Kerala H.C : Whether, on the facts and in the circumstances of the case, and in the light of s. 80 of the IT Act, the assessee is entitled to carry forward the loss computed on the basis of the return of income filed within the time for which extension was sought from the AO ?

High Court Of Kerala

CIT vs. Panavision Electronics (Kerala)(P) Ltd.

Sections 72, 80, 139(3)

Asst. Year 1986-87

G. Sivarajan & J.M. James, JJ.

IT Ref. No. 144 of 1999

14th January, 2003

Counsel Appeared

P.K.R. Menon & George K. George, for the Revenue : None, for the Assessee

JUDGMENT

G. SIVARAJAN, J. :

The following question of law is referred under s. 256(1) of the IT Act, 1961, (for short “the Act”), by the Tribunal at the instance of the Revenue:

“Whether, on the facts and in the circumstances of the case, and in the light of s. 80 of the IT Act, the assessee is entitled to carry forward the loss computed on the basis of the return of income filed within the time for which extension was sought from the AO ?”

The brief facts relevant for the purpose of the case are as follows. The respondent-assessee is a closely-held company, carrying on the business of manufacture and sale of certain electronic items. The assessment year concerned is 1986-87, the relevant accounting period ended 31st March, 1986. The due date for filing the return under s. 139(1) of the Act was 31st July, 1986. The assessee filed an application in the prescribed form on 30th July, 1986, seeking for extension of time for filing the return till 31st Oct., 1986. The AO did not pass any order on the said application. The assessee, on the belief that the application was granted, filed the return for the year 1986-87 on 23rd Oct., 1986, well within the extended period applied for. The AO completed the assessment on the basis of the return filed on 23rd Oct., 1986, as per order dt. 22nd Jan., 1987 (Annex. A). The AO refused to carry forward the loss claimed in the return, as according to him, the same cannot be granted, in view of the provisions under s. 139(3) of the Act. This is confirmed in appeal by the CIT(A), Cochin. However, in further appeal by the assessee, the Tribunal held that the assessee is entitled to carry forward the loss of the year 1986-87, and directed the AO accordingly.

Learned standing counsel for the Revenue appearing for the applicant submitted that since the assessee has not filed the return within the time specified in s. 139(1) of the Act as contemplated under s. 80, the assessing authority is perfectly justified in rejecting the assessee’s claim for carry forward of the loss of the asst. yr. 1986-87. Standing counsel further submitted that though the assessee has filed an application for extension of time and since the AO has not granted the said extension, as it is a discretionary relief, it cannot be assumed that extension was granted and the assessee has filed the return within the time specified under s. 139(1) of the Act. Though notice was served on the respondent-assessee, there is no appearance.

4. We have considered the matter and we find that the Tribunal was perfectly justified in holding that the respondent-assessee is entitled to carry forward the loss claimed in the return. Sec. 80 of the Act introduced w.e.f. 1st April, 1985, provides that “the return of loss must be submitted within the period prescribed under s. 139(1) of the Act. Under s. 80, no loss can be allowed to be carried forward and set off under s. 72(1) or s. 73(2) or s. 74(1) or s. 74A(3), unless such loss has been determined in pursuance of a return filed by the assessee under s. 139. By virtue of the provisions of s. 80, no loss would be allowed to be carried forward or set off, unless the return under s. 139 (1) has been filed within the time allowed under sub-s. (1) of s. 139 for filing the return or within such further time as may be allowed by the ITO.

5. In this context, it is also relevant to refer to the provisions of s. 139(1) of the Act. Under s. 139 (1), every person, if his total income in respect of which he is assessable under this Act during the previous year exceeds the maximum amount which is not chargeable to income-tax, shall furnish a return of his income, during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed. Under cl. (a) of sub-s. (1) of s. 139, in the case of every person whose total income in respect of which he is assessable under this Act, includes any income from business or profession, the return shall be filed before the expiry of four months from the end of the previous year, or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later.

6. In the instant case, as already noted, the respondent-assessee is engaged in the manufacture and sale of electronic items. Hence, the assessee is liable to file the return under s. 139(1) of the Act on or before 31st July, 1986, i.e., within four months from the end of the previous year. The proviso to sub-s. (1) of s. 139 enables the assessee to file an application in the prescribed manner seeking for extension of the date for furnishing the return and the assessing authority is given the discretion to grant such extension. Sec. 80 also provides that in order to allow the claim for carry forward or set off of the loss, such return must be filed within the time allowed under sub-s. (1) of s. 139 or within such further time as may be allowed by the ITO. In this context, it is also relevant to refer to the provisions of s. 139(3) of the Act relied on by the AO. The said sub-section also provides that, if any person who has not been served with a notice under sub-s. (2), has sustained a loss in any previous year, under the head “profits and gains of business or profession” or under the head “capital gains” and claims that the loss or any part thereof should be carried forward 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) of s. 74A, he may furnish, within the time allowed under sub-s. (1) or by the 31st day of July of the assessment year relevant to the previous year during which the loss was sustained, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-s. (1). Thus, it can be seen that the provisions of s. 80 and s. 139(1) provide for extension of time for filing the loss return and if the loss return is filed within the extended period, the claim for carry forward or set off of loss has to be allowed.

In the present case, admittedly, the assessee has made an application for extension of time on 30th July, 1986, well before the expiry of the time specified in s. 139(1), and the assessee has filed the return within the period of extension sought for. There is a lapse on the part of the AO in responding to the application. In a case where, by virtue of the provisions of the proviso to s. 139 (1) or by virtue of the provisions of s. 80 of the Act, extension of time for filing the return is sought, the AO is obliged to pass an order on such application. If the AO, fails to pass such an order, the normal presumption is that the AO has granted the extension sought for. In fact, the very question came up for consideration before this Court in a different context under the provisions of s. 17A of the Agrl. IT Act in Velimalai Rubber Co. Ltd. vs. IAC of Agrl. IT and ST (1991) 190 ITR 385 (Ker). This Court, relying on the decisions of other High Courts, rendered in the context of the provisions of the IT Act, particularly s. 139 thereof, has held that the said decisions clearly show that in cases where no orders are passed on the application for extension of time for filing the return, the assessee is justified in construing the silence as sanction of his request. The said dictum has been applied in this case also. To the said effect is the decision of the Rajasthan High Court in Rajasthan Cylinders & Containers Ltd. vs. CIT (2002) 176 CTR (Raj) 614 : (2003) 259 ITR 95 (Raj). An identical question arose in that case as to whether the Tribunal was right in law in holding that the assessee-company was not entitled to carry forward of loss computed for the asst. yr. 1985-86. In that case, the assessee-company claimed to have made an application in Form No. 6 for extension of time on 28th June, 1985, for filing the return which was due to be filed on 30th June, 1985. Time was sought upto 30th Sept., 1985. The return was filed on 28th June, 1985, before that date. The ITO did not allow to carry forward the loss determined on the ground that the returns were not filed on or before the due date. This was confirmed by the CIT(A) and by the Tribunal. The Court observed that once the assessee has applied on Form No. 6 for extension of time for filing the return and if that application has not been disposed of or rejected, the presumption will be that the time has been extended and if the assessee has filed the return on or before the extended time prayed for, the return shall be taken to be filed on or before the due date. The High Court accordingly answered the question in favour of the assessee. According to us, the Tribunal was perfectly justified in holding that when the assessee has made an application for extension of time for furnishing the return provided under s. 139(1) of the Act, or under s. 80 of the Act, and if the assessing authority has not passed any specific orders, the assessee is justified in believing that the extension has been granted. Admittedly, the assessee had filed the return before the extended period applied for.

In the above circumstances, we are of the view that the Tribunal was perfectly justified in holding that the assessee is entitled to carry forward or set off the loss claimed in the return filed on 23rd Oct., 1986.

10. In view of the above, we answer the question referred in the affirmative, that is, in favour of the assessee and against the Revenue.

[Citation : 264 ITR 710]

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