1. These two departmental appeals arise out of the common order of the AAC in the case of Shri Ratanlal Bhangadia of Hyderabad for the assessment years 1979-80 and 1980-81.
2. The assessee is an individual and had filed return on 3-12-1979 declaring business loss under acknowledgement No. 001345. He filed a revised return on 31-3-1980 under acknowledgement No. 002263. This claim of the assessee made before the ITO has not been controverted by the ITO and has been accepted by the first appellate authority. This factual finding is not disputed before us. It, however, appears that the returns were not traceable at the office and that, therefore, no action was taken thereon. It was the assessee's claim that he was entitled to a set off of loss of Rs. 1,22,781 as relating to the assessment year 1978-79 against his share income from Hyderabad Trading Co.
3. The ITO disallowed the claim on the ground that the loss was not determined. The first appellate authority, however, found that the assessee had produced proof regarding filing of the return as well as the revised return within the time allowed under Section 139(4) of the Income-tax Act, 1961 ('the 1961 Act'). He, therefore, held that the assessee is entitled to claim for set off and allowed the appeal for both the years inasmuch as the loss as claimed would, if admissible for set off, cover both the years. In the departmental appeal, the only grievance appear to be that the first appellate authority erred in not following the decisions of the Supreme Court in the cases of CIT v.Khushal Chand Daga  42 ITR 177 and CIT v. Manmohan Das  59 ITR 699 and in not directing the ITO to determine the loss for the assessment year 1977-78. However, additional ground was filed urging that the question of set off of loss would not arise even after vetting because the return was not filed within the time allowed under the law for submission of loss return. The learned departmental representative urged the additional ground as a preliminary and basicground. According to him, the decision of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd.  77 ITR 518 should not apply any longer as during that time there was no specific provision for automatic levy of interest for delayed returns and, hence, the return filed under Section 139(1) (or for that matter a loss return) cannot now be treated on same par as Section 139(4) inasmuch as the latter attracts levy of interest. This is the view expressed by the CBDT in its letter dated 20-9-1983. This is the circular which has prompted the revenue to come up with additional grounds to enlarge the scope of the appeal to resist the set off altogether more or less on the ground that the return had been belated with reference to the time limit prescribed for loss return under Section 139(3). He argued that the time limit prescribed under Section 139(3) becomes meaningless if the assessee's argument is accepted. He alternatively stressed the original grounds that the ITO should have an opportunity of vetting the claim with reference to the two decisions cited in the grounds of appeal. The leaned representative for the assessee claimed that the loss was correct and that it needs no further vetting. He stated that the assessee is entitled to claim the set off is now a matter established by the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra). He also cited a number of other authorities. The CBDT had accepted this position prior to its circular dated 20-9-1983.
Since the years are covered by the earlier circulars, he claimed that even on the basis of the circulars, the assessee is entitled to the set off.
4. We have carefully considered the records as well as the arguments.
The assessee filed a loss return admittedly beyond the time limit prescribed under Section 139(3). The assessee did not ask for extension of time for submission of the return. If we would go by the letter of the law in Section 139(3), it could possibly be said that the assessee is not entitled to carry forward this loss and have it set off against the income for later years even if such other conditions for set off are satisfied. But this very issue had come before the Supreme Court under the analogous provisions of the Indian Income-tax Act, 1922 ('the 1922 Act') in the case of Kulu Valley Transport Co. (P.) Ltd. (supra).
We are unable to understand that the mere fact that Section 139(8) was introduced for levy of interest automatically would make all the difference for the conclusion of the Supreme Court as long as the material provisions for submission of the returns or revised returns continue to be the same. No doubt, the decision of the Supreme Court related to the provisions of the 1922 Act, but the present provisions are in part materia. The Calcutta High Court in the case of Presidency Medical Centre (P.) Ltd. v. CIT  108 ITR 838 the Andhra Pradesh High Court in the case of C.P. Sarathy Mudaliar v. CIT  114 ITR 687, the Bombay High Court in Shri Panchaganga Sahakari Sakhar Karkhana Ltd. v. CIT  119 ITR 590, Telster Advertising (P.) Ltd. v. CIT  116 ITR 610 and the Madhya Pradesh High Court in the case of Co-operative Marketing Society Ltd. v. CIT  143 ITR 99 have all given effect to the rationale of the decision of the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra) for different sets of circumstances. The decision of the Andhra Pradesh High Court was sought to be distinguished by the learned departmental representative on the ground that the High Court considered the ITO's action in accepting the return as one of condonation of the delay as a.
matter of discretion to extend the time limit. Though we find that the High Court had used the expression that the ITO had allowed the assessee to file the belated return 'in exercise of its 'discretion', we are not in a position to say that the High Court had stated that there should be a positive exercise in every case. The ultimate finding of the High Court is that the return filed beyond the time limit under Section 139(3) can be entertained. The CBDT had itself on 28-8-1970 overruling its earlier circular took the view that the provisions regarding determination and carry forward of losses are in pari materia. Even the earlier instructions dated 14-5-1970 did not hold that the return itself was invalid though it had expressed itself against set off. The instructions dated 28-8-1970 covers both the periods of loss as well as profits for which set off is claimed in the assessee's case. In view of the unanimous authorities of the various High Courts both under old and new law and that of the Supreme Court on provisions which are in pari materia under the 1922 Act, the assessee is entitled to have the loss determined and have it set off if the conditions for set off are satisfied. Besides, the ruling circular also took the same view. The ruling circular during the years was also binding on the ITO even otherwise in view of the Full Bench decision of the Kerala High Court in the case of CIT v. B.M. Edward India Sea Foods  119 ITR 334. Hence, we do not find any merit in the argument which seeks to enlarge the scope of the appeal before us by way of additional grounds. We cannot also imagine that the circular dated 20-9-1983 which seeks to give a different interpretation, has considered various High Court decisions. We hold that the ITOs have been directed and are taking action to withdraw the set off on the basis of the earlier circulars referred to in Kulu Valley Transport Co.
(P.) Ltd.'s case (supra) by initiating action under Section 263/147(b)/154, in pursuance of this circular as the Department also does not accept the view of the Kerala High Court as to the ruling nature of the circulars before they are withdrawn. In other words, a plethora of appeals is expected as a result of this circular which has not considered a number of decisions under the 1961 Act as well. We are of the view that the instructions dated 28-8-1970 presents the correct legal position especially when it compares the provisions of the 1922 Act and 1961 Act. We have no doubt that the CBDT will review its circular dated 20-9-1983 in the light of decided case law we have pointed out. As for the argument that Section 139(3) becomes meaningless, this was the very argument which was rejected by the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) though such an argument did find favour with Justice J.C. Shah, as he then was, who dissented from the majority. Since the law has not undergone any change thereafter even on the occasion of framing of the 1961 Act, there cannot possibly be a different view. In any view of the matter, the additional ground has to be rejected.
5. As for the main ground taken in the grounds of appeal, it is possible to argue as was sought to be done by the learned representative for the assessee that the returns should be taken as having been accepted because no action was taken on them. But the Supreme Court in Khushal Chand Daga's case (supra) held that where an ITO did not notify the assessee by an order in writing the amount of loss for the year, the assessee was entitled to have the loss predetermined in a subsequent assessment year. This was a case where the loss had been determined in an earlier year, but the assessee, it was held, had the right to have the question reopened in the year of set off. No doubt, this was a case where the ITO did not fail in his duty to have the loss determined while there has been such a failure in this case. Even so, we do not find any justification for not applying the rationale of this decision in the facts of the assessee's case. The Jaw that is good enough for the taxpayer should also be good enough for the revenue unless there is some prohibition against the ITO considering the loss in the year of set off, if he had failed to pass any order in the proper year in proper time. We do not find any such prohibition. The Supreme Court had again, though under the provisions of the 1922 Act, decided in the case of Manmohan Das (supra) that the decision recorded by the ITO not to compute the loss in the previous year is not binding on the assessee. Here again, there was no failure on the part of the ITO. But if the determination of the quantum of loss could be postponed or considered in the year of set off, we are of the view that the mere fact that the law requires that the loss should be ascertained does not rule out the determination of the loss beyond the time limit fixed for completing the normal assessment. After all, the determination of the loss becomes material only if and when the set off is demanded or otherwise becomes admissible. We are in agreement with the assessee that the revenue cannot avoid set off of the loss merely because it failed to do its duty in ascertaining or determining the loss as required under the law. The ITO cannot take advantage of his own failure. At the same time, as long as it has been recognised by the Supreme Court that the loss can be determined in the year of set off, we are not in a position to say that the departmental insistence to have the right of loss verified can be brushed aside lightly. Under the circumstances, we have to accept the departmental alternative ground, incidentally the only ground raised originally in the appeal. We have also to point out that the determination of the loss in the relevant year is not the only factor to be considered. Apparently, the loss relates to proprietary business by the assessee while set off claimed is against a partnership share income. It is necessary to consider whether the set off would be available considering the conditions prescribed for set off in Chapter VI of the Act. It is under these circumstances that we accept this ground and set aside these two assessments for having the loss for the earlier year determined and for considering the claim for set off before passing fresh orders after giving due opportunity to the taxpayer.
6. The appeals will be treated as partly allowed. The assessments are set aside for being redone in accordance with law and the directions contained in the immediately preceding paragraph.