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TMI Blog1984 (2) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... sed balance sheet the assessee claimed that he had paid Rs. 10,000 to his wife in 1966 which was returned by her on 3-2-1967. This was the amount which was the subject-matter of dispute. The earlier explanation was stated to be on account of oversight. The ITO disbelieving this explanation treated the sum of Rs. 10,000 as the assessee's income from other source and levied penalty under section 271(1)(c) on the ground that the assessee had deliberately furnished inaccurate particulars. Before the AAC, the assessee pointed out a debit of Rs. 10,000 on 2-3-1967 in the wife's pass book and credit of the same on the same day in his own pass book. The AAC accepted the assessee's claim that the entries in the pass book, prima facie, supported the explanation given by the assessee. The ITO had made the addition through a process of arguments. The assessee's wife was also not examined while rejecting the assessee's explanation. The AAC cancelled the penalty in view of the prima facie evidence supporting the assessee's explanation. 4. Before us, the learned counsel for the department has pointed out that the assessee originally gave one explanation and subsequently another explanation. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward and not set off against his income from other sources of Rs. 8,204. Thus for the assessment year 1977-78, his total income would be Rs. 8,204 whereas for the assessment year 1978-79, he would have a carry forward loss to be set off against business income of Rs. 3,695 from the assessment year 1976-77 and Rs. 9,109 for the assessment year 1977-78. The AAC interpreting sections 71(1) and 72(1) of the Act accepted the assessee's claim. Hence, the departmental appeals for these two years. Sections 71(1) and 72(1) read as under : "71. (1) Where in respect of any assessment year the net result of the computation under any head of income other than 'Capital gains' is a loss and the assessee has no income under the head 'Capital gains', he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head." "72. (1) Where for any assessment year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be set off against the assessee's other income. Section 72(1) is a different section. Under that section whatever loss is not adjusted against other income (for whatever reason) for any year can be carried forward. By the assessee exercising an 'option' so to say of not setting of his business loss against other income the provisions of section 72(1) operating on this situation would entitle him to have the business loss of that year carried forward and set off in the subsequent year. The AAC's order for both the assessment years 1977-78 and 1978-79 in this regard has to be upheld. 7. All the departmental appeals are dismissed. Per Shri D.S. Meenakshisundaram, Judicial Member -- I have perused the order of my learned brother, Shri V. Balasubramanian, Vice President. 2. I agree that the appeal of the department against the cancellation of penalty of Rs. 10,000 under section 271(1)(c) for 1967-68 has to be dismissed. 3. However, I find it difficult to agree with the reasoning and conclusion dismissing the department's appeals for 1977-78 and 1978-79 in para 6 of my learned brother's order. On the facts set out in para 6 on page 3, the ITO is left with no choice but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same year ? 2. If the answer to question No. 1 is in the negative : Whether, on the facts and in the circumstances of the case, the loss carried forward of the earlier year is not to be set off under the provisions of section 72(1) ?" THIRD MEMBER ORDER Per Shri A. Krishnamurthy, Judicial Member -- This case has been referred by the President to me as a Third Member for hearing on the following points of difference between the Members who heard the appeals originally : "1. Whether, on the facts and in the circumstances of the case, the assessee is compelled, whether he wants the benefits or not under section 71(1) of the Act, to set off any loss under one head of income against income from another head in the same year ? 2. If the answer to question No. 1 is in the negative : Whether, on the facts and in the circumstances of the case, the loss carried forward of the earlier year is not to be set off under the provisions of section 72(1) ?" 2. The assessment years involved are 1977-78 and 1978-79. The short facts on which the dispute in this case arises are that for the assessment year 1977-78, the assessee had a loss computed under the head 'Profits and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the provisions of Chapter VI of the Act, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head. The words, that the assessee shall be entitled to have the amount of such loss set off against income assessable under any other head, prima facie, vests the assessee with a right to claim that the loss incurred by him under one head should be set off against income under any other head for the assessment year. It is, according to me, a necessary implication of the conferment of this right on the assessee that he can choose to waive such a right, if he considers it necessary or advantageous for him to do so. The language does not imply a compulsion on the part of the assessee to accept to set off of loss under one head of income against income under another head, or a mandate on the ITO to thrust such set off on the assessee even if the assessee does not desire it. It is well settled that when a particular language is used by the Legislature, the Legislature must be presumed to have intended that effect must be given to the plain and ordinary meaning of the language used by it and as I read the lang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er one head or income against income under any other head. 6. Since, according to the learned Judicial Member, the action of the ITO in not accepting the assessee's claim and setting off the loss against the income under other head is in conformity with the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd.'s case and the Supreme Court decision is binding on all the authorities as it declares the law finally for the country, it is necessary to consider the decision and to see how far it impinges on the construction which I have sought to place on the provisions according to the plain language of the section as I understand. In the Supreme Court decision in the case of Cambay Electric Supply Industrial Co. Ltd. one of the points involved was whether the unabsorbed depreciation and unabsorbed development rebate are deductible or not in computing the profits under section 80E(1) of the Act. It was held, having regard to the construction placed on the provisions of section 80E, that in computing the total income of the assessee, items of unabsorbed depreciation and unabsorbed development rebate will have to be deducted before arriving at a figure that would be exigi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no option either for the ITO or the assessee in regard to the carry forward of the depreciation of one year and its being treated as part of the allowance for the following year, etc. Similarly, in the provisions of section 33(2), which provides for carry forward of the development rebate, the language used for carry forward and set off is in mandatory terms, without any option to either party, the assessee or the ITO to act otherwise than as provided in the section. Therefore, it is clear that in computing the profits and gains in accordance with sections 30 to 43A, which would include sections 32(2) and 33(2), the depreciation and development rebate to be carried forward and set off has necessarily to be allowed and this is what has been held by the Supreme Court. It may also be necessary to refer to the observations of the Supreme Court in regard to the provisions of section 72 at page 97 as a reference has been made to the same in the order of the learned Judicial Member. 7. After considering the Kerala High Court decision in Indian Transformers Ltd. v. CIT [1972] 86 ITR 192 the Supreme Court observed that it is not possible to accept the view that section 72 has no bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot setting off loss under one head of income under another head as required by the section itself, in the way, the section has to be interpreted, according to me, as conferring a benefit or a right on the assessee who is at liberty either to avail or not to avail the same. To hold that the loss incurred by the assessee under one head should be set off against income under another head under section 71(1) even where the assessee does not desire it, will, according to me, mean equating the mandatory provisions contained in other sections already referred to by me like sections 72 to 80 with strikingly dissimilar language used in the provisions of section 71(1) which could be done only by doing violence to the express language contained therein, I do not find anything in the Supreme Court decision in the case of Cambay Electric Supply Industrial Co. Ltd. which runs counter to the above construction placed by me. 9. Therefore, on the first point of difference, I agree, with respect, to the view taken by the learned Accountant Member (Vice President) and differ from the view taken by the learned Judicial Member. 10. As regards the second point, while I find that the learned Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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