carry forward of loss

[murali Krishnamurthy]

My client has filed return of income in time. However, during the assessment proceedings certain mistakes were noticed and the revised computation of total income was filed with a covering letter to the AO and claimed loss to be setoff against future income. The latter did not take any action on this letter and completed the income on an estimate basis.

Is the claim correct? Is there any case law to substantiate the claim without filing the revise return of income?

[pawansingla]

To claim carry forward of loss , retrun of income should be filed in time as per provisions of sec. 80 of the Act. However this restriction is not appliacble to unabsorbed depreciation. If your claim is regarding unabsorbed depreciation, then you should get yopur claim without any problem. However reagrding loss , there might be problem. However there is CBDT instruction of 1955 that Assessing Officers should not take advantage of assessee ignorance of law. Further there is direct judgment of Delhi High court in case of JAI parabolic that revised computation can be filed at any stage.You must fight out the issue . I am sure you are going to get your claim(100%) .

[pawansingla]

IN THE HIGH COURT OF DELHI AT NEW DELHI
ITA No.798 /2007
Judgment reserved on: 27th March, 2008
Judgment delivered on: 7th April, 2008
Commissioner of Income Tax Delhi-II, New Delhi .....Appellant
Through: Mr. R.D. Jolly, Adv.
Vs.
M/s. Jai Parabolic Springs Ltd.
2, Park Lane, Kishan Gargh,
Behind D-3, Vasant Kunj,
New Delhi-11007011 ..... Respondent
Through: Mr. O.P. Sapra and
Mr. Sandeep Sapra,
Advs.
Coram:
HON'BLE MR. JUSTICE MADAN B. LOKUR
HON'BLE MR. JUSTICE V.B. GUPTA
V.B.Gupta, J.
The Revenue has filed this appeal under Section 260A of the Income Tax Act,
1961 (for short as "Act") against the order dated 8th November, 2006 passed by
the Income Tax Appellate Tribunal (for short as "Tribunal"), Delhi Bench "G" in
ITA No.707/Del/2004 relevant for the assessment year 1990-91 vide which the
appeal filed by the Revenue was dismissed.
2. The facts entailing the present appeal are that the assessee is engaged
in the business of manufacture and marketing of springs and springs leaves
required for the automobile industry. Return of income for the year under
consideration was filed by the assessee on 30.12.90 declaring net loss at Rs.
4,40,36,000/-. Return was processed under section 143(1) of the Act.
Subsequently, notice under section 143(2) of the Act
was issued. The loss under the normal provisions of the Act was computed at Rs.
4,27,63,353/- inter alia by making several additions/disallowances as enumerated
in the order of assessment dated 19.03.93.
3. The Assessee has incurred Rs.19,48,125/- as expenditure on account of
customer introduction charges which were debited as "Deferred Revenue Expenses"
in the balance sheet. The expenditure was written off over a period of five
years starting from the assessment year 1990-91 and accordingly, the assessee
claimed reduction of Rs. 3,89,625/- in the return. The claim was allowed by the
assessing Officer.
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4. Being unsatisfied from the assessment framed, Assessee Company filed
appeal before the Commissioner of Income Tax (Appeals) (for short as "CIT [A]"). In
the appeal before CIT (A), by way of additional ground, Assessee claimed the entire
deferred revenue expenses of Rs. 19,48,125/- in the assessment year in appeal. The CIT
(A) allowed the appeal.
5. The Revenue preferred further appeal before Tribunal. The Tribunal, in
terms of its order dated 14.05.03 restored the matter to the file of Assessing
Officer to consider and decide the issue after examining the details.
6. Thereafter, the Assessing Officer took up the issue pursuant to the
directions of the Tribunal and passed an order under section 254 read with
section 143(3) of the Act on 31.01.03 and he disallowed the claim of Rs.
15,58,5000/- (i.e. Rs.19,48,125/- minus Rs. 3,89,625) with the following
observations:
"Since the claim for the deferred revenue expenditure of Rs. 15,58,500/- was not
claimed by the assessee in its return of income for the assessment year 1990-91,
the same is not allowed."
7. Being aggrieved from the above assessment, the Assessee preferred an
appeal before CIT (A). Appeal of the Assessee was allowed by inter alia holding
that the Assessing Officer erred in disallowing the expenditure on the sole
ground that no claim for deduction of the amount was made in the return of
income.
8. Aggrieved thereby, the Revenue filed appeal before Tribunal. The appeal
of the Revenue was dismissed and the order of the CIT (A) was confirmed by the
Tribunal.
9. Aggrieved by the order of the Tribunal, the Revenue filed the present
appeal before this Court.
10. Thus, the principal question that arises for determination in this
appeal is "Whether the Tribunal was right in law in allowing relief of Rs.
15,58,500/- in the assessment year under consideration when no such claim was
made by the assessee in the return of income"?
11. It is contended by the learned counsel for the Revenue that Tribunal
has erred both in law and on facts in granting relief of Rs.15,58,500/- to the
Assessee on account of expenditure claimed by the Assessee as "Deferred Revenue
Expenditure" in the Audited Balance Sheet. As per the relevant statutory
provisions no such claim can be allowed which has not been claimed in return of
income. Further, particulars for the purpose of assessment have to be submitted
before the completion of assessment proceedings and if the information is
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supplied subsequent to the completion of the assessment, it would mean that the
Assessment order will have to be reopened and the Act does not contemplate such
reopening of assessment. Furthermore, in the absence of any direction given by
the Tribunal in the first round of proceedings to allow the entire claim, the
Tribunal failed to appreciate that out of the entire Deferred Revenue
Expenses an amount of Rs.3,89,625/- has already been allowed by the Assessing
Officer and the remaining expenditure was treated by the Assessing Officer in
consonance with the proper manner laid down under the law.
12. As clear from the above said facts, there is no dispute that customer
introduction charges did not represent revenue expenditure. The principal ground
taken by the Revenue in this appeal is that if no claim for deduction of the
amount was made in the return of income then deduction would not be allowed.
13. Section 254 of the Act says that the Appellate Tribunal may, after
giving both the parties to the appeal an opportunity of being heard, pass such
orders thereon as it thinks fit.
14. Reference may be made to National Thermal Power Co. Ltd. v.
Commissioner of Income Tax [1998] 229 ITR 383 (SC), where the Supreme Court
observed that:-
"The power of the Tribunal in dealing with appeals is thus expressed in the
widest possible terms. The purpose of the assessment proceedings before the
taxing authorities is to assess correctly the tax liability of an assessee in
accordance with law. We do not see any reason to restrict the power of the
Tribunal under Section 254 only to decide the grounds which arise from the order
of the Commissioner of Income-tax (Appeals). Both the assessees as well as the
Department have a right to file an appeal/cross-objections before the Tribunal.
We fail to see why the Tribunal should be prevented from considering questions
of law arising in assessment proceedings although not raised earlier."
15. Reference may also be made to Gedore Tools Pvt. Ltd. v. Commissioner of
Income Tax (1999) 238 ITR 268, wherein the Apex Court decision in National
Thermal Power Co. Ltd. (supra) has been followed.
16. In the case of Jute Corporation of India Ltd. v. Commissioner of
Income Tax (1991) 187 ITR 688, while dealing with the powers of the Appellate
Assistant Commissioner, the Supreme Court observed that:-
"An appellate authority has all the powers which the original authority may have
in deciding the question before it subject to the restrictions or limitations,
if any, prescribed by the statutory provisions. In the absence of any statutory
provision, the appellate authority is vested with all the plenary powers which
the subordinate authority may have in the matter. There is no good reason to
justify curtailment of the power of the Appellate Assistant Commissioner in
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entertaining an additional ground raised by the assessee in seeking modification
of the order of assessment passed by the Income-tax Officer. This Court further
observed that there may be several factors justifying the raising of a new plea
in an appeal and each case has to be considered on its own facts. The Appellate
Assistant Commissioner must be satisfied that the ground raised was bona fide
and that the same could not have been raised earlier for good reasons. The
Appellate Assistant Commissioner should exercise his discretion in permitting or
not permitting the assessee to raise an additional ground in accordance with law
and reason. The same observations would apply to appeals before the Tribunal
also."
17. In Goetze (India) Limited v. Commissioner of Income Tax (2006) 284
ITR 323 (SC) wherein deduction claimed by way of a letter before Assessing
Officer, was disallowed on the ground that there was no provision under the Act
to make amendment in the return without filing a revised return. Appeal to the
Supreme Court, as the decision was upheld by the Tribunal and the High Court,
was dismissed making clear that the decision was limited to the power of
assessing authority to entertain claim for deduction otherwise than by revised
return, and did not impinge on the power of Tribunal.
18. Further, revenue expenditure which is incurred wholly and exclusively
for the purpose of business must be allowed in its entirety in the year in which
it is incurred. It cannot be spread over a number of years even if the assessee
has written it off in his books over a period of years. [Reliance can be placed
on Madras Industrial Investment Corporation Ltd. v. Commissioner of Income Tax
(1997) 225 ITR 802 (SC)]
19. In view of the above discussion, it is very clear that there is no
prohibition on the powers of the Tribunal to entertain an additional ground
which according to the Tribunal arises in the matter and for the just decision
of the case. Therefore, there is no infirmity in the order of the Tribunal.
20. Accordingly, the appeal of the Revenue is hereby dismissed.
V. B. GUPTA
(JUDGE)
MADAN B. LOKUR
(JUDGE)
April 07, 2008