2016 (7) TMI 262 - AT - Income Tax

Set off of business loss not allowed as per law - Mistake apparent from records Held that - The assessee is entitled to be allowed set off of business loss as determined by the AO in the order of assessment for A.Y. 2009-10 dated 02.12.2011, against his other eligible heads of income in accordance with law. In our view, failure on the part of the AO to apply these provisions of the Act in respect of set off of determined business losses, while passing the order of assessment, constitutes a mistake apparent from the record u/s 154. We, accordingly, direct the AO to rectify the order of assessment for A.Y. 2009-10 dated 02.12.2011 by allowing the assessee set off of the business losses against other eligible heads of income in accordance with the law. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the assessee is entitled to set off business loss against other heads of income.
2. Whether the AO's rejection of the rectification application under section 154 of the Income Tax Act was justified.

Issue-wise Detailed Analysis:

1. Entitlement to Set Off Business Loss Against Other Heads of Income:
The assessee filed a return for A.Y. 2009-10 declaring an income of ?25,84,335 and a business loss of ?83,84,370, which he carried forward instead of setting off against other heads of income like short-term capital gains, income from other sources, and income from house property. The AO accepted the business loss but did not set it off against other heads of income. The assessee later sought rectification under section 154, claiming this omission was a mistake apparent from the record. The Tribunal found that the AO should have set off the business loss against other heads of income as per the provisions of the Act, even if the assessee did not claim it in the return. The Tribunal cited CBDT Circular No. 14 (XL-35) dated 11.04.1955, emphasizing that officers should assist taxpayers in claiming legitimate reliefs. The Tribunal concluded that the failure to apply the provisions for set off of business losses constituted a mistake apparent from the record.

2. Justification of AO's Rejection of Rectification Application Under Section 154:
The AO rejected the rectification application on the grounds that the assessee did not claim the set off in the original return or during assessment proceedings. The CIT(A) upheld this view, stating that the omission did not constitute a mistake apparent from the record. However, the Tribunal disagreed, noting that the purpose of assessment is to determine the correct tax liability as per the law, and the AO should not take advantage of the assessee's mistake. The Tribunal referenced several judicial pronouncements and CBDT circulars supporting the view that rectification is permissible when a specific provision of the Act is not applied. The Tribunal directed the AO to rectify the assessment order by allowing the set off of the business loss against other eligible heads of income.

Conclusion:
The Tribunal allowed the appeal, directing the AO to rectify the order of assessment for A.Y. 2009-10 by setting off the business loss of ?83,84,370 against other eligible heads of income in accordance with the law. The Tribunal emphasized the duty of tax authorities to ensure correct tax assessment and not take advantage of an assessee's mistakes.