ITAT Delhi Rules on Carry Forward of Losses: Department Cannot Deny Benefit After Treating Return as Valid u/s 139(1)

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has delivered a significant ruling in the case of Avalon Infrastructures Pvt. Ltd. Vs ACIT/DCIT, addressing the validity of tax returns filed with negligible delays and the subsequent right to carry forward losses. The Tribunal held that the Revenue Department cannot adopt a contradictory stance by treating a return as valid under Section 139(1) of the Income Tax Act 1961 for assessment purposes while simultaneously denying the benefit of carry forward losses on the grounds that the return was belated.

Background of the Case

The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [CIT(A)/NFAC] for the Assessment Year 2019-20. The dispute originated from proceedings initiated under Section 143(1) of the Income Tax Act 1961.

The core of the litigation revolved around the disallowance of the assessee's claim to carry forward business losses. The Revenue authorities had flagged the Income Tax Return (ITR) as "belated," thereby invoking the provisions that restrict the carry forward of losses if a return is not filed within the due date prescribed under Section 139(1).