With the intention of the legislature not clear on filing of returns by a loss-making outfit, decisions will continue to be based more on facts than on law.
A taxpayer is obliged to file return of income only when he has income chargeable to tax. An agriculturist having no income whatsoever from any other source need not look into the provisions of Income-Tax Act, 1961. Whether a businessman incurring losses must file return of income is an issue for which there is no direct answer in the statute.
Who must file return of loss?
Only companies and firms have to furnish return of loss compulsorily. For firms this dictum is applicable from the assessment year 2006-07 onwards. For individual and HUF (Hindu undivided family) taxpayers there is no compulsion to file the return except the incentive of set-offs contained in the Act.
To meet the contingency of rectifying the mistakes in the return filed by the taxpayers, the statute provides a leeway by allowing revision of returns. An assessee having suffered loss and filed a return already, can revise the return and enhance or reduce the loss has been debated at various points of time.
The Madras High Court in Periyar District Milk Producers Union vs CIT (266 ITR 705) has held that if the original return declaring loss is filed before the `due date', a revised return enhancing the claim of loss could be filed within the time prescribed under Section 139(5).
Reduction of loss
If the returned loss is reduced by the Assessing Officer will the assessee be liable for concealment penalty was discussed by the apex court in CIT vs Prithipal Singh (249 ITR 670 SC). The decision was in favour of the assessee.
By the Finance Act, 2002, the legislature nullified the impact of judgment by prescribing that the quantum of loss so reduced shall be taken as the concealed income for the purpose of computing penalty. However, the change is effective from April 1, 2003.
The moot questions are: (i) whether the change of law with effect from. April 1, 2003 is applicable in respect of assessments completed on or after that date? Or (ii) is it applicable in respect of losses determined for the assessment year 2003-04 onwards?
In CIT vs Chemiequip (265 ITR 265), the Bombay High Court held that the amendment of the Finance Act, 2002 as clarificatory in nature and applicable for the assessment years preceding the assessment year 2003-04 also.
Safe way out?
Recently, in CIT vs Bacardi Martini India Ltd (288 ITR 585 Delhi), the assessee filed a return declaring loss of Rs14.56 crore. Later the assessee filed a revised return declaring loss of Rs13.14 crore by withdrawing certain expenditures claims. The Assessing Officer (AO) completed the assessment by fixing the loss at Rs11.38 crore. The facts of the case related to the assessment year 2001-02.
The first appellate authority the CIT (Appeals) cancelled the penalty imposed by the AO. The Tribunal held that the assessee had furnished necessary details with self-explanatory notes. There was no finding in the assessment order of the AO that the assessee did not furnish complete particulars or details called for. The disallowance of expenditure was due to the difference of opinion between the assessee and the AO and the revised return was not as a result of any discovery by the AO. The court, without adverting to the application of the amendment to the assessment year in question, toed the line of the ITAT and gave reprieve to the assessee.
Had the memorandum explaining the provisions been clear about the intention of the legislature in amending the provision, the needless litigation on the application of the amended provision could be avoided. Else decisions will continue to be based more on facts than on law.
V. K. Subramani (The author is an Erode-based chartered accountant.)