Section 143(1) intimation invalid when AO adjusts intra-head loss without giving assessee reasonable opportunity

The ITAT Kolkata held that an intimation issued under section 143(1) was invalid where the AO adjusted intra-head loss against long-term capital gain without providing reasonable opportunity to the assessee. The assessee had claimed the loss in their return, which was rejected by the AO who then issued the intimation under section 143(1). The Tribunal found that rejecting the loss without affording reasonable opportunity violated legal principles and rendered the intimation bad in law. Following the precedent in Camellia Educare Trust, the Tribunal declared the AO's intimation invalid and held that the loss claimed by the assessee should be allowed. The decision emphasized that proper procedural safeguards must be followed before making adjustments under section 143(1).

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ISSUES:

Whether the loss from house property can be set off against long-term capital gains under section 71 of the Income Tax Act, 1961.Whether the Assessing Officer's adjustment of income under section 143(1) without prior intimation to the assessee complies with the first proviso to section 143(1) of the Income Tax Act.Whether the rejection of loss claimed in the return of income without providing reasonable opportunity to the assessee is valid.

RULINGS / HOLDINGS:

The loss from house property amounting to Rs.87,143/- was rightly claimed in the return of income and is allowable to be set off against long-term capital gains under section 71(2) of the Act.The Assessing Officer erred in not following the mandate of the first proviso to section 143(1) which states that "no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode."Rejection of the loss claimed without giving reasonable opportunity to the assessee renders the intimation under section 143(1) invalid and "bad in law."

RATIONALE:

The Court applied the statutory framework of the Income Tax Act, specifically sections 71(2) and 143(1) along with its provisos, which require that any adjustment to the return filed must be preceded by intimation to the assessee and consideration of their response.The Court relied on precedent from a recent Tribunal decision which held that failure to comply with the first proviso to section 143(1) invalidates the assessment or intimation passed under that section.The ruling emphasizes the mandatory procedural safeguard protecting the assessee's right to be heard before adjustments are made to the return filed, marking a strict interpretation of the proviso to section 143(1).

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