2023 (1) TMI 313 - AT - Income Tax

Appeal partially allowed, losses not allowed for late filing, loan waiver income excluded. General issues addressed.

The Tribunal partly allowed the appeal, upholding the non-allowance of brought forward losses due to late filing of returns but directing the exclusion of ... Set-off of brought forward business losses against current year business income - due date of filing of ITR u/s 139(1) - It is audit case or not - action of the AO/CPC not allowing set-off - main contention of assessee is that the due date for it should be taken as 30th September, since its accounts are required to be audited as per trust deed - HELD THAT:- The requirement of getting accounts audited should be “under the Income tax Act or under any other law”. Hence it is required to be examined as to whether the accounts of the assessee are required to be audited under the Income tax Act or under any other law. We notice that the ld CIT(A) has given clear finding that the accounts of the assessee are not required to be audited under the Income tax Act or under any other law. Before us also the assessee failed to bring to our notice any specific provision under any law which mandates that the assessee’s books of account need to be audited. Therefore, we agree with the view taken by Ld CIT(A) that the assessee has to file its ROI on or before 31st July as per the clause (c) of Explanation 2 of section 139(1) of the Act. We note that the assessee is not required to audit its books as per the Income Tax Act or under any other law and therefore clause (a)(ii) of section 139(1) of the Act is not attracted to the assessee’s case. Therefore, the action of the Ld.CIT(A) in confirming the action of CPC/AO cannot be faulted. So we confirm the action of the Ld.CIT(A) on this issue. Alternative contention is whether the principal portion of loan waived by the lender would be liable to be taxed u/s 41(1) of the Act or not ? - A perusal of Profit and Loss account would show that the assessee has credited the P & L account with the waiver of interest portion and waiver of principle portion of loan. A perusal of the computation of total income would show that the assessee has not excluded principal portion of loan waived from the Net profit shown in the Profit and Loss account. Hence all facts relating to this issue is available on record. Thus the principal portion of amount waived by the lender credited to the Profit and Loss account is not liable to taxation under the Income tax Act. Accordingly, we direct the assessing officer to exclude this amount while computing total income of the assessee. Issues Involved:1. Confirmation of total income.2. Non-allowance of set-off of brought forward losses.3. Disallowance of loss claimed.4. Entitlement to set-off of previously determined loss.5. Timeliness of income returns filing.6. Taxability of loan write-back.7. Charging of interest under Sections 234B and 234C.Issue-wise Detailed Analysis:1. Confirmation of Total Income:The assessee's appeal contested the confirmation of total income at Rs. 1,17,04,178 by the CIT(A). The Tribunal upheld this confirmation, noting that the set-off of brought forward losses was not permissible due to the late filing of returns in previous years.2. Non-allowance of Set-off of Brought Forward Losses:The main grievance was the non-allowance of set-off of brought forward business losses against current year business income. The Tribunal noted that the returns for earlier years were filed beyond the time prescribed under Section 139(1). As per Section 139(3), losses cannot be carried forward if returns are not filed within the due date. The Tribunal confirmed the CPC's action of not allowing the set-off.3. Disallowance of Loss Claimed:The disallowance of the loss claimed by the assessee was upheld. The Tribunal noted discrepancies in the quantum of brought forward business losses claimed for set-off. The losses were overstated by Rs. 70,03,014. The Tribunal emphasized that losses declared in returns cannot be modified unless revised returns are filed.4. Entitlement to Set-off of Previously Determined Loss:The assessee argued that the loss of Rs. 61,11,994 for A.Y. 2017-18 was already determined as allowable by the CPC. However, the Tribunal held that the AO assessing the year in which set-off is claimed has the authority to decide on the carry forward and set-off of losses. The Tribunal cited the Supreme Court's decision in CIT Vs. Manmohan Das to support this view.5. Timeliness of Income Returns Filing:The assessee contended that the due date for filing returns should be 30th September, as its accounts were required to be audited per the trust deed. The Tribunal found no legal requirement for auditing the books under the Income Tax Act or the Indian Trust Act. Therefore, the due date applicable was 31st July, as considered by the CPC.6. Taxability of Loan Write-back:The alternative contention was that the write-back of the loan is not a cessation of trading liability and not chargeable to tax under Section 41(1). The Tribunal agreed, noting that the principal portion of the loan waived is not taxable under Section 41(1), following the Supreme Court's decision in CIT vs. Mahindra & Mahindra Ltd. The Tribunal directed the AO to exclude the principal portion of the loan waived (Rs. 2,00,18,970) from the total income.7. Charging of Interest under Sections 234B and 234C:The Tribunal did not specifically address this issue in detail, as it was consequential to the other findings.Conclusion:The appeal was partly allowed. The Tribunal upheld the non-allowance of brought forward losses due to late filing of returns but directed the exclusion of the principal portion of the loan waived from the total income. Other grounds were either general or consequential and did not require separate adjudication.