Judgment:
ORDER
R. V. EASWAR, J. M. :
This appeal has been filed by the Revenue. The following grounds have been raised :
'1. That, on the facts and in the circumstances of the case, the learned CIT(A) had erred in admitting the appeal when the appellant could not be said to be aggrieved in terms of cl. (c) of sub-s. (1) of S. 246.
2. That, without prejudice to ground No. 1 the learned CIT(A) erred in directing the ITO to carry forward the loss determined for the asst. yr. 1984-85.'
2. The accounting year of the assessee ended on 30th June, 1983. The due date for filing the return was 30th June, 1984. However, the return of income was furnished only on 23rd Dec., 1985. In the meantime, there had been a search under S. 132 of the IT Act on 23rd Sept., 1985 and certain books of accounts and documents had been seized. The assessee had requested for extension of time to file the return. Notice under S. 139(2) had also been issued according to which the assessee should have filed the return on or before 27th Jan., 1985. The return of income filed on 23rd Dec., 1985 disclosed a loss of Rs. 2,71,190. The assessment was completed originally on 31st March, 1986 on a total income of Rs. 9,260. This was a positive figure. There was an appeal to the first appellate authority who passed an order on 19th Feb., 1987 granting certain reliefs. Consequently, the Assessing Officer passed an order on 27th Oct., 1987 purporting to give effect to the appellate order. This order was passed under S. 143(3) r/w S. 251 of the Act. The loss was computed at Rs. 2,31,185. At the end of the order, the following note was made by the Assessing Officer :
'Loss, not to be carried forward considering that the return was not filed under S. 139(1) or within the time allowed under S. 139(2).'
3. The assessee objected to the refusal to carry forward the loss by preferring an appeal to the CIT(A). The CIT(A) took the view that because of the search and the seizure of the books of accounts, the assessee was prevented by sufficient cause from filing the return within the time allowed under S. 139(1) or 139(2) and that the assessees difficulties in filing the return had been brought to the notice of the Assessing Officer. He, therefore, found that the return filed on 23rd Dec., 1985 was a valid return which had to be taken into account for the purpose of carry forward of the loss. Following the decision of the Calcutta High Court in the Presidency Medical Centre (P) Ltd. vs. CIT : [1977]108ITR838(Cal) he directed the ITO to carry forward the loss to the subsequent years.
4. The Revenue is in appeal to contend that the appeal to the CIT(A) was incompetent. It was pointed out that the assessee cannot be stated to be 'aggrieved' by the decision of the ITO that the loss will not be carried forward. It was further submitted that under S. 246(1)(c) of the Act the assessee can file an appeal only where he objects to the 'amount of loss computed' and not against the refusal of the ITO to carry forward the loss to the subsequent years. It was, further pointed out that it was not the assessees grievance that the loss computed by the ITO was not correct. It was, therefore, submitted that the CIT(A) should have dismissed the appeal as incompetent.
5. The learned counsel for the assessee sought to support the order of the CIT(A) on the ground that it was open to the assessee to file an appeal even against the order giving effect to the appellate order as held by the Honble Calcutta High Court in Kooka Sidhwa & Co. vs. CIT : [1964]54ITR54(Cal) .
6. The question to be decided, therefore, is whether the appeal filed by the assessee before the CIT(A) was competent. Under S. 246(1)(c) of the Act, the assessee can file an appeal against any order passed by the ITO if he denies his liability to be assessed under the Act. The assessee can also appeal against an order of assessment passed under S. 143(3) or S. 144 of the Act if he objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed or to the status under which he has been assessed. The assessee in the present case does not deny its liability to be assessed under the Act and, therefore, the appeal cannot be held to be competent under the first limb of the appeal provision. The question, therefore, is whether the appeal filed by the assessee to the CIT(A) can be held to be competent under the second limb of the appeal provision or, to be more precise, as questioning 'the amount of loss computed'. Sec. 72(1) of the Act says that if the net result of the computation under the head 'business' in respect of any year is a loss, and such loss cannot be set off against the income under the other heads for the same year, the assessee is entitled to carry forward the loss which cannot be so set off to the subsequent year and set it off against the profits from business in the subsequent year. The right to carry forward the loss is available for a period of 8 succeeding assessment years. Under S. 80, as it stood at the material time, no loss which has not been determined in pursuance of a return filed under S. 139 of the Act, shall be carried forward and set off in accordance with the provisions of S. 72(1). To put it differently, a loss under the head 'business' can be carried forward and set off in accordance with S. 72(1) only if such loss has been determined or computed 'in pursuance of a return filed under S. 139' of the Act. In the present case an order was passed by the ITO on 27th Oct., 1987 giving effect to the appellate order under S. 143(3) r/w S. 251 of the Act. In this order the loss was computed at Rs. 2,31,185. Thus, there was a determination of the loss in the sense that there was an arithmetical exercise of arriving at a particular figure of loss. However, the point to be taken note of is that the ITO considered the return as not having been filed under S. 139(1) or within the time allowed under S. 139(2). This was the reason for not allowing the carry forward of the loss.
7. The decision of the Calcutta High Court relied on by the assessee says that an order passed by the ITO to give effect to an appellate order is referable only to the powers of the ITO under S. 143(3) of the Act. That decision does not afford an answer to the question before us, which is different. The question before us is whether the action of the ITO in not allowing the carry forward of the loss can be stated to be a part of the computation of the loss in which case alone there can be a right of appeal to the assessee. A careful reading of S. 80 and S. 72(1) of the Act would show that the process of determining or computing the loss under the head 'business' is so closely connected or linked with the right of the assessee to have the same carried forward to the subsequent years. If the return is treated to be one filed beyond the time prescribed by S. 139 of the Act then the determination or computation of the loses its meaning and cannot be of any significance. As held by the Supreme Court in CIT vs. Harprasad & Co. P. Ltd. : [1975]99ITR118(SC) the sole purpose of computing the loss to be carried forward is to set off the same against the profits of the subsequent year. In that sense, a mere computation or determination of the loss at a particular figure, without granting the the assessees right to carry forward the same would be a futile exercise. Such a computation or determination 'in vacuo' does not have any purpose to serve, as pointed put by the Supreme Court in the decision cited above. Therefore, a decision that the loss has or has not been determined or computed in pursuance of a return filed under S. 139 of the Act would be a material decision in order to invoke and apply the provisions of S. 72(1) of the Act. If the assessee is not allowed to take an appeal against the decision of the ITO not to allow the carry forward of the loss to the subsequent year on the ground that the return has not been filed within the time allowed under S. 139 of the Act the mere fact that the loss has been arithmetically computed or determined at a particular figure is of no consequence as far as the assessee is concerned. Conversely, if the loss has not been determined by the ITO at any particular figure but the right to carry forward the loss is given to the assessee on the ground that the return filed is within the time allowed under S. 139 of the Act that would also be equally of no avail to the assessee. The only way in which the assessee can question the decision of the ITO not to carry forward the loss is by questioning the amount of loss computed in the appeal. The computation of the loss, in our view, is not confined to an arithmetical or ritualistic exercise alone but will take within its sweep the decision of the ITO not to carry forward the loss on the ground that the return has been filed beyond time. Such an interpretation of the provision conferring the right of appeal would be in consonance with the spirit and purport of both S. 72(1) as well as S. 80 of the Act. The Supreme Court in Cambay Electric Supply Industrial Co. Ltd. vs. CIT : [1978]113ITR84(SC) has held, while dealing with the provisions of S. 72(1), that the said provision has a direct bearing or connection with the computation of the total income of an assessee under the head 'profits and gains of business or profession'. It was held that the section has a direct impact upon the computation of the income under that head. If S. 72(1) which grants right to the assessee to carry forward the loss is to be read, as directed by the Supreme Court, as part of the computation of the income under the head 'profits and gains of business or profession', it seems clear to us that the same principle should also govern the interpretation of the words 'to the amount of loss computed' appearing in S. 246(1)(c) of the Act. As already seen, the computation of the loss and the right to carry forward the same form part of one integrated process and cannot be bisected or cut up, except at the risk of making the scheme of carry forward and set off of the computed loss unworkable or illusory. To reiterate, the decision of the ITO to carry forward or not to carry forward the loss under the head 'business' is a part of the process of determination or computation of the loss and any finding given by the ITO that the loss, though computed, cannot be carried forward, can be questioned by the assessee only by filing an appeal to the first appellate authority on the footing that he is objecting 'to the amount of loss computed' by the ITO and if that right is to be denied to him, the whole purpose of having the loss determined or computed will be lost. Such an interpretation should be avoided since it would result in making a mockery of the entire concept of the computation and carry forward of the business loss.
8. There decisions touching upon the issue have to be noticed at this juncture. The first is the decision of the Madhya Pradesh High Court in Jalishan Gopikishan & Sons vs. CIT : [1972]84ITR645(MP) . In that case, the return showing a loss was filed by the assessee beyond time. The ITO passed an order to the effect that the return has been 'filed'. The High Court held that this order can only amount to saying that there was no loss and, therefore, the assessee cannot carry forward the loss. In this view of the matter, the High Court held that the ITO must be taken to have computed the loss at nil which computation was appealable under S. 30(1) of the IT Act, 1922. In Bihar State Electricity Board vs. CIT : [1975]101ITR740(Patna) , the Patna High Court was also concerned with a similar situation. There also returns had been filed declaring loss, but were filed beyond the prescribed time. The ITO informed the assessee by letter that no action was being taken on the returns as they were filed out of time and the loss would not be carried forward. The High Court construed the letter of the ITO refusing to carry forward the loss to be an order computing the loss at nil thus depriving the assessee of the benefit of the carry forward of the carry forward of the loss. It was, therefore, held that the assessee had a right to appeal against the computation of the loss at nil. In CIT vs. Garia Industries Pvt. Ltd. : [1983]140ITR636(Cal) , the Calcutta High Court was also dealing with a case where the assessee filed a return declaring loss. The return had been filed within the time allowed under S. 139(3). However, the ITO treated the return as invalid on the ground that it was not accompanied by the statement of accounts and the auditors report. The AAC held the appeal filed by the assessee to be not competent. The Tribunal held that the appeal was maintainable. On a reference, the High Court held that the effect of the order of the ITO treating the return as invalid on the ground that it was not accompanied by the statement of accounts and the audit certificate was that there was no proper computation of loss, and, therefore, the order of the ITO was held appealable. It was further held by the High Court that computation of loss is a part of the process of assessment in case the assessee claims set off in the year and is also a necessary process for the assessees right to carry forward the loss to the future years as provided in the Act.
9. The above three decisions would show that the order of the ITO to the effect that the loss cannot be carried forward since the return was filed beyond the time can be appealed against on the footing that the effect of such an order is a non-computation of the loss or computation of the loss at nil and on that basis would come within the purview of cl. (c) of sub-s. (1) of S. 246 of the Act. It is significant that the Patna High Court in the decision cited above held that the rejection of a return disentitling an assessee to the carry forward of the loss to subsequent years on the one hand and the computation of the loss at nil under S. 72(1) of the Act on the other, cannot be distinguished on any principle of law, for all that the Assessing Officer in both the cases does is to deprive the assessee of the benefit of carry forward of the loss which has been conferred by S. 72(1) of the Act. It was further noticed by the Patna High Court that even in CIT vs. Kullu Valley Transport Co. Ltd. : [1970]77ITR518(SC) , though the subject-matter of the appeal was an order of the ITO to the effect that the loss return cannot be taken cogniyance of and the assessee would not be entitled to the benefit of carry forward of the loss since the return was filed after the statutory time, the IT Department had not thought it fit to take the stand that such an order was not appealable at all.
10. We may now notice a few decisions where guide lines have been laid down as to the interpretation of a provision conferring a right of appeal to the assessee. In Mohan Lal Khemka vs. CIT : [1971]81ITR89(All) , the Allahabad High Court (His Lordship Justice R. S. Pathak, as he then was, speaking for the Court) held that the provision granting a right of appeal to the subject should be construed liberally and that it was a valuable right. It was also held that a narrow construction unreasonably limiting or curtailing the right of appeal cannot be justified. An earlier decision of the Punjab & Haryana High Court in Gopi Lal vs. CIT was referred to in this connection. In Durgaprasad Rajaram Adatiya vs. CIT : [1982]134ITR601(MP) and CIT vs. Jabalpur Transport Development Co. : [1983]143ITR964(MP) , the Madhya Pradesh High Court held that in construing a provision in the statue granting right of appeal, the rule of liberal construction should be applied. The Gujarat High Court in Patel & Co. vs. CIT : [1986]161ITR568(Guj) held that the right of appeal is by way of remedy provided by the statute and should not ordinarily be denied to the assessee unless the law prohibits it. The practice of throwing out the assessees appeal on a technical ground instead of going into the substance of the matter was deprecated by the High Court. The High Court denounced the technical approach which, according to it, amounted to 'piling unreason upon technicality'.
11. The Calcutta High Court had occasion to consider the appeal provisions under the IT Act in CIT vs. Bengal Card Board Industries & Printers (P) Ltd. : [1989]176ITR193(Cal) . While construing the provisions. His Lordship Ajit Kumar Sen Gupta, J., speaking for the Court, laid down that the right of appeal is a statutory right, being a creature of the statute. It was held that the right is a substantive right and not merely a matter of procedure. Act page 197 of the report it was held as under :
'It is now settled that a statue pertaining to the right of appeal has to be given a liberal construction since it is remedial in nature. A right of appeal will not be restricted or denied unless such construction is unavoidable.'
Recently the Supreme Court had occasion to deal with the provisions conferring a right of appeal on the assessee under the IT Act. This is in the case of CIT vs. Ashoka Engg. Co. & Ors. : [1992]194ITR645(SC) . The question before the Supreme Court was whether there was a right of appeal against an order passed by the ITO denying the benefit of continuance of registration to the firm on the ground that there was no sufficient cause preventing the assessee from filing the application in time. Sec. 246(j) of the Act, as it stood at the relevant time, provided for an appeal against orders passed by the ITO refusing to register a firm on an application made by the firm. The application for continuance of registration of the firm was to be made under S. 184(7) of the Act. No right of appeal was specifically granted against the order of the ITO refusing to grant continuance of registration on an application made by the assessee firm under S. 184(7) of the Act. The Supreme Court, however, held that there was a right of appeal to the assessee even against orders passed by the ITO refusing to grant continuation of registration under S. 184(7) of the Act. Dwelling on the right of appeal granted to the assessee under the IT Act, the Supreme Court held as under at page 649 of the report :
'We have heard counsels for both the parties. The question at issue is regarding a right of appeal. It is true that there is no inherent right of appeal to any assessee and that it has to be spelt from the words of the statute, if any, providing for an appeal. But it is an equally well settled proposition of law, if there is a provision conferring a right of appeal, it should be read in a reasonable, practical and liberal manner.'
12. Applying the tests propounded by the Supreme Court and the various High Courts including the jurisdictional High Court on the question of interpretation of the provisions in the statute granting the right of appeal, it is clear in the present case that there is a right of appeal against the refusal of the ITO to carry forward the loss determined by him. Such a construction of the assessees right under S. 246(1)(c) will not only be a liberal construction but would also be a reasonable and practical construction for it would be strange logic and unreasonable if it is to be held that though an assessee could file an appeal against the computation or determination of the amount of the loss which is to be carried forward, he will be denied the right to appeal on the more fundamental question as to whether he is at all entitled to carry forward the loss. The decision of ours will avoid such an unreasonable or illogical interpretation of the statutory provision giving the right of appeal.
13. The Supreme Court in CIT vs. Manmohan Das (Deceased) : [1966]59ITR699(SC) was dealing with a case where the assessee not having filed any appeal against the refusal of the ITO to carry forward the loss to the subsequent years, disputed the action of the ITO in not granting the set off of the carry forward loss against the profits arising in the subsequent assessment years. It was in this context that the Supreme Court observed that even though the assessee had not appalled in the earlier year against the decision of the ITO not to carry forward the loss, it was still open to the assessee to file an appeal against the ITOs refusal in the subsequent year to set off the brought forward loss against the profits of the subsequent year since it was in that year that the real effect of the carry foreword is felt. The question whether the assessee had or had not a right of appeal against the refusal of the ITO to carry forward the loss did not directly arise before the Supreme Court in that decision. We cannot, therefore, understand that decision as authority for the proposition that the only year in which the assessee can question the refusal to carry forward and set off the loss is the subsequent assessment year where there are profits and the assessee wants to set off the brought forward losses against the profits. We are, therefore, of the opinion that this decision of the Supreme Court is not in any manner opposed to the interpretation sought to be placed by us on the provisions of S. 246(1)(c) of the Act.
14. For these reasons we are of the view that there is a right of appeal to the assessee against the decision of the ITO refusing to carry forward the loss and the appeal to the CIT(A) was competent under S. 246(1)(c) of the Act. The CIT (A) was, therefore, right in entertaining and adjudicating upon the assessees claim.
15. Ground No. 2 which is on the merits, is to be decided against the Department following with respect the decision of the Calcutta High Court in Presidency Medical Centre (P) Ltd. vs. CIT (supra) as was done by the CIT(A).
16. The appeal is dismissed.