2025 (7) TMI 1569 - AT - Income Tax

Denial of set-off claim of assessee of house property losses against short term capital gain - whether 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 AO? - HELD THAT - 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 AO should have considered the provision of law. Even the CIT(A) has considered that argument but ultimately not allowed. Based on the provision of the Act direct the AO to compute the loss according allow the rectification application. Based on these observations the appeal of the assessee is allowed.

Summary

ISSUES:

Whether house property loss can be set off against short-term capital gains under section 71(2) of the Income Tax Act, 1961.Whether the adjustment of house property loss against business income instead of capital gains by the Assessing Officer was correct.Whether the rectification application under section 154 of the Income Tax Act was rightly rejected.Whether the Assessing Officer and appellate authorities correctly applied the provisions of section 71 regarding set-off of losses across different heads of income.

RULINGS / HOLDINGS:

On the issue of set-off of house property loss against short-term capital gains, the Tribunal held 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'." Therefore, the loss from house property is eligible to be set off against short-term capital gains.The adjustment of house property loss against business income by the Assessing Officer was incorrect because the provision of section 71(2) allows the loss to be set off against capital gains income at the option of the assessee.The rejection of the rectification application under section 154 was improper as the mistake was apparent from the record, considering the statutory provision permitting set-off of house property loss against capital gains.The Tribunal allowed the appeal, directing the Assessing Officer to recompute the income by allowing the set-off of house property loss against short-term capital gains, thereby quashing the demand raised.

RATIONALE:

The Tribunal applied the statutory framework under section 71 of the Income Tax Act, 1961, which governs the set-off of losses from one head of income against income from another head.Section 71(2) explicitly permits the set-off of losses under any head other than capital gains against income under the head capital gains, including short-term capital gains.The Tribunal noted that the Assessing Officer's approach conflicted with the statutory provision, as the loss from house property should have been allowed to be set off against capital gains income as claimed by the assessee.The appellate authority's interpretation that income from capital gains shall be adjusted against losses from other heads only when income from other heads is insufficient was found inconsistent with the statutory language and the assessee's right to claim set-off under section 71(2).No dissent or doctrinal shift was indicated; the Tribunal's decision adhered to the plain reading of the statute and the principle that rectification under section 154 is warranted where there is a "mistake apparent from the record."