Wp/2825/2019 Of Samir Narain Bhojwani v. Deputy Commissioner Of Income-Tax, Central Circle 3(4), Mumbai And 2 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2825 OF 2019 Samir Narain Bhojwani .. Petitioner v/s. Deputy Commissioner of Income TaxCentral Circle 3(4), Mumbai & Ors. .. Respondents Mr. J.D. Mistri, Senior Counsel a/w Mr. Madhur Agarwal i/b Mr. Atul K.Jasani for the petitioner Mr. Sham Walve for the respondents CORAM : M.S. SANKLECHA & NITIN JAMDAR, J.J. DATED : 22[nd] OCTOBER, 2019 P.C. 1.In view of the extraordinary urgency made out by thepetitioner as the last date of filing of return of income is 31[st] October,2019, both the petitioner and the respondents have requested thatthe petition be disposed at the stage of admission. Therefore, wehave taken up the petition for final disposal at the stage of admission. 2.This petition under Article 226 of the Constitution of Indiaseeks a direction to the respondent no.1 – Assessing Officer andrespondent no.2 – the Central Board of Direct Taxes to accept thepetitioner’s return of income for Assessment Year 2019-20 in paperform under Section 139(1) of the Income Tax Act, 1961 (the Act). 3.The petitioner has been compelled to move this Court onurgent basis as the petitioner is obliged under Section 139D of theAct read with Rule 12 of the Income Tax Rules, 1961 (Rules) to fileits return of income electronically with his digital signature. Thisprescribed return of income which has to be filed electronically doesnot permit the petitioner to make his claim to set off of his profits ofthis year from the carried forward losses of the previous year in termsof Section 72 of the Act. This for the reason the prescribed electronicreturns do not enable making the above claim as it is largely selfpopulated. Resulting in excess income being declared, which wouldrequire more amount being required to be paid as tax. Thus, in viewof the same, if the return of income is filed as prescribed, it would beeither processed under Section 143(1) of the Act, demanding excesstax or being treated as defective (if some entries/collumns are notfilled). This as last date for filing the return of income is 31[st]October, 2019 and unless the paper return of income is directed to beaccepted, prejudice would be caused to the petitioner. 4.Briefly, the facts leading to the filing of the petition as claimed by the petitioner are as under :- (a)The petitioner is an individual was carries on business asa developer and landlord i.e. giving flats constructed by him onleave and license / rent basis (rent) and disclosing the rent receivedas his income from business being assessed to tax under the head“business income”. As these flats given on rent, are business assets,they form part of the block of assets on which depreciation has beenclaimed and reflected as its written down value (WDV). (b)During the previous year relevant to the subjectassessment year, the petitioner sold three residential flats. Theconsideration received in excess of the written down value of theassets was Rs. 77 crores (approximately). This excess amount ofRs.77 crores (approximately) is to be offered to tax as short termcapital gain under Section 50 of the Act. (c)During the subject assessment year, the petitioner hasotherwise suffered a business loss of Rs.57 crores (approx). Thisbusiness loss, the petitioner is entitled to set off against the income ofRs.77 crores which was subject to tax under the head “capital gain”in terms of Section 71 of the Act. Thus, leaving a balance of Rs.20crores (approx) as taxable income. It is this balance of Rs. 20 (b)During the previous year relevant to the subjectassessment year, the petitioner sold three residential flats. Theconsideration received in excess of the written down value of theassets was Rs. 77 crores (approximately). This excess amount ofRs.77 crores (approximately) is to be offered to tax as short termcapital gain under Section 50 of the Act. (c)During the subject assessment year, the petitioner hasotherwise suffered a business loss of Rs.57 crores (approx). Thisbusiness loss, the petitioner is entitled to set off against the income ofRs.77 crores which was subject to tax under the head “capital gain”in terms of Section 71 of the Act. Thus, leaving a balance of Rs.20crores (approx) as taxable income. It is this balance of Rs. 20 crores, the petitioner was entitled to set off from the carry forwardbusiness loss of Rs. 166 crores (approx) (see Exhibit-B to petition) interms of Section 72 of the Act. It is the case of the petitioner thatsuch setting off of carry forward business loss of the earlier years inrespect of amounts taxed under the head “short term capital gains”has been allowed by the Tribunal in numerous cases. (d)However, when the petitioner attempted to file its returnof income in the prescribed electronic form, the petitioner was ableto reflect the set off in terms of Section 71 of the Act i.e. setting ofthe losses against gains of the subject assessment year. However, thepetitioner was not able to reflect in the prescribed return of incomein electronic form, the set off available in terms of Section 72 of theAct i.e. setting off of current years business loss against the carryforward loss from the earlier years. This for the reason that thereturn which is filed electronically requires certain columns to befilled in by the petitioner and the other columns are self populated.The petitioner is unable to change the figures and make a claim forset off under Section 72 of the Act in the present facts. This resultsin excess income being declared, resulting in an obligation to paymore tax on income which in term of section 72 of the Act is allowed to be set off against carried forward losses of earlier years. It is in these circumstances, the petitioner has prayed that he be allowed tofile his return of income in appropriate form for the subjectassessment year in paper form and the same be taken up forassessment in accordance with the Act. 5.Mr. Mistri, learned Senior Counsel in support of the petitionsubmits as under :- (a)The prescribed return of income to be filed electronically does not permit the petitioner to raise a claim of set off underSection 72 of the Act. Thus, what is available under the Act is takenaway by the Rules; (b)The only manner in which the petitioner can now raiseits claim for set off under Section 72 of the Act is by filing a return in paper form. In the absence of such a paper return being allowed, thepetitioner will be taxed on amounts which is not taxable; (c)In the above circumstances, the Assessing Officer bedirected to accept the return of income in paper form, as the last dateof filing the return is 31[st] October, 2019; and In the above circumstances, the Assessing Officer be (d)The filing of return in electronic form will entail the petitioner not being able to fill all entries in its attempt to disclose the correct income, may visit him with consequences of being adefective return and penal proceedings. 6.Mr. Walve, learned Counsel appearing for the Revenue, oninstructions of the Assessing Officer, who is present in Court,submitted as under :- (a)The return of income has to be filed by the petitioner interms of Section 139D of the Act read with Rule 12 of the Rules, onlyin the electronic form, as prescribed by the Central Board of DirectTaxes (CBDT); (b)There is no provision for filing a hard copy (paper copy)of the return of income in the class of cases to which the petitionerbelongs; and In the above circumstances, the Assessing Officer be (d)The filing of return in electronic form will entail the petitioner not being able to fill all entries in its attempt to disclose the correct income, may visit him with consequences of being adefective return and penal proceedings. 6.Mr. Walve, learned Counsel appearing for the Revenue, oninstructions of the Assessing Officer, who is present in Court,submitted as under :- (a)The return of income has to be filed by the petitioner interms of Section 139D of the Act read with Rule 12 of the Rules, onlyin the electronic form, as prescribed by the Central Board of DirectTaxes (CBDT); (b)There is no provision for filing a hard copy (paper copy)of the return of income in the class of cases to which the petitionerbelongs; and (c)The Assessing Officer cannot accept the return of incomein paper form as the Act and the Rules, do not grant this facility tothe petitioner. Thus, no directions as sought by the petitioner be given as itwould be contrary to the Act and the Rules. 7.We find that the claim sought to be urged by the petitioner viz. Set off of business profits of this year offered to tax under the head“capital gain” being set off against carried forward loss is prima faciesupported by the decisions of the Tribunal in the case of M/s. M.K.Creations Vs. ITO, Ward-14(1)(3), (2017) 6 TMI 821 and in ITO Vs.Smart Sensors & Transducers Ltd. (2019) 104 taxmann.com 129. Itis also not disputed before us by the Revenue that the return ofincome in electronic form is self populted i.e. on filling in someentries, the other entries in the return are indicated by the systemitself. Thus, the petitioner is unable to make a claim whichaccording to him, he is entitled to in law. In case, the petitioner iscompelled to file in the prescribed electronic form, it could bedeclared by the Assessing Officer as defective (if all entries are notfilled) or raise a demand for tax on the basis of the declared incomeunder Section 143(1) of the Act or if the assessment is taken toscrutiny under Section 143(3) of the Act, then the petitioner will notbe entitled to raise a claim of set off under Section 72 of the Actduring the assessment proceedings. This in view of the decision ofthe Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs.Commissioner of Incoem Tax, 284 ITR 323 wherein it has been heldthat if a claim is not made by the assessee in its return of income, then, the Assessing Officer would have no power to entertain a claimotherwise then by way of revised return of income. The revisedreturn of income if the petitioner attempts to file, would result in thepetitioner not being able to make the claim, for which the revisedreturn is filed as the revised return of income would also have to befiled in the prescribed electronic form which does not provide forsuch an eventuality. Thus, for the purposes of the subject assessmentyear if the return of income is filed electronically, it would have givenup at least before the Assessing Officer his claim to benefit of Section72 of the Act. This whether the return of income is processed underSection 143(1) of the Act or under goes scrutiny under Section143(3) of the Act. 8.The purpose and object of e-filing of return to have simplicityand uniformity in procedure. However, the above object cannot inits implementation result in an assessee not being entitled to make aclaim of set off which he feels he is entitled to in accordance with theprovisions of the Act. The allowability or dis-allowability of theclaim is a subject matter to be considered by the Assessing Officer.However, the procedure of filing the return of income cannot bar an 8.The purpose and object of e-filing of return to have simplicityand uniformity in procedure. However, the above object cannot inits implementation result in an assessee not being entitled to make aclaim of set off which he feels he is entitled to in accordance with theprovisions of the Act. The allowability or dis-allowability of theclaim is a subject matter to be considered by the Assessing Officer.However, the procedure of filing the return of income cannot bar an assessee from making a claim under the Act which he feels he isentitled to. We accept the Assessing Officer’s submission that interms of Rule 12 of the Rules, the returns are to be filed by thepetitioner only electronically and he is bound by the Act and theRules, thus cannot accept the paper return. However, in terms ofSection 139D of the Act, it is for the CBDT to make rules providingfor filing of returns of income in electronic form. This power hasbeen exercised by the CBDT in terms of Rule 12 of the Rules.However, the form as prescribed do not provide for eventuality thathas arisen in the present case and may also arise in other cases.Thus, this is an issue to be brought to the notice of the CBDT, whichwould in case it finds merits in this submission, issue necessarydirections to cover this gap. 9.In the normal course, we would have directed the petitioner tofile representation with the CBDT making a demand for justice,before we considered issuing of a writ of mandamus. However, inthe peculiar facts of this case, the petitioner is required to file returnof income by 31[st] October, 2019. It is only now when the petitionerwas in the process of filing his return electronically that the petitioner realized that he is unable to make a claim of set off underSection 72 of the Act, even though the claim itself is prima facieallowable in view of the decisions of the Tribunal in M.K. Creation(supra) and Smart Sensors & Transducers Ltd. (supra). In theabsence of the petitioner filing its return of income on or before 31[st]October, 2019, the petitioner is likely to face penal consequences. Wealso in the present facts are of the view that awaiting the order of theAssessing Officer under Section 139(9) of the Act, declaring thereturn as defective, will not help as the issue would continue toremain even if a fresh return is filed. The issue raised is afundamental issue, which needs to be addressed by the CBDT. 10.It is in these aforesaid unusual circumstances, that we have notadopted the course of directing the petitioner to first demand justicefrom the Authority concerned before moving this Court in its writjurisdiction. This view of ours is also supported by the fact that Mr.Walve, learned Counsel appearing for the Revenue on instructionsstates that the Assessing Officer who is present in Court states that inhis experience he has not come across a case like this where thereturn which are prescribed under Section 139D of the Act r/w Rule 12 of the Rules do not take into account the situation where theassessee’s claim cannot be considered. Moreover, from the facts asnoted above, this situation (like the present) may not be restrictedonly ot this petitioner but could generally arise in other cases also. 10.It is in these aforesaid unusual circumstances, that we have notadopted the course of directing the petitioner to first demand justicefrom the Authority concerned before moving this Court in its writjurisdiction. This view of ours is also supported by the fact that Mr.Walve, learned Counsel appearing for the Revenue on instructionsstates that the Assessing Officer who is present in Court states that inhis experience he has not come across a case like this where thereturn which are prescribed under Section 139D of the Act r/w Rule 12 of the Rules do not take into account the situation where theassessee’s claim cannot be considered. Moreover, from the facts asnoted above, this situation (like the present) may not be restrictedonly ot this petitioner but could generally arise in other cases also. 11.Therefore, it would be appropriate that the petitioner make arepresentation on the above issue to the CBDT, who would thenconsider it in the context of facts involved in the present case andissue necessary guidelines for the benefit of the entire body of theassessees, if the petitioner is right in his claim that the prescribedreturn of income to be filed electronically provides prohibits anassessee from making its claim. However, in the meantime, thepetitioner without prejudice to his rights and contentions would filethe return of income in electronic form on the system before the lastdate. Besides, also file his return of income for the subjectassessment year in paper form with the Assessing Officer before thelast date. This return of income in paper form would be accepted bythe Assessing Officer without prejudice to the Revenue’s contentionthat such a return cannot be filed. 12.In the meantime, till such time as the CBDT takes a decision on the petitioner’s representation, the respondent Revenue would notact upon the electronically filed return of income so as to initiate anycoercive recovery proceedings. The petitioner is directed to file arepresentation with the CBDT before the last date of filing the returnof income expires i.e. 31[st] October, 2019. If such a representation isfiled within the above time (with a copy thereof to the AssessingOfficer), the CBDT would consider and dispose of the same asexpeditiously as possible. The Assessing Officer will also bring to thenotice of the CBDT the aforesaid anomaly and the decision of thisCourt. It is only after the decision of the CBDT, would the return ofincome of the petitioner for the subject assessment year be taken upfor consideration. 13.Before closing, we would emphasize that we have directed thepetitioner to make a representation to the CBDT, to enable it to take aproper view on it. The issue raised by the petitioner does notappear to be an issue only in an individual case, but may affect thewhole body of the assessees’ (whose claim may not fit in theprescribed proforma). Thus, a clarification on this issue by theCBDT may be beneficial to the entire body of assessee, in fact, who seek to make a claim which according to them, the prescribed proforma does not provide for. 14.The petition is disposed of in the above terms. (NITIN JAMDAR, J.) (M.S. SANKLECHA, J.)