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CLAIMING THE LOSSES OF THE CURRENT YEAR IN THE REVISED RETURN

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CLAIMING THE LOSSES OF THE CURRENT YEAR IN THE REVISED RETURN
By: Mr. M. GOVINDARAJAN
January 9, 2020
All Articles by: Mr. M. GOVINDARAJAN       View Profile
  • Contents

Return of Income

Section 139(1) of the Income Tax Act, 1961 (‘Act’ for short) provides that every person,-

  • being a company or a firm; or
  • being a person other than a company or a firm, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax,

shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

Set off loss

Section 139(3) of the Act provides that 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-section (1) of section 72, or sub-section (2) of section 73,  or sub-section (2) of section 73A  or sub- section (1) or sub-section (3) of section 74, or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1), a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1).

Revised return

Section 139(5) provides that if any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

Issue

The issue to be discussed in this article is whether the assessee can claim the losses for the current year in the revised return under section 139(5) of the Act with reference to the decided case law.

As we seen that revised return can be filed by an assessee if he discovers any omission or any wrong statement he may furnish a revised return.  Whether the losses can be set off in the revised return?  The Income Tax Appellate Tribunal gives answer to this question in The Dharangadhra People’s Co-op Bank Limited v.  DCIT, Surendranagar Circle, Surendranagar’ – 2019 (12) TMI 976 ITAT Rajkot, the assessee is a cooperative society and engaged in the co-operative banking business. The assessee for the year under consideration had filed its return of income dated 31 August 2012 declaring an income of Rs. NIL.  As such the assessee for the year under consideration has shown an income in the statement of income of ₹ 65,74,118.00 only which was set off against the brought forward losses amounting to ₹ 1,05,25,004.00 (the actual set off of the loss for ₹ 65,74,118.00 and the balance amount of ₹ 39,50,886.00 was carried forward).

The assessee revised its return of income under section 139(4) of the Act dated 20-03-2014 wherein business loss of ₹ 1,56,71,108.00 was claimed which resulted the loss for the current year at ₹ 90,96,990.00 and the same was carried forward to the subsequent year.  The impugned loss was representing the FDR’s written off made with Madhavpura Mercantile Co-operative Bank Ltd., (‘MMBCL’ for short) which has gone into the liquidation. Accordingly the assessee also carried forward losses and the unabsorbed depreciation of the earlier years which was set off in the original return of income.  The assessee during the assessment proceedings claimed that the impugned loss was claimed in the year under consideration as per the letter written by RBI dated 10 April 2012.  the Assessment Officer was dissatisfied with the claim of the assessee made in the revised return of income under section 139(4) of the Act dated 20 March 2014 for technical reasons as well as on merit.  The Assessment Officer on the technical count proposed not to allow the claim of the assessee.  The Assessment Officer disallowed the claim of the assessee on account of the loss incurred on the FDR’s maintained with MMCBL for ₹ 1,56,71,108/-. Accordingly the loss of ₹ 90,96,990/- as declared in the revised return of income was disallowed and added to the total income of the assessee.

The petitioner submitted the following before the Appellate Tribunal-

  • The original return filed by it was showing unabsorbed losses and the depreciation.
  •  It cannot be said that the original return was not the return of loss. 
  • The original return was filed within the time allowed under section 139(1) of the Act and therefore the same can be revised under section 139(4) of the Act.
  • The losses on account of FDR’s written off were arising in the course of the business and therefore the same is eligible for deduction under section 28 of the Act.
  • The impugned loss was written off in the year under consideration as per the direction of the RBI. As such, such loss cannot be treated as prior period expenses/claim.

The Revenue reiterated that the findings are the authorities are correct and in accordance with the provisions of Income tax Act.

The Appellate Tribunal observed that   two issues are emanating from the order of the authorities below which are as follows-

  • Whether the assessee can claim the losses for the current year in the return revised under section 139(5) of the Act?
  • Whether the loss on account of FDR’s maintained with MMCBL and written off is eligible for deduction under the head business and profession?

The Appellate Tribunal analyzed the provisions of section 139 of the Act.  It is observed that the above provision reveals that a return filed under section 139(3) of the Act is considered a return filed under section 139(1) of the Act and accordingly all the provisions of sub-section (1) of 139 of the Act shall be applied to the return filed under section 139(3) of the Act. Thus there remains no ambiguity that a return filed under section 139(3) of the Act is considered a return filed under section 139(1) of the Act and accordingly we hold that the same can be revised under section 139(5) of the Act.  The Appellate Tribunal further noted that there is no specific denial under section 80 of the Act that the return filed under section 139(3) of the Act, which is considered the return filed under section 139(1) of the Act, cannot be revised under section 139(5) of the Act.

The Appellate Tribunal concluded that once a return filed under section 139(3) of the Act has been considered a return filed in the section 139(1) of the Act which implies that all the provisions of section 139 of the Act will be equally applicable.   The assessee cannot be denied the benefit of the loss to be allowed carried forward under the provisions of sub-section 139(3) read with section 80 of the Act in a situation where the loss was claimed in the revised return of income. On this technical count, the assessee succeeds.

Regarding to the second issue the Appellate Tribunal observed that the genuineness of the loss has not been doubted by the authorities below. Admittedly, the income by way of interest from such FDR’s was offered to tax which was accepted by the Revenue.  The activity of the assessee for investing its money as FDR’s is a normal business activity despite the interest thereon is offered to tax under the head income from other sources.   The Appellate Tribunal held that the impugned loss claimed by the assessee is allowable deduction under the head business and profession. Hence the ground of appeal of the assessee is allowed.

 

By: Mr. M. GOVINDARAJAN - January 9, 2020

 

 

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