Facts of the Case

The assessee, a company engaged in manufacturing glass products, filed its return of income for the relevant assessment year belatedly, beyond the due date prescribed under Section 139(1) of the Income-tax Act, 1961.During scrutiny assessment under Section 143(3), issues arose regarding carry forward and set-off of earlier years’ business losses and unabsorbed depreciation. The Assessing Officer did not allow the set-off on the ground that the return of income had been filed beyond the statutory due date. The assessee subsequently filed an application for rectification under Section 154, which was rejected.

Issues Involved

  1. Whether business losses can be carried forward when the return is filed belatedly.
  2. Whether unabsorbed depreciation can be carried forward despite late filing of return.
  3. Interaction between Sections 32(2), 72, 80, and 139(3).

Petitioner’s Arguments (Assessee)

  • The assessee sought set-off of brought forward business losses and unabsorbed depreciation against current year income.
  • It was contended that unabsorbed depreciation has a different statutory treatment from business loss.
  • The law does not prohibit carry forward of unabsorbed depreciation even if the return is filed after the due date.
  • The lower authorities failed to appreciate this distinction.

Respondent’s Arguments (Revenue)

  • Since the return of income was filed beyond the due date under Section 139(1), the assessee was not entitled to carry forward losses.
  • Compliance with Section 139(3) is mandatory for carry forward of losses.
  • The Assessing Officer had correctly denied the benefit.

 Court Order / Findings (ITAT Allahabad):

  • Carry forward of business losses is governed by Sections 72, 80, and 139(3), which require timely filing of return.
  • Since the return was filed belatedly, business losses could not be carried forward.
  • However, unabsorbed depreciation stands on a different footing under Section 32(2).
  • There is no statutory restriction prohibiting carry forward of unabsorbed depreciation due to delayed filing of return.

Important Clarification

  • Business loss carry forward requires strict compliance with Section 139(3).
  • Unabsorbed depreciation under Section 32(2) enjoys broader treatment and can be carried forward indefinitely.
  • Filing a belated return bars loss carry forward but not depreciation carry forward.
  • Taxpayers must distinguish between these two categories while computing losses.

Link to download the order –

https://itat.gov.in/public/files/upload/1634706177-triveni%20glass%20limited.pdf

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