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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI V.DURGA RAO & SHRI G.MANJUNATHA
order passed by the learned CIT(A)-19, Chennai dated 31.07.2019 and pertains to assessment year 2011-12.
The assessee has raised following grounds of appeal:-
“1. The order of the Commissioner of Income Tax (Appeals) - 19, Chennai dated31.07.2019 in l.T.A.No.371/2018-19 for the abovementioned Assessment Year is contrary to law, facts, and in the circumstances of the case.
2. The CIT (Appeals) erred in not appreciating the narrow scope of the provisions in154 of the Act while sustaining the order of rectification making adjustments which do not constitute mistake apparent record without assigning proper reasons and justification.
3. The CIT (Appeals) ought to have appreciated that the adjustments to the total income emanated out of the debatable issues and the same cannot be construed as mistake apparent from the record for the purpose of invoking the provisions in section 154 of the Act thus vitiating the impugned order.
4. The CIT (Appeals) erred in sustaining the adjustment of business loss against Long Term Capital Gains as against the claim of the Appellant of setting off the said loss against house property income, income from other sources and thereafter income from capital gains which is in accordance with the provisions of Section 71 of the Act overlooking the narrow scope of the provisions in section 154 of the Act.
The CIT (Appeals) erred in not adjudicating the issue raised with regard to the narrow scope of the provisions in section 154 of the Act while overlooking the provisions of Section 71(2) of the Act and further ought to have appreciated that the sequence prescribed for set off of loss under other/various heads of income is a debatable issue.
6. The CIT (Appeals) erred in recording findings that the Appellant has agreed for adjustments carried out in the rectification order without appreciating the fact that the proposal for rectification by the Assessing Officer was only with respect to setting off of business loss against the salary income and not against other debatable adjustments made by the Assessing Officer for which no agreement was provided by the Appellant.
7. The CIT (Appeals) failed to appreciate that no other adjustments were proposed in the notice issued u/s 154 of the Act thus vitiating his action in sustaining the order of rectification.
8. The CIT(Appeals) failed appreciate that there was no proper opportunity given before passing the impugned order and ought to have appreciated that any order passed in violation of the principles of natural justice should be reckoned as nullity in law.”
Brief facts of the case are that assessment for impugned assessment year has been completed u/s.143(3) r.w.s. 153A of the Income Tax Act, 1961, on 31.03.2016 and determined total income at Rs.54,38,08,980/-. The assessment has been subsequently rectified u/s.154 of the Income Tax Act, 1961 vide order dated 06.02.2019 on the ground that while passing order u/s.143(3) r.w.s 153A of the Act, business loss of Rs.30,67,346/- was wrongly set off against income under the head salary of Rs.40,35,000/-, which is not allowable as per section 71(2A) of the Income Tax Act, 1961. The assessee has challenged rectification order passed by the Assessing Officer u/s.154 of the Act dated 06.02.2019 before learned CIT(A) and contended that even though proposal for rectification was issued to withdraw set off of business loss against salary income, but while passing rectification order u/s.154, the Assessing Officer has set off business loss against income under the head long term capital gain, without following procedure laid down under sub-section (2) of section 71 of the Act.
The learned CIT(A), after considering relevant facts and also taken note of provisions of section 71(2) and 71(2A) of the Act, rejected arguments of the assessee and affirmed findings of the Assessing Officer in rectifying assessment order to disallow claim of business loss against income under the head salary by holding that there is no hierarchy prescribed for setting up off income amongst other heads of income u/s.71(2) of the Act, but what was prescribed is loss from any head of income, other than capital gains and business or profession can be adjusted against income from other head of income including capital gains in the same assessment year .
The learned CIT(A) had also rejected claim of the assessee on the ground that the assessee has agreed for rectification of assessment order before the Assessing Officer on the ground that once matter was agreed before the Assessing Officer, the assessee is not right in raising matter in appeal against the order. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.
5. The learned A.R for the assessee submitted that the learned CIT(A) has erred in sustaining order of the Assessing Officer passed u/s.154 of the Income Tax Act, 1961, without appreciating fact that proposal for rectification was taken up to rectify mistake of set off of business loss against salary income, whereas while computing taxable income, the Assessing Officer has adjusted entire business loss with capital gains as against income from house property and income from other sources . The learned A.R further referring to provisions of section 71(2) and circular No.26 dated 7.7.1955 issued by CBDT submitted that in absence of a particular mode of set off, then mode which is most beneficiary to the appellant should be adopted. In this regard, relied upon decision of the Hon’ble Calcutta High Court in the case of Punjab Produce &Trading Company Ltd. (1996) 159 ITR 376.
The learned DR, on the other hand, strongly supporting order of the learned CIT(A) submitted that in absence of any specific mode of set off of loss under the provisions of section 71(2), then the Assessing Officer can adjust loss against gross total income and thus, there is no merit in the arguments of the assessee that loss should be first adjusted against income from house property and income from other sources.
We have heard both the sides, perused material available on record and gone through orders of the authorities below.
Admittedly, the assessee has not challenged legality of rectification order passed by the Assessing Officer u/s.154 of the Income Tax Act, 1961. The assessee had also not challenged reasons of the Assessing Officer in not allowing set off of business loss against income under the head salary, because such adjustment is specifically barred by law u/s.71(2A) of the Income Tax Act, 1961. The only grievance of the assessee is mode and manner of set off of loss. The provisions of section 71(2) deals with set off of loss from any head of income other than ‘capital gains’ and ‘business or profession’ against income from another head of income including capital gains in the same assessment year. Although, there is no precedence of set off of loss against each head of income is prescribed, but general rule provides for set off loss under one head of income against any other head of income except income under the head capital gains and business or profession in the order of preference, as provided under the Income Tax Act, 1961. Admittedly, income tax provides for computation of income in order of preference starting from income under the head salary, income from house property, income from business or profession, capital gain and income from other sources. If you go by same logic, then loss from one head should be set off against other head of income excluding impermissible set off of loss in the order of preference like computation of income as per law. If you go by that mode, then loss from one head should be first set off against income from house property, then income from business or profession, income from capital gain and income from other sources. In fact, the assessee had also sought for set off of loss from business against income from house property, then income from long term capital gain and income from other sources. In this case, loss from business is at Rs.2,16,19,416/-. Further, the income under the head ‘income from house property’ is at Rs.3,69,049/-, and income under the head ‘long term capital gain’ is at Rs.54,34,13,229/- and further income under the head ‘income from other sources’ is at Rs.1,82,83,017/-. Therefore, in our considered view business loss of Rs.2,16,19,416/- should be first set off against income from house property and then followed by income from long term capital gain and further still unabsorbed loss remains, it should be set off against income from other sources. Therefore, we set aside appeal to the file of Assessing Officer and direct him to recompute total income, after allowing set off of loss under the head income from business or profession in terms of our observations herein above.
In the result, appeal filed by the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on 8th September, 2021