JUDGMENT
G. SIVARAJAN, J. :
The matter arises under the IT Act, 1961. The assessment years concerned are 1986-87, 1987-88 and 1988-89. The petitioner is engaged in the business of manufacture of tread rubber for retreading tyres and is a sole proprietory concern under the name and style of “M/s. Associated Rubber Works” at Kottayam. It is also stated that he is a partner of two other business concerns. He is an assessee on the files of the second respondent. It is stated that for the asst. yr. 1986-87, which was the first year of the assessment, he filed a loss return on 31st October, 1986, before the second respondent declaring a total loss of Rs. 1,11,248 comprising of unabsorbed depreciation of Rs. 34,201 and unabsorbed investment allowance of Rs. 77,047. It is stated that the petitioner also claimed carry forward of such loss to the following assessment year, evidenced by Exts. P-1 and P-1(a). It is also stated that for the asst. yr. 1987-88 the petitioner filed a loss return on 22nd December, 1987, claiming an aggregate loss of Rs. 1,39,631 comprising of Rs. 1,11,248, being loss carried forward from the previous asst. yr. 1986-87, unabsorbed depreciation for the relevant year Rs. 23,118 and share of loss from other partnerships Rs. 5,266. It is further stated that the petitioner also claimed that the aggregate loss of Rs. 1,39,631 be carried forward to the following assessment year to be set off against the income, if any, of such year, evidenced by Exts. P-2 and P-2(a). It is stated that though the petitioner was entitled to carry forward the unabsorbed depreciation and investment allowance, the second respondent did not pass any assessment order on the returns filed for the years 1986-87 and 1987-88. It is also stated that subsequently for the asst. yr. 1988-89 the petitioner filed his return before the second respondent on 29th July, 1988, returning an aggregate loss of Rs. 2,68,703 comprising of business loss for the year 1988-89 Rs. 1,29,072 and loss carried forward from the asst. yr. 1987-88 Rs. 1,39,631. It is stated that the petitioner also claimed that such aggregate loss should be carried forward to the following assessment year to be set off against the income, if any, of that year, evidenced by Ext. P-3. The second respondent by order dt. 21st November, 1988 (Ext. P-4) completed the assessment for 1988-89 under s. 143(1) of the Act and allowed a loss of Rs. 1,06,495 to be carried forward. The petitioner then filed a rectification petition dt. 6th April, 1989 (Ext. P-5) before the second respondent which was replied by communication dt. 19th April, 1989 (Ext. P-6) stating that the loss for the years 1986-87 and 1987-88 are not allowed to be carried forward as the returns were filed belatedly. It is stated that the petitioner again wrote a letter (Ext. P-7) to the second respondent pointing out the provisions of law whereby unabsorbed depreciation and investment allowance have been allowed to be carried forward even if returns are filed belatedly. It is further stated that since no reply was received to Ext. P-7 communication, petitioner filed Ext. P-8 revision petition dt. 16th November, 1989, before the CIT under s. 264 of the Act. It is stated that an Argument Note (Ext. P-9) was submitted before the first respondent CIT and that the revision was dismissed as per Ext. P-10. It is stated in the OP that the first respondent erred in observing that the petitioner should have pursued action for asst. yrs. 1986-87 and 1987-88 instead of filing revision petition for 1988-89 and that he failed to appreciate that since no assessment orders were passed for those two years there was no cause of action for the petitioner to initiate proceedings. It is also stated that, since the second respondent failed to notify the loss to be carried forward for the asst. yrs. 1986-87 and 1987-88, the petitioner was entitled to have the loss redetermined in the assessment for 1988-89 and the first respondent, according to the petitioner, should have directed the second respondent to redetermine the loss accordingly. It is also stated that even if a loss return is filed belatedly and the assessee is not entitled to carry forward the business loss claimed therein, yet the petitioner is entitled to carry forward any unabsorbed depreciation and/or investment allowance.
2. A counter-affidavit is filed by the second respondent. It is admitted in the said counter-affidavit that the petitioner had filed the return for the year 1986-87 declaring a net loss of Rs. 1,11,248 and that the aggregate loss shown in the said return was Rs. 1,39,631. The second respondent has dealt with the merits of the matter relating to the claim in respect of the asst. yr. 1986-87 made in the return in para 7 of the counter-affidavit and submitted that the said claim does not appear to be correct. In para 8 of the counter-affidavit it is stated that the petitioners contention that the ITO did not pass any assessment order on the returns filed for the asst. yr. 1986-87 and 1987-88, is not correct and that the ITO had completed the assessment for the year 1986-87 under s. 143(1) on 29th January, 1988, as “closed as ND” and entered in the D&C register as II(11)(a)/235/87-88. It is stated that there is no specific noting as to whether the loss has been allowed to be carried forward or not. It is further stated that the assessment for the year 1987-88 is also seen completed on 29th January, 1988, and entered in the D&C register as III(ii)(a)/437/87-88 and that it has been noted that “loss not allowed to be carried forward for default under s. 139(3)”. It is stated that this was intimated to the assessee by issuing an intimation letter (Inland letter) as provided in s. 143(1) as the section stood at that time. It is also stated that since both the assessments for the years 1986-87 and 1987-88 were completed simultaneously on 29th January, 1988, only a consolidated intimation letter was issued on 9th February, 1988. It is further stated that the ITO completed the assessment for the year 1988-89 on 21st November, 1988 as under :
Rs.
Net loss as declared
1,29,072
Less : Disallowance under s. 43B
22,577
Loss
1,06,495
In reply to the application under s. 154 filed by the petitioner on 6th April, 1989, the petitioner was intimated by letter dt. 19th April, 1989, that the loss for the earlier years were not carried forward as the returns for these years were filed belatedly. It is also stated that from the records it is not clear whether the intimation regarding the completion of the assessment for the year 1986-87 was issued to the petitioner. But it is stated that the assessment order for the year 1987-88 was communicated by means of an intimation letter dt. 9th February, 1988. It is further stated that if the assessee really objects to the adjustment made by the ITO under s. 143(1) in disallowing the setting off of prior years loss and refusing carry forward of loss to subsequent year, he could have filed Form No. 6A for the asst. yr. 1987-88 objecting to the ITOs action.
3. The learned counsel appearing for the petitioner submitted that when the petitioner has filed loss returns for the years 1986-87 and 1987-88, if the assessing authority was not inclined to accept the said returns, the petitioner should have been afforded an opportunity of being heard and that in the instant case, no such opportunity has been granted. He also submitted that the petitioner has not been informed of any such assessment order passed for the years 1986-87 and 1987-88. He submitted that the petitioner is entitled to be heard before rejecting the loss returns. He further submitted that when the petitioner received the assessment order for the year 1988-89 evidenced by Ext. P-4 the petitioner immediately filed petition pointing out that the loss returns filed for the years 1986-87 and 1987-88 have not been taken into account while issuing Ext. P-4 order that, since the petitioner has not received any assessment orders for the said years, he was of the belief that the loss returns filed for the said two years have been accepted and carried forward and that the second respondent simply rejected the petition stating that the loss for the years 1986-87 and 1987-88 were not allowed to carry forward as the returns were filed belatedly. The learned counsel further submitted that at any rate, the first respondent CIT was not justified is rejecting the application stating that the petitioner should have pursued action for the asst. yrs. 1986-87 and 1987-88 instead of filing revision against the assessment order for 1988-89. The learned counsel accordingly submitted that Exts. P-4, P-6 and P-10 orders have to be set aside and the assessing authority must be directed to consider Exts. P-5 and P-7 petitions afresh with notice and opportunity to the petitioner. The learned counsel relied on the decision of the Supreme Court in CIT vs. Khushal Chand Daga (1961) 42 ITR 177 (SC) In that case, the Supreme Court with reference to the provisions of s. 24(3) of the IT Act, 1922, held that where the ITO does not notify to the assessee by order in writing the amount of loss for any year as computed by him under s. 24(3) of the Act, the assessee is entitled to have the loss redetermined in a subsequent year. The learned counsel also relied on a decision of the Madras High Court in Sathappa Textiles Pvt. Ltd. vs. ITO (1969) 71 ITR 260 (Mad) where it was held that where an assessee claims to carry over business loss as well as unabsorbed depreciation and development rebate, they have all to be included in one return, though the first part of the claim would fall under s. 22(2A) and the other part under s. 22(2), and if the return filed is a composite one under both the sections, though the portion relating to carry forward of loss was belated under s. 22(2A), the other part of the return relating to unabsorbed depreciation and development rebate must be considered by the officer, inasmuch as the carry forward of unabsorbed depreciation and development rebate does not fall within the ambit of s. 22(2A). He also relied on the decision of the Orissa High Court in Fatechand Agarwal vs. CWT (1974) 97 ITR 701 (Ori), and contended that it is the duty of the Revenue to establish that the service of an order was made on the assessee. I have heard the learned counsel appearing for the Revenue. He reiterated the contentions taken in the counter-affidavit and also relied on the decision of the Supreme Court in Garden Silk Weaving Factory vs. CIT (1991) 189 ITR 512 (SC) and submitted that the term loss as understood by the Supreme Court in the abovesaid decision alone should be taken.
4. I have considered the rival submissions. In the instant case, admittedly the petitioner has filed loss returns for the years 1986-87 and 1987-88 under s. 139 of the Act. Under s. 143(1), there is an obligation on the part of the assessing authority to make an assessment of the total income or loss of the assessee after making such adjustment to the income or loss declared in the return. Under sub-s. (2), where a return has been made under s. 139 and an assessment having been made under sub-s. (1), if the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the ITO objecting to the assessment, or whether or not an assessment has been made under sub-s. (1), the ITO considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the ITO shall serve on the assessee a notice requiring him to attend at the ITOs office or to produce, or cause to be produced any evidence on which the assessee may rely. In the instant case, the petitioner has not been afforded an opportunity as contemplated under sub-s. (2) of s. 143 of the Act. It is practically admitted that the order stated to have been passed for the asst. yr. 1986-87 has not been served on the petitioner. Regarding the communication of the assessment order for the year 1987-88 it is stated that the same was intimated by an inland letter. There is absolutely no proof or evidence regarding the service of notice of the assessment order for the year 1987-88 also on the petitioner. At any rate, when the petitioner has specifically brought to the notice of the second respondent that he has not received any order of assessment for the years 1986-87 and 1987-88, the second respondent was bound to intimate the fact of completion of the assessment for the said two years and the communication of the order for the year 1987-88 to the petitioner, but curiously enough nothing has been stated about these matters in Ext. P-4 communication rejecting the application. The only reason stated is that the returns submitted for the years 1986-87 and 1987-88 are belated and, therefore, the carry forward is not allowed. The petitioner in the revision filed against the assessment order for 1988-89 has pointly taken all these contentions before the first respondent but the first respondent has rejected the same stating that these matters cannot be agitated in a revision filed against the assessment order for the year 1988-89. The first respondent, according to me, was not justified in rejecting the revision petition for the reason mentioned above. If, as a matter of fact, the petitioners returns for the asst. yrs. 1986-87 and 1987-88 are accepted, certainly the loss claimed in the said returns should have been allowed to be carried forward for the subsequent years and the same should have been reflected in the assessment years for 1988-89. Since the assessment order did not include the loss claimed for the earlier two years, the petitioner has brought this to the notice of the assessing authority and requested for rectification. The said request for rectification has been rejected on the ground that the return filed for the said two years are belated. As already stated, the assessing authority was bound to communicate the order, if any, passed by him for the years 1986-87 and 1987-88 to enable the petitioner to file his objection to the same. Since the petitioner was not afforded an opportunity before rejecting the loss returns and the claim for carry forward of the said loss, I am of the view that Exts. P-4, P-6 and P-10 orders have to be quashed. I accordingly quash the said orders. I direct the second respondent to afford an opportunity to the petitioner or show cause against the rejection of the loss returns filed for the years 1986-87 and 1987-88 and also to complete the assessments for the years 1986-87, 1987-88 and 1988-89 after due consideration of the objections that may be taken by the petitioner. It is for the assessing authority to consider the merits of the contentions regarding the acceptability of the loss return and therefore, the same is left open for consideration by the second respondent while completing the said assessments. Since the matter relates to the asst. yrs. 1986-87 to 1988-89, I direct the second respondent to complete the proceedings for the aforesaid three year afresh with notice and opportunity to the petitioner as expeditiously as possible, at any rate, within a period of two months from the date of receipt of a copy of this judgment.
The Original Petition is allowed to the above extent.