Facts of the Case

The assessee, Brahma Investments I Ltd., a tax resident of Cyprus, filed its return of income on 15.02.2021 declaring total income of ₹1,13,33,890. In the return, the assessee reported a long-term capital loss of ₹255,84,80,890 arising from the sale of shares of an Indian company.

The assessee did not carry forward the said long-term capital loss to subsequent years because long-term capital gains on such transaction were claimed to be exempt in India under Article 13 of the Double Taxation Avoidance Agreement (DTAA).

The return was processed by the Centralized Processing Centre (CPC) under Section 143(1) of the Income Tax Act, 1961. However, CPC computed long-term capital gains of ₹511,69,61,920, which was contrary to the loss declared by the assessee.

Further, the adjustment was made without issuing prior intimation under Section 143(1)(a) to the assessee. The assessee challenged the action before the Commissioner of Income Tax (Appeals), but the issue remained unresolved, leading to an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench. 

Issues Involved

  1. Whether the CPC was justified in making adjustments while processing the return under Section 143(1) without issuing prior intimation as required under Section 143(1)(a) of the Income Tax Act.
  2. Whether the CIT(A) erred in referring the matter back to the Assessing Officer without giving specific directions regarding the computation error.
  3. Whether the computation of long-term capital gains instead of the declared long-term capital loss was an apparent mistake requiring rectification. 

Petitioner’s Arguments

The assessee contended that:

  • The adjustment made by CPC while processing the return was incorrect, as the assessee had declared a long-term capital loss arising from the sale of shares.
  • CPC incorrectly determined long-term capital gains of ₹511,69,61,920, which was inconsistent with the return filed.
  • The mandatory procedure under Section 143(1)(a) requiring prior intimation before making adjustments was not followed.
  • The CIT(A) failed to provide clear directions for rectifying the computational error and wrongly referred the matter back to the Assessing Officer.
  • The order of CIT(A) passed under Section 250 was therefore bad in law and liable to be quashed. 

Respondent’s Arguments

The Revenue contended that:

  • The return had been processed by CPC under Section 143(1) in accordance with the provisions of the Income Tax Act.
  • The CIT(A) had already considered the matter and referred the issue back for appropriate action.
  • The matter involved rectification of computational issues, which could be addressed by the Assessing Officer. 

Court Order / Findings

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, observed that:

  • CPC had committed an apparent error while processing the return under Section 143(1) by computing long-term capital gains instead of recognizing the declared long-term capital loss.
  • The procedure under Section 143(1)(a) requiring prior intimation to the assessee before making adjustments was not followed.
  • Both parties agreed that the matter could be remanded to the Assessing Officer for rectification of the computational mistake.

Accordingly, the Tribunal directed the Jurisdictional Assessing Officer (JAO) to correct the error and issue a revised computation sheet within 90 days.

The appeal of the assessee was allowed. 

Important Clarification

The decision reiterates that:

  • Adjustments under Section 143(1)(a) cannot be made without issuing prior intimation to the assessee.
  • Any computational error while processing returns by CPC must be rectified through proper procedure and with due opportunity to the taxpayer.
  • The appellate authority should give clear directions instead of merely remanding matters without addressing the computational mistake. 

Sections Involved

  • Section 143(1) – Processing of Return
  • Section 143(1)(a) – Adjustment of Return after Intimation
  • Section 250 – Procedure in Appeal before CIT(A)
  • Section 251 – Powers of the Commissioner (Appeals)

Link to download the order -  https://itat.gov.in/public/files/upload/1703667051-697%20Brahma%20Investments%20Ltd..pdf

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