Carry forward of loss can not be denied for belated return, it is only the set off in subsequent year which can be denied – ITAT
In a recent judgment, ITAT has held that carry forward of loss can not be denied for belated return, it is only in the subsequent year in which the set off is claimed by the assessee provisions of Section 80 may be invoked by the AO to deny the set off.
ABCAUS Case Law Citation:
5258 (2026) (11) abacus.in ITAT
Important Case Laws relied upon by Parties:
Padmalochanan Radhakrishnan vs UOI & Ors
Balakrishnan v. M. Krishnamurthy [(1998) 7 SCC 123]
M/s International Fresh Farm Products (India) Limited vs. ITO
CIT v. Kulu Valley Transport Co. (P.) Ltd. [(1970) 77 ITR 518 (SC)]
In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the disallowance of carry forward of short term capital loss.
The appellant assessee had sold two properties during the year and in his return of income inter alia declared shown capital loss on sale of the property. The case was picked up for limited scrutiny and the purchase and sale deed of property and details of the capital loss etc. of the assessee were examined by the AO.
The AO however denied the claim of carry forward of short term capital loss on the ground that there was a delay in filing the return of income within the time prescribed u/s 139(1) of the Income Tax Act, 1961 (the Act).
The CIT(A) confirmed the disallowance observing that the loss was covered u/s 74 of the Act, which can be carry forwarded to eight assessment years if and only if condition mentioned in section 80 r.w.s 139(3) is met.
Before the Tribunal the assesee relied upon CBDT Circular and judicial precedents in support of his claim.
The Tribunal noted that on similar facts, the Coordinate Bench allowed a similar claim of the assessee for carry forward of a business loss incurred u/s 35D of the Act where also the assessee had filed its return of income beyond the due date. In the said case, the assessee had incurred certain losses in respect of its specified business u/s 35D for the impugned assessment year and claimed that such loss be allowed to be carried forward for being set off against income of the specified business of the subsequent assessment year. It was the contention that the language which has been provided in the statute is “carry forward and set off” and therefore both these phrases have to be co-jointly read and cannot be segregated and therefore it is only in the year in which the set off is claimed by the assessee that the provisions of Section 80 may be invoked by the AO in the subsequent assessment year. In other words, it is for the AO, examining the return of income for the subsequent year where the assessee seeks set off of brought forward losses from the impugned assessment year, to take appropriate decision to allow or deny such claim of set off, however, as far as the impugned assessment year was concerned, where the assessee was only claiming carry forward of losses of specified business, the AO had no jurisdiction to deny such carry forward.
The Tribunal noted that the Hon’ble Supreme Court had held that it is for the ITO dealing with assessment in the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year and a decision recorded by the ITO who computes the loss in the previous year that loss cannot be set off against the income of the subsequent year is not binding on the assessee. Said decision was followed by the Delhi and Mumbai Benches of the Tribunal.
Following the order of the Co-ordinate Bench of the Tribunal, on the similar interpretation of section 80 of the Act (Section 121 of IT Act 2025) for allowing the carry forward of loss which was denied by the lower authorities, the Tribunal reversed the order of the CIT (A) and directed the AO to allow the carry forward of the short-term capital loss as claimed by the assessee.
However, it was clarified that the application of Section 74 of the Act shall be open to be considered by the Assessing Officer in the subsequent year.
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