Revised ITR cannot take away capital loss carry-forward if original return was filed on time: ITAT

A taxpayer who filed a revised income tax return (ITR) to disclose additional capital gains cannot be denied the benefit of carrying forward capital losses if the original return was filed within the due date under the Income-tax Act, the Income Tax Appellate Tribunal (ITAT), Bengaluru, has ruled.

According to an Economic Times report, the tribunal granted relief to a Bengaluru-based taxpayer whose claim to carry forward a long-term capital loss of ₹2.99 lakh was rejected by the Centralised Processing Centre (CPC) after he filed a revised return.

The taxpayer had originally filed his ITR for Assessment Year (AY) 2021-22 on October 5, 2021, declaring taxable income of about ₹1.31 crore. In the original return, he claimed a capital loss of ₹5.26 lakh to be carried forward to future years. Nearly six months later, on March 31, 2022, he filed a revised return under Section 139(5), disclosing additional short-term capital gains of ₹4.63 lakh and long-term capital gains of ₹2.26 lakh. After adjusting these gains, the eligible capital loss available for carry forward reduced to ₹2.99 lakh, and the taxpayer paid the additional tax liability.

Why did the tax department reject the claim?

The Centralised Processing Centre (CPC) disallowed the taxpayer’s revised claim to carry forward the ₹2.99 lakh capital loss. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the decision, holding that a return reporting losses must be filed within the due date prescribed under Section 139(1) to qualify for carry-forward benefits.

The taxpayer appealed before the ITAT, contending that his original return had been filed within the prescribed due date and that the revised return merely corrected omissions by disclosing additional capital gains. He argued that a revised return under Section 139(5) substitutes the original return and should not be treated as a fresh return for determining eligibility to carry forward losses.

What did the ITAT rule?

The Bengaluru Bench comprising Vice-President Prashant Maharishi and Judicial Member Keshav Dubey ruled in favour of the taxpayer.

According to the ET report, the tribunal observed that the original return had been filed within the due date under Section 139(1), which had been extended to December 31, 2021, for the relevant assessment year. Therefore, the statutory condition for carrying forward capital losses had already been fulfilled.

The ITAT held that filing a revised return after the due date does not invalidate a timely original return or deprive a taxpayer of the right to carry forward eligible losses. It directed the Assessing Officer to allow the carry forward and future set-off of the recomputed long-term capital loss of ₹2,99,750.

The ruling is significant for taxpayers who revise their ITRs to correct omissions or disclose additional income. It reiterates that a valid revised return is a continuation of the original return and that substantive tax benefits should not be denied merely because corrections were made after the original filing, as long as the original return was filed within the statutory deadline.