Income Tax Query 3 : Recomputation of Income of succeeding years due to reassessment u/s 147 of Loss or Unabsorbed Depreciation

Scenario:

ITR was filed for FY 2019-20 (AY 2020-21) was filed with Short Term Capital Loss of Rs 10 Lakhs & carried forward. The same was set of against Capital Gain for FY 2020-21 (AY 2021-22) and FY 2021-22 (AY 2022-23).

Subsequently, Notice u/s 148 for Reassessment u/s 147 for FY 2019-20 (AY 2020-21) was received in 2024. During the course of Filing Return in response to Notice u/s 148, the Assessee had corrected his earlier Capital Loss to Nil or Capital Gain.

The Query is what will be the Treatment of Carried Forward Loss set off against Income if succeeding AYs & the manner of reporting to the Income Tax Department of the same. Also the situation would warrant deposit of differential Tax & interest thereon.

Response:

Sub-section (4) of Section 155 of the Income Tax Act, 1961 deals with such a scenario.

(4) Where as a result of proceedings initiated u/s 147, a loss or depreciation has been recomputed and

in consequence thereof, it is necessary to recompute the total income of the assessee for the succeeding year or years to which the loss or depreciation allowance has been carried forward and set off

the Assessing Officer may proceed to recompute the total income in respect of such year or years and make the necessary amendment;

and the provisions of section 154 shall, so far as may be, apply thereto,

the period of 4 years specified in Section 154(7) being reckoned from the end of the financial year in which the order under section 147 was passed.

Accordingly, the Assessee may file a petition u/s 155(4) read with section 154 of the Income Tax Act, 1961 for recomputation of Income & tax thereon for the succeeding Assessment Years in consequence of Filing ITR in response to Notice u/s 148. Further the assessee may pay suo moto pay differential tax on self assessment basis along with Interest till date of Filing petition u/s 155(4).

If the Assessee wait for Income Tax Department to Rectify u/s 155(4) r.w. 154 & issue Demand, interest may be incurred till the Date of Order u/s 155(4) r.w. 154.