FORTUM SAR B.V.,NETHERLANDS vs. DCIT, CIRCLE-1(3)(1) INT. TAXATION, DELHI

consideration is with regard to denial of assessee’s claim of carry forward of long

term capital loss. Of course, there are ancillary grounds challenging the validity of

adjustment made u/s 143(1)(a) of the Act as well as the authority of learned First

Appellate Authority to remand the matter back to the Assessing Officer (“AO”).

incorporated in Netherlands. The assessee is an investment holding company. The

assessee had a wholly owned subsidiary in India, namely, Sprng Solar India

Private Limited (formerly known as Fortum Solar India Private Limited). Besides

3 ITA no. 2028/Del/2023 making investment in the Indian subsidiary, the assessee had also subscribed to

compulsory convertible debentures (‘CCDs’), issued by the subsidiary company. In

financial year 2021-22, relevant to the assessment year under dispute, the assessee

had transferred its investments in equity shares and CCDs held in Indian subsidiary

to a third party investor and incurred short term capital loss of Rs. 9,30,45,891/-

and long term capital loss of Rs. 32,11,17,208/-. In the return of income filed for

the impugned assessment year on 21.11.2022, the assessee declared income of Rs.

20,62,33,580/- and claimed carry forward of short term capital loss of Rs.

9,30,45,891/- and long term capital loss of Rs. 32,11,17,208/-. While processing

the return of income filed by the assessee, the Centralized Processing Centre

(‘CPC’), though allowed carry forward of short term capital loss of Rs.

9,30,45,891/-, however, carry forward of long term capital loss of Rs.

32,11,17,208/- was denied. After receiving the intimation issued u/s 143(1) by the

CPC, the assessee moved an application u/s 154 of the Act seeking rectification of

mistake. However, the said application was disposed of against the assessee

upholding the disallowance of carry forward of long term capital loss. Against the

order passed u/s 154 of the Act, assessee preferred an appeal before learned First

Appellate Authority, inter alia, on the grounds:

- That there is no power vested with CPC u/s 143(1)(a) to disallow carry forward of loss;

4 ITA no. 2028/Del/2023 - That the intimation issued u/s 143(1)(a) and the order passed u/s 154 of the Act are non-speaking, without assigning the reasons for disallowance of carry forward of loss; - That before disallowing carry forward of loss no show cause notice was issued to the assessee in terms of proviso to Section 143(1)(a) of the Act; and - That the assessee having filed a return of income within due date prescribed u/s 139(1) of the Act, claim of carry forward of loss could not have been denied;

(Appeals) held that the language of Section 143(1)(a) of the Act provides for

adjustment with reference to for the purpose of computation of total income or

loss. Therefore, CPC has power to deny carry forward of loss while processing the

return u/s 143(1)(a) of the Act. He further held that since the application u/s 154 of

the Act is in respect of an order u/s 143(1)(a) of the Act, for processing of return

by the CPC through computerized system, without any human interference,

therefore, no speaking order is contemplated in law at this stage. As regards

assessee’s contention that before making adjustment u/s 143(1)(a) of the Act no

show cause notice was issued to the assessee, learned First Appellate Authority

accepted it and issued the following directions to the CPC/Assessing Officer:

“14.4 The language of proviso makes it clear that the requirement of giving intimation to the appellant before making an adjustment to the returned income/ loss is mandatory in nature. As in this case, it is undisputed that no such notice was issued prior to the issue of intimation, there is a clear procedural irregularity made by the CPC AO while processing the return. The appellant is therefore, given an opportunity to submit reply to the CPC

5 ITA no. 2028/Del/2023 within 30 days of this order to be considered by the CPC before processing the return, as per law. If the facility of uploading reply is not available on the e-filing portal, the CPC/ AO is directed to give an intimation as required under proviso to section 143(1) of the Act so that the appellant can submit reply and take necessary action as per law after considering the response of the appellant, if any received within the statutory time period of 30 days. The re-processing after considering the reply of the appellant, shall take care of all the issues raised in this appeal. These grounds are disposed-off accordingly.”

taken before learned First Appellate Authority. He submitted that Section 143(1)(a)

of the Act does not empower the CPC to deny carry forward of loss once return of

income is filed within the due date. He further submitted that under section 250

read with Section 251 of the Act, the First Appellate Authority has no power of

remand. He submitted, once learned First Appellate Authority was satisfied that

mandatory condition of issuing show cause notice prior to adjustment as provided

u/s 143(1)(a) of the Act has not been provided, he should have quashed the order

passed by CPC and allowed assessee’s claim or, at least, decided the issue on

merits instead of remanding the matter to the CPC/Assessing Officer, as no such

power of remand is vested with the First Appellate Authority. In support of his

contention, learned counsel relied upon the following decisions:

- Arun Kumar Bose v. ITO 158 taxmann.com 282 (Calcutta HC); - Sapphire Land Development (P) Ltd. v. DCIT 147 taxmann.com 50 (Mum Trib.); - ACIT v. Sabarigiri Trust 43 taxmann.com 19 (Cochin Trib.);

6 ITA no. 2028/Del/2023 - Arham Pumps v. DCIT [2022] 140 taxmann.com 204 (Ahmedabad – Trib.); - ITO v. Camellia Educare Trust 152 taxmann.com 304 (Kolkata-Trib.).

learned First Appellate Authority submitted, the directions issued by learned First

Appellate Authority is fair and reasonable as he has provided an opportunity to the

assessee to represent the case before the CPC/Assessing Officer.

have also applied our mind to the case laws relied upon. Undisputedly, in the

return of income filed for the impugned assessment year the assessee had claimed

carry forward of capital loss amounting to Rs. 41,41,63,099/- comprising of short

term capital loss of Rs. 9,30,45,891/- and long term capital loss of Rs.

32,11,17,208/-. While processing the return of income u/s 143(1)(a) of the Act, the

CPC, while allowing carry forward of short term capital loss of Rs. 9,30,45,891/-,

denied the carry forward of long term capital loss of Rs. 32,11,17,208/- without

assigning any reason whatsoever. Against the intimation issued u/s 143(1)(a) of the

Act, carrying out such adjustment, assessee preferred an application for

rectification u/s 154 of the Act. The said application was disposed of by CPC on

26.11.2022 sustaining the disallowance, again, without assigning any reason. 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

7 ITA no. 2028/Del/2023 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 gross violation of rules of natural justice.

7.1 Learned First Appellate Authority has glossed over the issue of violation of

the mandatory condition of section 143(1)(a) of the Act by stating that it is a mere

procedural irregularity, which, according to us, is unacceptable. More surprising is

the way in which assessee’s application u/s 154 of the Act was dealt with. A

perusal of the order passed u/s 154 of the Act clearly reveals that assessee’s

application u/s 154 was disposed of in a grossly perfunctory manner without

assigning any reasons whatsoever as to why the claim of carry forward of long

term capital loss is to be denied and what is the lacuna in assessee’s claim. Thus,

neither the intimation issued u/s 143(1)(a) nor the order passed u/s 154 of the Act

8 ITA no. 2028/Del/2023 provides any basis for disallowance of assessee’s claim of carry forward of long

term capital loss. Unfortunately, learned First Appellate Authority has supported

the disposal of assessee’s application u/s 154 of the Act through a non-speaking

and unreasoned order by stating that since 154 application was to be disposed of

by CPC through a computerized system without any human interfere, there is no

requirement for passing a speaking order. The aforesaid reasoning of the First

Appellate Authority, in our view, is wholly misconceived and against the principle

of audi alteram partem. In our view, the assessee cannot be left remediless against

an order passed u/s 143(1)(a) of the Act.

7.2 The next issue which arises for consideration is, whether the First Appellate

Authority is justified in restoring the issue to the CPC/AO with a direction to issue

a show cause notice to the assessee and pass a fresh intimation u/s 143(1)(a) of the

Act. On going through the provisions of Section 250 of the Act, we are of the view

that learned First Appellate Authority could not have issued such direction as

section 250 read with section 251 of the Act does not vest any power with the first

Appellate Authority to restore/remand the appeal to the AO. Even otherwise also,

it is a fact on record that the assessee has claimed set off and carry forward of loss

in a return of income filed u/s 139(1) of the Act within due date. Neither the CPC

nor the first Appellate Authority have given any adverse observation with regard to

the genuineness of the loss claimed. Thus, once the claim of carry forward of loss

9 ITA no. 2028/Del/2023 is in accordance with statutory provisions, such claim has to be allowed. There is

no observation by the Departmental Authorities that assessee’s claim is not in

accordance with the statutory provisions. In fact, CPC has allowed carry forward

of short term capital loss. However, claim of carry forward of long term capital

loss was denied for some unknown reasons. At least, no such reason is forthcoming

from any of the orders of the departmental authorities. In this view of the matter,

we are unable to uphold the adjustment made by the CPC. The Assessing Officer is

directed to allow assessee’s claim of carry forward of long term capital loss as

well.

Order pronounced in open court on 27.06.2024.

Sd/- Sd/- (M. BALAGANESH) (SAKTIJIT DEY ) ACCOUNTANT MEMBER VICE PRESIDENT

Dated:27.06.2024. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI

10 ITA no. 2028/Del/2023