| SooperKanoon Citation | sooperkanoon.com/72176 |
| Court | Income Tax Appellate Tribunal ITAT Hyderabad |
| Decided On | Jul-11-2002 |
| Reported in | (2003)86ITD412(Hyd.) |
| Appellant | K. Aboo Bakar |
| Respondent | Asstt. Cit |
Gist of the grounds taken by the assessee in this appeal is that the Commissioner (Appeals) erred in confirming the disallowance of set off, claimed by the assessee, of Rs. 4,19,400, being the assessees share of loss from the firm, M/s. Hotel Maniar for the assessment years 1990-91 and 1992-93, against the income under the head capital gains of Rs. 86,200 for the assessment year 1994-95.
When the appeal was posted for hearing on 2-5-2002, none was present on behalf of the appellant-assessee. So, the notice was directed to be sent by R.P.A.D. and the case was posted for hearing on 8-7-2002. Even on this date, viz., 8-7-2002, none appeared on behalf of the assessee, and there was not even an adjournment petition. In the circumstances, I am constrained to proceed to dispose of the appeal ex parte qua the assessee after hearing the learned Departmental Representative.
Assessee filed a return, in which he apparently claimed set off of the above losses of Rs. 4,19,400 from the firm, M/s. Hotel Maniar, of assessment years 1990-91 and 1992-93, against his income under the head capital gains for the assessment year 1994-95 of Rs. 86,200. The assessing officer processed the return under section 143(1)(a), disallowing the said claim for set off of losses against the income under the head capital gains with the following observations: "Loss will not be allowed to be c/f as the return was not filed within due date." When the matter reached the Commissioner (Appeals), he did not consider the above reasoning of the assessing officer, but confirmed the disallowance of the claim of set off, with the following remarks: "4. On a careful consideration of the appellants contention, I see no reason to interfere with the order of the assessing officer under consideration. It appears that the loss sought to be set off by the appellant out of his income for the assessment year under consideration represents the carried forward unabsorbed depreciation loss. From the assessment year 1993-94, the provisions relating to the assessment of the firms has undergone radical changes. The loss incurred by any firm either representing business loss or depreciation loss should be set off against the firms income of the subsequent years and the same cannot be carried forward in the hands of the partners. As such, the assessing officers adjustment of partners share of loss representing unabsorbed depreciation of the earlier years relating to the firm of M/s. Hotel Maniar, Karimnagar, is in order. I, therefore, dismiss the appeal and confirm the assessing officers order at issue." In the grounds taken, the assessee has mentioned that as the share income is taken into account in the assessment of the partner, for ascertaining the rate of tax, the share of loss allocated to the partner has also to be considered in the hands of the partner.
Before me, the learned Departmental Representative relied on the order of the Commissioner (Appeals).
I am of the view that the assessee deserves to succeed in this appeal.
The reasoning given by the assessing officer for making the disallowance under section 143(1)(a) is not tenable. This is because the provisions of section 80 read with section 139(3) apply only in respect of the returns for the assessment year in which the loss is claimed to be carried forward. They do not, to my mind, apply to a case where the losses were already determined in earlier years, and it is only the set off against the income of a subsequent year that is claimed.
Further, the impugned disallowance has been effected in an intimation under section 143(1)(a), and adjustments on debatable issues are beyond the purview of section 143(1)(a). It appears to me that the impugned disallowance is in relation to a debatable issue. There is of course, no merit in the abovementioned plea of the assessee in the appeal memo.
The share income from a registered firm is taken into account in the partners hands only up to assessment year 1992-93, and not thereafter when the amended provisions of section 75 came into operation along with a different scheme of taxing the firm, with effect from 1-4-1993.
But, that does not mean that the disallowance in question is not on a debatable issue. The amended provisions of section 75 of the Income Tax Act, which came into effect from 1-4-1993 read as under: "75. Where the assessee is a firm, any loss in relation to the assessment year commencing on or before the 1-4-1992, which could not be set off against any other income of the firm, and which had been apportioned to a partner of the firm but could not be set off by such partner prior to the assessment year commencing on the 1-4-1993, then, such loss shall be allowed to be set off against the income of the firm subject to the condition that the partner continues in the said firm and to be carried forward for set off under sections 70, 71, 72, 73, 74 and 74A." It may be observed that section 75 mandates that share of loss from a firm for the assessment year commencing on or before 1-4-1992, allocated to a firm but not set off against his other income has to be allowed to be set off against the income of the firm. So, such loss, as allocated to a partner, to the extent not set off against his other income, has to be set off against the income of the firm in a subsequent year. The provision however, is silent on the question whether such set off can be allowed in the hands of the partner in subsequent years. In other words, while the section mandates the allowance of set off in the hands of a firm, it does not explicitly preclude such set off in the hands of the partner, if so claimed.
Further, allowance of set off in the hands of the firm is subject to the condition that the partner continues in the said firm in the relevant subsequent year. Supposing the partner retired from the firm, such set off cannot be allowed in the hands of the firm, as per the amended provision. From the return filed by the assessee in this case, it does not appear clear whether he retired from the firm in the year of account relevant for the assessment year 1994-95, or whether he continued. No share income from the firm is included in the intimation under section 143(1)(a). So, it appears that the assessee retired from the firm. At any rate, it is a matter for verification, which can be ascertained only on the issue of a notice under section 143(2), and such issue of notice under section 143(2) is precluded in terms of section 143(1)(a). If the assessee had retired from the firm, then the question arises whether in such a situation, the share of losses allocated to him in the earlier years can be carried forward and set.
off against his other income in subsequent years. That question is a matter, on which there can be debate.
I am aware of the decision of the Apex Court in the case of Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 (SC), wherein in the context of the preamended provisions of section 32(2), it was held, as per the relevant portion of the head-notes, as under: "It is therefore, clear that section 32(2) contemplates a situation where unabsorbed depreciation in the hands of the firm is too large to get absorbed, first, in the hands of the firm and then, after apportionment, in the hands of the partners, what remains thereafter has obviously to be carried forward by the firm which is the assessee referred to in the sub-section." The above position, as laid down by the Apex Court is applicable in the context of the pre-amended provisions of section 32(2) and that section has also been subsequently amended with effect from 1-4-1993. So, it cannot even be held that in the light of the decision of the Apex Court in the case of Garden Silk Weaving Factory (supra), it is established law that the share of loss allocated to a partner has to be necessarily allowed in the hands of the firm.
For the foregoing reasons, I am of the view that the adjustment made by the assessing officer is beyond the scope of the provisions of section 143(1)(a), and consequently the Commissioner (Appeals) was not justified in sustaining the said disallowance. I accordingly set aside the impugned order of the Commissioner (Appeals), and delete the adjustment made by the assessing officer.