Rakesh Kumar Pandita vs ACIT: Adjustment of Current Year Loss – A Debatable Issue for AY 2012-13

Rakesh Kumar Pandita vs ACIT: Adjustment of Current Year Loss – A Debatable Issue for AY 2012-13

The Income Tax Appellate Tribunal (ITAT) Delhi ‘SMC’ Bench, through video conferencing, delivered a significant ruling on the case of Rakesh Kumar Pandita vs ACIT Circle-24(1), New Delhi concerning the assessment year 2012-13. The case was heard on October 20, 2021, and the final order was pronounced on October 22, 2021.

This appeal, registered under ITA No. 6476/DEL/2019, was filed by the appellant, Shri Rakesh Kumar Pandita, challenging the order of the Commissioner of Income Tax (Appeals) [CIT(A)] – 8, New Delhi, dated June 14, 2019. The central issue in the case revolved around the adjustment of current year losses with income assessed under section 115BBD of the Income Tax Act, 1961.

Background of the Case

The appellant, Shri Rakesh Kumar Pandita, is associated with SRB Instruments Pvt Ltd, based in Delhi. The appellant filed his return of income on September 14, 2012, declaring a total income of Rs. 26,26,860. This income was subsequently processed by the Centralized Processing Centre (CPC), Bangalore, under section 143(1) of the Act, with the assessed income being determined at Rs. 31,51,660.

The discrepancy arose when the appellant noticed that while the CPC’s intimation mentioned a current year loss of Rs. 22,53,768, this loss was not adjusted against the assessed income. The appellant, believing this to be an apparent mistake, filed an application for rectification under section 154 of the Act.

Dispute Over Section 115BBD and Current Year Loss

The appellant’s primary contention was that the current year loss should be adjusted against the income assessed under section 115BBD, which pertains to income by way of dividends declared, distributed, or paid by a specified foreign company. However, the Assessing Officer (AO) rejected this claim, arguing that since the income was assessed under section 115BBD, which requires a special tax rate of 15%, no adjustment of losses was permissible.

The CIT(A) upheld the AO’s decision, stating that the issue of whether current year losses could be set off against income under section 115BBD was highly debatable and could not be rectified under section 154, which is intended for correcting apparent mistakes and not for resolving debatable issues.

Arguments Presented by the Appellant

Before the ITAT, the appellant’s counsel, Shri R.C. Chandiwala, argued that the CPC, Bangalore, had explicitly mentioned the current year loss in the intimation under section 143(1) and that this loss should logically be adjusted against the income assessed under section 115BBD. He contended that the failure to do so was a clear mistake that warranted rectification under section 154.

The counsel emphasized that the appellant had inadvertently failed to file complete details in the original return, leading to the oversight by the CPC. He maintained that since the loss was acknowledged in the CPC’s intimation, it should have been considered while computing the final assessed income.

Tribunal’s Findings and Conclusion

The ITAT, comprising Shri N.K. Billaiya, Accountant Member, examined the facts and arguments presented by both parties. The tribunal acknowledged that the intimation under section 143(1) did indeed mention the current year loss of Rs. 22,53,768. However, it also noted that section 115BBD clearly states that no deduction in respect of any expenditure or allowance shall be allowed when computing income by way of dividends from a specified foreign company.

The tribunal further observed that the interpretation of ‘expenditure’ or ‘allowance’ to include current year loss was a highly debatable issue. Given the lack of precedents on this matter, the tribunal concluded that the CIT(A) was correct in holding that such a debatable issue could not be addressed through rectification under section 154.

As a result, the ITAT upheld the findings of the CIT(A) and dismissed the appeal filed by Shri Rakesh Kumar Pandita. The tribunal’s order, pronounced on October 22, 2021, affirmed that the issue of whether current year losses could be set off against income under section 115BBD remains unresolved and is not suitable for rectification under section 154.

Conclusion

The case of Rakesh Kumar Pandita vs ACIT highlights the complexities involved in tax assessments, particularly when it comes to interpreting provisions like section 115BBD. The tribunal’s ruling underscores the importance of precise legislative language and the challenges faced by taxpayers and tax authorities in applying these provisions.

This judgment serves as a reminder that not all discrepancies in tax assessments can be rectified through section 154, especially when the issue at hand involves intricate and debatable interpretations of tax law. The appellant’s decision to seek rectification under section 154, while logical, ultimately failed due to the nuanced nature of the legal question involved.

The ruling, while unfavorable to the appellant, contributes to the evolving jurisprudence on the interpretation of section 115BBD and its implications for current year loss adjustments. Tax practitioners and taxpayers alike will need to carefully consider such nuances when dealing with similar cases in the future.

Rakesh Kumar Pandita vs ACIT: Adjustment of Current Year Loss – A Debatable Issue for AY 2012-13