Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) directing that the assessee’s share of loss from the firm be set off against other income, when in fact the return filed in the case of the firm has been treated as non est, having been filed beyond the time-limit prescribed under s. 139(1) of the Act ?

High Court Of Madras

CIT vs. K. Rangaswamy Naidu & Anr.

Sections 67, 71

Asst. Year 1987-88

P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.

Tax Case Nos. 275 & 276 of 2001

12th June, 2006

Counsel Appeared :

J. Narayanaswamy, for the Revenue : R. Meenakshisundaram, for the Assessee

JUDGMENT

P.D. Dinakaran, J. :

At the instance of the Revenue, the Tribunal has stated a case and referred the following question of law, which is common in both tax cases : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) directing that the assessee’s share of loss from the firm be set off against other income, when in fact the return filed in the case of the firm has been treated as non est, having been filed beyond the time-limit prescribed under s. 139(1) of the Act ?”

The assessment year with which we are concerned is 1987-88. The assessee in each case is a partner in the firm, M/s Visalakshi Combines, Coimbatore. The claim of the assessee before the AO was that the share of loss from the firm, M/s Visalakshmi Combines, was to be set off against his other income.

The AO noticed that the due date for filing the return of income by the firm for the asst. yr. 1987-88 was 31st July, 1987, but the return was filed only on 29th July, 1988, beyond the time-limit prescribed under s. 139(1) of the IT Act. Therefore, treating the return filed by the firm as non est, the AO held that there was no assessment made on the firm, nor the share of loss to be allocated to the partners was determined.

Accordingly, in the assessment of the assessee in each case, as a partner of the firm, no adjustment for the share of loss was made by the AO, though there was a claim by the assessee. The AO made the assessment on the assessee taking the share of loss from the firm as “nil”. The CIT(A), however, accepted the assessee’s claim.

Before the Tribunal, the Revenue contended that there was no apportionment of loss under s. 67 of the IT Act in the case of the firm as the return filed by the firm for the asst. yr. 1987-88 was treated as non est. But, the Tribunal held that the assessment of the individual partner was independent of the assessment of the firm and though the share income of the individual partner might ultimately be determined by the AO on completion of the assessment of the firm, the assessability of the share income would not depend on such allocation. The Tribunal felt that it was open to the AO to make assessment under s. 155 of the IT Act on the completion of assessment of the firm, but such adjustment would not be possible in the present case since the firm itself had filed its return beyond the time-limit and the same was accepted, and regular assessment order was passed and thus, dismissed the appeal preferred by the Revenue.

The Tribunal, at the instance of the Revenue, has stated a case and referred the abovementioned question of law.

As evident from the records, it is not in dispute that the AO has not ignored the return filed by the firm, but acted on the return and made a regular assessment under s. 143(3) of the IT Act and the loss, as submitted by the firm in the return, was also accepted. Since the loss of the firm had been accepted and the AO was directed to set off the share of loss of the assessee in each case, we fail to understand how the return filed by the firm has been treated as non est as raised in the question of law. Therefore, finding it difficult to hold that the return filed by the firm was treated as non est, the question of law referred to us in both the tax cases is answered in favour of the assessees. No costs.

[Citation : 288 ITR 109]

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