Can’t carry forward losses due to late filing of return? Apply to local tax authority for relief

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Published: September 19, 2017 2:25:31 AM

The Income Tax Act provides that losses can be carried forward only if the return has been filed within the time prescribed under the Act.

We have all heard about the ill-effects of not filing returns of income on time. And the list is not short, which starts with interest, penalty and goes up to inability to claim carry forward of losses.

We have all heard about the ill-effects of not filing returns of income on time. And the list is not short, which starts with interest, penalty and goes up to inability to claim carry forward of losses. The Income Tax Act provides that losses can be carried forward only if the return has been filed within the time prescribed under the Act.

Filing returns

Owing to this peculiar provision, it becomes imperative to file the return in time, else one would not be eligible to carry forward the losses to be set-off against the gains. This is a deterrent huge enough to ensure that you file your return in time. While one’s endeavour is to file returns in time, in certain cases the delay is justified or due to an unavoidable/uncontrollable circumstance. So what happens if you do not file returns in time or you file a belated return and you had losses to be carried forward for set-off? Is it a lost battle, or do you have a chance to claim set-off of your losses? On this issue, the good news is that the legislature has provided the Central Board of Direct Taxes (CBDT)with the powers to mitigate the hardship of taxpayers. CBDT has delegated these powers with local tax authorities like Chief Commissioner or Commissioner of Income Tax. It has been provided that under certain conditions, these tax authorities can condone the delay in filing of the return and allow the claim of refund and carry forward of losses.

Carry forward of losses

Accordingly, one can apply to the jurisdictional commissioner of income tax for condonation of delay in filing return of income and claim carry forward of losses. However, it is pertinent to note that the relief is allowed only for taxpayers who have genuinely suffered for unavoidable circumstance. If you have a genuine reason for which either return was filed after the last date of filing return or no return was filed, and you missed the claim of carry forward of loss, you can file an application in this regard.

Points to remember

There is no prescribed format for filing application for condonation of delay in filing the return of income. Hence the application can be filed as a letter to the Jurisdictional Commissioner detailing the reason for non-filing or late-filing of return. Where the application is rejected, one can only apply to CBDT, since the order under Section 119(2)(b) of the Act is an administrative order. Further, in the application, foremost ground is genuine application, hence one has to appropriately describe the circumstances which led to non-filing or late filing of return.

On this issue, Karnataka High Court has held that CBDT has sufficient powers to consider the desirability or expediency of granting relief under the Act, even after the expiry of the period of limitation, provided it is intended for avoiding genuine hardship.

Recently, Chhattisgarh High Court has also held that an assessee who has filed a late return can still claim his losses, if the reason for the delay is genuine. With this beneficial circular of CBDT and favourable judicial precedents in place, genuine taxpayers do have a chance at claiming set-off of their losses, even if the return was not filed within the prescribed timeline. Though it is desirable and advisable to prepare and file income tax return in time, you should not lose hope if circumstances don’t work your way. Keeping in mind the genuine hardship faced by the taxpayer, these benevolent provisions have been placed in the legislation and should be put to use, wherever called for.

The author is executive director, Nangia & Co LLP

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