2022 (12) TMI 214 - AT - Income Tax

Rectification of mistake u/s 154 - Validity of subsequent revised return - return of income was not filed before the due date for filing u/s.139(1) - carry forward of 'long-term capital loss' - HELD THAT - As per the language used in subsection (3) to section 139, it is contemplated that when the assessee files the original return, at that time, there should be loss and the assessee desires to claim said loss to be carried forward and set off in future assessment years. Sub-section (1) of section 139 cast statutory obligation on the assessee when there is positive income. In the present case, admittedly, the assessee filed the return of income declaring the positive income and even in the revised return, the assessee has declared the positive income as the loss in respect of the sale of shares, which could not be set off, inter-source or inter-head under section 70 or 71 - As per the provisions of sub-section (5) to section 139, in both the situations where the assessee has filed the return of positive income as well as return of loss at the first instance as per the time limit prescribed and subsequently, files the revised return then the revised return is treated as valid return. In the present case, as the assessee filed its original return declaring the positive income and hence, in our opinion, subsequent revised return is valid return also and the assessee is entitled to carry forward of 'long-term capital loss'. Sub-sections (1) and (3) of section 139 provides for the different situations and in our opinion, there is no conflict in applicability of both the provisions as both the provisions are applicable in the different situations. Issue with regard to carry forward of short term capital loss claimed by the assessee should be directed to be examined by the AO afresh in the light of the observations made above. Accordingly, we allow the appeal of the assessee for statistical purposes.

Issues Involved:
1. Due date for filing return of income.
2. Validity of revised returns and their impact on carry forward of losses.
3. Applicability of Section 143(1)(a) adjustments.
4. Interpretation of Section 80 and Section 139(3) and (5) of the Income Tax Act, 1961.

Detailed Analysis:

1. Due Date for Filing Return of Income:
The primary issue revolves around the due date for filing the return of income by the assessee. The assessee, being a partner in a firm liable for a tax audit, had a due date of 07/11/2017 for the Assessment Year 2017-18, as per Notification F.No.225/270/2017/ITA.II dated 31.10.2018. The assessee filed the original return on 29.10.2017, within this due date, and subsequently filed revised returns.

2. Validity of Revised Returns and Their Impact on Carry Forward of Losses:
The assessee filed a second revised return on 07.11.2018 to claim a Long Term Capital Loss of Rs.892,835, which was initially omitted. The Assessing Officer (AO) disallowed the carry forward of this loss, believing the due date for filing the original return was 31.08.2017. The CIT(Appeals) upheld this view, stating that Section 139(5) does not apply to revised returns where losses are claimed, and thus the assessee's claim was invalid.

3. Applicability of Section 143(1)(a) Adjustments:
The Tribunal examined Section 143(1)(a), which allows for specific adjustments during the electronic processing of returns. Clause (iii) of this section permits disallowance of loss claimed if the return of the previous year was furnished beyond the due date specified under Section 139(1). However, the Tribunal noted that these provisions apply to set off claims and not to carry forward claims. Therefore, the AO's adjustment disallowing the carry forward of the loss was not justified under Section 143(1)(a).

4. Interpretation of Section 80 and Section 139(3) and (5):
The Tribunal referred to the decision of the Mumbai Bench in the case of Ramesh R. Shah v. ACIT, which held that Section 80 imposes a cap on the right to carry forward losses only when the original return shows no taxable income but only losses. If the original return declares positive income and a revised return filed within the prescribed time shows losses, the revised return is valid, and the carry forward of losses is permissible. The Tribunal concluded that both Sections 139(1) and 139(3) apply in different situations and do not conflict with each other. Therefore, the assessee's revised return declaring positive income and subsequently claiming a loss should be accepted, allowing the carry forward of the long-term capital loss.

Conclusion:
The Tribunal directed the AO to re-examine the issue of carry forward of the short-term capital loss claimed by the assessee in light of the observations made, thereby allowing the appeal of the assessee for statistical purposes. The judgment clarifies that revised returns filed within the statutory period should be considered valid for the carry forward of losses, provided the original return declared positive income.

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