Losses not claimed in original Return, cannot be claimed by filing revised return

IN THE ITAT BANGALORE BENCH ‘A’

Karnataka Forest Development Corp. Ltd.

V/s.

Commissioner of Income-tax

I T APPEAL NO. 81(BANG.) OF 2011

[ASSESSMENT YEAR 2004-05]

MARCH 30, 2012

ORDER

Smt. P. Madhavi Devi, Judicial Member

This appeal is filed by the assessee. The appeal is directed against the order of the Commissioner of Income-tax – I at Bangalore dated 2.11.2010. The appeal arises out of the order passed u/s 143(3) of the Income-tax Act, 1961.

2. In this appeal, the assessee is aggrieved by the order of the CIT(A) in confirming the order of the AO that the revised return filed by the assessee u/s 139(5) of the Act was nonest.

3. The brief facts of the case are that the assessee is a domestic company which is engaged in the business of forest products. The assessee filed its return of income on 30.10.2004 declaring an income of Rs.16,61,006/-. A revised return was filed on 24.10.2005 declaring a loss of Rs.32,92,809/-. During the assessment proceedings u/s 143(3) of the Income-tax Act, the Assessing Officer observed that in the original return of income, the assessee has shown positive income while in the revised return the assessee as shown positive income from business but a huge loss under income from other sources which has resulted in negative income. He observed that the interest payment on project loans was relatable to the business activities of the assessee and, therefore, the interest paid on business loan cannot be set off against ‘income from other sources’. He also observed that the assessee has claimed loss from hiring bulldozers and this is not allowable as these bulldozers were specifically sanctioned for its plantation work/business activities. In view of the same, he held that the income returned in the original return is to be adopted as the losses accounted under the head ‘income from other sources’ are relatable to its business activities and not other sources. He accordingly computed the taxable income of the assessee.

4. Aggrieved, the assessee preferred an appeal before the CIT(A) challenging the non consideration of the revised return filed u/s 139(5) of the Income-tax Act by the assessing authority. This ground was raised as additional ground before the CIT(A). In the additional ground, the assessee also challenged the disallowances and additions made by the assessing authority. The assessee also submitted written submissions before the CIT(A) and the CIT(A) called for the remand report from the AO on these written submissions. The Assessing Officer submitted the remand report and the assessee also submitted his rejoinder to the remand report. After considering the rival submissions, the CIT(A) observed that in the original return of income, the assessee has shown income from ‘business’ and income from ‘other sources’ as such interest income from F.Ds. etc. In the revised return, a new item has been introduced under the source ‘sale of rubber tree’ under the head ‘business income’. After applying Rule 7A of the Income-tax Rules 1962 and under the head ‘other sources’, drastic changes have been made. He observed that for the first time, it has been shown that the assessee owns bulldozers, which it given on hire and earns hiring charges and also claimed huge depreciation and expenses incurred in maintenance of these bulldozers besides netting of the interest income received from FDs with the interest paid to the banks for loan received from bank for rubber plantation. He observed that after claiming the loss, it is pleaded that the loss return should have been considered and loss should have been determined by the AO for carry forward. The assessee in the rejoinder to the remand report has submitted that the assessee has filed revised return within the time prescribed u/s 139(5) of the Act and before the conclusion of the assessment and, therefore, the AO should have considered the revised return while framing the assessment order. After considering this submission of the assessee, the CIT(A) held that the revised return is a loss return which should have been filed within the time specified u/s 139(3) of the Act and, therefore, the loss return filed beyond the time limit prescribed u/s 139(3) of the Act was null and void. He also held that the claim of the assessee for the loss return is also not acceptable and even if it is found to be genuine, then such loss in this year cannot be allowed to be carried forward to subsequent year for set off as the loss return was not filed within the time specified u/s 139(3) of the Income-tax Act.

5. Aggrieved, the assessee is in second appeal before us.

6. The learned counsel for the assessee while reiterating the submissions made by the assessee before the authorities below placed reliance upon the decision of the Tribunal in the case of Sujani Textiles (P.) Ltd. v. Asstt. CIT [2004] 88 ITD 317 (Mad.), wherein it was held that if the assessee has filed a loss return under sub-sec. (3) of sec. 139 within the period provided under the Act and if the assessee has filed a revised loss return under sub sec. (5) thereof, again within the prescribed time limit, the Assessing Officer is bound to take cognizance of the revised return, because the original return is replaced by the revised return. He also placed reliance upon the decision of ‘A’ Bench of this Tribunal in the assessee’s own case for the assessment year 2003-04, wherein the Tribunal has directed the AO to reconsider the claim of the assessee under Rule 7A of the Income-tax Rules. He submitted that even if the assessee has not claimed the loss and if from the facts investigated at the time of assessment it emerges that the assessee is entitled to a particular relief provided in law, it is obligatory on the part of the Assessing Officer to draw the attention of the assessee to the lawful relief or deduction, although the assessee did not claim it. For this purpose, he placed reliance upon the Commentary on Income-tax law by Chaturvedi & Pithisaia at pages 1434.

7. The learned DR on the other hand supported the orders of the authorities below and submitted that the claim of the assessee cannot be entertained and that the decisions relied upon by the learned counsel for the assessee are distinguishable on facts.

8. The assessee was asked to produce the copies of original return of income and also the revised return of income filed before the AO and assessee has accordingly filed the same before us on 14.3.2012.

9. Having heard both the parties and having considered the rival contentions, we find that the assessee has filed its original return of income showing positive taxable income, while in the revised return of income the assessee claimed loss to be carried forward. The main reason for holding that the revised return was nonest is that a loss return has to be filed within the time specified in sub-sec. (3) of sec. 139 of the Income-tax Act. For proper appreciation of law, the provision of sec. 139(3) is reproduced here under :

(3) If any person who has sustained a loss in any previous year under the head ‘profits and gains of business or profession’ or under the head ‘capital gains’ and claims that the loss or any part thereof should be carried forward under sub-sec. (1) of sec. 72, or sub-sec. (2) of sec. 73, or sub-sec. (1) or sub-sec. (3) of sec. 74, or sub-sec. (3) of sec. 74A, he may furnish, within the time allowed under sub sec. (1), a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, an all the provisions of this Act shall apply as if it were a return under sub-sec.(1).”

10. From a literal reading of the above provision, it is to be seen that whether any person claims a loss for any previous year and also claims that the loss or any part thereof should be carried forward, then the return has to be furnished within the time allowed under sub-sec. (1) of the sec. 139 of the Income-tax Act. In the case before us, the original return filed by the assessee was u/s 139(1), but there was no claim of loss or loss to be carried forward. Therefore, it cannot be treated as a return u/s 139(3) of the Act. The assessee has filed revised return under sub. sec. (5) of sec. 139 of the Income-tax Act. Sub-sec. (5) of sec.139 reads as under :

“If any person, having furnished a return under sub-sec. (1), or in pursuance of a notice issued under sub sec(1) of sec. 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier :

Provided that where the return relates to the previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.”

11. The learned counsel for the assessee relying upon the provisions of sub-sec. (5) of sec. 139 of the Income-tax Act has submitted that the assessee has filed the original return under sub-sec. (1) of the sec. 139 and subsequently having discovered the omission of the claim of loss has filed a revised return within the time prescribed thereunder, and, therefore, according to him the revised return has to be considered. Undisputedly, the assessee has filed original return under sub.-sec. (1) of sec. 139 of the Income-tax Act, in the said return of income, the assessee has not claimed the loss. Sub sec. (5) provides that where the assessee discovers any omission or a wrong statement, then he can file a revised return. Where the wrong statement or omission results in the claim of loss, then whether the return filed under sec. 139(5) is to be considered or not is to be now seen. As held by the Hon’ble Gauhati High Court in the case of Sunanda Ram Deka v. CIT [1994] 210 ITR 988, the requirement u/s 139(5) is that the omission or wrong statement in the original return must be due to a ‘bonafide’ inadvertence or mistake on the part of the assessee. In the case before us, the assessee has claimed that it has erroneously omitted to claim the loss from the head ‘income from other sources’. Whether omission of such a claim of loss in the original return of income is bonafide or not is to be seen. From the revised return of income, it is noticed that the assessee has not only claimed the loss of the relevant assessment year i.e 2004-05 to be carried forward but has also claimed the loss of the assessment year 2003-04 to be carried forward. Thus, it is to be presumed that the assessee was having the knowledge of the loss for the assessment year 2003-04 which was to be carried forward and claimed in the assessment year 2004-05. Therefore, when it filed the return u/s 139(1) of the Income-tax Act, it should have taken this loss into consideration and should have filed the return u/s 139(3) of the Income-tax Act. Having filed the original return of income u/s 139(1), the assessee cannot later on file the revised return of income claiming the loss on the ground that it was discovered subsequently. This argument of the assessee is not acceptable for the reasons stated above. In view of the same, we are in complete agreement with the findings of the CIT(A) that when the assessee is claiming the loss for the relevant assessment year and also claiming the loss to be carried forward of the loss of 2003-04 and 2004-05 respectively, then the assessee was required to file the return u/s 139(3) of the Income-tax Act, therefore, the revised return filed u/s 139(5) cannot be accepted and has to be treated as null and void. In view of the same, we uphold the findings of the CIT(A) and assessee’s appeal is accordingly dismissed. The decisions relied upon by the learned counsel for the assessee are distinguishable on facts. In the case of Sujani Textiles (P.) Ltd., (supra) the Tribunal has given a finding that where the assessee had filed the loss return u/s 139(3) within the time allowed by law and the revised return of income showing higher amount of loss was also filed within the time allowed by law then the revised return replaces the original return. But in the case before us, the assessee has not filed the return u/s 139(3) of the Act within the time allowed by law but has filed the revised return claiming the loss u/s 139(5) of the Act, therefore, it cannot be said that the revised return of income replaced the original return of income and, therefore, the ratio of the decision is not applicable to the facts of the case before us. As far as The Decision of the Tribunal in the assessee’s own case for the assessment year 2003-04 is concerned, we find that the assessee has made the claim of deduction under Rule 7A of the Income-tax Rules, 1962 during the assessment proceeding, but the AO had not considered the same at the time of making the assessment and, therefore, the Tribunal had directed the AO to consider the same. But in the relevant assessment year, it is the case of the assessee filing the revised return u/s 139(5) of the Income-tax Act claiming the application of Rule 7A and as we have already held that the revised return of income is nonest, the said decision is not applicable to the facts of the case before us. In view of the same, the assessee’s appeal is dismissed.

12. In the result, the appeal filed by the assessee is dismissed.