Loss cannot be carried forward but Set off is Allowed if return not filed on time.


Loss cannot be carried forward but Set off is Allowed if return not filed on time.

Let’s take an example:

A person has a loss of Rs. 50 Lakhs. He did not file his Income Tax Return in time. His case was assessed by the Income Tax Authority. The order received by assessee from the Income Tax authority had the words that loss cannot be set off and carried forward. Assessee filed no appeal against the order. The case was closed. Later, Assessing officer issued him notice u/s 148 i.e. Income Escaping Assessment for the same previous year. Say an income of Rs. 72 Lakhs was added to his income. He was not allowed to set off the loss of Rs. 50 Lakhs since the order used the words “Cannot be SET OFF and carried forward”. As per the provisions of Income Tax Act 1961 one can set off the loss in the same year even if belated return is filed. Since he had not filed any appeal against the order also the time limit by which he could have appealed has elapsed he was unable to take benefit of Loss in Income Tax.

The same issue was raised in case of Sun Engineering Works (P) Ltd.

In Sun Engineering  the loss which the assessee wanted to be set off against the ‘escaped income’ could not be allowed to be so set off because in the original assessment proceedings, no “set off” was permitted and the original assessment had acquired finality when the appeal against the order of assessment failed before the Appellate Assistant Commissioner and the assessee took no further steps to agitate the issue. Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income. It is concluded that:

  • On reassessment under section 147 of the Income Tax Act, 1961, the original assessment is not swiped off but it remains.
  • Matters lost in the original assessment proceedings which have since acquired finality (i.e. against which no appeal/ rectification application/ revision application filed) cannot be claimed in the reassessment proceedings. Therefore, expenses disallowed/ income taxed in the original assessment against which no appeal/ revision/ rectification application was filed cannot be claimed as allowable/ nontaxable in the reassessment proceedings under Section 147.
  • Expenses not claimed in the original assessment cannot be claimed in the reassessment proceedings under section 147. However, the expenses pertaining to the income which has escaped assessment can be claimed. The assessee can prove that the income which is alleged to have escaped assessment is not taxable.
  • Under section 147 the income cannot be reduced below the income original assessed. Similarly, the losses cannot be assessed above the losses original assessed.
  • Section 147 is for the benefit of revenue and not for the benefit of assessee. Therefore, if no return was filled earlier and no assessment was made earlier, then under section 147, Assessing Officer cannot compute the loss of the assessee.
Commissioner Of Income


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