Case Law Details

Case Name : Chalet Hotels Limited Vs DCIT (ITAT Mumbai)
Appeal Number : ITA No. 1402/MUM/2021
Date of Judgement/Order : 14/06/2022
Related Assessment Year : 2016-17

Chalet Hotels Limited Vs DCIT (ITAT Mumbai)

Short term capital loss not claimed while filing return u/s 139(1). Loss was claimed for the first time via return u/s 153A. Claim denied according to provisions of section 80.

Facts-

The assessee company filed its regular ROI u/s. 139(1) declaring a loss of Rs (-)1,89,90,32,020/. Thereafter a search and seizure action was carried out at the premises of the assessee and as a consequence of search action notice u/s. 153A was issued. In response, the assessee filed ROI declaring loss of ₹1,54,21,64,359/-. This return was further revised to ₹1,49,75,40,455/-. During the scrutiny proceedings before the Assessing Officer (AO) the assessee explained the cause of reduction of loss as inadvertent mistake in computing the loss under the head “income from capital gain.”.

The assessee submitted that it had purchased shares of “Intime Properties Private Limited” on 30/04/2013 for a sum of ₹54,90,47,767/-and were sold on 31/03/2016 for a sum of ₹54,32,72,901/-, thus, the shares are held for a period of 35 months and therefore loss of ₹57,74,866/- arising from the sale of those shares should have been reported as ‘short term capital loss’ whereas by mistake been reported as ‘long-term capital loss’, therefore after reducing indexed cost of acquisition of ₹63,20,77,335/-out of the sale consideration, resulted in loss of ₹8,88,04,454/-and same was claimed in the return of income filed under section 139(1) of the Act.

The Assessing Officer disallowed the claim of carry forward of the ‘short-term capital loss’ of on the ground that same has not been claimed in ROI filed u/s. 139(1) of the Act. On further appeal, the CIT also upheld the non-allowance of the carry forward of ‘short-term capital loss.’

Conclusion-

Held that section 80 of the Act, according to which any loss which has not been determined in pursuance to a return of income filed under the provision of section 139(1)/139(3) of the Act, shall not be carried forward for subsequent years under the provisions of the Act.

Claim of short term capital loss while filing return u/s 153A denied.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the assessee is directed against order dated 17/06/2021 passed by the Ld. Commissioner of Income-Tax (Appeals)-52, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising the sole ground as under:

“On the facts and circumstances of the case, the Ld. CIT(A) erred in law by upholding the action of the AO and thereby not allowing carry forward of Short Term Capital Loss amounting to ₹57,22,815/-. The Appellant humbly prays before your Honor that the appellant be granted the carry forward of the short term capital loss.”

2. Briefly stated facts of the case are that the assessee company filed its regular return of income in terms of section 139(1) of the Income-Tax Act, 1961 (in short ‘the Act’) on 17/10/2016 declaring a loss of ₹ (-)1,89,90,32,020/ -. Thereafter, a search and seizure action was carried out at the premises of the assessee on 30/11/2017 and as a consequence of search action, notice under section 153A of the Act was issued on 04/07/2018. In response, the assessee filed return of income on 14/07/2018, declaring loss of (-) ₹1,54,21,64,359/-. This return was further revised to (-) ₹1,49,75,40,455/-.

2.1 During the scrutiny proceedings before the Assessing Officer, the assessee explained the cause of reduction of loss as inadvertent mistake in computing the loss under the head “income from capital gain”. The assessee submitted that it had purchased shares of “Intime Properties Private Limited” on 30/04/2013 for a sum of ₹54,90,47,767/- and were sold on 31/03/2016 for a sum of ₹54,32,72,901/-, thus, the shares are held for a period of 35 months and therefore loss of ₹57,74,866/- arising from the sale of those shares should have been reported as ‘short-term capital loss’, whereas by mistake the assessee treated the loss as ‘long-term capital loss’ and therefore after reducing indexed cost of acquisition of ₹63,20,77,335/-out of the sale consideration, resulted in loss of ₹8,88,04,454/-and same was claimed in the return of income filed under section 139(1) of the Act.

3. The Assessing Officer disallowed the claim of carry forward of the ‘short-term capital loss ’ of on the ground that same has not been claimed in the return of income filed under section 139(1) of the Act. The relevant part of the assessment order is reproduced as under:

“6.1 The submission of the assessee is considered but the same is not acceptable because as far as disallowance u/s 14A of the IT Act is concerned, it has to be done as per Rule 8D which is discussed at length in ensuing para 13 of this order. Further, the inadvertent claim of STCG as LTCG is also not acceptable because such claim should be changed by the assessee in its return of income filed u/s 139 (5) of the IT Act only. Thus, It is evident from the above that the assessee has enhanced its income in the return of income filed in response to notice u/s 153A by an amount of Rs. 4,46,23,904. In this regard, it is pertinent to mention here that the assessment or reassessment made pursuant to notice u/s 153A of the Act is not de novo assessment. The issuance of notice under s. 153A for all the six assessment years also does not entail altogether a fresh exercise of making fresh assessment. In fact, the apparent and logical purpose of calling for returns for all the six assessment years immediately preceding the year in which search is initiated is to dispense with the requirement of recording reasons for reopening the assessment and also to avoid any controversy as to the correct year of assessibility of such income falling within such six assessment years. Therefore, new claim of deduction or allowance cannot be made. In this regard, reliance is placed on the following judgments:-

(i) In the judgment of ITAT, Jodhpur in the case of Suncity Alloys (P.) Ltd. v. Assistant Commissioner of Income-tax 2009] 124 TTJ 674 (Jodhpur) wherein it has been categorically held that assessment or reassessment made pursuant to notice under section 153A is not de novo assessment; therefore, there is no merit in ground to make a new claim of deduction or allowance during assessment/reassessment under section 153A as such where admittedly regular assessments are shown as completed assessment on date of initiation of action under section 132.

(ii) In the case of Jai Steel (India), Jodhpur Assistant Commissioner of Income-tax2013] 36 taxmann.com 523 (Rajasthan), the Hon”ble High Court of Rajasthan has held that it is not open for the assessee to seek deduction or claim expenditure which has not been claimed in the original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made.”

4. On further appeal, the Ld. CIT(A) also upheld the non – allowance of the carry forward of ‘short-term capital loss ’ observing as under:

“5.3 The submission made by the assessee has been examined. The case of the assessee is that of an abated assessment. As such, the assessment was open both for the assessee as well as the AO as far as nature of addition and extent of claim was concerned. It was the duty of the AO to correct an error of computation if the appellant had made a bodafide mistake. Hence, the action of the assessee in filing a revised return to correct certain errors relating to change in the head of income noted after filing of return in response to section 153A of the Act is found tenable.

5.4 However, on the issue of claim of the assessee for allowing carry forward of short term capital loss, it is noted that such loss can be allowed to be carried forward if the assessee has computed such loss and claimed the same in the return of income filed u/s 139(3) of the IT Act. The reliance placed by the assessee on the ITAT decision in the case of Eversmile Constructions (supra) and other cases has been perused. However, the issue here is not the allowability of a fresh claim before the AO through a return /s 153A of the Act. The case of the assessee represents an abated assessment and such claim could have been considered if allowable. However, it is noted that section 153A only overrides certain sections of the Act and not the computational sections provided in the Act. Section 80 which is reproduced below, clearly prohibits any carry forward of a loss unless it has been claimed through a return under section 139(3) of the Act:

80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub­section (3) of section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73or sub-section (2) of section 73A or sub­section (1) or sub-section (3) of section 740r sub–section (3) of section 74A.

5.5 In light of the clear provisions of the Act, the assessee cannot be allowed to carry forward the short term capital loss as the same has not been claimed through a return filed under section 139(3) of the Act. The claim of carry forward is denied to the assessee. The ground raised by the assessee stands dismissed.”

5. Before us, the Ld. counsel of the assessee filed a paperbook containing pages 1 to 225 and relied on the decision of the Tribunal in the case of BE Billimoria & Co. Ltd reported in (2020 ) 113 taxman.com 444 (Mumbai – Trib). The Ld. DR on the other hand relied on the order of the law authorities.

6. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. As per provision of section 139(3) of the Act, for carry forward of loss under the head “profit and gains of business or profession” or under the head “capital gain” the assessee is required to file return of income on or before the due date as prescribed u/s 139(1) of the Act. In the case, the short term capital loss, which the assessee is seeking to carry forward was not included in the return of income filed in terms of section 139(1) of the Act and has been claimed in the return of income filed u/s 153A of the Act. The issue in dispute before us is whether the ‘short-term capital loss’ claimed in the return of income filed in response to notice issued under section 153A of the Act can be allowed to carry forward to the assessee for subsequent years. The Ld. CIT(A) has reproduced the relevant section 80 of the Act, according to which any loss which has not been determined in pursuance to a return of income filed under the provision of section 139(1)/139(3) of the Act, shall not be carried. forward for subsequent years under the provisions of the Act. The Ld. Assessing Officer has relied on the decision of the Hon’ble Rajasthan High Court in the case of Jai Steel (India) Jodhpur (supra) wherein it is held that no fresh claim is eligible under section 153A proceedings. The Ld. counsel of the assessee has referred to the decision of the Tribunal in the case of BE Billimotrai & Co Ltd (supra), wherein the assessee filed regular return of income on 27/09/2013 i.e. within the due date prescribed under section 139(1) of the Act, but same was not accompanied by the audit report as required under section 44AB of the Act. Subsequently the assessee filed revised return of income on 31/03/2014, where the assessee filed the audit report. The Assessing Officer completed the assessment under section 143(3) of the Act, allowing carry forward of the loss as shown in the revised return of income. The Ld. CIT invoked proceeding under section 263 of the Act on the ground that the Assessing Officer has erroneously allowed carry forward of the business loss. The Tribunal held that the Assessing Officer had not issued any defective memo in terms of section 139(9) of the Act and therefore defect in the original return of income stood removed by way of filing voluntarily re vised return by the assessee. In the circumstances, the Tribunal (supra) held the original return of income filed by the assessee was valid return and holding the assessee eligible for carry forward of the business loss. The relevant finding of the Tribunal (supra) is reproduced as under:

“5. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Insofar as the factual aspect of the issue is concerned, there is no dispute that the assessee had filed its return of income on 27 th September 2013, within the due date prescribed under section 139(1) of the Act. However, the original return of income filed by the assessee was not accompanied by the audit report as required under section 44AB of the Act. Subsequently, along with the revised return of income filed on 31st March 2014, the assessee had filed the audit report. On the basis of revised return of income filed by the assessee, the Assessing Officer has ultimately completed the assessment under section 143(3) of the Act determining and allowing carry forward of loss as shown in the revised return of income. Now, the issue before us is, whether the return of income filed originally is to be treated as defective return of income so as to deny the benefit of carry forward of loss to the assessee in terms of section 139(1) r/w sections 139(3) and 80 of the Act. On a reading of section 139(3) of the Act as well as section 80 of the Act, it becomes clear that for claiming loss and carry forward of the same, the assessee has to file the return of income within the due date prescribed under section 139(1) of the Act. It is a fact, in the original return of income filed within the due date prescribed under section 139(1) of the Act, the assessee had claimed loss at a higher figure. Section 44AB of the act requires the assessee to get his accounts audited and furnish the audit report within the due date prescribed under section 139(1) of the Act. Admittedly, in the facts of the present case the assessee did not furnish the audit report within the date prescribed under section 139(1) of the Act. A reading of section 139(9) of the Act makes it clear that non filing of audit report along with return of income within the due date under section 139(1) of the Act is one of the causes for which the return of income has to be considered as defective. Further, as per section 139(9) of the Act, the defective return of income is to be treated as invalid, unless, the assessee removes the defect within the time provided by the Assessing Officer. However, on a reading of section 139(9) of the Act it becomes clear that the Assessing Officer unilaterally cannot declare a defective return of income invalid without providing opportunity to the assessee to remove the defect within specified time limit. In the facts of the present case, it appears that the Assessing Officer has not considered the original return of income defective as no intimation under section 139(9) of the Act was issued to the assessee. The assessee had voluntarily filed a revised return of income claiming loss at a lesser figure and along with the said return of income has furnished the audit report. Therefore, the defect in the original return of income stood removed. That being the case, the original return of income has to be treated as a valid return and the assessee was eligible to claim carry forward of business loss. It is evident, the Assessing Officer has completed the assessment after taking note of both the original return of income as well as the revised return of income. Therefore, it cannot be said that the Assessing Officer has allowed carry forward of loss without proper examination. In the facts of the present case, the assessee itself has removed the defect without being intimated by the Assessing Officer. Therefore, the original return of income cannot be treated as invalid as there is no failure on the part of the assessee to remove the defect within the time limit permitted by the Assessing Officer. In fact, the provisions of section 139(9) of the Act have never been pressed into action in the instant case. Moreover, since the assessee has already filed the audit report, there is no question of Assessing Officer issuing a defect notice now in terms of section 139(9) of the Act for non filing of audit report. Therefore, exercise of power under section 263 of the Act to revise the assessment order simply for the purpose of going through the process of complying with the provisions of section 139(9) of the Act, in our view, is a futile exercise. In any case of the matter, non-filing of the audit report along with the original return of income is a technical error which is subject to rectification in terms of section 139(9) of the Act. Since, the defect has already been rectified, there is no purpose of again restoring the issue to the Assessing Officer for fresh adjudication considering the fact that the only issue on which the learned Commissioner held the assessment order to be erroneous and prejudicial to the interests of Revenue is inadmissibility of claim of carry forward of loss due to non filing of audit report, which allegedly, made the return of income of income filed under section 139(1) of the Act defective. Therefore, in our view, the exercise of power under section 263 of the Act in the present case is without justification, hence, invalid. Accordingly, we quash the order passed under section 263 of the Act and restore the assessment order. Ground raised is allowed.”

(emphasized supplied externally)

6.1 Thus, in our opinion the ratio of the above decision of the Tribunal is not applicable of the facts of the instant case, as in this case there was no issue of any defect in the original return of income filed under section 139 (1) and the revised return of income has only been filed in response to notice under section 153A of the Act, wherein the assessee has claimed the short-term capital loss.

6.2 In view of above facts and circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. The sole ground raised by the assessee is accordingly dismissed.

7. In the result, the appeal of the assessee is dismissed.

Order pronounced in the open Court on 14/06/2022.

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