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Judgment
Per Renu Jauhri, Accountant Member:
This appeal by the assessee is directed against the order dated 09.03.2026 of the Commissioner of Income Tax, Appeal, ADDL/JCIT, (A)-3, Ahmedabad, [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the Order dated 31.01.2024 passed under section 154 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the Assessing Officer, CPC, Bengaluru (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2022-23.
The Assessee has raised the following grounds of appeal:
“ 1. That the orders passed under sections 143(1) and 154 are arbitrary, unjustified and contrary to the facts and provisions of law.
2.That under the facts and circumstances of the case, adjustments made in order passed U/s. 143(1) and 154 are illegal since no show cause notice was issued to assessee for altering the manner and sequence of set-off of business loss declared by the appellant and for disallowance of deduction claimed Under chapter VI-A.
3.That the Learned CIT(A) erred in upholding the adjustment made under section 143(1)(a) by CPC/AO in altering the manner and sequence of set-off of business loss declared by the appellant.
4.That the Learned CIT(A) failed to appreciate that the CPC exceeded its jurisdiction under section 143(1)(a) by making adjustments requiring interpretation of law and detailed examination of computation provisions.
5.That the Learned CIT(A) failed to appreciate that the issue relating to inter-head adjustment and sequencing of set-off of losses is highly debatable and outside the scope of prima facie adjustment permissible under section 143(1)(a) of the Act.
6.That the Learned CIT(A) erred in holding that business loss cannot be adjusted against capital gains, without properly appreciating the statutory provisions and the manner of computation adopted by the appellant in the return of income.
7.That the Learned CIT(A) erred in confirming the consequential disallowance of deductions under sections 80C, 80D and 80TTA amounting to Rs.1,85,000/-.”
Brief facts are that the assessee filed his return for A.Y. 2022-23, on 22.10.2022, declaring total income of Rs. 17,39,950/-. As per the ITR, business loss of Rs. 10,12,898/- had been set off against Long Term Capital Gain (LTCG) of Rs. 21,29,140/-. While processing the return, the CPC Bengaluru, altered the sequence of set off and adjusted the business loss first against the income from house property (Rs. 769,087/-) and the balance against income from other services. Resultantly, only income under the head ‘Capital Gains’ remained chargeable to tax. Hence, the deduction claimed under Chapter VI-A of Rs. 1,85,000/- was disallowed and income recomputed at Rs. 19,24,950/-.
Aggrieved, the assessee preferred an appeal before the CIT(A). However, Ld. CIT(A) dismissed the appeal holding as under:
(i)the sequence of set off adopted by the CPC was as mandated by the statute.
(ii)Consequent disallowance of Chapter VI-A deductions fell within the scope of Permissible adjustments u/s 143(1).
Further aggrieved, the assessee is in appeal before the Tribunal.
Before us, Ld. AR has submitted that no such sequence has been mandated in the Act and it is the option of the assessee as to against which head of income he wanted to set off the business loss.
On the other hand, Ld. DR has submitted that the CPC has adopted the sequence as per the Columns of ITRs Form and, therefore, there is no error in the sequence of set off followed by the CPC while processing the return.
We have heard the rival submissions and perused the material available on record as well as the relevant provisions of the Act. For the sake of convenience, the relevant sub-sections of section 71 are 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 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.”
From the above, it is clear that the loss from business can be set off against income assessable under any head of income including the ‘Capital Gains’ and no order of sequence has been prescribed under the Act.
Accordingly, we are of the considered view that the assessee is entitled to choose the order in which he wishes to set off the business loss against income from other heads (except the ‘Salaries’) and merely because the heads are arranged in a particulars sequence in the ITR Form, does not imply that it is mandatory for the assessee to follow the same sequence while setting off the loss. Thus, we hold that the order of CIT(A) is not justified and the same is hereby set aside.
In the result, appeal of the assessee is allowed.