Losses Controversy as Regards Carry Forward When Income Admitted in the Original Return Becomes Loss in the Revised Return

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The Tax Publishers Losses Controversy as Regards Carry Forward When Income Admitted in the Original Return Becomes Loss in the Revised Return V.K. Subramani In CIT v. Kerala State Construction Corporation Ltd., ITA No. 237 of 2012, dt. 7-2-2019 [ 2019 TaxPub(DT) 1814 (Ker-HC)], a unique controversy has erupted. The assessee filed its return of income by admitting positive income and the return was filed before the 'due date' specified in Section 139(1). Later, the assessee realized that certain claim of deductions were not claimed and hence filed a revised return which resulted in loss. The court held when the return is filed with positive income under Section 139(1) and subsequently the revised return under Section 139(5) is filed, it only substitutes the original return filed under Section 139(1). It will not convert the original return in to a return filed under Section 139(3) for the purpose of enabling carry forward of loss to the subsequent assessment year. The learned author analyses the judgment and also presents a fallout of the judgement. 1. Introduction Taxpayers presume that return filing is an annual ritual and such filing is the responsibility of the tax counsels and it is enough that they concentrate on trade and business. However, when the tax counsels or any one belonging to their team makes a mistake in filing the return, the monetary consequence is ultimately on the taxpayer. The repercussion or consequence could be colossal which would only lead to loss of trust and relationship between the taxpayer and tax counsel. It may so happen that an eligible claim of deduction is omitted to be claimed in the return or an incorrect claim is made in the return. In the first case, the taxpayer will pay tax on the inflated income due to omission of an eligible deduction and in the second case the taxpayer could be subjected to penal consequence for the wrong claim of deduction. Recently, in CIT v. Kerala State Construction Corporation Ltd. ITA No 237 of 2012, dt. 7-2-2019 [ 2019 TaxPub(DT) 1814 (Ker-HC) : (2019) 177 DTR (Ker) 411], a unique controversy has erupted. This decision took a hyper-technical view of the legal provision and with respect it requires reconsideration. Alternatively, the taxpayer would do well to knock the doors of apex court to get finality to the issue. This refresher discusses the case law and the possible consequences. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Losses

Controversy as Regards Carry Forward When Income Admitted in the Original Return Becomes Loss in the Revised Return

V.K. Subramani

In CIT v. Kerala State Construction Corporation Ltd., ITA No. 237 of 2012, dt. 7-2-2019 [ 2019 TaxPub(DT) 1814 (Ker-HC)], a unique controversy has erupted. The assessee filed its return of income by admitting positive income and the return was filed before the 'due date' specified in Section 139(1). Later, the assessee realized that certain claim of deductions were not claimed and hence filed a revised return which resulted in loss. The court held when the return is filed with positive income under Section 139(1) and subsequently the revised return under Section 139(5) is filed, it only substitutes the original return filed under Section 139(1). It will not convert the original return in to a return filed under Section 139(3) for the purpose of enabling carry forward of loss to the subsequent assessment year. The learned author analyses the judgment and also presents a fallout of the judgement.

1. Introduction

Taxpayers presume that return filing is an annual ritual and such filing is the responsibility of the tax counsels and it is enough that they concentrate on trade and business. However, when the tax counsels or any one belonging to their team makes a mistake in filing the return, the monetary consequence is ultimately on the taxpayer. The repercussion or consequence could be colossal which would only lead to loss of trust and relationship between the taxpayer and tax counsel. It may so happen that an eligible claim of deduction is omitted to be claimed in the return or an incorrect claim is made in the return. In the first case, the taxpayer will pay tax on the inflated income due to omission of an eligible deduction and in the second case the taxpayer could be subjected to penal consequence for the wrong claim of deduction.

Recently, in CIT v. Kerala State Construction Corporation Ltd. ITA No 237 of 2012, dt. 7-2-2019 [ 2019 TaxPub(DT) 1814 (Ker-HC) : (2019) 177 DTR (Ker) 411], a unique controversy has erupted. This decision took a hyper-technical view of the legal provision and with respect it requires reconsideration. Alternatively, the taxpayer would do well to knock the doors of apex court to get finality to the issue. This refresher discusses the case law and the possible consequences.