses from the previous year be allowed for set off against the income for the current year. The appeal of the assessee was allowed, and the judgment was pronounced in favor of the assessee on 15.09.2022.