ORDER
R.N. Singhal, Accountant Member
1. In this departmental appeal the only substantive ground is as follows :
The learned CIT (A) has erred in law and on facts in directing the Assessing Officer to allow carry forward of business loss determined on a belated return of income.
2. Thus, the dispute is about the claim of carry forward of business loss.
3. The assessee-company filed its return on 29-11 -1985 showing a loss of Rs. 4,24,743. The ITO worked out a total loss for deficiency of Rs. 1,59,853 including depreciation of Rs. 1,05,127. Thus, the business loss excluding depreciation was computed at Rs. 54,726. He ordered that since the return was filed late business loss of Rs. 54,726 would not be allowed to be carried forward. He further noted that the assessee had not provided any evidence to show that the extension of time for filing the return was allowed by the ITO. The CIT (A) noted in para 3 of page 3 of his order that the return was due on 30th June, 1985 but it was filed really on 29-11-1985. He noted further that the assessee had filed Form No. 6 on 28-6-1985 seeking time up to 30th September, 1985 and then another Form No. 6 was filed on 11-11-1985. He further noted that there was no reply from the ITO on the abovementioned applications in Form No. 6 and therefore, the assessee presumed that the time of extension had been granted. He held that by the second application in Form No. 6 time was sought up to 30-11-1985 and since the return was filed within that time the assessee was entitled to presume that the time had been granted in view of the Hon’ble Gujarat High Court decision in CIT v. Gordhanbhai Jethabhai [1983] 142 ITR 84 : 12 Taxman 54. He therefore, directed that the benefit of carry forward of loss should be allowed.
4. The learned Departmental Representative at the outset submitted that the Hon’ble Gujarat High Court decision in Gordhanbhai Jethabhai’s case (supra) cited by the learned CIT (Appeals) was rendered in the context of penalty under Section 271(1)(a) regarding reasonable cause for delay in filing of the return. He emphasised that such a presumption was not available in view of the amendment in Section 80 of the Act which inter alia required that the return should be filed within the time allowed by the ITO. The point made out was that unless the time was actually allowed by the ITO the right of carry forward would not be available on a belatedly filed return. Apart from this general proposition, he referred to the facts of this case submitting that first application in Form No. 6 sought time up to 30-9-1985 only and the second application was filed on 11-11-1985. He submitted that for the intervening period of 1-10-1985 to 10-11-1985 there would be no question of any presumption in favour of the assessee. He went to the extent of saying that the second application in Form No. 6 was invalid application as it was filed after the expiry of time sought by the first application.
5. In reply, the learned representative for the assessee submitted that the CIT (A) has rightly applied the ratio of the Hon’ble Gujarat High Court decision in the case of Gordhanbhai Jethabhai (supra). He submitted that as no intimations of rejection of applications were received the assessee was entitled to presume that the extensions sought had been granted. He submitted that after filing applications for seeking extensions the assessee was required to do nothing else while the Assessing Officer was required to do his duty of first deciding the fate of those applications and then communicating his orders to the assessee.
6. We have very carefully considered the rival submissions and the point involved is really very very interesting. It may be recalled that for and up to assessment year 1984-85 the benefit of carry forward of business loss on belatedly filed returns was consistently allowed by the Tribunal and there were some decisions of the High Court also in support of that view. However, for and from assessment year 1985-86 an amendment, was brought about in Section 80 and the Department’s stand thereafter was that in view of that amendment the benefit would be available only if the time was actually allowed by the Assessing Officer. Now, the department says that time should be actually allowed by the ITO and the assessee says that he has filed applications for seeking extensions and unless they are rejected the time should be presumed to have been allowed. Actually, a very useful guidance on these points is available from the Gujarat High Court decision in Gordhandas Jethabhai’s case (supra) though that decision was rendered in the context of reasonableness of delay in filing of return in regard to penalty under Section 271(1)(a). That decision actually has got two prongs. The first is concised in para 2 of the head-notes on page 84 of the reports (142 ITR). That is in the following terms :
A statutory duty is, therefore enjoined on the ITO to entertain an application for extension of time to furnish returns, render his decision on the application made to him and communicate it to the assessee concerned. He has no doubt discretion whether or not to extend the date, but such discretion has to be exercised judicially and not arbitrarily. He, however, cannot, refuse to use discretion one way or the other and ignore the application for extension made to him in the prescribed form. If the application is not made properly or it suffers from some defect, it may be open to the ITO to reject the application on that ground, but he cannot simply ignore the application as not maintainable.
Obviously, this prong talks of the ITO’s duty on receipt of application for seeking extension of time and this particular aspect remains equally applicable to the applications filed for seeking extension of time for the purposes of Section 80 also. It means that even for seeking extension of time for filing return for getting benefit of carry forward of business loss if assessee files a petition in Form No. 6 the duty of the ITO is the same.
7. There is another prong of that decision and it is that of presumption or reasonable belief of the assessee that his applications were granted by the ITO.
8. It means that after filing an application in Form No. 6 if the assessee does not receive a reply from the ITO he can presume that his application has been granted. Now, this presumption or reasonable belief would be equally applicable even in the context of Section 80 and department cannot insist that the ITO should have actually allowed the time. The point is that once the assessee has done his duty of filing of application in Form No. 6 for seeking extension and the ITO on the top of it has failed to discharge his duly as envisaged in the first prong of the Hon’ble Gujarat High Court decision in Gordhanbhai Jethabhai’s case (supra) there is no escape from the conclusion that assessee would have presumed that the time had been granted. So, the benefit of the Gujarat High Court decision in Gordhanbhai Jethabhai’s case (supra) would be available to the assessee in respect of the periods covered by his different applications in Form No. 6 which were not rejected or replied to by the ITO. A little thinking would, however, show that the question of such a belief or presumption on the part of the assessee would not arise in respect of the period, if any, not covered by applications in Form No. 6. In this particular case such uncovered period is of about 40 days, i.e, from 1-10-1985 to 10-11-1985 and during those 40 days assessee could not have presumed that time would have been allowed. This is so because starting from 1 -10 -1985 up to 10-11 -1985 assessee will first have to presume that at some future date he would make an application for seeking extension of time and on the top of it he will have to further presume that the ITO would not act on his application. Such an inference cannot be drawn. Of course, if on a belatedly filed application in Form No. 6 the ITO actually allows time then that order of the ITO would cover the whole period falling prior to the date up to which time is allowed. In such a situation assessee can say that if time is allowed, say up to 15th December, it does not lie in the mouth of the ITO to say that time was not allowed for any period falling before that date. Thus, there is a difference between the time being actually allowed by the ITO and the time being presumed to be allowed by the assessee when the ITO has not acted on his application. In the first case the whole period of delay up to the time allowed by the ITO is allowed but not in the second case when presumption is to be raised in favour of the assessee. Therefore, in this particular case the benefit of any reasonable belief or presumption for the period of 1-10-1985 to 10-11-1985 cannot be extended to the assessee.
9. This, however, does not automatically result in the rejection of the assessee’s claim. This is so because again in the context of the first prong of the decision of the Hon’ble Gujarat High Court the ITO has not acted on his applications and his action on the second application is, therefore, material for the assessee’s case. As already indicated if ITO actually allows the time on that application it would cover even the intervening period but if he declines to allow that time even the presumption in favour of the assessee would not be available for the intervening period from 1-10-1985 to 10-11-1985 and in terms of Section 80 even when the benefit, of the Hon’ble Gujarat High Court decision in Gordhanbhai Jethabhai’s case (supra) is available, the benefit of carry forward would not be available.
10. Thus, it is of paramount importance that ITO takes a decision on assessee’s application filed on 11-11-1985 seeking extension up to 30-11-1985. Thereafter, the ITO would decide the fate of assessee’s right of carry forward of business loss. In effect, therefore, there is no escape from our restoring the matter to the file of the Assessing Officer with a direction that first order should be passed on the assessee’s application in Form No. 6 filed on 11-11-1985 for seeking extension of time up to 30-11-1985. If necessary, he may obtain the xerox copy of the application and the acknowledgement from the assessee the same are filed before us also.
11. For statistical purposes, the Department’s appeal is treated as partly allowed.