Denying Carry Forward Of Business Loss Based On Non-Completion Of Tax Audit Within Prescribed Time Not Justified: ITAT

The two-member bench of George Mathan (Judicial Member) and Ramit Kochar (Accountant Member) said, "there could be several reasons for not getting the statutory audit/tax-audit done within prescribed time, but unless there is specific/express provision which stipulates that if the audit is not done within prescribed time, the loss shall not be allowed to be carried forward, we cannot expand the scope of the statute."

The assessee/respondent has been engaged in the business of Manufacturing of Engineering goods. The assessee filed its return of income declaring loss within prescribed time under section 139(3) read with Section 139(1) of the Income Tax  Act. However, while filing return of income with Revenue the assessee admittedly enclosed provisional financial statements along with its return of income as accounts were not audited by that time.

The assessee's accounts were finally audited which were filed by the assessee with Revenue during the course of original assessment proceedings conducted by the AO, in the first round of litigation, but admittedly the assessee did not file revised return of income after getting its accounts audited with revised figure of income (loss) post audit.

The revenue initiated proceedings against the assessee for infringement of provisions of Section 44AB of the 1961 Act, for not getting tax-audit done within the prescribed time. The AO completed an assessment vide assessment order in the first round of litigation by accepting returned loss but with the rider that the loss returned cannot be allowed to be carried forward on the ground that the same was arrived provisionally without audit.

The tribunal set aside the appellate order passed by CIT(A) in the first round of litigation and restored the entire issue to the file of AO with a direction to assess the income/loss of the assessee on the basis of the audited financial statements and other materials in accordance with law.

Counsel for the assessee submitted that the return of income was filed in time and that the only grievance of the Revenue on which the claim of carry forward of loss was denied to the assessee is that the revised return of income was not filed based upon the audited accounts.

The ITAT has ruled that if the assessee has not got its statutory audit done under Companies Act, 2013 within the prescribed time, or has not got its tax audit done under the provisions of Section 44AB of the 1961 Act, there are penal provisions provided under the statute for non-compliances.

Section 80 stipulates that return of income is to be filed within the prescribed time, which assessee did complied with although provisional financial statements were filed along with return of income. Moreover, the tribunal in the first round of litigation has directed AO to assess income/ loss of the assessee on the basis of audited financial accounts and other materials in accordance with law.

"We are of the considered view, that there is no justification for denying the carry forward of the business loss for the year under consideration based on the audited financial statements keeping in view applicable and relevant provisions of the 1961 Act for computing such loss, and we confirm the appellate order of the CIT(A). The appeal filed by Revenue stands dismissed," the ITAT said.

Case Title: Deputy Commissioner of Income Tax Versus Brahmos Aerospace (Thiruvananthapuram) Ltd.

Citation: ITA No. 742/Coch/2019

Counsel For Appellant: Senior Departmental Representative Jamunna Devi

Counsel For Respondent: Advocate Abraham Joseph Markos

Click Here To Read/Download Order