Carry forward of loss for belated return with positive income not allowed. Section 80 not use word ‘return of loss’ – ITAT

Carry forward of loss for belated return with positive income not allowed. Section 80 not use word ‘return of loss’, Section 139(3) talks of loss sustained under specific heads – ITAT

Carry forward of loss for belated return

ABCAUS Case Law Citation:
ABCAUS 1197 (2017) (04) ITAT

The Grievance:
The assessee was aggrieved by the order passed by the CIT(Appeals) in holding that the short term capital loss claimed by the assessee could not be carried forward for set off to the succeeding year.

Assessment Year : 2009-10
Date/Month of Pronouncement: March, 2017

Brief Facts of the Case:
The appellant assessee filed her return of income beyond the time allowed u/s 139(1) of the Income Tax Act, 1961 (‘the Act’). The assessee had declared short term capital loss and sought to carry forward the same to the succeeding year. Since the return of income was filed beyond the period specified u/s 139(1) of the Act, the Assessing Officer (‘AO’), refused to allow carry forward of loss in view of the restriction placed u/s 139(3) read with section 80 of the Act.

The assessee challenged the decision of the AO by filing the appeal before the Commissioner of Income Tax (Appeals), but could not succeed.

Contentions of the Appellant Assessee:
It was contended that the assessee had declared return of income with positive total income and hence return filed by the assessee could not be considered as “return of loss”. Accordingly, the provisions of section 139(3) read with section 80 do not apply to the instant case.

Contention of the Respondent Revenue:
The Revenue, on the contrary submitted that the provisions of section 139(3) and section 80 deals with the “loss sustained under the specific head”, namely “profits and gains of business and profession” or “capital gains” and hence both the provisions shall squarely apply to the facts of the instant case.

Observations made by the Tribunal:
The ITAT noted the following observations made by the CIT(A);

The pain reading of section 80 suggest that loss which can be carried forward is only such loss which has been determined as per the return filed in accordance with provisions of section 139(3) meaning thereby that for every loss to be carried forward, the filing of return which determines such loss, within a time prescribed under the provisions of section 139(3) is a must. The decisions in case of Kulu Valley Transport Co. Pvt. Ltd. 77 ITR 518 (SC) and Kareemsons (P) Ltd 64 Taxman 200 (Kar) are distinguishable on facts as well as law prevailing at that time as they relate to asstt. years prior to 1/4/1989 when the expression “in accordance with the provisions of sub-section (3) of section 139” was not present in section 80 which deals with carry forward of losses. It is only after amendment of section 80 w.e.f 1/4/89 that the carry forward has been linked to provisions of section 139(3) also.

The plea of the assessee that u/s. 139(3) it is mentioned that the assessee may furnish a return of loss would mean that the section 139(3) applies only where total income returned is a loss and not in cases where the total income returned is positive income though there is loss which has been sustained by the assessee under the head business or profession and or other income, is not correct. The legislature in its wisdom has in section 139(3), instead of using the expression ” If any person has returned a loss” has used expression” If any person who has sustained a loss” which suggests that provisions of section 139(3) will apply even where assessee has ‘sustained a loss‘ irrespective whether the total income returned by the assessee is a loss or not. Further section 139(3) seeks to put restriction of carry forward of losses only qua business income or capital gain only whereas the total income of any assessee would comprises of all heads of income including salary, income from house property, business, capital gains, income from other sources, etc. Thus it is clear that the legislature has deliberately not used the words total income or loss in the return while putting restriction under 139(3) and it has selectively applied provisions of 139(3) qua only two heads of income i.e. ‘business or profession’ or ‘capital gains’. This further reinforces the argument that for the purpose of claiming benefits u/s. 139(3), the return computing loss under business or capital gains has to be filed within time specified under section 139(1), irrespective of total income ultimately returned by the assessee. The principles of harmonious interpretation as enunciated in the case of Kalyan Singh Solankhi 39 ITR 522 (Bom) stipulate that a true meaning of any passage in statute is that which best harmonizes with each passage of the statute to make it consistent as the whole statute The Supreme Court also in the case of Hindustan bulk carriers 249 ITR 449(SC) held that statute or any enacting provision therein must be so construed as to make it effective and operative and one provision of the act should be construed with reference to the other provision in the same act so as to make it consistent enactment of whole statute. Following ratio of the above decision it is clear that meaning of the expression ‘return of loss’ as used in the context of the provisions of section 139(3) has to be necessarily construed as return qua loss under the head income from business or profession or capital gains and not qua total income only as offered in return. If it is not interpreted so, then it may lead to absurd results because then a person showing nominal positive total income with huge amount of loss under business/capital gains would be still entitled to carry forward such loss even if return is beyond time limit prescribed under section 139(1), whereas another person under same situation of delayed return, who does not have any other income except loss under business/capital gains would become disentitled to carry forward such loss u/s 139(3). The mischief sought to be avoided by bringing provisions of 139(3) will therefore be defeated in the former case leading to absurdity. Therefore the provisions of section 139(3) will apply even to the case where there is a loss under the head business/profession or capital gains, even if the total income returned is a positive income. Hence the short term capital loss computed by assessee shall not be allowed to be carried forward as the original return was filed beyond time u/s 139(1).”

The Tribunal observed that the heading of section 80 reads as “Submission of return for losses” and section 80 is the section that prescribes the condition for carry forward of losses. It does not use the word “return of loss”. Further the provisions of section 139(3) talks about the loss sustained under the specific heads only.

The Tribunal expressed its agreement with the view of CIT(A) that the short term capital loss sustained by the assessee could not be carried forward, as the return of income had not been filed as per the provisions of sec. 139(3).

Held:
The order passed by CIT(A) was upheld.

Carry forward of loss for belated return

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