2025 (5) TMI 756 - HC - Income Tax

Carry forward of assessed loss when the return of income was filed u/s 139(4) and not u/s 139(1) - ITAT allowed claim - HELD THAT - It would be relevant to take note of the decision of Dalmia Power Ltd. Anr. Vs. Assistant Commissioner of Income-Tax 2019 (12) TMI 991 - SUPREME COURT wherein the appeal filed by the assessee was allowed and the order passed by the Learned Single Bench was affirmed wherein direction was issued to complete assessment in respect of the said assessee for the relevant assessment year after taking into account the Scheme of Arrangement and Amalgamation as sanctioned by the NCLT (in the said case). It is only course open to the revenue would be to act as per the scheme of amalgamation approved by the High Court effective from the appointed date and the Taxing authorities are bound to take note of the state of affairs of the assessee as on the appointed date and the return filed beyond the due date of filing of the revised return of income cannot be ignored on the strength of Section 139(5) of the Act. Tribunal was fully justified in dismissing the revenue s appeal.

Summary

The core legal questions considered by the Court in this appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) are as follows:

A. Whether the Learned Tribunal erred in law by allowing carry forward of assessed loss when the return of income was filed under Section 139(4) of the Act, and not under Section 139(1)?

B. Whether the carry forward of assessed loss was permissible when the assessee filed its return for the assessment year 2015-16 under Section 139(4) on 17.10.2016 declaring business income?

C. Whether the Tribunal erred in allowing the appeal of the assessee despite the assessee not claiming the loss to be carried forward in its return of income, contrary to the Supreme Court's ratio in Goetze (India) Vs. CIT?

D. Whether the loss could be allowed to be carried forward only if the return of income (ROI) was filed within the date specified under Section 139(1), and whether the assessee's failure to avail the remedy under Section 119(2)(b) for condonation of delay disentitled it from carrying forward the loss?

Issue-wise Detailed Analysis:

Issues A & B: Filing of Return under Section 139(4) vs. Section 139(1) and Carry Forward of Loss

The legal framework centers on the provisions of Sections 139(1) and 139(4) of the Income Tax Act, which prescribe timelines and conditions for filing returns of income, and the conditions under which losses can be carried forward. Section 139(1) mandates filing of returns by the due date, while Section 139(4) allows filing of returns after the due date but before completion of assessment. The revenue contended that since the return was filed under Section 139(4), the carry forward of loss was impermissible.

The Court examined the factual matrix, noting the complex corporate restructuring involving merger and subsequent demerger of the assessee with M/s. Penguin Trading & Agencies Ltd. (PTAL), effective from 1.4.2013. The assessee filed its return for AY 2015-16 on 17.10.2016 after the demerger. The Tribunal and CIT(A) found that the losses pertained to a period when the assessee did not exist independently and the losses were claimed by PTAL, the amalgamated company, which had filed returns within time. The Court relied on precedents such as Pentamedia Graphics Ltd. and Supreme Court decisions in C.I.T. vs. Sun Engineering Works Pvt. Ltd. and Marshall Sons & Co. (India) Ltd., which recognize that in cases of amalgamation/demerger, the effective date governs the tax consequences and the returns filed by the amalgamated entity are relevant for the merged period.

The Court held that it was legally impossible for the assessee to file a return under Section 139(1) for the period when it did not exist independently, and the returns filed by PTAL within time were valid. The revenue's insistence on filing under Section 139(1) was therefore untenable.

Issue C: Claiming Loss in Return of Income and Supreme Court Precedent in Goetze (India) Vs. CIT

The revenue argued that since the assessee did not claim the loss in its return, the loss could not be carried forward, citing the Supreme Court's ruling in Goetze (India) Vs. CIT, which mandates that losses must be claimed in the return to be eligible for carry forward.

The Court analyzed that the losses were claimed by PTAL during the amalgamated period and not by the assessee, which did not exist independently. The CIT(A) and Tribunal found that the assessee could not claim losses that pertained to a period prior to its independent existence. The revenue's argument was countered by the factual reality of corporate restructuring and the legal principle that losses and incomes during the amalgamation period are to be dealt with in the hands of the amalgamated entity. The Court thus held that the assessee's failure to claim losses in its own return was not a bar to carry forward, given the scheme of amalgamation and subsequent demerger.

Issue D: Filing Return within Date Specified under Section 139(1) and Remedy under Section 119(2)(b)

The revenue contended that since the return was not filed within the due date under Section 139(1), and the assessee did not avail the remedy of condonation of delay under Section 119(2)(b), the loss could not be carried forward.

The Court examined the interplay between Sections 139(3), 139(5), 153A(1), and 119(2)(b), and relevant Circulars. It was noted that Section 139(5) allows filing of revised returns for omission or wrong statements within prescribed timelines, but this provision was inapplicable as the delay was due to the time taken to obtain NCLT sanction for the scheme of arrangement and amalgamation. The Court relied on the Supreme Court's decision in Dalmia Power Ltd. which held that returns could not be filed before the scheme's approval by NCLT, and hence delay beyond the due date was excusable.

Further, the Court referred to a Division Bench ruling of this Court in Shrikant Mohta vs. CIT, which held that the obligation to file returns under Section 139(1) is suspended when search operations are initiated and returns are to be filed only upon notice under Section 153A(1)(a). This effectively extends the time for filing returns for the purpose of carrying forward losses.

The Court concluded that the assessee was justified in filing the return when it did, and the remedy under Section 119(2)(b) was not mandatory in the circumstances. The Tribunal's acceptance of the return and carry forward of loss was therefore legally sound.

Treatment of Competing Arguments

The revenue's arguments were primarily procedural and technical, focusing on the timing and manner of filing returns and claiming losses. The Court systematically addressed these by contextualizing the facts within the corporate restructuring and statutory framework. It emphasized the practical impossibility of strict compliance with timelines given the merger/demerger and NCLT approval process. The Court also gave weight to the principle that tax consequences must align with the effective date of amalgamation/demerger as sanctioned by the Court and NCLT.

Conclusions

The Court upheld the Tribunal's order allowing carry forward of losses despite the return being filed under Section 139(4) and not Section 139(1), and despite the assessee not claiming losses in its return, given the merger/demerger facts. The Court held that the revenue's appeal was without merit and dismissed it.

Significant Holdings

"The Assessing Officer was asking the assessee to do something that was legally impossible and therefore the same cannot be approved."

"The only course open to the revenue would be to act as per the scheme of amalgamation approved by the High Court effective from the appointed date and the Taxing authorities are bound to take note of the state of affairs of the assessee as on the appointed date."

"Section 139(5) of the Income-tax Act is not applicable to the facts and circumstances of the present case since the revised returns were not filed on account of any omission or wrong statement or omission contained therein. The delay occurred on account of the time taken to obtain sanction of the schemes of arrangement and amalgamation from the NCLT."

"The obligation to file the return remained suspended, in view of the clear opening words of section 153A(1) of the Act, till such time that a notice was issued to him under clause (a) of such sub-section."

"The operation of section 139(3) of the Act qua the time available for filing a return in order to avail of the benefit of carrying forward any loss stands extended till a return is called for under section 153A(1)(a) of the Act and such return is filed."

Core principles established include that in cases of corporate amalgamation and demerger, the effective date governs the tax consequences including loss carry forward; returns filed by the amalgamated entity within prescribed timelines are valid for the merged period; and delays in filing returns caused by awaiting NCLT approval are excusable and do not disentitle the assessee from carrying forward losses.

Accordingly, the Court dismissed the revenue's appeal and answered the substantial questions of law against the revenue.