143(1)

Proper set off is not been taken in original return filed by you and so have got notice

Business loss can be set off only against business gain and return need to be filed on time i.e before due date

Yes so you have taken wrong set off.

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.

Business loss other than speculative business can be set off against any head of income except income from salary.

Yes, then reply to AO accordingly

Give reference of income tax section and say that set off taken is as per act.