1. My father's ( 77 years old ) Income tax return for AY 2017/18 got delayed due to health reasons. He is a Parkinsons patient for the last 10 years and was totally bed ridden and could not provide details to CA in time. Income tax returns were filed in Nov 2018.
2. In AY 2017/18 there was capital loss claimed. In the following year AY 2018/19 capital gain was claimed. But because the returns were filed late in AY 2017/18 the loss was not carried forward to AY 2018/19. As a result IT dept sent a demand notice for AY 2018/19.
3. We have filed a petition online requesting Income tax department to kindly condone the delay for AY 2017/18 after taking into consideration the genuine health grounds. We have submitted doctor certificates and also offered to submit medical records over the last few years.
Questions:
A. It is 6 months now and we have not received any response of the petition to condone the delay. In the meanwhile we have received another demand notice for AY 2018/19. What should we do now ?
B. What happens if the condone petition is refused ? What are my options in such a situation ?
11 May 2020
You are entitle to carry forward capital loss to subsequent year inspite the fact that you have filed return belatedly. Please see section 74 read with section 80.
11 May 2020
Thank you Mr.Soumitra Basu for your response.
But Income tax department did not allow us to carry the loss to AY 2018/19 from AY 2017/18 for the same reason and that has resulted in a demand for AY 2018/19. We have submitted a condone petition. We have submitted a prayer in the respective e proceeding ( adjustments under section 143(1)(a) to condone the delay but that has not been processed yet.
12 May 2020
file a petition under section 154 of the income tax act followed by the same return. In box mentioned the grounds of allowable of carry forward of capital loss
12 May 2020
Thanks once again sir. From what I have gathered about the my father's current issue a petition has been filed under section 119(2)(b) of the income tax act praying for condonation of delay. The grounds submitted are health grounds as explained in the original question above.
1. Does filing petition under 119(2)(b) sound good ? 2. What are our options if the delay is not condoned ?
3. Can long term capital loss from sale of house property be netted against long term capital gain from sale of regular land or agricultural land either the same financial year or spread across different financial years ?
14 May 2020
Some Points in respect of Return of Loss [Section 139(3)] As already discussed, all losses are not allowed to be carried forward. Therefore return of loss should be submitted on or before due date only in case of business loss, speculation loss, capital loss or loss on account of owning and maintaining the horses for running in horse races.
It may be noted that filing a return of loss within the due date is necessary for carry forward of losses under sections 72(1), 73(2), 73A(2), 74(1), 74(3) and 74A(3). It does not cover section 71B i.e. carry forward and set off loss of house property. Therefore, loss on account of house property can be carried forward even if the return is submitted late.
Unabsorbed depreciation can also be carried forward even if the return of loss is submitted after the due date, as it is not covered under Chapter VI of set off or carry forward of losses but covered under section 32(2).
Section 139(3) read with section 80, does not prohibit the set off of losses of the current year while computing the Total Income even if the return is filed after the due date. It only prohibits the carry forward of such losses.
If an assessee has submitted a return of loss in response to a notice under section 142(1), such loss cannot be carried forward unless it is a loss under the head income from house property. However, unabsorbed depreciation can be carried forward in this case.
Although the loss of the current year cannot be carried forward unless the return of loss is submitted before the due date but the loss of earlier years can be carried forward if the return of loss of that year(s) was submitted within the due date and such loss has been assessed.
14 May 2020
Set off of losses Set off of losses means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years. A set-off could be an intra-head set-off or an inter-head set-off.
a. An intra-head set-off
b. An inter-head set-off
a. Intra-head Set Off The losses from one source of income can be set off against income from another source under the same head of income.
For eg: Loss from Business A can be set off against profit from Business B, where Business A is one source and Business B is another source and the common head of income is “Business”.
Exceptions to an intra-head set off:
1. Losses from a Speculative business will only be set off against the profit of the speculative business. One cannot adjust the losses of speculative business with the income from any other business or profession.
2. Loss from an activity of owning and maintaining race-horses will be set off only against the profit from an activity of owning and maintaining race-horses.
3. Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term capital loss can be set off against both long-term capital gains and short-term capital gain.
4. Losses from a specified business will be set off only against profit of specified businesses. But the losses from any other businesses or profession can be set off against profits from the specified businesses.
b. Inter-head Set Off After the intra-head adjustments, the taxpayers can set off remaining losses against income from other heads.
Eg. Loss from house property can be set off against salary income
Given below are few more such instances of an inter-head set off of losses:
1. Loss from House property can be set off against income under any head
2. Business loss other than speculative business can be set off against any head of income except except income from salary.
One needs to also note that the following losses can’t be set off against any other head of income:
a. Speculative Business loss
b. Specified business loss
c. Capital Losses
d. Losses from an activity of owning and maintaining race-horses
Carry forward of losses After making the appropriate and permissible intra-head and inter-head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rules as regards carry forward differ slightly for different heads of income. These have been discussed here:
Losses from House Property : Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred Can be adjusted only against Income from house property Can be carried forward even if the return of income for the loss year is belatedly filed. Losses from Non-speculative Business (regular business) loss : Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred Can be adjusted only against Income from business or profession Not necessary to continue the business at the time of set off in future years Cannot be carried forward if the return is not filed within the original due date. Speculative Business Loss : Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred Can be adjusted only against Income from speculative business Cannot be carried forward if the return is not filed within the original due date. Not necessary to continue the business at the time of set off in future years Specified Business Loss under 35AD : No time limit to carry forward the losses from the specified business under 35AD Not necessary to continue the business at the time of set off in future years Cannot be carried forward if the return is not filed within the original due date Can be adjusted only against Income from specified business under 35AD Capital Losses : Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred Long-term capital losses can be adjusted only against long-term capital gains. Short-term capital losses can be set off against long-term capital gains as well as short-term capital gains Cannot be carried forward if the return is not filed within the original due date Losses from owning and maintaining race-horses : Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred Cannot be carried forward if the return is not filed within the original due date Can only be set off against income from owning and maintaining race-horses only Points to note:
1.A taxpayer incurring a loss from a source, income from which is otherwise exempt from tax, cannot set off these losses against profit from any taxable source of Income
2. Losses cannot be set off against casual income i.e. crossword puzzles, winning from lotteries, races, card games, betting etc.
14 May 2020
Dear Prabhakar, You can wait for the outcome of your petition submitted u/s. 119(2). The time period for filing petition under section 154 is 4 years. Yes, you can adjust the capital loss with the capital gain. according to me capital gain on sale of agricultural land will not attract any tax provided you fulfill the conditions.
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