2025 (6) TMI 891 - AT - Income Tax

Tax Appeal: Technical Delay Doesn't Invalidate Business Loss Carry-Forward Rights Under Income Tax Rules

China Kunlun Contracting and Engineering Corporation Versus DDIT (CPC), Bengaluru

The SC/Tribunal addressed a tax appeal involving business loss carry-forward and TDS credit claims. Despite filing a return 28 minutes late due to ... Disallowing carry forward of entire current year business loss - delay of 28 minutes in filing the return - as submitted by assessee entire technical problem faced for registering the Digital Signature Certificate (DSC) of the authorised signatory which resulted in a delay of 28 minutes in filing the return within the due date u/s. 139(1) - assessee is a foreign company and a non-resident incorporated under the laws of People's Republic of China HELD THAT:- Assessee has elaborately explained the technical difficulty faced by it and all the possible steps taken by it to resolve the same for filing the return within the prescribed due date u/s.139(1) but failed, resulting into a delay of 28 minutes in filing the return. Considering the facts on record and the bonafide hardship faced by the assessee, as well as considering the claim made by the assessee to allow carry forward of the current year’s business loss to subsequent year, we are of considered view to accept the same in view of decision of Goetze (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] whereby it was held that “nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee”. Thus, we remit the matter back to the file of ld. Jurisdictional Assessing Officer (JAO) to verify the claim of the assessee for its correctness and consider the same in accordance with the provisions of law for carry forward of current year’s business loss to the subsequent year. Appeal of the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the appellant (assessee) is entitled to carry forward the entire current year business loss amounting to INR 1,04,57,56,800 despite filing the return of income 28 minutes after the due date prescribed under section 139(1) of the Income-tax Act, 1961 (the 'Act');(b) Whether the appellant is entitled to claim credit for prepaid taxes (TDS) amounting to INR 7,02,91,070 as reflected in Form 26AS, instead of the partial credit of INR 2,41,28,920 allowed by the assessing authorities;(c) Whether the appellant was denied sufficient opportunity of being heard and whether the appellate orders were passed without due consideration of facts and submissions;(d) Whether the rectification order passed under section 154 of the Act, and subsequent appellate orders, correctly applied the law and facts to deny the full relief claimed by the appellant.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Entitlement to carry forward business loss despite delay in filing returnRelevant legal framework and precedents: Under the Income-tax Act, business losses can be carried forward to subsequent years only if the return of income is filed within the due date prescribed under section 139(1). Section 139(1) mandates filing of return within the prescribed time limit for claiming carry forward of losses. However, the Supreme Court in Goetze (India) Ltd. vs. CIT [2006] 284 ITR 323 (SC) held that appellate authorities have the power to entertain claims for carry forward of losses even if the return is filed belatedly, subject to the facts and circumstances of the case.Court's interpretation and reasoning: The Tribunal carefully examined the factual matrix, including the appellant's submissions and documentary evidence demonstrating technical difficulties faced in filing the return within the due date. The appellant filed the return 28 minutes past midnight due to inability to register the Digital Signature Certificate (DSC) of the authorized signatory and validation issues with the JSON file on the Income-tax portal. The appellant had made multiple e-grievances and correspondences to highlight these difficulties.The Tribunal noted that these technical glitches constituted bona fide hardship and recognized the appellant's efforts to comply within the prescribed time. Relying on the Supreme Court's decision in Goetze (India) Ltd., the Tribunal held that the appellate authorities have jurisdiction to entertain the claim for carry forward of losses despite the marginal delay.Key evidence and findings: The appellant's emails dated 31.03.2023, screenshots of portal errors, and e-grievances filed on 15.03.2022 and 16.03.2022 were considered as evidence of technical difficulties. The delay was only 28 minutes, and the appellant had acted in good faith.Application of law to facts: Applying the principle that strict compliance should not defeat substantive rights in cases of genuine hardship, the Tribunal concluded that the appellant is entitled to carry forward the business loss. The matter was remitted to the Assessing Officer for verification of the claim's correctness and to allow carry forward in accordance with law.Treatment of competing arguments: The Revenue's reliance on strict application of section 139(1) to deny carry forward was rejected in light of the appellant's bona fide technical difficulties and the Supreme Court's authoritative precedent empowering appellate authorities to entertain such claims.Conclusion: The appellant's claim for carry forward of business loss is accepted subject to verification by the Assessing Officer.Issue (b): Credit for prepaid taxes (TDS) claimed versus allowedRelevant legal framework and precedents: Section 199 and related provisions govern the credit of tax deducted at source (TDS). Credit must be given to the taxpayer for taxes reflected in Form 26AS, provided the income corresponding to such TDS is offered to tax in the return. The Assessing Officer must verify the correctness of TDS credit claims and reconcile with income declared.Court's interpretation and reasoning: The Tribunal observed that the Assessing Officer had restricted the credit of prepaid taxes to INR 2,27,32,121 against the appellant's claim of INR 7,02,91,067 as per Form 26AS. The Tribunal directed the Assessing Officer to verify the claim of TDS credit vis-`a-vis the income assessable during the year and allow appropriate credit after due verification.Key evidence and findings: The appellant relied on Form 26AS reflecting the higher amount of TDS credit. The Assessing Officer's adjustments and rectification order were noted but found to require further verification.Application of law to facts: The Tribunal emphasized the need for correct matching of TDS credit with income declared and directed reassessment of the claim to ensure the appellant receives credit to which it is entitled.Treatment of competing arguments: While the Revenue restricted the credit, the Tribunal favored a balanced approach requiring verification rather than outright denial or acceptance.Conclusion: The claim for TDS credit is remitted for verification and appropriate adjustment by the Assessing Officer.Issue (c): Opportunity of hearing and consideration of submissionsRelevant legal framework: Principles of natural justice require that a party be given adequate opportunity to present its case and have submissions duly considered before adverse orders are passed.Court's interpretation and reasoning: The appellant contended that the CIT(A) passed orders without properly considering the facts and submissions and without allowing sufficient opportunity of hearing. The Tribunal noted these contentions but did not find explicit evidence of denial of hearing in the record. The Tribunal's directions for remand and verification implicitly address the need for proper consideration.Key evidence and findings: The appellant's submissions before the CIT(A) and the Tribunal were recorded, including documentary evidence of technical difficulties.Application of law to facts: The Tribunal's order to remit the matter for verification ensures that the appellant's claims and submissions will be properly considered at the Assessing Officer level.Treatment of competing arguments: The Tribunal balanced the appellant's grievance with procedural propriety by remitting the matter rather than setting aside the order outright.Conclusion: The appellant's claim regarding insufficient opportunity is addressed through remand for due verification and consideration.Issue (d): Validity of rectification order under section 154Relevant legal framework: Section 154 of the Act allows rectification of mistakes apparent from record. Rectification orders must be passed within the scope of correcting such mistakes and not to re-open substantive issues without jurisdiction.Court's interpretation and reasoning: The Tribunal noted that the rectification order dated 05.06.2023 adjusted the refund amount but did not fully address the appellant's claim for carry forward of losses or full TDS credit. The Tribunal found it appropriate to remit the matter for fresh verification and consideration rather than interfere with the rectification order itself.Key evidence and findings: The rectification order and subsequent appellate orders were examined in light of the appellant's submissions and documentary evidence.Application of law to facts: The Tribunal held that rectification under section 154 cannot be used to deny substantive rights without proper adjudication and that appellate authorities have jurisdiction to entertain such claims.Treatment of competing arguments: The Revenue's reliance on rectification order was balanced against the appellant's substantive claims and the Supreme Court's precedent.Conclusion: The rectification order is not disturbed but the matter is remitted for due verification and decision on merits.3. SIGNIFICANT HOLDINGS'Nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee' - this principle from the Supreme Court's decision in Goetze (India) Ltd. was pivotal in allowing the appellant's claim for carry forward of business loss despite belated filing.The Tribunal established the principle that technical difficulties causing marginal delay in filing returns should be considered bona fide hardship and not be allowed to defeat substantive rights such as carry forward of losses.The Tribunal emphasized that TDS credit claims must be verified in light of income declared and Form 26AS but directed that appropriate credit be allowed after due verification, ensuring taxpayers are not unjustly deprived of legitimate credits.The Tribunal held that rectification orders under section 154 should not be used to deny substantive claims without proper adjudication and that appellate authorities have jurisdiction to entertain such claims and remit matters for verification.On each issue, the Tribunal remitted the matter to the Assessing Officer for verification and appropriate action in accordance with law, thereby allowing the appeal for statistical purposes and ensuring the appellant's claims receive proper consideration.