TaxTMI 
TaxTMI 
2005 (2) TMI 63
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the carry forward of business losses and depreciation when neither any valid return for the assessment year 1986-87 was filed nor any business loss and depreciation was determined for the assessment year 1986-87 to be carried forward in the succeeding year, i.e., the assessment year 1987-88? (iii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing carry forward of business losses when in view of section 80 of the Income-tax Act losses which have not been determined cannot be allowed to be carried forward and when in view of section 139(3) the assessee should file a valid return as per the provisions of section 139(1) to claim carry forward of losses?" Briefly, the facts are that for the assessment year 1987-88, the assessee filed original return on July 31, 1987, declaring its income as nil. The same was treated as an invalid return as it was not accompanied by audited accounts and the assessee was informed accordingly. The assessee filed its revised return accompanied by audited accounts and tax audit report....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re the Commissioner of Income-tax (Appeals) and, therefore, the issue decided by it did not emerge from the order of the Commissioner of Income-tax (Appeals). The Tribunal, vide order dated September 3, 2003, rejected the application and observed that the point of unabsorbed business losses was raised by the assessee before the Commissioner of Income-tax (Appeals) and the same was rejected by him and, thus, such issue arose from the order of the Commissioner of Income-tax (Appeals) and it was justified in adjudicating the issue. The copy of the application filed before the Tribunal, the reply filed by the assessee and the order dated September 3, 2003, passed by it were allowed to be placed on record vide order dated November 23, 2004, passed in Civil Miscellaneous No. 22284-CII of 2004. Shri Rajesh Bindal, learned counsel for the appellant, drew our attention to the provisions of sections 72, 80, 139(3) and 157 of the Act and contended that in the event of failure on the part of the assessee to file a valid return, no business loss can be carried forward and the Tribunal has, thus, erred in granting relief to the assessee. He submitted that the claim regarding business loss was n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year: Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on: Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ply as if it were a return under sub-section (1). 157. When, in the course of the assessment of the total income of any assessee, it is established that a loss has taken place which the assessee is entitled to have carried forward and set off under the provisions of sub-section (1) of section 72, sub-section (2) of section 73, sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A, the Assessing Officer shall notify to the assessee by an order in writing the amount of the loss as computed by him for the purposes of sub-section (1) of section 72, sub-section (2) of section 73, sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A." Section 72 of the Act deals with carry forward and set off of business loss. It provides that where the net result of the computation under the head "Profits and gains" of business or profession is a loss and such loss cannot be or is not wholly set off against the income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off, shall be carried forward to the following assessment year and shall be set off against the profits and gain....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sal of the order of the Commissioner of Income-tax (Appeals) that no valid return for the assessment year 1986-87 had been made by the assessee and accordingly no assessment could be made and the business losses could not be notified to the assessee. Once it is established that no valid return had been filed by the assessee for the assessment year 1986-87, the assessee cannot be allowed to set off the business losses of earlier years during the assessment year 1987-88. The Tribunal, thus, clearly erred in allowing set off of business losses for earlier assessment years 1984-85 and 1985-86 during the assessment year 1987-88. Once it is concluded that the Tribunal was in error in allowing set off of 18 business losses for earlier assessment years, the second limb of this point whether the same can be allowed to be agitated before the Tribunal especially when it was never raised by the assessee before the Commissioner of Income-tax (Appeals), becomes academic only and is being left open in the present case. Now adverting to the second issue regarding set off of unabsorbed depreciation, it would be relevant to reproduce section 32(2) of the Act. The same reads as under: "Where, in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....old machinery which was being used for soap and oil. It was during the assessment proceedings relating to the assessment year 1965-66, the assessee claimed that the unabsorbed depreciation should be brought forward and set off against the profits of the new business in respect of it pertained to the old machinery utilised in the new business. The apex court ruled that a depreciation allowance which remained unabsorbed could be set off against the income for the accounting period relevant to the assessment year 1965-66. The Madras High Court in Sri Rajarathinam Transports' case [1993] 199 ITR 203 was dealing with a case relating to the assessment year 1965-66. The brief facts are that the assessee, who was a private limited company claimed that unabsorbed depreciation totalling Rs. 78,984 in respect of the assessment years 1960-61 to 1964-65 should be allowed to be set off in the assessment year 1965-66. The Assessing Officer observed that the unabsorbed depreciation had not been determined for the purpose of being carried forward and set off and, therefore, unabsorbed depreciation of the assessment years 1960-61 to 1964-65 could not be allowed to be set off from income of the asse....