IL&FS INVESTMENT MANAGERS LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX - 14(1)(1), MUMBAI

Q: Which sections of the Income-tax Act were involved?

Section 143(1)(a), Section 80M, Section 70, Section 71, Section 250, Section 244A

ITA 3780/MUM/2025Status: DisposedITAT Mumbai31 July 2025AY 2023-2410 pages

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee was well within its rights to set off the business loss. For AY 2022-23, the Tribunal noted that there was no business income for the year, making Section 70 inapplicable. Section 71 was applicable, and sub-section (2) did not prescribe a specific mode for setting off losses against income from other heads or capital gains. The Tribunal found the assessee's computation to be perfect tax planning within the statute's framework. It followed the decision of the co-ordinate bench and directed the AO to grant the deduction under Chapter VI-A as computed by the assessee. Consequently, the grounds raised by the assessee were allowed. For AY 2023-24, the facts and issues were identical, and the same decision was applied. The Tribunal directed the AO to allow the deduction under Section 80M as claimed. The appeals were allowed.

What were the facts?

The assessee, IL & FS Investment Managers Limited, filed appeals against the order of the Addl/JCIT (A) for Assessment Years (AY) 2022-23 and 2023-24. The appeals challenged adjustments made by the CPC under Section 143(1)(a) of the Income-tax Act, 1961. For AY 2022-23, the CPC made an adjustment of Rs. 1,21,92,814, and for AY 2023-24, an adjustment of Rs. 54,71,210. The core dispute involved the assessee's claim to set off current year's business loss against capital gains income, and the subsequent calculation of deduction under Section 80M. The CIT(A) had dismissed the grounds related to the validity of the Section 143(1)(a) adjustment and upheld the CPC's action.

What were the issues?

1. Whether the adjustment/variation to income of Rs. 1,21,92,814 (for AY 2022-23) and Rs. 54,71,210 (for AY 2023-24) made by the CPC under Section 143(1)(a) of the Income-tax Act, 1961, is valid and should be adjudicated on merits. 2. Whether the Learned CIT(A) erred in dismissing the appeal without appreciating that the issue of set-off of current year's business loss against income under other heads involves interpretation of tax laws and has been subject to judicial interpretation. 3. Whether the Learned CIT(A) erred in upholding the CPC's order rejecting the assessee's claim of setting off current year's business loss against capital gains income, and instead allowing set-off against income from other sources only. 4. Whether the Learned CIT(A) erred in upholding the CPC's reduction of deduction under Section 80M to Rs. 21,72,32,748/- as against Rs. 22,27,03,953/- claimed by the assessee. Assessee's Contentions: - The adjustments under Section 143(1)(a) are bad in law and should be deleted. - The issue of set-off of business loss against other heads is a matter of legal interpretation and the CIT(A)'s order was vague. - The assessee should be allowed to set off current year's business loss against capital gains income. - The deduction under Section 80M should be allowed as claimed, as it is allowed from gross total income. Revenue's Contentions: - Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 143(1)(a),Section 80M,Section 70,Section 71,Section 250,Section 244A

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CIT v. Vegetable Products Ltd.
88 ITR 192 · 1973 · SC
2,664 citing

Before: SHRI AMIT SHUKLA & SMT. RENU JAUHRI

For Respondent: Ms. Hetal Vora, Mr. Virabhadra s. Mahajan, Sr

Pronounced: 22.07.2025

आदेश / O R D E R PER RENU JAUHRI [A.M.] :- These appeals are filed by the assessee against the order of the ADDL/JCIT (A)-1 Hyderabad, 25.03.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Year: 2022-23& 2023-24.

The assessee has raised the following grounds of appeals:

1. AY 2022-23 &2023-24 IL & FS Investment Managers Limited AY 2023-24 “Ground No. 1: On the facts and in the circumstances of the case and in law, the Addl/JCIT Commissioner of Income Tax (Appeal) ('Learned CIT(A)') erred in dismissing the Ground no. 1 of the appeal relating to validity of adjustment / variation to income of Rs. 1,21,92,814 u/s 143(1)(a) of the Income-tax Act, 1961 ('the Act') without adjudicating the same on merits The appellant prays before Your Honours that the adjustment made in the intimation u/s 143(1)(a)(ii) is bad in law and be deleted.

2. Ground No. 2: On the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in stating in his order that 'the appellant has just filed appeal to get approval for its method of doing things which can't be entertained without appreciating the fact that the issue involved in the appeal with regard to the manner in which set-off of the Current Years Business Loss be allowed against the income under the other heads is an issue which involves interpretation of provisions of Income Tax laws and it has been subject matter of legal Interpretations by courts. The order passed by the Learned CIT(A) is vague and without any application of mind. The appellant prays before Your Honours that the order passed by the Learned CIT (A) be quashed.

3. Ground No. 3: On the facts and in the circumstances of the case and in law, the Leamed CIT(A) erred in upholding the order of the Leamed CPC and rejecting appellants claim of setting off the current years business loss against the income from capital gains amounting of Rs. 1,21,92,814 and instead upholding Learned CPC's action to offset the loss against Income from other sources only. The appellant prays before Your Honours to direct the Leamed CPC / jurisdictional Assessing Officer to allow the set-off and re-compute the total income 4. Ground No. 4: On the facts and in the circumstances of the case and in law, the Leamed CITIA) erred in upholding the order of the Learned CPC to reduce the deduction u/s 8OM to Rs. 9,88,95,628 as against Rs. 11,10,88,442/- as claimed in the tax return. The appellant prays before Your Honours to direct the Learned CPC / jurisdictional Assessing Officer to allow the deduction u/s 80M of Rs. 11,10,88,442/- as claimed in the tax return.

9,88,95,628/- without appreciating the fact that deduction u/s 80M is allowed from the Gross total income and so long as Appellant has Gross total income, the eligible amount of deduction u/s 80M should be available.” The appellant prays before Your Honours to direct the Learned CPC/jurisdictional Assessing Officer to allow the deduction u/s 80M of Rs. 11,10,88,442/- as claimed in the tax return The Appellant also craves to leave or to add or to delete any grounds of appeal as may be considered necessary before or during the hearing.”

AY 2023-24 “Ground No. 1: On the facts and in the circumstances of the case and in law, the Addl/JCIT Commissioner of Income Tax (Appeal) ('Learned CIT(A)') erred in dismissing the Ground no. 1 of the appeal relating to validity of adjustment / variation to income of Rs. 54,71,210 u/s 143(1)(a) of the Income-tax Act, 1961 ('the Act') without adjudicating the same on merits The appellant prays before Your Honours that the adjustment made in the intimation u/s 143(1)(a)(ii) is bad in law and be deleted.

AY 2022-23 &2023-24 IL & FS Investment Managers Limited On the facts and in the circumstances of the case and in law, the Leamed CITIA) erred in upholding the order of the Learned CPC to reduce the deduction u/s 8OM to Rs. 21,72,32,748/- as against Rs. 22,27,03,953/- as claimed in the tax return. The appellant prays before Your Honours to direct the Learned CPC / jurisdictional Assessing Officer to allow the deduction u/s 80M of Rs.22,27,03,953/- as claimed in the tax return.

5. Ground No. 5: Without prejudice to above grounds, on the facts and in the circumstances of the case and in law, even if the sequence of set-off of losses as computed by the Learned CPC is accepted, the Learned CIT(A) erred in restricting the deduction u/s 80M to Rs. 21,72,32,748/- without appreciating the fact that deduction u/s 80M is allowed from the Gross total income and so long as Appellant has Gross total income, the eligible amount of deduction u/s 80M should be available. The appellant prays before Your Honours to direct the Learned CPC/jurisdictional Assessing Officer to allow the deduction u/s 80M of Rs. 22,27,03,953/- as claimed in the tax return The Appellant also craves to leave or to add or to delete any grounds of appeal as may be considered necessary before or during the hearing.” Ground No. 6: On the facts and circumstances of the case and in law, the Learned CIT(A) erred in uploading the short grant of refund of to the extent of Rs. 13,76,995 computed by the Learned CPC. Consequently, the appellant would be eligible for interest on refund under section 244A of the Act on the said amount. The appellant prays before Your Honours to direct the Learned CPC / jurisdictional Assessing Officer to grant full refund as claimed in the return of income and along with eligible interest under section 244A of the Act The Appellant also craves to leave or to add or to delete any grounds of appeal as may be considered necessary before or during the hearing.”

As the issues involved are identical, these appeals are being disposed of by a common order and AY 2022-23 is taken as the lead case.

Brief facts of the case are that the assessee filed return for AY 2022-23 declaring NIL income on 22.11.2022. Vide intimation order u/s 143(1) dated AY 2022-23 &2023-24 IL & FS Investment Managers Limited 19.08.2023, the CPC allowed lower deduction under Chapter VI-A of the Act by recomputing the deduction claimed in the return and raised a demand of Rs.34,58,160/-. During the year the assessee had received dividend income amounting to Rs. 15,07,71,508/-. Further the assessee had distributed dividend aggregating to Rs. 21,98,22,918/-. Since the dividend was paid more than the dividend received, the assessee claimed deduction u/s. 80M of the entire dividend paid being Rs. 15,07,71,508/-. However, the CPC vide intimation order u/s. 143(1), recomputed the deduction u/s 80M at Rs. 9,88,95,628/-. Aggrieved with the order of CPC, the assessee preferred an appeal before the Ld. CIT(A) claiming that it was eligible for full deduction u/s. 80M of the Act. It was further stated that the assessee was entitled to set off the business loss against income assessable under the head ‘capital gains’ arising from short term capital assets. The assessee had first set off the business loss against the short-term capital gain and then the balance loss was set off against ‘income from other sources’ while computing the total income, the CPC changed the order of set off business loss thereby reducing the claim of deduction u/s. 80M of the Act. Ld. CIT(A), however did not agree with the contention of the assessee and held that as per the provisions of Section 71(2), the assessee had the right to set off its business loss but, not in any prescribed order. Accordingly, Ld. CIT(A) upheld the action of CPC in restricting the deduction u/s. 80M of the Act. The assessee has filed an appeal against the order of Ld. CIT(A) before the Tribunal.

AY 2022-23 &2023-24 IL & FS Investment Managers Limited

At the outset Ld. AR submitted that since the scheme off set of loss from one head of income against income from other heads, prescribed u/s. 71, did not specify the order, the assessee was well within its rights to adjust the business losses in a manner which is more beneficial to the assessee. In order to explain the difference in the method of adjustment adopted by the assessee as well as the CPC following chart has been submitted by the Ld. AR:

Ld. AR has further placed reliance on q recent decision of the co-ordinate bench reported as Priya Kapil Todarwal Vs. Income Tax Officer [2025] 176 AY 2022-23 &2023-24 IL & FS Investment Managers Limited taxmann.com 349 (Mumbai-Tribunal), wherein identical issue has been considered and allowed in favour of the assessee.

6.1. Ld. DR on the other hand, relied on the orders of the lower authorities and argued that the adjustment made by the CPC has rightly been upheld by the Ld. CIT(A).

We have heard the rival submissions and perused the material available before us. Admittedly, the sole issue involved is related to the reduction in claim of deduction u/s. 80M from Rs. 11,10,88,442/- to Rs. 9,88,95,628/- on account of change in the sequence of adjustment as demonstrated in the chart reproduced herein above. We find that the issue involved is squarely covered by the co-ordinate bench in the case of Priya Kapil Todarwal Vs. Income Tax Officer (supra), wherein it has been held as under: 5. In order to consider the argument advance by the Ld.AR, it is necessary to understand the language of section 71. Accordingly the same is reproduced as under: "Set off of loss from one head against income from another. 71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss ses off against his income, if any, assessable for that assessment year under any other head. (2) Where in respect of any assessment year, the net result of the computation under any head of income. other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any. assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets). (2A) Notwithstanding anything contained in sub-section (1) or subsection (2), where in respect of any assessment year, the net result of the computation AY 2022-23 &2023-24 IL & FS Investment Managers Limited

under the head "Profits and gains of business or profession" is a loss and the assessee has income assessable under the head "Salaries", the assessee shall not be entitled to have such loss set off against such income. (3) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head. (3A) Notwithstanding anything contained in sub-section (1) or subsection (2), where in respect of any assessment year, the net result of the computation under the head "Income from house property" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds two lakh rupees, against income under the other head. (4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section." 5.1. On a bare reading of the above section, the heading indicates "Set off of loss from one head against the income from another". The Ld.AR emphasised applicability of sub section 2 to the present facts of the case. On perusal of the same, it is clear that, there is no sequence prescribed therein to set off loss under a particular head of income. Sub section (2) gives option to the assessee to set off any loss, other than the loss under the head "Capital Gains", against income under any head, including capital gains. 5.2 Per contra we also are conscious of the restrictive nature of set off u/s. 70 of the Act. On joint reading of section 70 and section 71 it is clear that, if there is a loss from one source, it has to be set off against income under the same source first. As per the section 70 of the Act and if such loss cannot be set off then section 71 comes into operation that provide for the loss to be set off against income under in other head. Thus u/s.70 the set off is qua the source whereas u/s.71 the set off would be head wise. 5.3 In the present facts of the case as there is no business income for the year under consideration. Therefore, section 70 as no role to play. The applicable provision would be then section 71 of the Act as there is income earned by the assessee under the head, "Income from other sources & capital gains". Sub section (1) of section 71 will not be applicable as it deals with a situation where assessee has no income under the head "Capital Gains". In the present facts the assessee has income under the head "Capital Gains", Coming to subsection (2) there is no rule prescribed to set off loss against income under any other head and income under the head "capital gains". Sub clause(2) does not provide any particular mode to set off the loss that should be followed. The Ld. AR referred to decision of Hon'ble Supreme Court in case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). To support his proposition that interpretation of the taxing statute should be construed as beneficial to the assessee. 1 AY 2022-23 &2023-24 IL & FS Investment Managers Limited

5.4 The Ld.AR further submitted that, the section 71(2) also do not emphasis to what extent the loss is to be set off against a particular head. This further gives benefit to the assessee by reducing the profits under the head income from other sources to the extent it can fall under a favourable slab rate and the balance to be set off against the Income under the head "Capital Gain", thereby reducing the tax liability under the head "Capital Gains" also. 5.5 As we analyse the competition of assessee, it is noted that, it is perfect tax planning encompassed within the 4 comers of the Income tax Act. We do not find any error in such computation adopted by the assessee, as it is supported by the provisions of the statute. We also have perused the decision of Hon'ble Pune Tribunal referred by assessee before the Ld. CIT(A), on identical preposition. The Ld.AR also relied on the decision of Hon'ble Delhi Tribunal in case of Opus Reality Development Ltd. v. ACIT [IT Appeal No. 225 (Del) of 2014, dated 9-6-2016] for assessment year 2009-10, wherein similar issue was considered by following the decision of Hon'ble Pune Tribunal referred here in above. We accordingly the direct the Ld.AO to grant the deduction under Chapter VI-A as computed by the assessee. Accordingly, the grounds raised by the assessee stands allowed. In the result the appeal filed by the assessee stands allowed.”

Respectfully following the decision of the co-ordinate bench, we hold that the assessee was well within its rights to the set off the business loss, firstly against income from short term capital gain and thereafter the remaining amount from the ‘income from other sources’, in order to claim deduction u/s. 80M at Rs. 11,10,88,442/-. Accordingly, we hereby direct the Ld. AO to allow the deduction u/s. 80M as claimed. The appeal of the assessee is allowed.

As the facts and circumstances as well as issues involved are identical in this year, the above decision will apply mutatis- mutandis to AY 2023-24 also.

AY 2022-23 &2023-24 IL & FS Investment Managers Limited

10.

In the result, both the appeals of the assessee are allowed.

Order pronounced in the open court on 31.07.2025. Sd/- Sd/- AMIT SHUKLA RENU JAUHRI (न्यानयक सदस्य/JUDICIAL MEMBER) (लेखाकार सदस्य/ACCOUNTANT MEMBER) Place: म ुंबई/Mumbai दिन ुंक /Date 31.07.2025 दिव्य रमेश न ुंिग वकर/ स्टेनो आदेश की प्रनतनलनि अग्रेनित/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यानित प्रनत //True Copy// आदेशािुसार/ BY ORDER,

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