Month: January

ISSUE FOR CONSIDERATION

The provisions relating to filing of return of income are contained in section 139 of the Income Tax Act, 1961. A return of income filed within the due date is governed by sub-section (1) of section 139 Sub-section (3) deals with a return of loss. A return not filed in time can be furnished within the time prescribed under sub-section(4). The return furnished under sub-section (1) or (4) can be revised as per sub-section (5) of section 139.

Section 139(5) reads as under:

“If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before three months prior to the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.”

Section 80 provides that no loss shall be carried forward and set off unless such loss has been determined in pursuance of a return filed in accordance with sub-section (3) of section 139. Section 80 reads as under:

“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 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 (2) of section 73A or sub-section (1) or sub-section (3) of section 74 or sub-section (3) of section 74A.”

Sub-section (3) of section 139 reads as under:

“If any person who 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 (2) of section 73A 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 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).”

A question had earlier arisen before the courts as to whether a return of income filed under section 139(1) declaring a positive income, could be revised under section 139(5) to declare a loss, which could be carried forward for set-off as per s.80 by treating such a return as the one filed under s. 139(3) of the Act. The Gujarat High Court in the case of Pr CIT vs. Babubhai Ramanbhai Patel 249 Taxman 470, the Madras High Court in the case of CIT vs. Periyar District Co-op. Milk Producers Union Ltd 266 ITR 705, and various benches of the Tribunal, in the cases of Sujani Textiles (P) Ltd 88 ITD 317 (Mad), Sarvajit Bhatia vs. ITO ITA No 6695/Del/2018, and The Dhrangadhra Peoples Co-op. Bank Ltd vs. DCIT 2019 (12) TMI 976 – ITAT Rajkot had all taken a view that it was permissible to file a return of loss for revising the return of income, and such a loss so declared in the revised return could be carried forward for set off. The Kerala High Court in the case of CIT vs. Kerala State Construction Corporation Ltd 267 Taxman 256, however, held to the contrary disallowing the right of set-off in the case where the original return of income was for a positive income,

The position believed to be settled was disturbed by a decision of the Supreme Court. The Supreme Court, in the case of Pr CIT vs. Wipro Ltd 446 ITR 1, in the context of withdrawal of a claim for exemption (of a loss) under section 10B through a revised return under section 139(5) claiming to carry forward of such loss (not claimed in view of s.10B exemption), has observed that the Revenue was right in claiming that the revised return filed by the assessee under section 139(5) can only substitute its original return under section 139(1) and cannot transform it into a return under section 139(3), in order to avail the benefit of carry forward or set off of any loss under section 80. The review petition against this order was dismissed by the Supreme Court vide its order reported at 289 Taxman 621.

Subsequent to this Supreme Court decision, the controversy has arisen before the Tribunal as to whether the Supreme Court’s decision has impacted the allowance of a claim for carry forward or set off of a loss not made in the original return by filing a revised return filed under section 139(5), after the due date of filing of the return under section 139(1). While the Pune Bench of the Tribunal has held that a claim of enhanced loss under a revised return is permissible, the Delhi Bench has taken a view that a claim of loss under a revised return would not enable the assessee to carry forward or set off a loss claimed for the first time in the revised return of income.

BILCARE’S DECISION

The issue first came up for discussion before the Pune bench of the Tribunal in the case of Dy CIT vs. Bilcare Ltd 106 ITR(T) 411, the relevant assessment year being the assessment year 2016-17.

In this case, the assessee had a wholly-owned subsidiary in Singapore, which went into liquidation. While the company was ordered to be liquidated within 30 days in February 2014, the assessee made an application to the High Court of Singapore in October 2015 seeking permission to transfer the shares held by it in the Singapore subsidiary to another foreign subsidiary incorporated in Mauritius for a consideration of SGD 1. The permission was granted by the Singapore High Court in October 2015, and the transfer of shares was completed on 22nd October, 2015.

The assessee had not reflected this sale of shares of the Singapore subsidiary in its audited financial statements. The assessee had filed its original return before the due date on 28th November, 2016, declaring a loss of ₹45.98 crore, not taking into consideration such loss on the sale of shares of the Singapore subsidiary. The return was revised after the due date on 29th March, 2018, increasing the loss to ₹968.31 crore. The increase in loss was on account of the claim for long-term capital loss of ₹922.33 crore arising on transfer of shares of the Singapore subsidiary of the company, which claim was not made in the original return of income.

In the draft assessment order, the assessing officer refused to take cognizance of the revised return of income, in which the claim for such long-term capital loss was made. The assessee filed an application before the Joint Commissioner of Income Tax under section 144A for issuance of a direction on the issue of disallowance of the long-term capital loss arising on the sale of shares of the subsidiary of ₹922.33 crore. The Joint Commissioner directed that the loss on sale of shares claimed in the revised return should not be entertained, but that the claim of capital loss of ₹922.33 crore made during the course of assessment proceedings may be examined on merits.

The assessing officer disallowed the claim of long-term capital loss on the sale of shares of the foreign subsidiary on the following grounds:

(i) the claim for deduction of loss on the sale of shares in the revised return of income was not valid in law as the necessity for filing the revised return of income was not on account of any omission or wrong statement in the original return of income;

(ii) the Singapore High Court simply permitted the assessee to sell the shares of the Singapore subsidiary without mentioning the consideration for the sale of shares, and therefore the transaction of sale of shares was not by operation of law;

(iii) the assessee only sold the shares of the Singapore subsidiary to another wholly-owned subsidiary in Mauritius, and there being complete unity of control between the seller and purchaser, the transaction was not undertaken at arm’s length;

(iv) the assessee failed to furnish the information sought by the AO in order to determine the fair market value of the shares in terms of the provisions of rule 11UA of the Income Tax Rules, 1962.

The assessing officer was of the view that it was a dubious method adopted by the assessee in order to avail the benefit of set-off of the long-term capital loss arising on the sale of the shares of the subsidiary. Invoking the doctrine laid down by the Supreme Court in the case of McDowell and Co Ltd vs. CTO 154 ITR 148, the AO denied the claim for deduction of long-term capital loss of ₹922.33 crore arising on sale of shares of the Singapore subsidiary.

The Commissioner (Appeals) considered the chronology of events and facts of the case and upheld the finding of the AO that the long-term capital loss could not have been claimed through a revised return of income. He however held that since the assessee had suffered a loss, the claim made during the course of assessment proceedings could also be considered, placing reliance on the decision of the Bombay High Court in the case of CIT vs. Pruthvi Brokers & Shareholders 349 ITR 336. He therefore directed the AO to allow the loss as the claim was genuine and bona fide.

Before the tribunal, on behalf of the revenue, it was contended that the revised return of income was not valid in law and that the Commissioner (Appeals) ought not to have applied the ratio of the Bombay High Court decision in the case of Pruthvi Brokers & Shareholder (supra), as the decision related to a claim made for the first time before the Commissioner (Appeals) and that the ratio of the decision of the Supreme Court in the case of Goetze (India) Ltd 284 ITR 323 was squarely applicable to the facts of the case. It was further claimed that the Commissioner (Appeals) had failed to examine the colourful device adopted by the assessee and that the transactions of sale of shares of the Singapore subsidiary to another wholly-owned foreign subsidiary were not at arm’s length price.

On behalf of the revenue, it was further claimed that the revised return of income was not valid in law, as the assessee had chosen not to challenge this finding before the tribunal. It was claimed that the Commissioner (Appeals) had failed to take cognizance of the provisions of section 139(3) read with section 80. Reliance was placed on the decision of the Supreme Court in the case of Wipro Ltd (supra).

On behalf of the assessee, it was submitted that the ratio of the decision of the Supreme Court in the case of Wipro Ltd (supra) had no application to the facts of the case, as the issue before the Supreme Court was regarding the interpretation of the provisions of section 10B(8). It was further submitted that the claim of the assessee in the case before the tribunal was totally different from the facts in the case of Wipro Ltd (supra), and therefore the ratio of the decision of the Supreme Court in the case of Wipro Ltd (supra) could not be applied to the facts of the case before the tribunal. It was submitted that the material on record clearly showed that after meeting the liabilities of creditors of the Singapore subsidiary, nothing remained to be distributed amongst the shareholders. Therefore the intrinsic value of the shares was nil, and that there could not be any dispute with regard to consideration received on the sale of the shares.

It was further pointed out on behalf of the assessee that rule 11UA did not apply to the year under consideration, since it came into effect from 1st April, 2018. It was further submitted that the transaction was not a dubious transaction but was a real transaction, as evidenced by the documents showing the completeness of the transaction of the sale of shares. It was argued that the ratio of the decision in the case of McDowell & Co Ltd (supra) had no application to the facts of the case as it was a real transaction, and citizens were free to arrange affairs in order to minimise the tax liability.

Analysing the provisions of section 139, the tribunal observed that there was no dispute that the original return was filed within the due date for filing of the return of income under section 139(1). Even the revised return of income was filed within the prescribed period as required by section 139(5). The revised return could be filed in a situation where an assessee discovered any omission or any wrong statement made in the original return of income. The circumstances that led the assessee not to claim the long-term capital loss in the original return of income were explained before the AO, and which explanation remained uncontroverted. Therefore, according to the tribunal, it could not be said that it was not a bona fide omission made in the original return of income, or that the assessee had failed to satisfy the conditions prescribed under section 139(5) for filing the revised return of income. The Tribunal therefore held that the AO was not justified in not accepting the revised return of income filed by the assessee.

The tribunal observed that it was a settled position of law that an assessee was entitled to revise the return of income within the time allowed under section 139(5). Once the revised return of income was filed, the natural consequence was that the original return of income was effaced or obliterated for all purposes, and it was not open to the AO to revert to the original return of income. This position of law was approved by the Supreme Court in the case of CIT vs. Mahendra Mills/Arun Textile C/Humphreys Glasgow Consultants 243 ITR 56.

As regards the applicability of the Supreme Court decision in the case of Wipro Ltd (supra), the tribunal observed that, in that case, the Supreme Court was concerned with the interpretation of the provisions of section 10B(8), and had made a passing remark that the revised return of income filed by the assessee under section 139(5) only substituted original return of income under section 139(1), and such a return could not be transformed as return of loss filed under section 139(3) in order to avail the benefit of carry forward and set off of any loss under the provisions of section 80. The issue of interpretation of the provisions of section 139(3) and section 80 was not before the Supreme Court in the case of Wipro Ltd (supra). According to the tribunal, it was a settled legal position that every interpretation made by the Honourable Judges did not constitute the ratio decidendi. The tribunal further observed that the observations made by the Supreme Court had no application to the facts of the case before it, as the assessee had filed the original return of income showing loss within the time prescribed under section 139(1), and therefore the decision of the Supreme Court was distinguishable on facts.

According to the tribunal, it was clear that the assessee had discovered and omitted to claim a genuine loss arising on sale of shares, and therefore filed a revised return of income under section 139(5) within the prescribed time limit claiming the determination and carry forward of loss. It was a valid revised return of income filed under section 139(5). Therefore, the findings of the AO as well as the Commissioner (Appeals) to the extent that the revised return of income was not a valid one, was reversed by the tribunal.

The tribunal further rejected the arguments made on behalf of the revenue, that the finding that the revised return of income was not valid was accepted by the assessee as the issue was neither raised in cross-appeal nor in cross-objection, observing that respondent to an appeal could always support the order of the Commissioner (Appeals) on the ground decided against him under the provisions of rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. The tribunal observed that it was a settled position of law that in a case where the assessee filed the return of loss within the time prescribed under section 139(1), there was no bar under the provisions of the Income Tax Act to claim a higher loss during the course of assessment proceedings, nor were there any fetters on the AO to allow such higher loss.

Placing reliance on the decisions of the Delhi High Court in the case of CIT vs. Nalwa Investment Ltd 427 ITR 229 and Karnataka High Court in the case of CIT vs. Srinivasa Builders 369 ITR 69, the tribunal observed that when the assessee had claimed a lower amount of loss erroneously, which was sought to be corrected during the course of assessment proceedings, the AO was not justified in not determining and allowing the carry forward and set off of the loss, as the conditions for triggering the provisions of section 80 would not apply.

The Tribunal therefore held that the reasoning of the AO, that the loss not claimed in the original return of income but claimed in the revised return of income could not be allowed, was not sustainable in the eyes of the law.

RRPR HOLDING’S DECISION

The issue again came up before the Delhi bench of the tribunal in the case of RRPR Holding (P) Ltd vs. DyCIT 201 ITD 781.

The assessee was an investment holding company set up to acquire and hold shares of NDTV Ltd and its group companies. It filed its original return of income under section 139(1) on 15th October, 2010, declaring total income at ₹4,17,005. The original return was subjected to scrutiny assessment by the issuance of notice under section 143(2) dated 29th August, 2011. Pending completion of assessment under section 143(3), the assessee filed a revised return under section 139(5) on 2nd February, 2012 within the prescribed time. As per the revised return, the assessee claimed a long-term capital loss of ₹206.25 crore arising on the sale of shares, along with the income from other sources of ₹4,17,005 declared in the original return and claimed to carry forward of such loss.

The AO noted that no such loss arising on the sale of shares was claimed in the original return filed by the assessee. Subsequently, according to the AO, enquiries in respect of certain transactions entered into by the assessee were carried out by the Investigation Wing. Following the same, the assessee revised its return of income after a lapse of 17 months and filed a revised return claiming the long-term capital loss. The AO observed that such a revised return was not a valid return, and therefore non-est in the eyes of law. The AO noted that there was not even an iota of reference to any transaction involving any capital gains or capital loss in the original return. As per the AO, for entitlement of carry forward of losses, as per section 139(3), the loss return had to be necessarily filed within the time allowed for filing return under section 139(1), whereas the capital loss had been claimed for the first time in the revised return filed beyond the time limit stipulated under section 139(1). Thus, the AO refused to admit the claim of long-term capital loss and denied carrying forward and setting off of such loss.

The Commissioner (Appeals) upheld the denial of the long-term capital loss, on the ground that the return had to be necessarily filed within the time limit prescribed under section 139(1), but that the loss had been claimed by filing a revised return under section 139(5) beyond the time limit prescribed under section 139(1).

Before the tribunal, on behalf of the assessee, it was contended that where the original return had been filed on or before the due date under section 139(1), the assessee was entitled in law to revise the return under section 139(5) within the due date prescribed therein. The assessee had filed the original return as well as the revised return within the due dates prescribed under the respective sub-sections (1) and (5) of section 139. Thus the loss arising on the sale of the shares claimed as long-term capital loss was not hit by the embargo placed by section 80. Reliance was placed on the decisions of the High Courts in the case of Babubhai Ramanbhai Patel (supra), Dharampur Sugar Mills Ltd (supra), and the decision of the Mumbai bench of the tribunal in the case of Ramesh R Shah vs. ACIT 143 TTJ 166 (Mum) in support of this proposition. It was submitted that the denial of carry forward of losses claimed in the revised return was opposed to the scheme of the Act as interpreted by the judicial dicta and hence was required to be reversed by admitting the claim made towards long-term capital losses by way of revised return, and allowing carry forward and set off of such losses.

On behalf of the revenue, it was submitted that the loss return under section 139(3) must be necessarily filed within the due date prescribed under section 139(1) to avoid the rigours of section 80. The losses claimed had come into consideration by virtue of a revised return which was filed subsequent to the due date prescribed under section 139 (1), and thus the revised return to make a new claim giving rise to losses, could not be allowed in defiance of the provisions of the Act, regardless of the fact that the revised return had been filed within the due date prescribed under section 139(5). It was further submitted that the claim of capital loss had been made for the first time in the revised return, and it was not a case where the claim of loss made in the original return had been modified in the revised return. It was further pointed out that such a huge loss was claimed for the first time by way of a revised return, and that there was no reference to the loss in the original return or in the profit and loss account. It was contended that such an omission to claim the loss in the original return was prima facie willful to hide the transactions from the knowledge of the Department, and therefore the claim of loss made by filing the revised return should not be granted.

The tribunal observed that the moot question in the case was whether the assessee was entitled in law to make an altogether new claim of capital loss in the revised return which was filed within the due date prescribed under section 139(5) but subsequent to the due date prescribed under section 139(1), and consequently, whether the assessee was entitled to carry forward such capital losses claimed in the revised return. The other integral issue was whether the loss claimed in the revised return met the requirement of section 139(5).

The tribunal analysed the provisions of sections 139(1), 139(3), 139(5) and 80. It noted that section 80 began with a non-obstante clause, unequivocally laying down that to get the benefit of carry forward of loss pertaining to capital gains, the return of loss had to be filed within the time allowed under section 139(1). Section 80 therefore prohibited the claim of carry forward of such losses unless determined under section 139(3). Section 139(3) in turn made the mandate of the law clear that the loss return must be filed within the time limit permitted under section 139(1). The revision of the return under section 139(5) was also circumscribed by the expression “discovers any omission or any wrong statement in the original return”.

Analysing the facts of the case before it, the tribunal noted that the original return filed under section 139(1) did not make reference to the existence of any capital loss at all. The loss had been claimed for the first time in the revised return of income filed beyond the time limit prescribed under section 139(1). According to the tribunal, the provisions of section 80 thus came into play. The tribunal observed that the law codified was plain and clear and did not have any ambiguity. Therefore, the tribunal was of the view that the capital loss claimed under a return filed beyond the time limit under section 139(1) could not be carried forward under section 74.

The tribunal was of the view that the decision of the Allahabad High Court in the case of Dhampur Sugar Mills Ltd (supra) did not apply as the facts of the case before it were quite different. The tribunal refused to follow the decision of the Gujarat High Court in Babubhai Ramanbhai Patel (supra) on the ground that section 80 had not been pressed for the consideration of the High Court at all, and reliance upon such judgment rendered without reference to section 80, which was pivotal to the controversy, was of no relevance, and the observations made therein could not be applied to the facts of the case before it.

The tribunal further observed that no explanation was given as to how the omission to account for such a large loss had resulted, and therefore the propriety of such capital loss itself was under a cloud. It was therefore difficult for the tribunal to affirm that the omission or wrongful statement in the original return was sheer inadvertence and not deliberate or willful. The revised return could be filed only if there was an omission or wrong statement. A reference was made by the tribunal to the decision of the Supreme Court in the case of Kumar Jagdish Chandra Sinha vs. CIT 220 ITR 67, where it was held that a revised return could not be filed to cover up deliberate omission etc. in the original return.

The Tribunal therefore upheld the order of the AO.

OBSERVATIONS

There are various facets to the issue of claim of loss vis-à-vis a revised return;

• A claim of increased loss where the original return declared loss that was increased in the revised return,
• A claim of loss vide a revised return of income filed within the due date prescribed under s. 139(1),
• Where the claim for loss was made during the course of assessment before the AO,
• Where the claim for loss was made before the appellate authorities.
• A claim of loss where the original return disclosed positive income,
• Where the omission or wrong statement was conscious.

In Wipro’s case, the Supreme Court has rejected the claim for set-off and carry forward of the loss on two grounds;

• the reason for filing the revised return could not be attributed to a mistake or a wrong statement, and
• the return so filed could not transform itself into a return of loss under s. 139(3).

The Supreme Court in Wipro’s case considered the facts where the assessee filed a return under section 139(1), claiming exemption under section 10B, and therefore did not claim carry forward of the loss otherwise incurred. After the due date, it filed the declaration under section 10B(8) claiming that the provisions of section 10B should not apply, and claimed loss and the right to carry forward of losses under section 72, withdrawing its claim under section 10B. It may be noted that section 10B(8) requires the filing of the declaration to opt out before the due date prescribed under section 139(1). The Supreme Court held that the requirement to file the declaration under section 10B(8) was a mandatory requirement and not a directory one, and therefore filing the revised return under section 139(5) could not help the assessee to withdraw the claim under s. 10B of the Act and in its place stake a claim for the loss.

The Supreme Court also held that the assessee could file a revised return in a case only where there was an omission or a wrong statement. As per the Supreme Court, the revised return of income could not be filed to withdraw the claim of exemption and stake a claim for set-off of loss and to carry forward such loss. The Court held that the filing of a revised return to take a contrary stand regarding the claim of exemption was not permissible. In deciding so, the Supreme Court observed that the revised return filed by the assessee under section 139(5) only substituted the original return under section 139(1) and could not transform the original return into a return under section 139(3) in order to avail the benefit of carry forward or set-off of any loss under section 80. The issue in Wipro’s case was more about the right to withdraw the claim for an exemption by filing a revised return, and less about the right to claim a loss for the first time in a revised return of income.

In a situation where an original return of income is filed claiming a loss, either under the head “Business or Profession” or “Capital Gains” or both, which is filed within the time limit specified in section 139(1), what has undoubtedly been filed is a return of loss as envisaged by section 139(3), which is regarded as a return under section 139(1) by reason of operation of section 139(3). As held by the Supreme Court in Mahendra Mills case (supra), the revised return effaces or obliterates or replaces the original return, which original return cannot be acted upon by the AO. Any mistake or wrong statement made in a return furnished under section 139(1) can be corrected by filing a revised return under section 139(5) within the time specified in that sub-section. Therefore, logically, a return under section 139(3) declaring a loss under any one of the two heads of income can be revised to disclose a further loss under any of those heads (either the head with a positive income or the head with a loss in the original return) not disclosed in the original return. In Bilcare’s case, this was the position. The Delhi High Court supports this proposition in Nalwa Investments (supra) case, where a higher loss than that filed in the original return was claimed during assessment proceedings and allowed by the High Court. The Madras High Court also supports this proposition in the case of Periyar District Co-op. Milk Producers Union Ltd (supra), where it held that in view of the expression “all the provisions of this Act shall apply as if it were a return under sub-section (1)” contained in section 139(3), there was no reason to exclude the applicability of sub-section (5) to a return filed under sub-section (3). A similar view was taken by the Pune Tribunal in the case of Anagha Vijay Deshmukh vs. DyCIT 199 ITD 409, where a revised return was filed to claim a higher capital loss than that claimed in the original return.

In Bilcare’s case, the tribunal was concerned with a case where the original return of loss was revised and the claim of loss was substituted with the higher loss. This made it easier for the tribunal to hold the case in favour of the assessee as the original return was a return under s. 139(3). The facts presented by the assessee substantiated that there was an omission while filing the original return which was circumstantial and not deliberate. On a co-joint reading of the provisions of s. 139(3) and (5) along with sub-section (1), it is correct to hold that a return of loss filed under s. 139(3) can be revised under s.139(5) of the Act. In our considered view, there is no room for doubt about this position in law. The ratio of the decision in the case of Wipro was not applicable in this case, even where its decision in the context was not held to be obiter dicta.

Likewise, a case where the assessee has filed the revised return filed before the expiry of time prescribed under s.139(1), for claiming the loss for the first time should not pose a problem as such a return is nonetheless within the time permissible under s. 139(3) of the Act. The case of the assessee will be better served where there was a mistake in omitting to claim the loss originally.

A claim for deduction or expenditure is permissible to be made during the course of assessment or appellate proceedings, and such a claim resulting in assessed loss should not be disallowed and should be eligible for carry forward as long as the return of income was filed within the due date of s.139(1).

The challenge remains in a case where the original return of income filed u/s 139(1) was for a positive income which was changed to loss while filing the revised return under s. 139(5), outside the time prescribed under s.139(1) of the Act. It is in such a case that the Supreme Court in Wipro’s case held that it was not possible to grant the claim of loss staked under the revised return. The facts in RRPR’s case were similar to the facts in Wipro’s case, and therefore the tribunal in that case had no option but to apply the ratio of the decision of the Supreme Court.

In all cases of the revised return under s.139(5), the assessee has to establish that the revision was on account of the omission or a wrong statement and was not a deliberate and conscious act. Kumar Jagdish Chandra Sinha (supra),

Assuming that a given case does not suffer from the handicap of the deliberate or intentional act on the part of the assessee, one can perhaps analyse the issue in the absence of Wipro’s decision, notwithstanding the fact that even the application for the review of Wipro’s decision is rejected.

• A situation where the income declared in the original return is a positive income under both heads of income, “Business or Profession” as well as “Capital Gains”, but a loss under either head is sought to be claimed in a revised return, as was the situation in RRPR Holding’s case. These were the facts before the Gujarat High Court in Babubhai Ramanbhai Patel’s case, where a positive return of income that was filed was sought to be revised disclosing such income, but also disclosing a speculation loss. While the Gujarat High Court did not expressly refer to section 80, they did hold that accepting the contention of the revenue would amount to limiting the scope of revision of the return, which did not flow from the language of section 139(5).
• Similarly, the Karnataka High Court, in the case of Srinivas Builders (supra) allowed the claim for loss made during assessment proceedings, where the return of income originally filed was of a positive income.
• A contrary view was taken by the Kerala High Court in the case of CIT vs. Kerala State Construction Corporation Ltd 267 Taxman 256, where the High Court held that when a return is originally filed under section 139(1), the enabling provision under section 139(5) to file a revised return only enables the substitution or revision of the original return filed. On a revised return filed, it can only be a return under section 139(1) and not one under section 139(3). The Kerala High Court relied (perhaps unjustifiably) on the decision of the Punjab & Haryana High Court in the case of CIT vs. Haryana Hotels Ltd 276 ITR 521, which was a case where a loss of an earlier year was claimed for set off without a return of income being filed at all and without any assessment having been done for that earlier year.
• In Ramesh R Shah’s case (supra), a return of positive income was sought to be revised by claiming a long-term capital loss which was to be carried forward, in addition to the income declared in the original return. In that case, the Tribunal observed as under:

“In our humble opinion correct interpretation of section 80, as per the language used by the Legislature, condition for filing revised return of loss under section 139(3) is confined to the cases where there is only a loss in the original return filed by the assessee and no positive income and assessee desires to take benefit of carry forward of said loss. Once, assessee declares positive income in original return filed under section 139(1) but subsequently finds some mistake or wrong statement and files revised return declaring loss then can he be deprived of the benefit of carry forward of such loss? In our humble opinion, if we accept interpretation given by the authorities below, it would frustrate the object of section 80. Section 80 is a cap on the right of the assessee, when the assessee claims that he has no taxable income but only a loss but does not file the return of income declaring the said loss as provided in sub-section (3) of section 139. It is pertinent to note here that Legislature has dealt with two specific situations (i) under section 139(1), if the assessee has a taxable income chargeable to tax then it is a statutory obligation to file the return of income within the time allowed under section 139(1). So far as section 139(3) is concerned, it only provides for filing the return of loss if the assessee desires that the same should be carried forward and set off in future. As per the language used in sub-section (3) to section 139, it is contemplated that when the assessee files the original return, at that time, there should be loss and the assessee desires to claim said loss to be carried forward and set off in future assessment years. Sub-section (1) of section 139 cast statutory obligation on the assessee when there is positive income. In the present case, admittedly, the assessee filed the return of income declaring the positive income and even in the revised return, the assessee has declared the positive income as the loss in respect of the sale of shares, which could not be set off, inter-source or inter-head under section 70 or 71 of the Act.

11. We have to interpret the provisions of any statute to make the same workable to the logical ends. As per the provisions of sub-section (5) to section 139, in both the situations where the assessee has filed the return of positive income as well as return of loss at the first instance as per the time limit prescribed and subsequently, files the revised return then the revised return is treated as valid return. In the present case, as the assessee filed its original return declaring the positive income and hence, in our opinion, subsequent revised return is valid return also and the assessee is entitled to carry forward of ‘long-term capital loss’. Sub-sections (1) and (3) of section 139 provides for the different situations and in our opinion, there is no conflict in applicability of both the provisions as both the provisions are applicable in the different situations. We are, therefore, of the opinion that there is no justification to deny the assessee to carry forward the loss.”

• Unfortunately, the decision in Ramesh R Shah’s case, though cited before the Tribunal in RRPR Holding’s case, was not considered by it in deciding the matter. It appears that the decision in RRPR Holding’s case was swayed by the assessee’s failure to furnish an explanation of the nature and character of transactions resulting in the capital loss, and therefore the genuineness of the transactions.
• This view taken in Ramesh R Shah’s case has also been followed by the Tribunal in the case of Mukund N Shah vs. ACIT, ITA No 4311/Mum/2009 dated 17th August, 2011, where a revised return was filed during the course of assessment proceedings, claiming a capital loss which had not been claimed in the original return filed under section 139(1). The Tribunal held that once the return is revised the original return filed gets substituted by a revised return, and therefore, loss determined as per the revised return was to be treated as loss declared under section 139(3), because the original return was filed within the time allowed under section 139(1). Therefore, the loss determined has to be taken as a loss computed in accordance with the provisions of section 139(3) and such loss has to be allowed to be carried forward under the provisions of section 80. The Tribunal also looked at it from a different angle. If the assessee had not revised the return at all and no loss was shown in the original return due to some mistake, the AO in the assessment under section 143(3) was required to compute income or loss correctly. Once the loss had been determined by the AO under section 143(3), it cannot be said that the loss cannot be allowed to be carried forward when the return has been filed within the time allowed under section 139(1).

A harmonious reading of the provisions of sub-sections (1),(3),(5) of s. 139 with s.80 of the Act reveals that the return of income is to be filed under s.139(1) and of loss under s. 139(3) and both the returns are to be filed within the time prescribed under s.139(1). The reading also confirms that both of these returns can be revised under sub-section (5). There is no express or implicit condition in s.139 that stipulates that a return of income cannot be revised to declare loss for the first time.

Importantly s.139(3) clearly states that all the provisions of the Act shall apply to such a return as if the return of loss is the return of income furnished under s.139(1) of the Act. In our respectful opinion, it is clear that no further transformation is called for where the legislature itself had bestowed the return of loss with the status of a return under s.139(1), and no further aid is required from the provisions of sub-section (5) to further transform the return filed thereunder as one under sub-section (3).

The purpose of section 80 is that, while there is no obligation to file a return of income under section 139(1), the assessee should file a return of income and have the loss determined in order to be able to claim carry forward and set off of the loss. This purpose is achieved even in a situation where the original return declaring a positive income is filed in time but is revised on account of a mistake to reflect a loss. Further, if a return of loss can be revised to claim a higher loss or can be assessed at a higher loss on account of a claim made in assessment proceedings, there is no justification in denying a claim of a loss merely because it was made through a revised return and not through the original return. This view also results in a harmonious interpretation of sections 80, 139(3) and 139(5).

There is no doubt that the ratio of the Supreme Court‘s decision in Wipro Ltd.’s case will be applicable to cases with identical facts, till such time the relevant part of the decision is read as obiter dicta by the courts or the same is reconsidered by the Supreme Court itself. Better still is for the legislature to come forward and correct an aberration that is harmful, and the harm is unintended.

BCAJ Admin