NIRMALA NAWAL PHATARPHEKAR,MUMBAI vs. INCOME TAX OFFICER, CIRCLE 19(1), MUMBAI

The brief facts as culled out from the orders of the authorities below are that the assessee is an individual and has filed its return of income for the year under consideration on 23.01.2018 which was accepted vide intimation order dated 04.04.2019 u/s 143(1) of the Act. In the said return, the assessee has claimed LTCG on sale of garage i.e. Rs. 20 lakhs and long term capital loss on sale of residential house property situated at B/3505, Oberoi Exquisite, Mumbai of Rs. 82,95,964/-. The assessee has set off a part of the long term capital loss against LTCG of Rs. 20 lakhs and had claimed carry forward of balance loss of Rs. 62,95,964/-. The return was processed by the learned Deputy Commissioner of Income Tax (CPC) wherein he has allowed the set off, of the Long term capital loss with the Long Term Capital Gain as stated above, but has not determined the Long Term Capital Loss in the current year amounting to Rs. 62,95,964/- to be carried forward to subsequent years.

Aggrieved by the impugned order, the assessee is in appeal before us raising the following grounds of appeal:-

We have heard the Ld. AR and Ld. DR and examined the record. At the outset Ld. DR submitted that Ground no. 1 is the legal ground which has been raised first time before the Tribunal, therefore objected for raising the legal ground first time in the appeal before the Tribunal. On the other hand, Ld. AR submitted that the intimation order dated 04.04.2019 passed u/s 143(1) of the Act by the Assistant Director of Income Tax (CPC) is in violation of section 143(1) of the Act and is bad in law, and therefore it should be quashed. Ld. AR filed written arguments wherein it was argued that the intimation order dated 04.04.2019 which was upheld by Ld. CIT(A) is bad in law because the claim of carry forward of long term capital loss is beyond the scope of adjustments specified under section 143(1)(a) and therefore the order dated 4th April 2019 passed under section 143(1) should be quashed as ab initio void and bad in law. It is also argued that prior to making of such adjustment, Page | 4 Nirmala Nawal Phatarphekar no prior intimation was given to the Assessee thus violating the requirement of proviso to section 143(1)(a) and therefore, on this ground also the intimation order passed under section 143(1) should be quashed. The written arguments filed by the assessee are extracted below:-

The issue in the captioned appeal relates to the claim for carry forward of Long- term Capital Loss claimed by the Appellant in the return of income which has not been allowed in the intimation order dated 4th April 2019 passed under section 143(1) of the Act.

Further it was submitted that prior to making of such adjustment, no prior intimation was given to the Assessee thus violating the requirement of proviso to section 143(1)(a) and therefore, on this ground also the intimation order passed under section 143(1) should be quashed. In support of the above contentions, a copy of the judgment of the Hon'ble Delhi Tribunal in the case of Fortum SAR B.V. v. ADIT, CPC (ITA No. 2028/Del./2023, order dated 27th June 2024) was also handed over. Relevant observations from the decision of the Hon'ble Delhi Tribunal are reproduced below for ready reference:

With regard to challenging the legal ground first time before the Tribunal, Ld. AR submitted that challenging the validity of intimation order passed u/s 143(1) of the Act is a pure legal issue and does not Nirmala Nawal Phatarphekar require any fresh investigation of facts, therefore it can be raised first time before the Tribunal. In this regard, Ld. AR relied on the judgment of Hon’ble Supreme Court in the case of the NTPC Ltd (supra) as noted above. Therefore, Ld. AR argued that the claim of long term capital loss cannot be rejected by way of intimation order passed u/s 143(1) and it is purely a legal question and as such should be adjudicated by the Tribunal in favour of the assessee.

On merit, Ld. AR argued that all the necessary documents were submitted before the AO with respect to long term capital gain and long term capital loss claimed by the assessee in the ITR which has not been considered by the revenue authorities and submitted that the intimation order dated 04.04.2019 passed u/s 143(1) of the Act be quashed and the appeal of the assessee be allowed by directing the AO to allow the carry forward of long term capital loss of Rs. 62,95,964/-.

On the other hand, Ld. DR relied on the order of Ld. CIT(A) and submitted that Ld. CIT(A) has rightly dismissed the appeal of the assessee because the assessee has not furnished the necessary documents before the revenue authorities. With respect to challenging to the validity of the intimation order, Ld. DR submitted that the there is Nirmala Nawal Phatarphekar no violation of law by passing intimation order dated 04.04.2019 u/s 143(1) of the Act and further submitted that the said issue was not raised before the revenue authorities and the assessee has raised this issue first time before the Tribunal, hence this issue need not be considered by the Tribunal and prayed for dismissal of the appeal.

We have considered the rival submissions and carefully examined the record. With regard to raising the legal ground first time before the Tribunal, we are convinced by the arguments of the Ld. AR and follow the judgment of Hon’ble Supreme Court in the case of NTPC Ltd. (supra) relied by Ld. AR wherein it was held that the Tribunal should not be prevented from considering the questions of law arising in assessment proceedings although not raised earlier. Therefore it is to be noticed that the question of determining the long term capital loss by way of intimation u/s 143(1) (a) is beyond the scope of adjustments specified u/s 143(1)(a) of the Act as the Ld. CPC has not followed the first proviso of section 143(1)(a) of the Act, therefore this is purely a legal issue and has rightly been raised first time before the Tribunal as ground no. 1. The objection of revenue in that regard are not tenable and accordingly rejected.

It is thus clear from the provision of Section 143(1)(a) of the Act as reproduced above that no such adjustment as mentioned in the said section including the disallowance of loss claimed shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. No such intimation has been given to the assessee before non-determination of carry forward loss as claimed in the ITR. We have also examined the Intimation order of the assessee which is placed in the appeal file and the ITR was accepted vide intimation order dated 04.04.2019 and in annexure the schedule CFL (as entered in the claim of long term capital loss) for AY 2018-19, the long term capital loss of Rs. 62,95,964/- for the current year i.e. 2017-18 was entered to be carried forward to future years. The relevant portion of the intimation u/s 143(1) of the Act showing the total LTCG and total loss carried forward in the future years and disallowance of the same by not determining in the intimation order is clear from the following extracts of the intimation as under:-

We have noticed from the intimation order dated 04.04.2019 that the total long term capital loss claimed by the assessee was to the tune of Rs. 82,95,964/-; out of this the total loss of Rs. 20 lakhs has been adjusted Page | 12 Nirmala Nawal Phatarphekar against the long term capital gain and remaining Rs. 62,95,964/- was claimed to be carried forward to the future years, but the Ld CPC has not determined the same. In this respect, the decision of Delhi Tribunal in the case of Fortum SAR B.V. vs. ACIT (ITA No. 2028/Del/2023) order dated 27.06.2024 relied by Ld. AR squarely covers the fact of the case in hand because in the said case while processing the return of income u/s 143(1) of the Act, the CPC while allowing carry forward of short term capital loss, denied the carry forward of long term capital loss without assigning any reason whatsoever. In that case, it was held that “Thus, the action of the CPC in disallowing the claim of carry forward of long term capital loss is out-rightly perfunctory, illegal and without jurisdiction. It is also relevant to observe, as per the First proviso to Section 143(1)(a) of the Act, no adjustment shall be made u/s 143(1)(a) unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. The second proviso to Section 143(1)(a) says, the response received by the assessee on the show cause notice shall be considered before making any adjustment. In the facts of the present appeal, admittedly, no show cause notice in terms of first proviso to Section 143(1)(a) of the Act was issued by the CPC before carrying out the adjustment. In fact, learned First Appellate Authority has also accepted the aforesaid factual position. Thus, it is a proven fact on record that the assessee has been deprived of its valuable right of representation, thereby, the intimation issued u/s 143(1)(a) of the Act suffers from Nirmala Nawal Phatarphekar gross violation of rules of natural justice.” Thus while allowing the appeal, the Delhi Tribunal directed the AO to allow the assessee’s claim of carry forward of long term capital loss.

It is to be noticed that the legal ground regarding violation of first proviso of section 143(1)(a) of the Act by not sending the intimation, was not raised before the first appellate authority and has been raised first time before the Tribunal, therefore the concerned revenue authorities could not get the opportunity to rebut the same averment of the assessee and was required to ascertain from the assessment record as to whether the intimation order was communicated in compliance of first proviso of section 143(1)(a) of the Act or not. Further, we notice that the ITR with other documents has not been submitted by the assessee before us and in the absence of ITR and other documents, it cannot be ascertained if the long term capital loss pertains to the current year which can be legally and validly carry forward to the subsequent years. These facts and the documents need to be analyzed and necessary factual position needs to be ascertained and delineated by the concerned revenue authorities. In these facts and circumstances, we restore the case to the file of Ld. CIT(A) who shall examine the question raised by the assessee that no Nirmala Nawal Phatarphekar intimation was communicated as is required in first proviso of section 143(1)(a) of the Act and in case no such intimation was issued/sent to the assessee after verifying the assessment record, the Ld. CIT(A) shall decide the matter afresh on the basis of material and directions given by us in this order. The Ld. CIT(A) shall also examine the issue of carry forward of loss after examining the necessary facts and shall give the benefit to the assessee after satisfying from the record by following the judgment of Coordinate Bench of ITAT Delhi in (supra). Resultantly, the grounds raised by the assessee are allowed for statistical purposes.

In the result, appeal filed by the assessee is allowed for statistical purposes in above terms.