Business losses under section 35AD can be carried forward despite late return filing

The ITAT Chandigarh allowed the assessee's appeal against denial of carry forward of current year business losses under section 35AD. The AO/CPC had disallowed the carry forward citing late filing of return beyond the due date under section 139(1). The ITAT held there was no legal basis for such denial at the current assessment stage. The tribunal directed that verification of timely filing should occur when the assessee seeks set-off in subsequent years, not at the time of computing losses. The ITAT set aside the CIT(A)'s order and directed removal of restrictions on loss carry forward, while suggesting procedural improvements for better documentation.

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Issues Involved:
1. Contravention of provisions of Section 250(6) of the Income Tax Act, 1961.
2. Disallowance of carry forward losses claimed under Section 35AD.
3. Confirmation of AO's action of not allowing carry forward of loss under Section 35AD.

Issue-wise Detailed Analysis:

1. Contravention of Provisions of Section 250(6) of the Income Tax Act, 1961:
The appellant contended that the CIT(A) erred in passing the order in contravention of Section 250(6) of the Income Tax Act, 1961. The Tribunal reviewed the procedural aspects and found no substantial procedural errors that would contravene Section 250(6). The Tribunal's focus was more on the substantive issues related to the carry forward of losses.

2. Disallowance of Carry Forward Losses Claimed Under Section 35AD:
The appellant argued against the CIT(A)'s confirmation of the AO's decision to disallow the carry forward of losses amounting to Rs. 8,36,02,091/- under Section 35AD. The Tribunal examined the statutory provisions and the settled legal position. It was argued that the AO for the subsequent year should determine the set-off of losses, not the AO for the current year. The Tribunal referred to Section 80, which states that losses not determined in pursuance of a return filed in accordance with Section 139(3) shall not be carried forward and set off. The appellant's return was filed after the due date, violating Section 139(1), thus justifying the AO's disallowance.

3. Confirmation of AO's Action of Not Allowing Carry Forward of Loss Under Section 35AD:
The Tribunal reviewed the AO's and CIT(A)'s actions in light of judicial precedents. The Tribunal cited the Hon'ble Supreme Court's decision in CIT Vs. Manmohan Das, which held that it is the AO dealing with the assessment in the subsequent year who should determine whether the loss of the previous year may be set off. The Tribunal also referenced decisions from Coordinate Benches in similar cases, supporting the appellant's position that the AO for the subsequent year should handle the set-off determination. The Tribunal concluded that the AO/CPC had no jurisdiction to deny the carry forward of losses for the current year and directed the AO/CPC to remove the directions denying the carry forward and set off of losses.

Conclusion:
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and directing the AO/CPC to remove the directions denying the carry forward and set off of losses. The Tribunal emphasized the need for appropriate documentation and modifications in the return filing process to ensure compliance with statutory provisions. The order was pronounced in the open court on 07/08/2023.

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