Can loss be disallowed in time-barred assessment years

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This discussion explores whether an Assessing Officer (AO) can disallow the set-off of capital losses in a reassessment year (AY 2021-22) if the original loss was incorrectly reported in a prior, now time-barred, assessment year (AY 2018-19). The AO is considering disallowing the set-off for AY 2021-22 and potentially raising demands for earlier years, including the time-barred AY 2018-19. The general consensus is that the AO can disallow set-offs originating from incorrect past reporting, even if those years are time-barred, though appeals may be possible.

chetan

chetan (Querist)
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08 October 2024 If a return for AY 2021-22 comes up for reassessment before 31st March, 2025 and the assessing officer finds the following while enquiring into the capital gain/ loss booked by assessee:
a). In AY 2018-19, assessee had incorrectly reported a short term capital loss (STCL) of 3 lakhs which was carried forward into AY 2019-20 when actually there was a short-term capital gain of 50000 rupees during this year
b). In AY 2019-20, assessee had offset 1 lakh of STCL against STCG and carried forward the balance 2 lakhs to AY 2020-21
c). In AY 2020-21, assessee had offset another 1 lakh of STCL against STCG and carried forward the balance 1 lakhs to AY 2021-22
d). In AY 2021-22, assessee had offset the remaining STCL of 1 lakh against STCG for that year

In such a case, can the AO do any or all of the following given that brought forward loss is a continuing issue ?
a). Disallow the setoff of 1 lakh for AY 2021-22 because the origin of this loss which was in AY 2019-20 was incorrect in the first place
b). Disallow the setoff for AY 2019-20 and AY 2020-21 (even though the escaped income is far less than 50 lakhs) and raise demands for these years
c). Disallow the setoff for AY 2018-19 (even though it is time-barred) and raise demand for this year