GEORGE JOHN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE matter arises under the Income-tax 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 proprietary concern under the name and style of "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 assessment year 1986-87 which was the first year of assessment he filed a loss return on October 31, 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 exhibits P-1 and P-1(a). It is also stated that for the assessment year 1987-88, the petitioner filed a loss return on December 22, 1987, claiming an aggregate loss of Rs. 1,39,631 comprising of Rs. 1,11,248 being loss carried forward from the previous assessment year 1986-87, unabsorbed depreciation for the relevant year of Rs. 23,118 and share of loss from other partnerships of Rs. 5,265. 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 exhibits 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 assessment year 1988-89, the petitioner filed his return before the second respondent on July 29, 1988, returning an aggregate loss of Rs. 2,68,703 comprising of business loss for the year, 1988-89, Rs. 1,28,072 and loss carried forward from the assessment year, 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 exhibit P-3. THE second respondent by order dated November 21, 1988 (exhibit P-4), completed the assessment for 1988-89 under Section 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 dated April 6, 1989 (exhibit P-5), before the second respondent which was replied to by communication dated April 19, 1989 (exhibit 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 (exhibit 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 exhibit P-7 communication, the petitioner filed exhibit P-8 revision petition dated November 15, 1989, before the Commissioner of Income-tax under Section 264 of the Act. It is stated that an argument note (exhibit P-9) was submitted before the first respondent-Commissioner and that the revision was dismissed as per exhibit P-10. It is stated in the 0. P. that the first respondent erred in observing that the petitioner should have pursued action for the assessment years 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 assessment years 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 assessment year 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 petitioner's contention that the Income-tax Officer did not pass any assessment order on the returns filed for the assessment years 1986-87 and 1987-88, is not correct and that the Income-tax Officer had completed the assessment for the year 1986-87 under Section 143(1) on January 29, 1988, as "closed as ND" and entered in the D and C register as II(11)(a)/235 of 1987-88. 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 January 29, 1988, and entered in the D and C register as III(ii)(a)/437 of 1987-88 and that it has been noted that "loss not allowed to be carried forward for default under Section 139(3)". It is stated that this was intimated to the assessee by issuing an intimation letter (inland letter) as provided in Section 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 January 29, 1988, only a consolidated intimation letter was issued on February 9, 1988. It is further stated that the Income-tax Officer completed the assessment for the year 1988-89 on November 21, 1988 as under :

(3.) THE original petition is allowed to the above extent.