ORDER
T.V.K. Natarajachandran, Accountant Member
1. This appeal by the revenue is directed against the order of the CIT (Appeals) wherein he held that since the return of loss was filed under Section 139(1) it has to be entertained and the loss shall be deemed to have been accepted and has to be carried forward to subsequent years. The revenue is in appeal urging that the CIT (Appeals) has erred in directing to carry forward the loss overlooking the fact that the return has been filed belatedly.
2. The assessee is a co-operative society. The assessment year involved is 1985-86, for which the accounting year ended on 31-3-1985. It filed a return of loss on 7-10-1986, though the ITO granted extension of time till 30-9-1986 only. The ITO, therefore, held that the business loss of Rs. 43,624 cannot be carried forward to subsequent years. During the hearing of appeal it was stated by the assessee that it had applied for extension of time till 31st December, 1986 and the intimation of the ITO refusing to grant the time was received by the assessee only on 27-10-1986, i.e. after the assessee filed the return on 7-10-1986. Reliance was placed on the decision of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. The CIT (Appeals) stated that it was a fact that the assessing officer had not issued notice under Section 139(2) and therefore the return was a voluntary return and that too filed under Section 139(1). Therefore the return has to be entertained and the loss determined. He observed that it was open to the ITO to scrutinise the accounts and determine the losses for the year under consideration. Since he has not chosen to do so, the loss returned by the assessee shall be deemed to have been accepted and the loss has to be carried forward for subsequent years. He relied on the provisions of Section 80 of the IT Act, 1961.
3. At the time of hearing, the learned counsel for the assessee stated that the assessee filed series of applications for extension of time. The first one in form No. 6 was filed on 22-7-1985 seeking time till 31-12-1985. The second application was filed on 20-3-1986 seeking time till 30-6-1986 and the third one was filed on 14-7-1986 seeking time till 31-12-1986. However, the assessee has received intimation on 30-10-1986 granting extension of time till 30-9-1986. The return was filed on 7-10-1986. In the circumstances, it was contended that the return was filed earlier to the receipt of intimation and in the absence of service of notice under Section 139(2) the business loss of this year is entitled to be carried forward to subsequent years.
4. The learned Departmental Representative on the other hand supported the decision of the assessing officer. According to him, the privilege of filing return under Section 139(4) and claiming the carry forward of loss was lost by the amendment to Section 80 made by the Taxation Laws (Amendment) Act, 1984 with effect from 1-4-1985. Therefore, he urged that unless the return was filed under Section 139(1) the loss was not entitled to be carried forward. He therefore urged that the CIT (Appeals) was not justified in allowing the carry forward of loss for this year. In reply, the learned counsel supported the order of the CIT (Appeals).
5. After due consideration, I am of the opinion that the decision of the CIT (Appeals) is justified in law and in the facts and circumstances stated above. Firstly, the legal provision under Section 139(3) was that if any person who has not been served with a notice under Section 139(2) has sustained a loss in any previous year under the head “Profits and gains of business or profession”…, he may furnish, within the time allowed under Sub-section (1) or within such further time, which on an application made in the prescribed manner the ITO may in his discretion allow, 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-section (1). This provision clearly shows that the notice under Section 139(2) should not have been served on the assessee. This requirement is satisfied in the assessee’s case and the finding of the CIT (Appeals) in this respect stands uncontroverted. As regards the time of filing the return of loss, the extension of time allowed by the ITO is the limit within which the return of loss should be filed. As has been stated above, the assessee has filed three applications for extension of time up to 31-12-1986. The intimation of extending the time till 30-9-1986 was received by the assessee only on 30-10-1986. Till such time the assessee was under the belief that the time asked for would be granted. The Tribunal in the case of ITO v. Shalimar Rope Works Ltd. [1986] 17 ITD 918 (Cal.) has held that if application for extension of time was neither rejected nor allowed by the ITO, he should be deemed to have allowed the time applied for by the assessee, with the result that the return must be treated as a valid return filed under Section 139(1) within the time extended by the ITO. The Patna High Court in CIT v. Bishwanath Khirwal [1986] 161 ITR 382 has held that when once the assessee applies for extension of time and the ITO does not reject the prayer for extension of time for filing the return and docs not communicate it to the assessee, then it has to be presumed that the assessee is right in assuming that extension of time has been granted. The Punjab & Haryana High Court in the case of Harmanjit Trust (148 ITR 214) pointed out that a duty is cast on the ITO to intimate to the assessee whether its request for extension of time for furnishing the return has been granted or refused. If there is no reply within a reasonable time from the ITO, the assessee could presume that his request for extension of time had been granted. Applying the aforesaid rulings and decision of the Tribunal it could be seen that till the date of intimation was received on 30-10-1986 the assessee could presume that the time of extension applied for has been granted. It is not necessary to extend the presumption till 31-12-1986 for which an application for extension was filed on 14-7-1986 because the assessee itself filed the return on 7-10-1986. Therefore, it could be reasonably concluded that the return filed on 7-10-1986 is a return filed under Section 139(1) and therefore it is a valid return and the loss shown in the return is entitled to be carried forward for subsequent years for the purpose of set off. Even otherwise the delay is merely seven days. At the time of hearing I have enquired into the specific reasons which compelled the assessee to file application for extension of time. The learned counsel for the assessee stated that the assessee being a cooperative society the Internal Audit must complete the accounts in accordance with the requirements of the Co-operative Societies Act and only thereafter the return could be filed and in the assessee’s case such Audit Report was not completed and that is why the assessee had to seek extension of time repeatedly. In my opinion, the reasons that compelled the assessee to seek extension of time is required to be appreciated. Accordingly, I uphold the order of the CIT (Appeals). The appeal is dismissed.