1. This set of three appeals which relate to the assessment years 1974-75 to 1976-77 involve a common ground. Therefore, they are disposed of by this combined order for the sake of convenience. These appeals are filed by the revenue against the order of the Commissioner (Appeals). The facts which are not disputed lie in a narrow compass.
The assessee is a consumer co-operative society which deals in grains and provision stores. The controversy before us relates to the decision of the Commissioner (Appeals) to direct the ITO to carry forward of losses for the assessment years 1970-71 to 1973-74 and to give effect to the same for the assessment years under appeal. For the sake of convenience, we set out below the particulars as are relevant to the controversy before us.Asst.
Date of Income /loss Income of Earlier years'year return returned the year losses c/fd. as shown in return1970-71 4-10-1978 (-) 1,87,494 (-) 1,87,494 --1971-72 " (-) 3,83,370 (-) 3,83,370 --1972-73 " (-) 3,74,516 (+) 8,853 (-) 3,38,3691973-74 " (-) 4,36,815 (-) 62,297 (-) 3,74,5161974-75 28-8-1978 (-) 3,36,253 (+) 1,00,058 (-) 4,38,811 u/s 1481975-76 " (-) 3,06,464 (+) 29,789 (-) 3,36,2531976-77 " (-) 1,17,459 (+) 1,89,004 (-) 3,06,4641977-78 3-1-1978 (-) 73,729 (+) 63,730 (-) 1,37,459 The assessee filed a return for the assessment year 1977-78 on 3-1-1978 disclosing therein a loss of Rs. 73,729. Thereafter, the ITO issued notices under Section 148 of the Income-tax Act, 1961 'the Act', for the assessment years under appeal and by orders dated 24-7-1979, the ITO determined total income of the assessee for each of the years as against losses returned by the assessee as indicated in the above table. The assessee contended that it should have been allowed the benefit of carry forward of losses of the assessment years 1970-71 to 1973-74 on the basis of returns filed by it on 4-10-1978 voluntarily.
The ITO rejected the claim of the assessee on the ground that the returns for the said years were barred by limitation prescribed under Section 139(3) and 139(4) of the Act. He, therefore, proceeded to determine the tax liability of the assessee on the basis of the total income as determined by him for the respective years without setting off the previous losses as claimed by the assessee.
2. Being aggrieved, the assessee carried the matter in appeal before the Commissioner (Appeals) and strenuously contended that the assessee was a consumer co-operative society which came into existence in January 1963 in accordance with the policy decision taken by the Government to promote and develop co-operative consumer stores. By its very nature, the assessee-society supplied goods to the community at large at competitive prices on a reasonable profit basis resulting in substantial losses for the earlier years. The assessee, however, was required to file return for the year 1977-78 for the first time by a notice under Section 139(2) on 22-7-1977. Thereafter, notices under Section 148 for the assessment years under appeal followed requiring the assessee to file returns for these years. The assessee filed a return for the year 1977-78 as also for the years under appeal on 3-1-1978 and 28-8-1978 respectively (as indicated in the above table).
The ITO, however, completed the assessments for the years under appeal determining the total income as determined in the above table ignoring the assessee's claim for the losses of the earlier years to be carried forward and set off against income for the years under appeal. It was contended that the assessee had earlier enquired from the ITO as to whether there was any liability to file returns for the years in which it had suffered losses but was advised not to file the returns as there was no tax liability. In fact the assessee did not get the correct advice for determination of its losses for the years in which it suffered losses. Therefore, when the ITO took action under Section 139(2)/148, for the years as aforesaid, the assessee came forward and pressed its claim for carry forward and set off of losses. In this connection, reliance was placed on the decision in the cases of G.R.Jayarama Reddy v. CIT  68 ITR 813 (Mys.) and CIT v. Dalmia Cement Bharat Ltd.  104 ITR 337 (Mad.). These contentions found favour with the Commissioner (Appeals) who took the view that the ITO was in error in not determining the losses for the earlier years. In fact, the ITO has not taken any decision from the returns as filed by the assessee. Therefore, having regard to the submissions canvassed before him as also the decisions cited supra, the Commissioner (Appeals) held that the assessee was entitled to the benefit of carry forward of past losses against its income determined for the years under appeal.
3. The revenue being aggrieved is in appeal before us. Shri Sathe, the learned departmental representative, submitted at the outset that the returns for the years 1970-71 to 1973-74 which were filed beyond time were non est in law. Therefore, the claim for carry forward of losses was not tenable. Secondly, Section 80 of the Act provides that an assessee would be entitled to set off and carry forward such losses as are determined by the ITO in pursuance to the returns filed by it.
Returns have to be filed in accordance with the provisions contained in Section 139(3) or Section 139(4). All the same the returns must be filed within the statutory time limit prescribed for filing return of losses or revised returns under Section 139(4). Returns filed beyond the statutory date, therefore, cannot be acted upon by the ITO for quantification of loss. Lastly, the carry forward of losses is a benefit and, therefore, the assessee must strictly comply with the requirements of requisite conditions. In support of his contention, he referred to the decision of the Supreme Court reported at 89 ITR 224 (sic). Thereafter distinguishing the decision of the Madras High Court in the case of Dalmia Cement Bharat Ltd. (supra), Shri Sathe submitted firstly that the said decision was rendered while interpreting the provisions of Section 22(3A) of the 1922 Act and had no application to the facts of the present case. There was no provision analogous to Section 80 under the 1922 Act and finally according to the facts as set out in the Madras decision cited supra, returns' under Section 22(3A) were filed in time. However, in the present case, the returns were filed beyond time and the TTO was, therefore, justified in rejecting the assessee's claim. Lastly, reliance was placed by the learned Commissioner (Appeals) on the Madras High Court decision was not justified.
4. Shri Patil, on the other hand, tried to submit before us that the tax liability has to be determined on the basis of what is called 'real income'. In computing the real income chargeable to tax, previous losses have to be set out. Secondly, the assessee was not aware of its claim for recognition of losses. It was only when a notice under Section 148 was issued by the ITO that the assessee put forward its claim. Shri Patil, therefore, tried to draw a distinction between the losses which are claimed in pursuant to the returns filed volunarily and setting off of those losses in course of regular assessment under Section 143(3) of the Act, and the claim of setting off of losses when action under Section 148 was taken. In other words, Shri Patil's submission was that but for the action taken under Section 148 by the ITO, there was no obligation on the part of the assessee to file the returns for the years under appeal. It was only when that obligation to file returns arose that the assessee thought fit to press its claim for previous losses. Therefore, if the controversy was viewed from this context, the assessee's claim was justified. Shri Patil supported the order of the Commissioner (Appeals) and relied strongly on the Madras High Court decision cited supra.
5. We have carefully considered the rival submissions. We may say at the outset that the distinction sought to be drawn by Shri Patil in order to sustain his claim for carry forward of losses is a distinction without difference. The real crux of the matter is whether the assessee was in law entitled to carry forward losses on the basis of the returns filed by it. Now, there is no dispute about the fact that the returns were filed for the years 1970-71 to 1973-74 on a date which fell beyond the statutory period of limitation for filing returns under Section 139(3) or 139(4). The returns, therefore, were clearly non est in law.
These returns have no legal validity and, therefore, ab initio void.
The ITO was, therefore, fully justified in not taking cognizance of these returns which were so filed with a view to take advantage of carrying forward past losses. Shri Patil has not been able to place before us any authority which would support the point which he has canvassed before us. That apart, Shri Sathe is right in his contention that provisions of Section 80 which require determination of losses in pursuant to the return of loss filed by the assessee has to be given effect to. These provisions which came into being under the 1961 Act were not incorporated in the 1922 Act. Therefore, there was no obligation on the part of the ITO to quantify the loss on the basis of the return filed by the assessee and direct the same to be carried forward. It was in this context that the decision of the Madras High Court was rendered and the facts in that case also show that the returns of losses were filed in time. They were, therefore, valid returns and not returns not non est in law as is in the present case.
The artificial distinction sought to be placed between the proceedings under Section 148 and the regular proceedings pursuant to return filed under Section 139(1) or notice under Section 139(2) is clearly misplaced, and this submission, therefore, is to be stated to be rejected. In our view, therefore, Commissioner (Appeals) was clearly in error in coming to the conclusion as he did that the assessee was entitled to carry forward and set off of the past losses. The ratio of the Madras High Court decision based on the facts which govern that decision has not been appreciated if we may say so, with respect, by the Commissioner (Appeals). We, accordingly, reverse his decision and restore the orders of the ITO for all the years and allow these appeals.