Carry forward of loss requires a timely loss return; a positive-income return cannot be reclassified to deny set-off.

Carry forward of loss under section 139(3) read with section 80 depends on the assessee having filed a return of loss within the prescribed time. A return that disclosed positive income could not be treated as a loss return merely because an item was later characterised in assessment as speculation loss. As no loss was declared in the earlier-year return, the statutory bar against carry forward for a belated loss return did not apply, and denial of set-off was unjustified. The benefit of carry forward loss was therefore admissible against speculation profit, and the Revenue's appeal failed.

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Issues: Whether the benefit of carry forward loss could be denied on the ground that the return for the earlier year was filed late, when the return disclosed positive income and not a return of loss.

Analysis: The pre-condition for applying section 139(3) read with section 80 is that the assessee must file a return of loss within the prescribed time. A return showing positive income cannot be treated as a return of loss merely because, in the assessment, the Assessing Officer later characterises an item as speculation loss. Since no loss was declared in the return filed for the earlier year, the statutory bar against carry forward of loss for a belated return did not apply.

Conclusion: The denial of set-off was unjustified and the benefit of carry forward loss was admissible to be adjusted against speculation profit. The Revenue's appeal failed.

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