2019 (3) TMI 15 - HC - Income Tax

Court rules revised tax return filed under Section 139(5) cannot carry forward business losses

The court ruled in favor of the Revenue, holding that a revised return filed under Section 139(5) after an original return under Section 139(1) cannot be ... Carry forward of business loss - Distinction of return filed u/s 139(1) & 139(3) - original return filed u/s 139(1) within time declaring positive income - later revised return u/s 139(5) filing declaring loss - whether the revised return filed u/s 139(5) can be treated as return u/s 139(3) - HELD THAT:- What we find is that carry forward of loss with respect to the two heads of income; being 'profits and gains on business or profession' and 'capital gains' has been culled out from Section 139(1) and a specific provision made under Section 139(3). The filing of a return under Section 139(3) alone would enable such claim of carry forward. A loss return can definitely be filed under Section 139(1). But the same would be restricted to the set off being claimed in that relevant previous year without any claim for a carry forward of loss which remains after set off. True Section 139(3) makes applicable the provisions of the Act as if it were a return under Section 139(1). Hence, if a return is filed under Section 139(3), necessarily, the assessee could avail of the benefit under Section 139(5) for filing a revised return which would be treated as the original return filed under Section 139(3). When a return is originally filed under Section 139(1), the enabling provision under Section 139(5) to file a revised return only enables the substitution or revision of the original return filed. On a revised return filed, it can only be a return under Section 139(1) and not one under Section 139(3). This compelling distinction persuades us to set aside the order of the Tribunal. The assessee originally filed a 'nil' return with positive income under Section 139(1). When a revised return under Section 139(5) is filed, it only substitutes the original return filed under Section 139(1). The return hence permits set off of the loss against the income of that relevant previous year. What remains after such set off can not be carried forward for reason of the revised return not being deemed to be one under Section 139(3). - Decided in favour of the Revenue. Issues:- Carry forward of business loss from AY 2002-03- Interpretation of Sections 139(1), 139(3), and 139(5) of the Income Tax Act, 1961Analysis:1. The case involves a dispute regarding the carry forward of business loss from the assessment year (AY) 2002-03. The assessee initially filed a return under Section 139(1) showing positive income, later filing a return of loss under Section 139(5) for the same year, seeking to carry forward the business loss remaining after set off against the income returned. The primary issue is whether the revised return filed under Section 139(5) can be considered as one filed under Section 139(3) for the purpose of carrying forward the business loss.2. The Tribunal allowed the carry forward of business loss for AY 2002-03, prompting the Revenue to appeal. The core legal question revolved around the interpretation of Sections 139(1), 139(3), and 139(5) of the Income Tax Act. The Revenue contended that a return filed under Section 139(1) cannot be revised under Section 139(5) to claim a loss that should be specifically claimed in a return under Section 139(3) for carry forward purposes.3. The arguments presented by both sides focused on the specific provisions of the Income Tax Act. The Amicus Curiae highlighted that Section 139(3) pertains to losses under specific heads of income, emphasizing the distinction between returns filed under Sections 139(1) and 139(3). The Senior Counsel for the assessee argued that a return filed under Section 139(1) and revised under Section 139(5) should be deemed as one under Section 139(3, especially for companies with income or loss in previous years.4. The court examined various precedents, including decisions from the Gujarat High Court, Delhi High Court, and Income Tax Appellate Tribunal, to understand the implications of revising returns under different sections. The judgments emphasized the importance of proper classification of returns under the relevant sections to determine eligibility for carry forward of losses.5. Ultimately, the court ruled in favor of the Revenue, holding that the revised return filed under Section 139(5) after an original return under Section 139(1) cannot be treated as a return under Section 139(3) for the purpose of carrying forward business losses. The judgment aligned with the interpretation that carry forward of losses under specific heads of income requires a return filed under Section 139(3), and a revised return under Section 139(5) does not alter the original classification under Section 139(1). The appeal was allowed in favor of the Revenue, denying the assessee's claim for carrying forward the business loss for AY 2002-03.