Carry forward of business loss

[murali Krishnamurthy]

My client, builder, has filed the return of income for the asst.year 2003-04 u/s 139(1). At the time of filing the ROI, the interest on loans was capitalised and treated as work in progress. During the assessment proceedings, the client revised the computation of income by treating the interest as revenue and filed the revised financial statements. The AO has not contested this but also did not take into account this revised computation of total income(loss) while determining the taxable income. The said assessment is under appeal before the CIT(A).

For the subsequent years, based on this revised computation of income(loss), the profits of the business were adjusted and the return of income(s) were filed for the assessment year 2004-05 and 2005-06. However, these returns are belated returns and also have been revised due to the above said reason.

For the assessment year 2006-07, the AO has disallowed the brought forward loss for the years 2004-05 and 2005-06 and did not check the record for 2003-04.

Is the action of the AO justified? Kindly clarify the correct legal position with the help of case law, if any.   

[pawansingla]

You have not given full details regarding your brought forward loss.Further the brought forward loss of A.Y. 2003-04 will depend on the outcome of the appeal of A.Y. 2003-04.In case you succeed in appeal,the entire loss will automatically be carried forward and has to be set off. If ,you did not had loss in A.Y.2004-05 and you had just set off the carried forward loss of A.Y. 2003-04 , then filing of belated return for succedding A.Y"s will not dis entile you from carrying forward and setoff of loss of A.Y. 2003-04.By filing your return belated, you only lose the right of loss of that assesseement year being carried forward.This will only apply to business loss and not to depreciation.Yiu will find lots of judgement on this issue.