Delhi H.C : Whether on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of assessment and in directing the ITO to consider the assessee’s claim for set off of loss suffered in the asst. yr. 1967-68 but which was not determined in pursuance of a return under s. 139 in the proceedings for the asst. yr. 1974-75 in which the loss suffered was said to be set off against the deemed profit under s. 41(2) ?

High Court Of Delhi

CIT vs. Ardee Mechanical Industries (P)Ltd.

Sections 41(2), 41(5), 72, 80, 143(3)

Asst. year 1974-75

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. No. 74 of 1980

24th October, 2000

Counsel Appeared

Sanjeev Khanna with Ajay Jha, for the Petitioner : None, for the Respondent

JUDGMENT

ARIJIT PASAYAT, C.J. :

At the instance of Revenue, following question has been referred under s. 256(1) of the IT Act, 1961 (in short the ‘Act’), by the Income-tax Appellate Tribunal, Delhi Bench ‘A’ (hereinafter referred to as the Tribunal) for opinion of this Court : “Whether on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the order of assessment and in directing the ITO to consider the assessee’s claim for set off of loss suffered in the asst. yr. 1967-68 but which was not determined in pursuance of a return under s. 139 in the proceedings for the asst. yr. 1974-75 in which the loss suffered was said to be set off against the deemed profit under s. 41(2) ?”

2. Factual position in nutshell is as follows : Assessee, a private limited company was incorporated on 16th April, 1962. On the basis of returns filed by it for the asst. yrs. 1963-64 to 1966-67, assessments were completed under s. 143(3) of the Act. Though assessee claimed to have suffered a loss of Rs. 87,853 in the asst. yr. 1967-68, no return was filed and no assessment was also made. For the asst. yr. 1968-69 assessee filed its return showing income as ‘Nil’ on 15th Oct., 1969. Enquiry was conducted by an Inspector of Income-tax who, by report dt. 20th Sept.,

1971, mentioned that the company had stopped business from January, 1967. Relying on the said report ITO assessed the income of the assessee as ‘Nil’. Thereafter, no assessments were made. Subsequently assessee started selling some of its old assets and in the asst. yr. 1974-75 it sold some assets and earned a profit of Rs. 11,601, as computed by the ITO under s. 41(2) of the Act. Assessee took the stand that since it had suffered loss in the asst. yr. 1967-68, the same should be set off against the profit under s. 41(2) which accrued in the asst. yr. 1974-75. ITO did not accept the stand, inter alia, on the ground that assessee had not filed any return for the earlier assessment years and also there was no assessment made in respect of those years. Matter was carried in appeal by the assessee before AAC. The ITO’s views were endorsed by the AAC. Assessee preferred appeal before the Tribunal. It was assessee’s stand before the Tribunal that for the purpose of set off of loss there was no necessity to file any return or to get an assessment completed. Reference was made to s. 41(5) of the Act. Tribunal held that s. 41(2) of the Act has to be read with other provisions of the Act, more particularly s. 41(5). According to it there was no necessity for filing of return and/or computation of income to get benefit of set off. Though assessee had not filed any return for the asst. yr. 196768 with the result that loss could not be determined in that year, the ITO could see the accounts for the asst. yr. 1967-68 and come to a conclusion whether the claim of the assessee for setting off of the loss was substantiated or justified. It was not a correct position in law to say that no loss could be allowed when return for any particular period is not filed. Sec. 80 of the Act did not operate in the case because there are specific sections which deal with such a matter. Accordingly assessee’s claim was held to be in order. On being moved for reference, the question as set out above has been referred for opinion of this Court.

We have heard Mr. Sanjeev Khanna, learned counsel for Revenue. There is no appearance on behalf of assessee in spite of notice. According to learned counsel for Revenue s. 41(2) and 41(5) of the Act even if read together do not lead to a conclusion that even without filing of return or computation of loss, if any for any assessment year, in a subsequent year the ITO could examine that assessee, determine the loss, if any, and grant set off.

In order to appreciate the essence of the dispute it is necessary to take note of s. 41(2) and 41 (5) and s. 80 of the Act as they stood at the relevant time. They read as follows : “41(2)—Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building machinery, plant or furniture became due: Provided that where the building sold, discarded, demolished or destroyed is a building to which Expln. 5 to s. 43 applies, and the moneys payable in respect of such building together with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such previous year. Explanation : Where the moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provision of this sub-section shall apply as if the business or profession is in existence in that previous year.” “41(5)—Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-s. (1) sub-s. (2), sub-s. (2A), sub-s. (3) or sub-s. (4) in respect of that business or profession, any loss, not being a loss sustained in speculation business, or under the head ‘Capital gains’, which arose in that business or profession during the previous year in which it ceased to exist and which could not be set off against any other income of that previous year shall, so far as may be, set off against the income chargeable to tax under the sub-sections aforesaid.” “80—Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under s. 139, shall be carried forward and set off under sub-s. (1) of s. 72 or sub-s. (2) of s. 73 or sub-s. (1) of s. 74 or sub-s. (3) or s. 74A.”

5. It is to be noted that unlike the Indian IT Act, 1922 (hereinafter referred to as the ‘Old Act’) there is a specific provision in s.143(3) which permits filing of return showing a loss so that the question of set off against profits of a subsequent year can be adjudicated. Sec. 143(3) as it stood at the relevant time read as follows : “143(3)—On the day specified in the notice issued under sub-s. (2) or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the ITO may require on specified points, and after taking into account all relevant material which he has gathered : (a) in a case where no assessment has been made under sub-s. (1), the ITO shall by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of assessment ;(b) in a case where an assessment has been made under sub-s. (1), if either such assessment has been objected to by the assessee by an application under cl. (a) of sub-s. (2) or the ITO is of opinion that such ITO is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the ITO shall, by an order in writing, make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment. Explanation : For the purposes of this section : (1) An assessment under sub-s. (1) shall be deemed to be incorrect, inadequate or incomplete in material respect, if (a) the amount of the total income as determined under sub-s. (1), is greater or smaller than the amount of the total income on which the assessee is properly chargeable under this Act to tax; or (b) the amount of the tax payable as determined under sub-s. (1) is greater or smaller than the amount of the tax property payable under this Act by the assessee; or (c) the amount of any loss as determined under sub-s. (1) is greater or smaller than the amount of the loss, if any, determinable under this Act on a proper computation; or (d) the amount of any depreciation allowance, development, rebate or any other allowance or deduction as determined under sub-s. (1) is greater or smaller than the amount of the depreciation allowance, development rebate or, as the case may be, other allowance or deduction properly allowable under this Act; or (e) the amount of the refund as determined under sub-s. (1) is greater or smaller than the amount of the refund, if any, due under this Act on a proper computation; or (f) the status in which the assessee has been assessed under sub-s. (1) is different from the status in which the assessee is properly assessable under this Act; (2) “status”, in relation to an assessee, means the classification of the assessee as an individual , an HUF, or any other category of persons referred to in cl. (31) of s. 2, and where the assessee is a firm, its classification as a registered firm or an unregistered firm.”

6. Under sub-s. (3) of s.143 of the Act there has to be determination of not only the total income but also the loss. This position was also taken note of by the apex Court in CIT vs. Dalmia Cement (Bharat) Ltd. (1995) 128 CTR (SC) 120 : (1995) 216 ITR 79 (SC) : TC 46R.410. It has to be noted that s. 80 starts with a non obstante clause. The said provision specifically states that notwithstanding anything contained in the chapter, i.e., Chapter VI, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of s. 139 shall be carried forward and set off under sub-s. (1) of s.72 or sub-s. (2) of s. 73 or sub-s. (1) of s. 74. Sec. 72 deals with carry forward and set off of business losses. Since s. 80 starts with a non obstante clause and takes within its ambit any other provision as contained in the concerned chapter, i.e., Chapter VI, obviously it is fully operational also in respect of matters covered by s. 41 (2) and 41(5).

As observed by the apex Court in T.R. Thandur vs. Union of India AIR 1996 SC 1643, a non obstante clause is used as a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause or to override it in specified circumstances. A clause beginning with “notwithstanding anything contained in this Act or in particular provision in the Act or in some particular Act or in any law for the time being in force is appended to a section in the beginning with a view to give the enacting part thereof in case of conflict an overriding effect over the provision or Act mentioned in the non obstante clause. It is equivalent to saying that in spite of the provision or the Act, mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment. [See Orient Paper & Industries Ltd. vs. State of Orissa AIR 1991 SC 672, Smt. P.E.K. Kalliani Amma vs. K. Dev AIR 1996 SC 1963]. Sec. 41(5) enacts an exception to the general rule that after a business has ceased to exist, any loss relating thereto cannot be further carried forward and set off against the income of a subsequent year as laid down in s. 72(1)(i) read with the proviso. But that does not introduce a concept of assessing loss for a period for which no return has been filed. Such a power does not exist. That being the position the Tribunal was not justified in holding that on a combined reading of s. 41(2) and 41(5), operation of s. 80 of the Act was ruled out. In view of the clear language used in s. 80 the view of the Tribunal is indefensible. Our answer to the question is in the negative, in favour of Revenue and against the assessee.

[Citation : 247 ITR 87]

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