1. The assessee is a private limited company. The assessee had filed return showing an income of Rs. 22,100. The assessee had also claimed that it was entitled to the set off of losses brought forward from earlier years. The ITO set off the losses in respect of the assessment years 1974-75 and 1977-78 and after adjustment, the net taxable income was arrived at Rs. 3,758.
2. The assessee had also claimed the set off of loss in respect of the assessment year 1975-76. As there was no discussion in the order of the ITO regarding this claim, the assessee filed an appeal before the Commissioner (Appeals). For the assessment year 1975-76, the assessee had filed a return in April 1975, showing a loss of Rs. 21,957. The ITO, by his order dated 12-3-1976, computed the income at nil. Against this, the assessee filed an appeal and the AAC was of the view that the ITO had not considered the details of expenses and had not discussed as to which expenses were allowable and which were not. He also found that the question of allowing managing director's remuneration had to be considered in the context of the legitimate business needs of the company. Similarly, the extent of advertisement expenses was also to be determined. The AAC, therefore, set aside the assessment order and directed the ITO to determine the assessable net loss for the assessment year 1975-76.
3. It appears that after this order of the AAC passed on 21-9-1976, the ITO has not given effect to this order and has not determined the loss as per directions of the AAC. Before the Commissioner (Appeals), it was submitted that it was the duty of the ITO to compute the loss and if he had not done so, the loss should be taken as computed. It was, therefore, claimed that the loss as per return should be carried forward and set off in this year.
4. The Commissioner (Appeals) considered the provisions of Section 80 of the Income-tax Act, 1961 ('the Act') and he held that the ITO had failed to do his duty in not completing the assessment within the time prescribed under Section 153(2A) of the Act. According to him, this had resulted in avoidable hardship to the assessee-company. However, the Commissioner (Appeals) passed the following order : 7. However, in view of the clear provisions of Section 80 of the Income-tax Act, 1961, extracted above, I am unable to accept the appellant's plea that the loss that has not been determined in pursuance of a return filed under Section 139, should be allowed to be carried forward and set off under Sub-section (1) of Section 72 of the Income-tax Act. The appellant's plea in this regard, therefore, fails.
5. It is submitted before me that the denial of the assessee's claim was illegal and in the circumstances of the case, the Commissioner (Appeals) should have directed the set off of the loss as per return filed by the assessee. It was submitted that the assessee having filed the return in time, its claim cannot be disallowed due to inaction on the part of the department. It was also contended that the question of set off can arise, only when the profit accrues and as there was profit in this year, the assessee has raised this question and this claim could not be denied in view of the return filed in time. It was also contended that the benefit contemplated under Section 72(1) of the Act cannot be withheld by relying on the provisions of Section 80. Reliance was placed on the observations made by the Bombay High Court in the case of All India Groundnut Syndicate Ltd. v. CIT  25 ITR 90 and the decision of the Mysore High Court in the case of G.R. Jayarama Reddy v. CIT  68 ITR 813. A reference was also made to the decision of the Madras High Court in the case of CIT v. Dalmia Cement (Bharat) Ltd.  104 ITR 337, where it was held that while considering the assessee's appeal for the later year when the profit had arisen, the Tribunal had the jurisdiction to direct the ITO to quantify the losses for the earlier years so that they can be set off.
The departmental representative has relied on the orders of the Commissioner (Appeals).
6. I have considered the facts of the case and the rival arguments. The position of the revenue in the present case is indefensible. While considering the assessee's appeal for the assessment year 1981-82, the question of set off of losses in respect of earlier years can certainly be raised. The loss for the assessment year 1975-76 had been claimed by filing a return within the time stipulated in law. The AAC had directed that the net loss should be determined after considering the individual items of expenses. This order of the AAC has been forgotten by the department and no order has been passed to give effect to this order.
If this order had been passed in compliance with the order of the set aside passed by the AAC, the loss determined by the ITO could have been set off in this year. However, now the Commissioner (Appeals) has referred to the action becoming barred by limitation as more than two years have passed after the end of the financial year when the set aside order was passed. The Commissioner (Appeals) has realised the hardship caused to the assessee but has expressed his helplessness, as the law provides for the setting off of loss determined in the case of the assessee (sic).
7. I am of the view that mere appreciation of the assessee's hardship cannot provide relief to the assessee, though it is legally due to him.
The loss has to be determined as per directions of the AAC and whatever loss is finally determined has to be carried forward and set off against the income of this year. The plea for time bar should not be taken by the department as the provision for limitation is for the taxpayer and the revenue cannot take the plea that the matter has become time barred due to its inaction. In this connection, it would be relevant to reproduce the following observations of Chief Justice, Chagla, in the case of All India Groundnut Syndicate Ltd. (supra): It is clear that this Sub-section casts a duty upon the Income-tax Officer. The duty is that he has to compute the loss and notify the loss to the assessee. This Sub-section was clearly enacted in order to crystallise the loss in any particular year of assessment, to leave no dispute with regard to that loss and to give notice to the assessee of the amount at which the loss was computed by the Income-tax Officer. But the right which the Legislature confers upon the assessee does not arise under this Sub-section but it arises under Sub-section (2) and that right is to carry forward the loss of the previous years for a period of six years and that right is an absolute unqualified right and that right is not made conditional upon any computation made by the Income-tax Officer or any notice issued by the Income-tax Officer. Therefore, whereas the right is conferred under Sub-section (2) of Section 24, Sub-section (3) is merely a machinery or procedural section which provides how and when the Income-tax Officer should compute the loss and how he should communicate that loss to the assessee. But the most surprising contention is put forward by the department that because their own officer failed to discharge his statutory duty the assessee is deprived of his right which the law has given to him under Sub-section (2) of Section 24. In other words the department wants to benefit from and wants to take advantage of its own default. It is an elementary principle of law that no person, we take it that the income-tax department is included in that definition, can put forward his own default in defence to a right asserted by the other party. A person cannot say that the party claiming the right is deprived of that right because 'I have committed a default and the right is lost because of that default'.
It is true that the above observations have been made in respect of a case under the Indian Income-tax Act, 1922, but the basic legal principle remains. It is also true that Section 80 provides for set off and carry forward of losses which are determined and the determination has to be in a proper and legal manner. The ITO cannot, however, turn round and say that as he has not determined the loss, the assessee should lose his claim for set off. He must give effect to the order of the AAC and determine the loss notwithstanding the provisions of Section 153(2A) and then proceed to set off the loss against the income of this year. The assessee will also have the right to appeal against the determination of this loss.
8. In this connection, we may refer to the decision of the Allahabad High Court in the case of Vithaldas v. ITO  71 ITR 204, where the ITO was directed to carry out rectification after the expiry of limitation period.
9. With these directions, I set aside the orders of the lower authorities and direct the ITO to determine the loss for the assessment year 1975-76 and carry it forward and set off against the profit for this year in accordance with law.