IN THE ITAT
Rajiv Gupta
v.
Income-tax Officer, Ward (2), Ludhiana
M.A. BAKSHI, VICE PRESIDENT
AND G.S. PANNU, ACCOUNTANT MEMBER
IT APPEAL NOS. 442 & 443 (CHD) OF 2005
[Assessment years 1997-98 and1999-2000]
March 20, 2007
Section 154, read with sections 80 and 139(1), of the
Income-tax Act, 1961 - Rectification of mistakes - Apparent from records - Assessment years 1997-98 and
1999-2000 - For assessment year 1996-97, assessee declared certain long term
capital loss - Assessing Officer allowed said loss to be carried forward and
set off in subsequent years - For relevant assessment years, Assessing Officer
allowed those brought forward losses to be set off against long term capital
gain earned by assessee - Subsequently, Assessing Officer found that assessee
was not entitled to set-off unabsorbed long term capital loss as return of
income for assessment year 1996-97 was filed beyond period allowed under
section 139(1) - Assessing Officer, therefore, rectified his orders for assessment
years 1997-98 and 1999-2000 and withdrew set off of long term capital loss as
wrongly allowed - Whether since return of income for assessment year 1996-97
was not filed within time prescribed under section 139(1), assessee was not
entitled to carry forward and set off long term capital loss suffered in that
year - Held, yes - Whether, thus, action of Assessing Officer in allowing set
off of said long terms capital loss was a mistake of law which was glaring and
obvious and, therefore, Assessing officer was justified in rectifying his
orders for relevant assessment years - Held, yes
For the
assessment year 1996-97, the assessee filed his return of income declaring
certain income and certain capital loss. The Assessing Officer completed the
assessment and allowed the long term capital loss to be carried forward and set
off in subsequent assessment years. For the assessment year 1997-98, the
assessee filed his return of income disclosing certain long term capital gains
and claimed its set off against the brought forward long term capital loss. The
Assessing Officer allowed the assessee’s claim and completed the assessment
under section 143(3). The balance capital loss was allowed to be carried
forward. Similarly, for the assessment year 1999-2000 also the Assessing
Officer allowed set off of long term capital loss brought forward against the
long terms capital gain. Subsequently, the Assessing Officer found that the
assessee was not entitled to set off of unabsorbed long term capital loss
relating to the assessment year 1996-97 as the return of income for that
assessment year had been field beyond the period allowed under section 139(1).
Thus, the Assessing Officer, under section 154, rectified his orders for the
assessment years 1997-98 and 1999-2000 thereby withdrawing the set off of long
term capital loss as wrongly allowed. On appeal, the Commissioner (Appeals)
confirmed the orders of the Assessing Officer.
On second appeal:
A conjoint reading of sections 80 and 74 reveal that
no loss which has not been determined in pursuance of a return field in
accordance with the provisions of sub-section (3) of section 139 is eligible to
be carried forward and set off. [
As is evident from section 139(3), if any person has
sustained a loss under the head “Profits and gains of business or profession’
or under the head ‘Capital gains’ and is desirous of carrying forward the said
loss, he is required to file the return within the time allowed under
sub-section (1) of section 139. In the instant case, it was not disputed that
the return of income for the assessment year 1996-97,
i.e., the year in which the assessee had declared a long term capital loss was
not filed within the time allowed under section 139 (1) and, accordingly, the
return for the said assessment year was not filed in accordance with the
provisions of section 139(3). The contention advanced on behalf of the assessee
that since the assessee had declared positive income under the head ‘Profits
and gains of business or profession’, provisions of section 139(3) were not
attracted in the instant case, was bereft of any substance. The language of
section 139(3) as well as section 80 is unambiguous. The provisions do not
speak of a ‘loss return’ but a loss suffered under the head ‘Profits and gains of
business or profession’ or under the head ‘Capital gains’. In the instant case,
the assessee had declared long term capital loss in the assessment year
1996-97. If the assessee was desirous of carrying forward the said loss to be
set off against the long term capital gains of subsequent year(s), then the
return of income for that year was required to be filed within the time allowed
under section 139(1). If the loss is declared under the head ‘Profits and gains
of business or profession’ or under the head ‘Capital gains’ in a return filed
after the expiry of time specified under section 139(1), the same would not be
entitled to be carried forward and set off in accordance with the relevant
provisions of the Act. Therefore, it is evident from the provisions of the Act
that the assessee in law, was not entitled to the carry forward and set off of
long term capital loss suffered in the assessment year 1996-97 insofar as the
return of income for that assessment year was not filed within the time allowed
under section 139(1) and, consequently, was not in accordance with the
provisions of section 139(3). Therefore, the long term capital loss disclosed
in the return of income filed for the assessment year 1996-97 (which was filed
after the specified period indicated in section 139(1)) was not permissible to
be carried forward and set off in accordance with the relevant provisions of
the Act. [
The only
question that remained for consideration was as to whether the Assessing
Officer had the power to deny the set off of capital loss suffered in the
assessment year 1996-97 in subsequent assessment years notwithstanding the fact
that in the assessment order for the assessment year 1996-97 the Assessing
Officer had specifically mentioned that the long term capital loss was allowed
to be carried forward. It was not disputed that the said assessment order for
the assessment year 1996-97 had not been modified either by the Assessing
Officer or by any appellate or superior authorities. The assessee contended
that the Assessing Officer was not entitled to modify the orders for the
subsequent assessment years without modifying the order for the assessment year
1996-97. The determination of loss was not a matter of dispute. There was no
mistake alleged in the computation of long term capital loss in the assessment
year 1996-97. Had there been any mistake in the computation of long term
capital loss in the assessment year 1996-97, the Assessing Officer undoubtedly
could not modify the figure of loss in the assessment year 1997-98 or in the
assessment year 1999-2000 either under section 143 (3) or under section 154.
The long term capital loss had been determined in the assessment year 1996-97
the quantum of which was not disturbed. The said loss determined in the
assessment year 1996-97 could not be modified in the assessment year 1997-98.
So, however, the assessee had sought set off of capital loss suffered in the
assessment year 1996-97 against the long term capital gain in the assessment
year 1997-98 and in the assessment year 1999-2000. Originally, the Assessing
Officer while framing assessment under section 143(3) for the assessment year
1997-98 as well as for the assessment year 1999-2000 had allowed the set off of
the said loss against long term capital gain. Subsequently, notices under
section 154 were issued to the assessee on the ground that there was a mistake
in allowing the set off of long term capital loss pertaining to the assessment
year 1996-97 as the said loss had not been determined in pursuance of a return filed
within the time allowed under section 139(1). Section 139(3) read with section
80 prohibits the set off of such losses in subsequent years. The action of the
Assessing Officer in allowing the set off of the long term capital loss of the
assessment year 1996-97 not determined in pursuance to the return filed in
accordance with the provisions of section 139(3), was a mistake apparent from
record and was a mistake of law. It was also pertinent to mention that the
Assessing Officer while deciding the cases for assessment years 1997-98 and
1999-2000 was entitled to look into the record of the assessee for the
assessment year 1996-97 also to consider the claim of the assessee. As held by
the Supreme Court in the case of Maharana Mills (P.) Ltd. v. ITO [1959] 36 ITR
350 the record for the purpose of
section 154 would include record of the previous year as well as the record of
the subsequent assessment year pertaining to the assessee. Moreover, in order
to give effect to provisions of section 74, the Assessing Officer was required
to verify that the loss which was sought to be set off had been determined in
pursuance to a return filed in accordance with the provisions of section
139(3). For such verification, it was necessary for the Assessing Officer to
look into the record of the assessee for the assessment year 1996-97 in which
the loss was disclosed and determined. When the Assessing Officer made
assessment under section 143(3) for the assessment year 1997-98 as well as for
the assessment year 1999-2000, he did not consider the restriction placed under
section 74, section 80 read with section 139(3). Subsequently, when the mistake
was discovered, the Assessing Officer promptly effected the rectification under
section 154 for both the assessment years and after giving opportunity to the
assessee, modified assessment orders for the assessment years 1997-98 and
1999-2000 accordingly. The Assessing Officer had committed a mistake of law
which was glaring and obvious. Therefore, the Assessing Officer, was justified in
rectifying the assessment orders for the assessment years 1997-98 and 1999-2000
giving effect to provisions of section 74, read with section 80 and section
139(3). [
The Assessing
Officer had observed in the assessment order for the assessment year 1996-97
that long term capital loss was allowed to be carried forward. In the light of
the various decisions of the Supreme Court, the said decision was
inconsequential. In the assessment year 1997-98 as well as in the assessment
year 1999-2000, the Assessing Officer had initially allowed the set off of the
said capital loss while making assessments under section 143(3). So
subsequently, after realizing the mistake, he disallowed the set off of loss in
the assessment year 1997-98 as well as in the assessment year 1999-2000. Before
making the assessment for the assessment year 1997-98, the Assessing Officer
was required to decide as to whether the long term capital loss claimed to be
set off against the long term capital gain was brought forward on the basis of
the return filed in accordance with section 139(3). Similarly, in the
assessment year 1999-2000 the Assessing Officer was required to consider as to
whether the long term capital loss was declared in the assessment year 1996-97
in accordance with provisions of section 139(3). The Assessing Officer had
committed a glaring mistake while framing the assessment under section 143(3)
for the respective assessment years by overlooking the provisions of law. The
mistake was patently against the provisions of sections 80, 74 read with
section 139(3). Therefore, the Assessing Officer was within his powers under
section 154 to rectify his orders passed under section 143(3) for the
assessment years 1997-98
and 1999-2000. [
In the result, the appeals were to be dismissed. [
CASE REVIEW:
Dy. CIT, v. Asia Resorts, [IT Appeal No. 488/(Chd.)
of 2002 order dated 31-7-2006] - distinguished on facts; Maharana Mills (P) Ltd. v. ITO [1959] 36 ITR
350;
CIT v. Manmohan Das [1966] 59 ITR 699; CIT v. Beharilal
Ramcharan Ltd. [1987] 166 ITR 157/32 Taxman 32A - followed and Smt. Rishwa Rani
v. ITO [IT Appeal Nos. 99 to 101 (Chd.) of 2005 for assessment year 1997-98 to
1999-2000, order dated 10-11-2005] - dissented from.