DEEPAKBHAI RAMANBHAI PATEL,NADIAD vs. THE DY. CIT, ANAND CIRCLE, ANAND

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ITA 2865/AHD/2026Status: DisposedITAT Ahmedabad13 October 2026AY 2023-245 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the suo motu adjustment of the business loss against capital gains by the CPC was incorrect. It relied on the decisions in "Ajay Kumar Singhania vs. DCIT" and "Scarlett Designs Pvt. Ltd. vs. ITO", which established that the set-off of business loss against capital gains under Section 71(2) of the Act is optional for the assessee. The Tribunal agreed that since the issue was debatable, the CPC lacked jurisdiction to make such an adjustment under Section 143(1). Therefore, the impugned action of the CPC was set aside, subject to verification that the assessee had duly paid the capital gains tax. Regarding the second issue, the Tribunal restored the matter to the file of the AO with a direction to decide the addition of Rs. 21,79,586/- afresh after providing the assessee with an adequate opportunity to present their case. The Tribunal found that this issue arose due to the confusion caused by the incorrect adjustment of capital gains against business loss.

What were the facts?

The assessee, Deepakbhai Ramanbhai Patel, filed an appeal before the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, against the order of the Ld. Commissioner of Income Tax (Appeals) (CIT(A)), dated 29.07.2026. The appeal pertains to Assessment Year (A.Y.) 2023-24 and challenges an intimation passed under Section 143(1) of the Income Tax Act, 1961, dated 20.08.2026. The core of the dispute revolves around the Central Processing Centre's (CPC) suo motu adjustment of the assessee's business loss of Rs. 1,53,21,240/- against capital gains, and an addition of Rs. 21,79,586/- made under the head 'Capital Gains' by invoking a proviso to Section 112.

What were the issues?

The Tribunal was required to decide the following substantive issues: 1. Whether the Assessing Officer (AO)/CPC was justified in making an adjustment to the assessee's income by setting off the current year's business loss against capital gains, despite the assessee not claiming such set-off and offering capital gains for taxation separately, contrary to the assessee's option under Section 71(2) of the Act. 2. Whether the CPC/AO was justified in making an addition of Rs. 21,79,586/- in the intimation order under Section 143(1) by referring to the proviso to Section 112 of the Act. Assessee's contentions: - The assessee had offered capital gains for taxation at the applicable rates and had not exercised the option to set off the business loss against it. The CPC's suo motu set-off was incorrect. - Reliance was placed on the decisions in "Ajay Kumar Singhania vs. DCIT" and "Scarlett Designs Pvt. Ltd. vs. ITO", which held that the set-off of business loss against capital gains under Section 71(2) is optional. - If the AO intended such an adjustment, a scrutiny assessment under Section 143(3) should have been initiated, as the issue is debatable. - The addition of Rs. 21,79,586/- was made due to confusion arising from the incorrect adjustment of capital gains against business loss, and the proviso to Section 112 was not applicable. Revenue's contentions: - The Ld. DR relied upon the findings of the Ld. CIT(A).

Which sections of the Income-tax Act were involved?

Section 71(2),Section 72(1),Section 112,Section 143(1),Section 143(3),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD

Before: SHRI SANJAY GARG & SHRI R. GOVINDARAJAN

For Appellant: Shri Saurabh Soparkar, AR, Shri Umesh Kumar Agrawal, Sr. D.R
For Respondent: Shri Umesh Kumar Agrawal, Sr. D.R
Hearing: 12/10/2026

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD

BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI R. GOVINDARAJAN, ACCOUNTANT MEMBER

आयकर अपील सं./I.T.A. No. 2865/Ahd/2026 (िनधा�रण वष� / Assessment Year : 2023-24) बनाम Deepakbhai Ramanbhai DCIT / Anand Circle, Anand Patel Vs. C/o. Chhotabhai Jethabhai Patel & Co., C. J. House, Mota Pore, Nadiad, Gujarat- 387001 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : ACXPP5096J (Appellant) .. (Respondent) अपीलाथ� ओर से /Appellant by : Shri Saurabh Soparkar, AR ��यथ� क� ओर से/Respondent by : Shri Umesh Kumar Agrawal, Sr. D.R. Date of Hearing 12/10/2026 13/10/2026 Date of Pronouncement

(आदेश)/ORDER Per Sanjay Garg, Judicial Member: The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), ADDL/JCIT(A)-2, Nagpur (hereinafter referred to as “CIT(A)”), dated 29.07.2026 passed under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), whereby, the Learned CIT(A) had dismissed the appeal of the assessee against the

ITA No.2865/Ahd/2026 [Deepakbhai Ramanbhai Patel vs. DCIT] A.Y. 2023-24 - 2 – Intimation passed under Section 143(1), dated 20.08.2026, and relates to Assessment Year (A.Y.) 2023-24.

2.

The assessee has taken following grounds in this appeal:

“1. The Ld. Addl./JCIT(A) erred in law and on facts in confirming the set off of the current year business loss of Rs. 1,53,21,240/- against income assessable under the head "Capital Gains" in the Intimation issued u/s 143(1) of the Act. 2. The Ld. Addl./JCIT(A) erred in law and on facts in holding that the expression "may" occurring in section 71(2) of the Act is mandatory in nature, and in thereby denying to the Appellant the option not to set off the business loss against income assessable under the head "Capital Gains". 3. The Ld. Addl./JCIT(A) erred in law and on facts in not directing that the business loss of Rs. 1,53,21,240/- be carried forward to the subsequent assessment years in terms of section 72(1) of the Act. 4. The Ld. Addl./JCIT(A) erred in law and on facts in not appreciating that a return preparation utility cannot override or curtail an option conferred by the parent statute. 5. The Ld. Addl./JCIT(A) erred in law and on facts in confirming the addition of Rs. 21,79,586/- made in the Intimation u/s 143(1) of the Act under the head "112 proviso LTCG on listed securities/units without indexation", thereby computing the Gross Total Income in excess to that extent. 6. The Ld. Addl./JCIT(A) erred in law and on facts in confirming the adjustment of Rs. 21,79,586/- in as much as the same is beyond the scope of the adjustments permissible u/s 143(1)(a) of the Act. 7. The Appellant craves leave to add, alter, amend, substitute and/or withdraw any of the grounds of appeal at or before the time of hearing.”

ITA No.2865/Ahd/2026 [Deepakbhai Ramanbhai Patel vs. DCIT] A.Y. 2023-24 - 3 – 3. A perusal of the grounds of appeal of the assessee would reveal that there are only two substantive issues raised by the assessee in this appeal. i. Firstly, whether the Assessing Officer (in short ‘the AO’) /CPC was justified in making adjustment in the income of the assessee by setting off the business loss against the capital gains earned by the assessee, though, the assessee has not claimed set off and has offered the capital gains for taxation separately. ii. Secondly, whether the CPC/AO was justified in the intimation order passed u/s 143(1) of the Act for making addition of Rs.21,79,586/- by referring proviso to Section 112 of the Act.

4.

So far as the first issue is concerned, the Ld. Counsel for the assessee has submitted that the assessee had offered capital gains for taxation at the rate as applicable in respect of capital gains. The assessee had not exercised the option to set off the same against the business loss. The CPC, however, suo motu set off such loss against capital gains income. The Ld. Counsel has further relied upon the decision of Chandigarh Bench of the Tribunal in the case of “Ajay Kumar Singhania vs. DCIT, CPC, Bangalore”, [2018] 99 taxmann.com 335 (Chandigarh – Trib.) and further order of the Co-ordinate Ahmedabad Bench of the Tribunal, passed in the case of “Scarlett Designs Pvt. Ltd. vs. ITO” in ITA Nos. 2839 & 2840/Ahd/2015, vide order dated 01.04.2019, wherein the Co-ordinate Benches of the Tribunal have held that in view of the Proviso to Section 71(2) of the Act, it is optional to the assessee either to get the business loss set off

ITA No.2865/Ahd/2026 [Deepakbhai Ramanbhai Patel vs. DCIT] A.Y. 2023-24 - 4 – against the capital gains or the assessee may opt to carry forward the business losses. The Ld. Counsel for the assessee has further submitted that the issue is, otherwise, debatable. If the AO intended to make any such adjustment / set off of any business loss against the capital gains earned by the assessee, the proper course of action available to the CPC/AO would have been to initiate a scrutiny assessment u/s 143(3) of the Act.

5.

Ld. DR, on the other hand, has relied upon the findings of Ld. CIT(A).

6.

We note that in the decision of Co-ordinate Chandigarh Bench of the Tribunal in case of “Ajay Kumar Singhania vs. DCIT” (supra) further followed by ITAT, Ahmedabad Bench in the case of “Scarlett Designs Pvt. Ltd. vs. ITO” (supra), the Tribunal after deliberating upon the provisions of Section 71(2) of the Act, has held that it is optional for the assessee whether to adjust the business loss against the capital gains, or to pay capital gains tax and carry forward the business losses to next year. Further, we also agree with the contentions of the Ld. Counsel that the issue, otherwise, being a debatable issue, the CPC has no jurisdiction to make suo motu adjustment on this issue u/s 143(1) of the Act. Therefore, the impugned action of the CPC in suo motu adjusting the business loss against the capital gains is set aside, subject to the verification that the assessee has duly paid the capital gains tax in accordance with law.

ITA No.2865/Ahd/2026 [Deepakbhai Ramanbhai Patel vs. DCIT] A.Y. 2023-24 - 5 – 7. Second issue taken by the assessee is that the CPC has erred in making addition of Rs.21,79,586/- by invoking proviso to Section 112 of the Act. Ld. Counsel for the assessee has submitted that the said proviso is not applicable in the case of the assessee and all this mistake / confusion has occurred due to the fact that the CPC has proceeded to adjust the capital gains against the business loss. This issue is, accordingly, restored to the file of the AO with a direction to decide this issue afresh after giving adequate opportunity to the assessee to present his case.

8.

In the result, the appeal of the assessee is treated as allowed for statistical purposes.

This Order is pronounced on 13/10/2026

Sd/- Sd/- (R. GOVINDARAJAN) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 13/10/2026 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. 4. आयकर आयु�(अपील) / The CIT(A)- �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad

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