1991 (5) TMI 95 - AT - Income Tax

Tax Tribunal allows carry forward of losses, dismissing Revenue's appeal. Defective returns deemed valid.

Income-Tax Officer. Versus Sabine Laboratories (Private) Limited.

Income-Tax Officer. Versus Sabine Laboratories (Private) Limited. - ITD 040, 300, TTJ 041, 067, Issues Involved:1. Validity of the returns filed by the assessee.2. Allowance of loss to be carried forward and set off in future years.Detailed Analysis:1. Validity of the Returns Filed by the AssesseeOriginal Returns Filing:The original returns for the assessment years 1984-85 and 1985-86 were filed within the time prescribed under section 139(1) of the Income-tax Act, 1961. For 1984-85, the return was filed on 29-6-1984, and for 1985-86, it was filed on 24-6-1985. These returns declared estimated losses of Rs. 70,000 and Rs. 1,20,000, respectively, but were not accompanied by audited balance-sheets and profit & loss accounts. The Income Tax Officer (ITO) deemed these returns invalid, considering them as mere pieces of paper not rectifiable under section 139(9).CIT(A) Decision:The Commissioner of Income Tax (Appeals) [CIT(A)] held that the original returns were not invalid but merely defective. Therefore, the loss determined could not be denied to be carried forward. Reference was made to the decision of the Calcutta High Court in CIT v. Garia Industries (P.) Ltd. [1983] 140 ITR 636.Revenue's Argument:The Revenue argued that after the introduction of section 139(9), returns without audited accounts were invalid. They cited the Supreme Court's decision in Industrial Trust Ltd. v. CIT [1973] 91 ITR 550, asserting that the estimated loss returns without financial accounts were invalid and not merely defective.Assessee's Argument:The assessee contended that the original returns were valid. The delay in auditing was due to the accountant's ill health and auditors' reluctance. They cited the Supreme Court decision in CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518 and the Bombay High Court decision in Telster Advertising (P.) Ltd. v. CIT [1979] 116 ITR 610, arguing that revised returns replace the original returns and should be treated as filed on the original filing date.Tribunal's Analysis:The Tribunal noted that section 80, as it existed, required losses to be determined in pursuance of a return filed under section 139 to be carried forward. Section 139(9) stipulates that a return can be treated as invalid only if the ITO issues a notice to rectify the defect, which was not done in this case. Therefore, the original returns, though defective, were not invalid.2. Allowance of Loss to be Carried Forward and Set Off in Future YearsLegal Provisions:Section 139 provides for filing returns of income, including voluntary returns, returns on notice, and returns for losses to be carried forward. Section 139(9) specifies the conditions under which a return can be treated as defective and the procedure for rectifying such defects.Tribunal's Conclusion:The Tribunal concluded that the original returns, though defective, were valid as no notice under section 139(9) was issued. The subsequent returns filed were to replace the original returns, allowing the losses determined to be carried forward. The Tribunal also considered the reasonable cause for the delay in finalizing accounts due to the accountant's ill health and auditors' reluctance.Jurisdiction Issue:For the assessment year 1984-85, the return filed in June 1984 was deemed invalid due to jurisdictional issues, as it was filed with the wrong ITO. However, based on the decisions in Telster Advertising (P.) Ltd. and Kulu Valley Transport Co. (P.) Ltd., the loss determined in pursuance of a return filed under section 139, even if not filed within the prescribed time, could not be denied to be carried forward prior to the amendment in section 80 effective from 1-4-1985.Final Decision:The Tribunal upheld the CIT(A)'s orders, allowing the losses for both assessment years to be carried forward and set off in future years, dismissing the Revenue's appeals.Conclusion:The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision that the original returns filed by the assessee were not invalid but defective, and the losses determined could be carried forward and set off in future years.