2006 (6) TMI 61 - HC - Income Tax

If AO has not rejected the return filed by the firm on ground of delay but acted on the return and made a regular assessment then assessee is entitled to set off share of loss from the firm against his other income

Summary

Issues:
1. Whether the Appellate Tribunal was correct in upholding the order of the Commissioner of Income-tax (Appeals) directing the set off of the assessee's share of loss from the firm against other income?
2. Whether the return filed by the firm beyond the prescribed time limit under section 139(1) of the Income-tax Act should be treated as non-est?

Analysis:

1. The case involved the assessment year 1987-88 where the assessee, a partner in a firm, claimed that the share of loss from the firm should be set off against their other income. The assessing officer, however, did not make any adjustment for the share of loss, assessing it as "Nil." The Commissioner of Income-tax (Appeals) accepted the assessee's claim, leading to an appeal by the Revenue.

2. The Revenue argued that since the firm filed its return beyond the time limit prescribed under section 139(1) of the Income-tax Act, there was no apportionment of loss under section 67. The Appellate Tribunal, however, held that the assessment of the individual partner was independent of the firm's assessment. It noted that while the share income of the partner might be determined upon completion of the firm's assessment, the assessability of the share income was not dependent on such allocation. The Tribunal also mentioned the possibility of making adjustments under section 155 post the firm's assessment completion.

3. The Tribunal, after considering the facts, found that the assessing officer had not ignored the firm's return but had made a regular assessment under section 143(3) of the Income-tax Act, accepting the loss submitted by the firm. As the loss was acknowledged and the assessing officer was directed to set off the share of loss of the assessee, the Tribunal questioned the claim that the firm's return was treated as non-est. Consequently, the Tribunal ruled in favor of the assessees, highlighting the acceptance and utilization of the firm's return in the assessment process.

In conclusion, the judgment clarified the treatment of a firm's late-filed return and its impact on the assessment of individual partners. It emphasized the independence of partner assessments from the firm's filing obligations and the authority of the assessing officer to make necessary adjustments post the firm's assessment completion.