BOMMISETTI LAKSHMI RAJENDRA PRASAD Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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T.V.Rajagopala Rao, -
(1.) THIS is an appeal of the assessee for assessment year 1989-90 against the order of the Deputy Commissioner of Income-tax (Appeals), Vijayawada dated 19-3-1991.
(2.) The only question in this appeal is whether the loss of Rs. 10,974 which the assessee incurred towards share he held in M/s. Sri Kali Prasad Electrical Stores, is liable to be adjusted from out of the profits which he earned as partner in two other firms for the same assessment year and whether ignoring of the said loss of Rs. 10,974 can be resorted to as a prima facie adjustment under Section 143(1)(a). The facts are few and they may be stated as under:
The assessee is an individual and he is a partner in four firms. He held shares in those firms as follows:
Except the firm at Uppugonduru, all the three firms were already income-tax assessees. For assessment year 1989-90, the assessee filed an income-tax statement claiming the ultimate income representing the share income of the assessee from all the four firms at Rs. 26,774.90P, the particulars of which are the following :
The Income-tax Officer while making the assessment under Section 143(1)(a) of the Income-tax Act purporting to make primary adjustment disallowed Rs. 10,974 which is the loss suffered by the assessee in the firm, Sri Kali Prasad Electrical Stores on the ground that the said loss was not determined by the Income-tax Officer and after ignoring the said loss the share income of the assessee as determined at Rs. 47,232 or Rs. 47,230 (in roundfigures) as per the assessment order dated 30-3-1990, a photostat copy of which is furnished to me. The assessee filed a petition under Section 154. Copy of the petition is furnished at page 1 of the paper book. The main purpose of the petition is to object to the disallowance of loss of Rs. 10,974 sustained by the assessee in M/s. Sri Kali Prasad Electrical Stores, Ongole towards his share. It is contended in the petition that while acting under Section 143(1)(a), there is no warrant for ignoring the share of loss as claimed by the assessee. It is contended that it is no doubt true that the return filed by M/s. Sri Kali Prasad Electrical Stores is out of time and hence not a valid return under Section 139(2) of the Income-tax Act and is also true that the loss returned is not entitled to be carried forward under Section 80 of the Income-tax Act. But it is contended that Section 80 is silent about the set off of such loss against other income in the hands of partners for the same year. It is brought to the notice of the Income-tax Officer that ordinarily if a positive income is shown to be the share income derived by a partner on the basis of the account copy appearing in the books of the firm, then the share income is included in the partner's income. If the department is adopting the same, though the same is not determined in the firm's case, the treatment given in the case of loss admitted by the partner should also be duly taken note of. The case of the assessee is that the firm has not filed its return because its income is below taxable limit or has filed its return enclosing Form No. 30 claiming a direct refund. Therefore, in the circumstances, the assessee requested the Income-tax Officer to rectify the computations mentioned in the intimation served under Section 143(1)(a) since there is a mistake apparent on record and reduce the tax determined. This petition was rejected by the Income-tax Officer as per his orders dated 12-7-1990. The Income-tax Officer held, while rejecting the application that the loss of Rs. 10,974 claimed by the assessee for set off against income from other firm was disallowed since the loss in the case of this firm (M/s. Sri Kali Prasad Electrical Stores) was not determined. The contentions raised in the assessee's petition were not accepted by the Income-tax Officer, for the following reasons :
(i) Section 67 lays down the method of computation of partner's share in the income of the firm whether income or loss. Section 67(iv) speaks of loss specifically of a partner towards his share in a registered firm. Section 70 speaks of set off of loss from one source against income from another source under the same head of income.
(ii) Section 67(iv) is a specific provision with regard to treatment of share of loss of a partner in a registered firm. The assessee's case falls under Section 70 of the Income-tax Act. This Section precludes set off of loss which is saved by other provisions in Income-tax Act. One such saving is a return of loss of a registered firm filed beyond time limit prescribed under Section 139(3) of the I.T. Act. Such a return shall be deemed to have been not furnished at all. In other words, if a return of loss of a registered firm is treated as having not been filed at all, it amounts to say that such loss shall not be considered at all for any purpose of assessment. This automatically goes to show that the share of loss of the partner in a registered firm which has filed its return of income beyond time limit prescribed under Section 139(3) should be completely ignored.
The case of the assessee cannot be equated to a case where positive share income of a partner in a registered firm was disclosed. Thus he rejected the assessee's petition under Section 154.
(3.) IN appeal, the Deputy Commissioner of INcome-tax (Appeals), Vijayawada confirmed the order of the INcome-tax Officer rejecting the application. The reason given by the Deputy Commissioner (Appeals) is that the relevant firm i.e., M/s. Sri Kali Prasad Electrical Stores had not filed the return for the relevant assessment year and, therefore, the appellant's share of loss was not determined. This finding of the Deputy Commissioner (Appeals) is assailed as incorrect and a mis-statement.;
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