ORDER
1. The appellant in the instant appeal is an individual and is aggrieved by the order of the Commissioner of Income-tax (Appeals) – IV [hereinafter referred to as CIT (A)] November 4, 1992. The grievance as raised in the grounds of appeal concerns the refusal to allow carry forward of the loss on the reasoning that the return was filed beyond the time permitted under the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’). This plea had been advanced because the claim is with reference to the share of loss of a registered firm that is governed by the provisions of the Act which provisions are not overruled by the provisions of section 80 of the Act, the Assessing Officer and the CIT (A) were wrong in denying the carry forward of the share of loss.
2. Mr. Venkatesan, the learned counsel for the appellant submitted that the assessee had filed his return of income on 6th March, 1991 and he conceded that the said return was belated. He submitted that the assessee in this return of income had included his share of profits from the firm M/s. Dasappa & Sons at an amount of Rs. 8,63,803. He submitted that the Assessing Officer in his order of assessment had categorically observed that consequent to the conclusion of the assessment proceedings of the registered firm, of which the assessee is a partner, he is adopting the final figures in the hands of the partner. The Assessing Officer had further remarked that in the hands of the firm consequent upon the allowing of deductions under section 43B of the Act, the income as returned by the firm got converted to a loss and the share of loss of the assessee was Rs. 13,27,614. This loss he refused to be adjusted and carried forward, because, the return was not filed within the time permitted under the Act which being a condition precedent under section 80 of the Act. He contended that the CIT(A) had merely echoed the views of the Assessing Officer.
3. The learned counsel submitted that the Assessing Officer having determined the loss in pursuance of a return filed by an appellant, he is, bound to consider its carry forward and could not deny the appellant the benefit of carry forward of the loss. In support of this proposition he placed reliance on the jurisdictional High Court decision in Kareemsons (P.) Ltd. v. CIT [1992] 198 ITR 543/64 Taxman 200 (Kar.) (FB).
4. The learned counsel contended that section 80 of the Act applies only to such allowing of carry forward of losses that are suffered by an assessee on his own and not to a situation of loss being thrust on him for carry, forward by the Act. He contended that Act had included special and exclusive provisions indicating the manner of carry forward of losses of a registered firm and an unregistered firm treated as a registered firm. These special provisions on loss of a registered firm state that the loss shall be apportioned between the partners for being set off against other income of the partners. He pleaded that it is further provided that in the event of the other income of the partners not being sufficient to absorb the loss the remaining unabsorbed loss would be brought back to the assessment of the firm for being adjusted against its income. He accordingly pleaded that the authorities were not justified in not allowing carry, forward of loss in the hands of the partners.
5. The learned counsel for the assessee submitted that the decision of the Hyderabad Bench of the Income tax Appellate Tribunal (ITAT in short) into ITO v. K. V. K. Raju [1991] 37 ITD 140 is not direct ruling on the issue as in the instant appeal. He pleaded that in that case the partner had claimed [the benefit of carry forward of share of loss from the registered firm for adjustment against his other income. This claim was rejected because the, return of income for the year in which the loss was suffered by the firm and was so allocated to the partner was filed beyond the time allowed under section 139(4) of the Act.
6. Mr. Kaleemullakhan, the learned departmental representative submitted that the section 80 of the Act does not make any distinction between loss suffered directly by an assessee or shared by a partner. He pleaded that the section very clearly states that an assessee if he wishes to avail the benefit of carry forward of loss, he must comply with the mandatory requirement of filing such loss return within the time permitted under section 139(1) of the Act. He submitted that this principle has the approval of the Mysore High Court in B. B. Danganavar v. ITO [1967] 65 ITR 370 and the Calcutta High Court in Burdwan Wholesale Consumers’ Co-operative Society Ltd. v. CIT [1991] 191 ITR 570/57 Taxman 227.
7. The rival contentions concerning the issue in appeal has been duly considered and the references to the rulings of the ITAT and the High Court had been very carefully perused. The case laws relied upon by the learned departmental representative are not directly on the issue in the present appeal before us. Both the rulings are not related to the partner being allocated share of loss of a firm by virtue of the provision contained in section 183(2) of the Act.
8. In K. V. K. Raju’s case (supra) the ITAT was concerned with the situation of a partner claiming the benefit of carry forward of loss for the assessment year 1982-83 in the assessment year 1983-84. The partner was allocated the loss of the firm for the assessment year 1982-83 on completion of the assessment of the firm. However, the said allocated loss could not be adjusted in the assessment of the partner because, he had filed the return of income only on 3-5-1985 which was beyond the time allowed under section 153 of the Act for completion of assessment that ended on 31-3-1985. The assessee had claimed that the share of loss of the firm having been allocated by virtue of section 183(2) of the Act, it ought to be so considered and allowed by the Assessing Officer even where the partner had not filed his return of loss.
9. The ITAT ruled that because of the provision contained in section 139(3) of the Act that had made it compulsory for filing of a return claiming the loss, the partner who is desirous of its adjustment and carry forward must file the return of income or loss. The ITAT had ruled that there is no such thing as automatic adjustment of loss in the hands of a partner consequent upon its determination in the hands of the firm even where the partner had not filed any return. The ITAT had also ruled that the provisions of section 155(1) for correction and adjustment consequent to the assessment of the firm always follows and presupposes the assessment framed on the basis of an existing return and not in its absence.
10. The facts of the case are recapitulated briefly hereunder. The assessee, a partner of a firm had filed her return of income for the assessment year under appeal on 6th March, 1991. In this return she had included her share of profit from the firm at Rs. 8,63,803. The said return was so filed consequent to the assessee being served with a notice under section 148 of the Act followed by reminders and a notice under section 142(1) of the Act. To put it other words the said return was not a voluntary return but one that is filed consequent to the assessee being intimated that he had not filed his return of income.
11. Assessing Officer had so observed in the order of assessment of the assessee that consequent to the adjustment allowed under section 43B of the Act in the assessment of the firm, the income got converted to a loss. Assessing Officer had further observed that the loss to be shared by the assessee was Rs. 13,27,614. He then observed that he is not allowing the adjustment and the carry forward of the loss in the hands of the appellant because the return was filed beyond the time allowed under section 80 of the Act.
12. The CIT (A) had upheld the order of the Assessing Officer by observing that section 80 supercedes the provision in other sections of the Act in allowing carry forward of business loss. He rejected the claim of the appellant that the belated return showed profit only and it was not a case of loss return but the share of loss of the firm allocated to him and that too as a consequence of the assessment of the firm. He opined that the provisions contained in section 182(3) of the Act are machinery provisions only and do not operate to countermand the provisions in the section 80 of the Act.
13. Both the authorities below had resorted to the provisions contained in section 80 of the Act in refusing in the hands of the assessee the adjustment of the share of loss of the firm against his other incomes. Therefore, it is necessary to appreciate the provisions of section 80 of the Act and the said provision is reproduced below for the sake of facility :
“Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of section of sub-section (3) of section 139 shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A.”
14. It can be appreciated from the reading of the provision of section 8 of the Act that it draws reference of loss return to section 139(3) of the Act. It is therefore necessary to appreciate the contents of that section an accordingly the said provision is reproduced below :
“If any person, who has not been served with a notice under sub-section (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-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) a return of loss in the prescribed form and verified in the prescribed manner and containing such particulars as may be prescribed, and all the provisions of this Act shall apply as if it were return under sub-section (1).”
15. The reading of the above section indicates that it had laid down certain parameters that are cumulative in nature. These parameters are that : (a) that the assessee should not have been served with a notice under section 139(2) of the Act calling him to file his return; (b) if he has sustained a loss in his business in the previous year and is claiming for its carry forward; and (c) he must file his return of loss within the time permitted under section 139(1) of the Act. To put it negatively, a person who had suffered business loss and had filed his return claiming the loss to be carried forward consequent to he being called upon to file the return by he being served with a notice under section 139(2) of the Act had denied himself such right of carry forward of the loss.
16. One of the arguments of the learned counsel for the appellant was that the said provision applies only to a situation where the business loss is directly suffered by him and not a situation of a partner being thrust with the loss that came to be allocated him. He contended that the section 182(2) of the Act had provided for the allocation of the loss of the registered firm for being set off against his other income or allowed to be carried forward as provided for in sections 70 to 75 of the Act.
17. To our mind this proposition is not passable because of the provisions contained in section 67(2) of the Act that states that the share of profit or loss of the partner from the firm as determined by applying the provisions of section 67(1) of the Act, shall be apportioned under the various heads of income in the same manner as was computed in the hands of the firm. The partner includes his share of profit or loss from the firm under different heads as was computed in the hands of the firm and one such head of income is profits or gains from business or profession. Further-more because it is only the partner who could claim the set off of the loss of a registered firm against his other incomes, there could be no distinction made between loss suffered on his own account and the loss that is shared by him as a partner. Therefore, we reject the argument so advanced by the counsel.
18. In the instant case the appellant was served with a notice under section 148 of the Act and was followed by notice under section 142(1) of the Act whereupon the assessee had chosen to file the return. It is not disputed that the return so filed consequent to the notices included her share of profit from the firm. It is thus clear that the said return could not be said to be a voluntary return within the meaning of section 139(1) of the Act and it is not a case where the assessee is claiming carry forward of business loss. Going by these facts alone it could not be said that the provisions of section 139(3) of the Act are attracted even in those cases where consequent upon the assessment of the firm the share of the partner gets converted to a loss. It could not be said that a person who apprehends that consequent to the assessment proceedings his income from business could get converted to a loss, must file his return voluntarily and within the time allowed under section 139(1) of the Act and this, he should do so before he is called upon to file his return by means of a notice under section 139(2) of the Act.
19. In the instant case it is not the case of the appellant that at the time she filed her return though consequent to the notice under section 148 of the Act that the assessment of the firm was not completed. It is also not the case of the appellant that at the point of time she filed her return she never anticipated of deductions being allowed in the assessment of the firm of payments governed by section 43B of the Act as a consequence of which the profit got converted to a loss. This we are observing for the reason that no assessee should be able to claim the loss in business on the basis that he had filed a return showing profit only though belated and may or may not be in pursuance to a notice under section 139(2) of the Act, when he knew that he should have in fact filed his return of loss from business.
20. We for the foregoing reasons are of the opinion that the authorities below justifiably rejected the claim for set off and carried forward of the share of the business loss in the hands of the assessee. We accordingly uphold their order and dismiss the appeal.
