TMI Blog1996 (2) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and determined the loss at Rs. 91,940 after adjustment of other sources income of Rs. 11,400 being dividend. The AO finally held that since the return of loss is belated the loss will not be carried forward as per law. 3. Before the CIT(A) the assessee submitted that as the firm has filed its return within statutory time the AO ought to have allowed loss of Rs. 91,940 to be carried forward. The CIT(A) considered the submission of the assessee and held that since the assessee has not filed the return of loss under section 139(3) by 31st day of July, 1987 the AO is justified in rejecting the assessee's claim of carry forward of loss. However, the CIT(A) held that the assessee is entitled to carry forward the unabsorbed depreciation of Rs. 3,306 under section 32(2) of the Act but assessed business loss of Rs. 88,634 should not be allowed to be carried forward. 4. Being aggrieved by the order of the CIT(A) the assessee has preferred this appeal to the Tribunal. The learned counsel for the assessee Sri G.P. Agrawal filed a paper book containing acknowledgement receipt of return of income of M/s. Aicam India ; copy of assessment order of M/s. Aicam India for the assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, section 182(1) of the Act provided that the income of the firm has been determined by the ITO the share of each partner in the income of the firm shall be included in its total income and assessed to tax, accordingly, in the year in which such allocation has been made. In our view, therefore, apart from the fact that the Tribunal proceeded on the footing that the assessee was following the mercantile system of accounting, in terms of section 182(1) such income is includible, being the assessee's share in the profit of the firm in the total income of the assessee." Lastly, the learned counsel for the assessee filed a list of 12 case laws and placing reliance on them submitted that if two views are possible on this subject or where the taxing provision is ambiguous and is capable of more than one interpretations the interpretation which is beneficial to the assessee must be adopted. Some of the case laws are reproduced from his list as under :--- (1) CIT v. Smt. Radha Devi Poddar [1990] 185 ITR 544/[1989] 47 Taxman 344, 554 (Cal.) (If there is any doubt about the meaning of the phrase " regular assessment " or if two equally good interpretations are possible, then the interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time and where business loss has bene determined, allocated and allowed to be carried forward by the AO in the case of the firm, can be carried forward and set off automatically against the income in the case of a partner. (ii) Whether, since a partner who has not filed his return of loss within the time prescribed under section 139(3), can be allowed to carry forward the business loss and set off against his income in future assessment years. (iii) Whether proviso (b) to sub-section (10) of section 139 of the Act where return of a partner of a firm is excluded from being treated as non est is of any help to the assessee on these facts and under these circumstances. (iv) Whether taxing provisions on this subject are ambiguous or/and are capable of more than one interpretations. 7. Under the general scheme of the Income-tax Act if the profits and losses under different heads are to be aggregated and if the resultant figure is an income it is liable to tax and if the resultant figure is a loss arising out of the business which cannot be set off against the profit of the year, it is carried forward and set off against business profits of the succeeding year. This is the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der : " Therefore, in view of the imperative language of section 75, the assessee, which is a registered firm, is not entitled to carry forward and set off the unabsorbed loss of Rs. 60,419 of the earlier years against its income computed in the assessment year 1970-71 for the purposes of levy of tax on such income." 8. Putting the facts of the instant case to the tests laid down by the M.P. High Court in the case of Kalani Udyog and to the provisions envisaged in section 75(1) and section 75(2) we find that the assessment order of the ITO in the case of the firm is legally incorrect to the extent, he has allowed the loss to be carried forward. The remark of the ITO " losses to be carried forward " is against the provisions of section 75(2) of the Act, as the business loss cannot be carried forward in the case of the registered firm. The ITO is found to be correct insofar as unabsorbed depreciation is concerned and that has been allowed by the CIT(A), while disallowing the carry forward of the business loss of Rs. 88,634 in the case of assessee. In our view the action of the CIT(A) is, therefore, legally correct. Although the issue of unabsorbed depreciation is not under dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried forward by the ITO the business loss cannot be automatically carried forward and absorbed in the case of the partners, firstly because there is no such scheme or provisions in the Act and secondly, carry forward of business loss was wrongly allowed by the ITO in the case of the firm. Our answer to question No. (i) is, therefore, negative and accordingly we hold that although the firm has filed its return in time and business loss is wrongly allowed to be carried forward by the AO in the case of the firm, the business loss cannot be automatically carried forward and absorbed in the case of the assessee-partner, without fulfilling the required conditions and without observing the requisite formalities in accordance with the provisions of law in the case of the partner. 10. Now, when we turn to the second question, i.e., whether the partner who has not filed his return of loss in accordance with the provisions of section 139(3), can be allowed to carry forward and set off the business loss. We find that the AO and the CIT(A) have disallowed the business loss to be carried forward and set off in the case of the assessee-partner because the return of loss was belatedly filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been determined in pursuance of the return filed within the time allowed under section 139(1) and, therefore, cannot be carried forward and set off. In this view of the matter, we answer the second question also in the negative and hold that the CIT(A) has rightly disallowed the carry forward and set off of business loss in the case of the assessee. Our view is duly supported by the Andhra Pradesh High Court decision in the case of Palakol Co-operative Sugars Ltd v. ITO [1993] 202 ITR 681 wherein it was held as under :--- " Held , dismissing the petition, that the Income-tax Officer did not grant any extension of time and the petitioner did not file the return within the time allowed under sub-section (1) of section 139. Therefore, it followed that, though the return filed by the petitioner was within the time contemplated in section 139(4), it had no right to have the loss determined on the said return and carry forward the loss, if any, to the subsequent assessment years to be set off against the income of those years." 12. Now, we turn to question No. (iii) as to whether section 139(10) read with proviso (b) is of any help to the assessee. On critical analysis and judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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