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2007 DIGILAW 713 (JHR)

Commissioner of Income Tax v. R. S. Bajwa and Co.

2007-09-05

D.G.R.PATNAIK, M.Y.EQBAL

body2007
JUDGMENT M.Y. Eqbal, J. 1. On the reference application from the side of the Revenue, the Tribunal has referred the following question under Section 256 of the Income Tax Act: Whether on the facts and in the circumstances of the case, the Tribunal was justified in directing the Assessing Officer to allow adjustment of unabsorbed depreciation and investment allowance of earlier years in spite of the fact that the return was filed late? 2. The facts of the case, in brief, necessary for answering the question are as under: The assessee is a partnership firm. Original statement was completed under Section 143(1) of the Income Tax Act Income Tax Act. Subsequently, the Assessing officer passed revisional order under Section 154 of the Act, withdrawing the allowance of carry forward of depreciation and investment in respect of assessment year 1985-86 on the ground that there was delay in filing the return of income. The Assessing officer took the view that under Section 80 of the Income Tax Act, carry-forward of losses could not be allowed if the return is filed late. According to the Assessing Officer, return of income for the assessment year 1985-86 was filed on 30.10.1985 as against the due date of 30.6.1985 and so the carry-forward of allowance granted earlier was unjustified. Aggrieved by the said order of the Assessing Officer, the assessee preferred appeal before the Commissioner of Income Tax (Appeals). The appellate authority was of the view that the carry-forward of business losses and carry-forward of the unabsorbed depreciation and investment allowance are on different footings. According to the appellate authority, Section 80 did not apply to the carry forward of unabsorbed depreciation and unabsorbed investment allowance. Accordingly, the appellate authority allowed the appeal, set aside the order of the assessing officer and directed him to consider the matter and allow adjustment of unabsorbed depreciation and unabsorbed investment allowance. Against the said order, the Revenue preferred Second Appeal before the Income Tax Appellate Tribunal, Patna. The Tribunal affirmed the order and held that the benefit is not to be denied merely on the ground of belated filing of return. 3. The Tribunal, however, referred the question quoted herein above for answer by this Court. 4. We have heard Mr. K.K. Jhunjhunwala, learned Counsel appearing for the Revenue and, Mr. Binod Poddar, learned Senior Counsel appearing for the assessee. 5. 3. The Tribunal, however, referred the question quoted herein above for answer by this Court. 4. We have heard Mr. K.K. Jhunjhunwala, learned Counsel appearing for the Revenue and, Mr. Binod Poddar, learned Senior Counsel appearing for the assessee. 5. Section 80 of the Income Tax Act reads as under: Section 80. Submission of return for losses. – Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of Sub-section (3) of Section 139 shall be carried forward and set off under Sub-section (1) of Section 72 of Sub-section (2) of Section 73 or Sub-section (1) on Sub-section (3) of Section 74 or Sub-section (3) of Section 74A. 6. From bare reading of the aforesaid provisions, it is manifestly clear that only such losses which have been determined in pursuance of a return filed in accordance with the provisions of Section 139 shall be carried forward and set off which have been provided under Sub-section (1) of Section 72 or Sub-section 2 of Section 73 or Section 74 or Sub-section (3) of Section 74A. The Taxation Laws (Amendment) Act, 1984 (Act 67 of 1984) amended Section 80 which came into effect from 1st April, 1985. As a result of amendment of Section 80, the determination and carry forward of the loss in case of a belated return is not mandatory. A belated return is a return which is not furnished within time allowed under Section 139(1) or within such further time as may be allowed by the assessing officer. This amendment is applicable for and from assessment year 1985-86 and to any earlier assessment year upto 1984-85. The scope and effect of the amendment have been elaborated in Circular No. 397 dated 16th October, 1984. The relevant portions of the departmental circular are quoted herein below: Submission of return for loss - Section. - 14.1 Under the existing provisions of Section 80 of the Income Tax Act relating to submission of return for losses, no loss is allowed to be carried forward and set off under Section (72(1), 73(2), 74(1) or 74A(3) unless such loss has been determined in pursuance of a return filed under Section 139 of the Act. - 14.1 Under the existing provisions of Section 80 of the Income Tax Act relating to submission of return for losses, no loss is allowed to be carried forward and set off under Section (72(1), 73(2), 74(1) or 74A(3) unless such loss has been determined in pursuance of a return filed under Section 139 of the Act. 14.2 The Amending Act has amended Section 80 of the Income Tax Act to provide that such loss shall not be allowed to be carried forward and set off unless such loss is determined in pursuance of a return filed within the time allowed under Section 13(1) for furnishing a voluntary return of income or within such further time as may be allowed by the Income Tax officer. 14.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to any loss for the assessment year 1985-86 and subsequent years. 7. The question that falls for consideration is as to whether the losses referred to in Section 80 of the Act also includes unabsorbed depreciation and investment allowance. Section 72 lays down the provisions with regard to carry forward and set off of business losses. According to this Section, where for any assessment year, the net result of 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 set off and against income under any head of income in accordance with the provisions of Section 71, then so much of the loss shall be carried forward to the next assessment year. Similarly, Section 73 deals with the losses in speculation business. Sub-section (2) of Section 73 provides that where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under Sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall be carried forward on certain conditions. 8. Section 74 deals with the losses under the head "Capital gains which is not relevant for the instant case. Section 74A also not relevant because it deals with losses from certain specified sources falling under the head "Income from other sources". 8. Section 74 deals with the losses under the head "Capital gains which is not relevant for the instant case. Section 74A also not relevant because it deals with losses from certain specified sources falling under the head "Income from other sources". On examination of the aforesaid provisions of SSections 72, 73, 74 and 74A, as referred in Section 80 of the Act, prima facie these sSections do not cover or deals with the procedures of setting off of unabsorbed allowance and investment allowance. 9. As a matter of fact, Section 32 of the Act deals with the different types of depreciation. From reading of the provisions of Section 72 and Section 32 it is manifestly clear that Section 72 deals with carry forward unabsorbed business losses other than losses on account of depreciation and that is so because the carry forward of depreciation has been provided under Section 32(2) of the Act. The manner of the carry forward in the two provisions is different. 10. Considering the provisions of law referred to herein above, we are of the view that C.I.T. (Appeal) and the appellate Tribunal have rightly arrived at a conclusion that unabsorbed depreciation and investment allowance stand on a different footing vis-a-vis unabsorbed business losses for the purpose of Section 80 of the Act which specifically refers the carry forward and set off of business losses under the provisions of SSections 72, 73 and 74 of the Act. 11. In the result, we answer the reference in favour of the assessee and against the Revenue holding that the Tribunal was justified in directing the assessing officer to allow adjustment of unabsorbed depreciation and investment allowance of the earlier years in spite of the fact that return was filed late. D.G.R. Patnaik, J. 12. I agree.