Re: Rule 9(2) – Reduced loss to be carried forward

As per the proviso to Rule 9(2), if the declarant opts not to pay tax and carry forward the reduced losses, then in subsequent years the assessee shall be liable to pay interest.

Suppose there are two pending appeals of A Ltd and for Year 1 the returned loss was Rs 15 lakhs and the addition made by the AO was of Rs 15 lakhs.

For year 2, the returned income was 5 lakhs after set off of loss of year 1. In this, the addition made is of Rs 10 lakhs and also denied the loss i.e, assessed income became 30 Lakhs.

Here, the assessee wishes to opt for VsV scheme for both the years and exercise the option of carry forward the reduced loss.

Whether Interest u/s 234B, 220 is leviable in year 2 ?

Rules are subordinate legislation . Subordinate legislation can also be questioned on the ground that it violates article 14 of the Constitution of India as held in J.K Industroies Ltd v UOI ( 2008) 297 ITR 176 (SC) (at 178 -179)    Rules cannot beyond the Act. Though the Rule 9(2) states that Assessee shall be liable to interest it seems that the intentions would be to levy interest on non-VsV years. This is because, if you chose to file declaration for year 1 and year 2 both together, option to carry forward loss does not make any difference, unless there is a tax – arbitrage for the difference in tax rates. In both years, interest and penalty is waived off, and in such a case, whether you opt or not to set off and carry forward would not make a difference. Please note that this answer is specific to the facts of your case.   

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