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Facts
The assessee claimed set-off of house property loss against short-term capital gains. The AO adjusted the loss against business income, creating a demand. The CIT(A) upheld the AO's order.
Held
The Tribunal held that as per Section 71(2) of the Income Tax Act, a loss from any head of income (other than capital gains) can be set off against income under the head capital gains. Therefore, the AO should have allowed the set-off as claimed by the assessee.
Key Issues
Whether a loss from house property can be set off against short-term capital gains under Section 71(2) of the Income Tax Act.
Sections Cited
154, 143(1), 71, 71(2), 71(3A)
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 1291/JP/2024
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 1291/JP/2024 fu/kZkj.k o"kZ@Assessment Year : 2022-23 cuke Nikhil Khandelwal ITO, Vs. H. No. 2-E-26, Mahaveer Nagar Ward-2(2), Extension, Kota Kota LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: CSUPK3245H vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Anoop Bhatia, CA jktLo dh vksj ls@ Revenue by : MS. Harshita Chauhan, JCIT-DR lquokbZ dh rkjh[k@ Date of Hearing : 29/04/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 03/06/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM
On being aggrieved by the order of the National Faceless Appeal Centre, Delhi dated 22/08/2024 [ for short CIT(A)] the captioned assessee preferred the present appeal. The dispute relates to the assessment year 2022-23. The said order of the ld. CIT(A) arises because the assessee has 154 of the Income Tax Act, [ for short “AO”] by ADIT, CPC, Bangaluru.
In this appeal, the assessee has raised the following grounds: - “1. On facts and in circumstances of the case and in law Ld. CIT(A)-NFAC has grossly erred in denying the set-off claim of assessee of house property losses against short term capital gain which in contravention with the provision of Income Tax Act, 1961. Such denial being invalid in law and deserves to be quashed.
2. On facts and in circumstances of the case and in law Ld. CIT(A) erred in confirming the denial of rectification under section 154 of the Income Tax Act by the ld. AO, same being bad in law deserves to be quashed.
3. That the appellant reserves the right to add/alter/modify/deleted any or all grounds at any time before the hearing.”
3. Succinctly, the fact as culled out from the records is that the assessee is an individual deriving income under the income from house property, income from business or profession, income under the head capital gains and income from other sources. While filling the ITR the assessee has claimed set off the house property loss of Rs. 1,62,673/- against short term capital gains of Rs. 1,70,618/- as per section 71 of the Act. But ld. AO adjusted such loss against Business Income instead of short-term capital gain and accordingly the demand of Rs. 18,260/- was raised against the assessee u/s 143(1) of the Act. before ld. AO [ CPC ] as per provision of section 154 of the Act and the rectification application filed by the assessee was also rejected by order dated 15.12.2022 confirming the demand of Rs. 18,260/-.
4. Aggrieved from that order passed u/s. 154 of the Act the assessee filed an appeal before the ld. CIT(A). Apropos to the grounds raised by the assessee, the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:
“Decision:
GROUNDS of Appeal No. 1-2
5.1 The grounds of appeal, raised by the appellant against the order u/s 154 of the Act. I have perused the order, grounds of appeal and other details available on record.
5.2 The appellant in his statement of facts (SoFs), filed along with form 35 stated as under.
"The Assessee set off the House Property loss of Rs 162673/- against Short Term Capital Gains of Rs. 170618/- as per section 71 of IT Act 1961, but the learned A.O adjusted such loss against Business Income instead of Short term Capital Gain which results in additional demand of Rs. 18260/- Clause 2 of Section 71 states that 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).
5.3 I have perused the order u/s 154, grounds of appeal
, and other details available on record. The appellant has relied on subsection (2) of section 71 which states that 71. (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).
5.4 In my considered view, this subsection is applicable when an assessee has a net loss from the other heads of income which can then be adjusted against the Capital Gains However, in cases where the tax payer has sufficient income from heads of income other than Capital Gains, the loss under one head shall be adjusted against the income under those heads (That is, the income from Capital Gains shall be adjusted against the losses under any other heads only when the income from other heads of income is not sufficient to offset the loss. In the present case, the appellant had losses of Rs. 1,62,673/- under the head House Property and income of Rs. 6.67,500/- under the head Business & Profession. As such, the A.O, was right in adjusting the house property losses against income from Business & Profession)
5.5 Considering the above, the contention of the appellant is rejected. Grounds of appeal no. 1 & 2 are dismissed
6 In the result, the appeal is "dismissed"
Aggrieved with that finding of the ld. CIT(A), the assessee is in appeal before this tribunal on the ground as stated herein above challenging the order of the lower authority. In support of the grounds so raised the ld. AR of the assessee vehemently argued that the order passed u/s 154 of the Act demand is also not correct. To support that contention he relied upon the provision of section 71(2) and 71(3A) of the Act stated that the beneficial the provisions as applicable should be applied and thereby the claim of the assessee to seek the adjustment of loss under the head from income from house property against their income under the head capital gain is in accordance with the provisions of section 71(2) of the Act. Even ld. CIT(A) has stated that “That is, the income from Capital Gains shall be adjusted against the losses under any other heads only when the income from other heads of income is not sufficient to off set the loss.” The revenue has not challenged that finding of the ld. CIT(A) and therefore, considering that aspect of the matter, ld. AR of the assessee submitted that demand raised the case of the assessee is required to be reduced to Nil. The ld. AR of the assessee vide paper book page 16 & 17 relied upon his computation of income which reads as under :
CIT(A), she submitted that the application u/s 154 of the Act is not being mistaken apparent from record and therefore, the appeal of the assessee is rightly dismissed by ld. CIT(A).
We have heard the rival contentions and perused the material placed on record. The solitary issue that has been raised by the assessee in this appeal is that the income under the head capital gain [which is chargeable to tax at special rate] be adjusted against the choice of the assessee or at the choice of the ld. AO. Since the issue raised by the assessee revolves around the provision of section 71 of the Act it would be appropriate to go through the provision of that section which reads as follows:
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 set 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 sub-section (2), where in respect of any assessment year, the net result of the computation 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.
Nikhil Khandelwal vs. ITO (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 sub-section (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.
As is evident from the provision of the Act wherein sub section 2 states that wherein 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". In the light of clear provision of the Act the ld. AO should have considered the provision of law. Even the ld. CIT(A) has considered that argument but ultimately not allowed. Based on the provision of the Act direct the ld. AO to compute the loss according allow the rectification application. Based on these observations the appeal of the assessee is allowed.
Order pronounced in the open court on 03/06/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:-03/06/2025 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Nikhil Khandelwal, Kota izR;FkhZ@ The Respondent- ITO, Ward-2(2), Kota 2. 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 1291/JP/2024) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत