2017 (12) TMI 1906 - AT - Income Tax

Carry-forward of business losses after search assessment: late original return vs s.153A return timing; remand for verification.

In search assessment proceedings under s.153A, the dominant issue was whether business losses could be carried forward despite the original return being ... Denial of benefit and deduction of carry forward of losses as claimed in his belated income tax return - AO has not given the benefit of b/f losses as the assessee had not filed the return u/s 139(1) within the stipulated time - HELD THAT:- In the instant case the assessee for the assessment year 2009-10 filed original return of income on 24/04/2013 declaring income under the head salary, income from house property, income from business or profession. Whereas the due date for filing the return was 31/07/2009. In response to the notice issued under section 153A dt. 10/01/2013 the assessee filed return of income on 25/07/2013 declaring income and claiming carried forward loss. The Hon'ble Rajasthan High Court in the case of Jai Steel (India) [2013 (6) TMI 161 - RAJASTHAN HIGH COURT] has held that in case nothing incriminating is found on account of search or requisition, the question of reassessment of the concluded assessment does not arise. The provisions of section 153A to 153C cannot be interpreted to be further innings to the AO and/or assessee beyond the provisions of section 139(return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263( revision of orders) of the Act. The Hon'ble High Court has further observed that the words 'assess'' or 're-assess' have been used at more than one place in the section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of abated proceedings and 'reassess' has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only on the basis of the incriminating material found during the course of search or requisition of documents. The Hon'ble High Court while reproducing the proposition of law laid down in the case of K P Varghese [1981 (9) TMI 1 - SUPREME COURT] has observed that if the argument of the counsel for the assessee was to be accepted, it would mean that even in case where the appeal arises out of the completed assessment has been decided by the CIT(A) or Tribunal and the High Court, on a notice issues u/s. 153A of the Act, the AO would have power to undo what has been concluded by the High Court. Any interpretation which leads to such conclusion has to be repelled and/or avoided as held in the case of K P Varghese (supra). Assessee is entitled to carry forward the business losses only if the assessment proceedings are abated in view of the search proceedings. Since we do not have the record before us pertaining to the time specified by the AO in the notice to file the return under section 153A(1)(a) and also the fact whether assessment proceedings which have been hitherto under process were kept in abeyance or not, we restore the matter back to the file of AO for allowing the carry forward business losses after verification of the dates allowed in the notice issued under section 153A. Thus we hold that the assessee would be allowed to carry forward losses provided the two conditions laid down below are fulfilled: (a) the assessee filed return under section 153A(1)(a) within the time specified in the notice issued under section 153A on record. (b) the ongoing assessment proceedings were kept in abeyance. Appeal of the Assessee is allowed for statistical purposes. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether business loss can be carried forward when the original return was filed belatedly, but a return for the relevant year was subsequently filed pursuant to notice under section 153A claiming carry forward of such loss. (ii) Whether entitlement to carry forward loss in an assessment under section 153A depends on the assessee's compliance with the time allowed in the section 153A notice and on the abatement (or keeping in abeyance) of pending assessment proceedings for that year. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Carry forward of business loss claimed in a return filed under section 153A despite belated original return Legal framework (as discussed): The Court examined section 153A(1)(a), which requires filing of a return pursuant to notice, and provides that 'the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139'. It also noted the second proviso to section 153A(1) providing for abatement of pending assessments/reassessments on the date of search. Interpretation and reasoning: The Court held that a return filed under section 153A takes the form of a return furnished under section 139(1), and therefore the assessee is entitled to statutory benefits available under the Act, provided the assessee complies with the requirements of section 153A(1)(a), including filing within the period specified in the notice. However, the Court also accepted the proposition that for years where the assessment is already concluded and does not abate, the assessment under section 153A is not a general opportunity to reopen concluded matters in the absence of search-related basis; consequently, the ability to claim carry forward of loss in section 153A proceedings was linked to whether the year falls in the category of abated proceedings. Conclusion: Carry forward of business loss in section 153A proceedings was held to be allowable only if the relevant assessment proceedings are treated as abated/kept in abeyance due to the search and the return under section 153A is filed within the time specified in the notice. The matter was not finally allowed on merits because necessary verification was required. Issue (ii): Conditions to be verified for allowing carry forward of loss under section 153A and necessity of remand Legal framework (as discussed): The Court relied on the operational requirements of section 153A(1)(a) (time specified in notice for filing return) and the abatement mechanism under the second proviso to section 153A(1). Interpretation and reasoning: The Court found that the record necessary to decide conclusively was not available, specifically: (a) the time allowed by the Assessing Officer in the notice issued under section 153A(1)(a) for filing the return; and (b) whether assessment proceedings for the relevant year were pending and consequently stood abated, described by the Court as whether the 'ongoing assessment proceedings were kept in abeyance'. Given these factual gaps, the Court held that allowance of carry forward could not be granted outright and required verification by the Assessing Officer. Conclusion: The Court restored the matter to the Assessing Officer to verify compliance and then allow carry forward of business loss if both conditions are satisfied: (a) the return under section 153A(1)(a) was filed within the time specified in the notice; and (b) the ongoing assessment proceedings for the year were kept in abeyance/abated due to the search. The appeal was allowed for statistical purposes on this limited remand basis.