Timely filing crystallizes the right to carry forward losses, which

Timely filing crystallizes the right to carry forward losses, which subsequent reporting omissions cannot extinguish.

Issue

Whether an assessee can be denied the benefit of carrying forward and setting off losses validly determined in a timely filed return under section 139(1) for a particular assessment year, merely due to an inadvertent omission or technical error in reflecting those figures in Schedule CFL of the return filed for a subsequent assessment year.

Facts

The assessee consistently incurred short-term capital losses during the assessment years 2019-20, 2020-21, and 2021-22, while a long-term capital loss arose only in the assessment year 2019-20.
The assessee carried forward the long-term capital loss from the assessment year 2019-20; however, the short-term capital loss from that same year was inadvertently omitted from Schedule CFL in the subsequent return for the assessment year 2020-21.
The original return of income for the assessment year 2019-20 had been filed by the assessee within the statutory due date prescribed under section 139(1).
The Revenue sought to deny the carry-forward and set-off benefits for the omitted short-term capital loss against subsequent capital gains, citing the reporting lapse in the subsequent year’s return.

Decision

Held, yes: The issue was decided entirely in favor of the assessee, upholding the right to set off the carried-forward losses.
Crystallization of Substantive Right: The eligibility to carry forward losses stands fully crystallized once the return for the source year is filed within the prescribed time limit and the losses are determined by the Assessing Officer.
Reporting Errors Cannot Extinguish Losses: A subsequent procedural lapse or omission in filling out Schedule CFL in the next year’s return cannot legally extinguish a substantive right or erase losses otherwise validly determined under the Act.
Technical Errors Subordinate to Law: The omission pointed out by the Revenue was merely a technical, inadvertent error that cannot override the substantive rights available to the assessee under sections 72 to 74A read with section 80.

Key Takeaways

Source Year Governs Eligibility: For the carry-forward of business or capital losses under section 80, the solitary mandatory condition is that the return of the source year (the year the loss occurred) must be filed within the section 139(1) deadline.
Procedural vs. Substantive Law: Once the statutory threshold for claiming a loss is met in the base year, subsequent schedule-filling mechanics are directory procedural steps. An administrative or clerical oversight in later years cannot strip away a vested statutory benefit.
No Automatic Forfeiture: Tax authorities cannot treat reporting omissions in Schedule CFL as an automatic forfeiture of carried-forward balances if the underlying loss trail is verifiable via previously assessed returns.

IN THE ITAT MUMBAI BENCH ‘I’

Trinity Opportunity Fund I

Assessing Officer-Int tax

Smt. Beena Pillai, Judicial Member
and ARUN KHODPIA, Accountant Member

IT APPEAL NO. 3140 (MUM) OF 2026
[Assessment year 2023-24]

JUNE 15, 2026

Ashish A. Thakurdesai, AR for the Appellant. Ms. Shruti Anzare, Sr. DR for the Respondent.

ORDER

Smt. Beena Pillai, Judicial Member.- Present appeal arises out of the final assessment order dated 22/01/2026 passed by Learned Deputy Commissioner of Income Tax, Int. Tax circle 4(1)(2), Mumbai, for A.Y. 2023-24, on the following grounds of appeal:-

“1) Ground1. The learned Assessing Officer has erred in law and on facts in recording that the return of income for Assessment Year 2020-21 was not filed by the Appellant, whereas the return of income for the said assessment year was duly filed by the Appellant.

2) Ground2. The learned assessing officer erred in disallowing entire brought forward losses of Rs. 6,04,94,915 instead of restricting the disallowance, if any, only to the loss pertaining to Assessment Year 2019-20 i.e. 4,88,75,208 as the loss of AY 20-21 and AY 21-22 has been correctly disclosed and brought forward.

3) Ground3. The learned assessing officer erred in considering the fact that the return of income of AY 19-20 was filed before due date correctly disclosing the loss to be carried forward. Considering the fact that the twin conditions of filing ROI of A.Y 2019-20 on 23/10/2019 i.e before due date and disclosing the loss in that return satisfies provision of section 74 of IT Act, the loss be allowed to be setoff.

4) Ground4. The learned assessing officer erred in considering the fact that brought forward loss of AY 19-20 is eligible to be carried forward and set off against capital gains of AY 23-24.

5) Ground5. The learned Assessing Officer has erred in law and on facts in not appreciating that the non-disclosure of the brought forward loss in the intervening assessment year was due to a bona fide human error, which was subsequently rectified in the immediately succeeding assessment year, and hence denial of such loss is unjustified and results in depriving the Appellant of a legitimate benefit under the Act.

6) Ground6. Your appellant prays that the said order be quashed and brought forward loss for the assessment years 19-20, 20-21, 21-22 be allowed to be set off.

7) Ground7. Your appellant further prays that tax, penalty and interest levied due to disallowances of brought forward losses be deleted.”

2. Brief facts of the case are as under:-

The Assessee is a foreign company incorporated in Mauritius and is registered as a Category-I Foreign Portfolio Investor (FPI) with SEBI. For the year under consideration, the Assessee filed its return of income on 20/10/2023 declaring a total income of Rs.12,54,49,410/-. In the return so filed, the Assessee offered capital gains to tax after setting off brought forward losses pertaining to Assessment Years 2019-20, 2020-21 and 2021-22.

The return of income was selected for scrutiny and notices were issued u/s 143(2) and 142(1) of the Act were duly served upon the Assessee. In response thereto, the Assessee furnished the requisite details and information called for by the Ld. AO.

2.1. Upon examination of the details furnished by the assessee, the Ld. AO observed that the assessee had claimed set-off of brought forward capital losses amounting to Rs.6,04,94,915/-against the capital gains earned during the year under consideration. The said losses comprised short-term capital loss of Rs.4,99,17,386/- and long-term capital loss of Rs.1,05,77,529/-. The details of such brought forward losses, as noted by the Ld. AO, are reproduced hereunder:-

Sr. No.	Assessment Year	STCL Carried Forward (Rs.)	LTCL Carried Forward (Rs.)
1	2019-20	3,57,65,841/-	1,31,09,367/-
2	2020-21	27,08,590/-	Nil
3	2021-22	4,99,17,386/-	1,31,09,367/-
4	2022-23	4,99,17,386/-	1,05,77,529/-

2.2. The Ld. AO observed that, in the return of income filed by the assessee for A.Y. 2021-22, the brought forward losses pertaining to A.Y. 2019-20 were not reflected in Schedule CFL. Based on this observation, the Ld. AO inferred that such losses had not been carried forward by the assessee. Accordingly, a show-cause notice dated 25/03/2025 was issued proposing to disallow the set-off of losses pertaining to A.Y. 2019-20 against the income of the year under consideration.

2.3. In response thereto, the assessee submitted that due to an inadvertent error, the brought forward loss of Rs.4,88,75,208/-was not reflected in the return of income filed for A.Y. 2020-21. It was explained that since the assessee had also incurred a loss of Rs.27,08,590/- during A.Y. 2020-21, the omission remained unnoticed at the relevant time. The assessee submitted that the mistake was noticed only while filing the return for A.Y. 2021-22, and accordingly, the correct amount of brought forward losses was duly reflected in the returns filed for A.Ys. 2021-22 and 2022-23. The Ld.AO, however, after considering the submissions of the assessee, observed and held as under:

“6. The submissions filed by the assessee company have been perused but not found to be tenable. The assessee has submitted that it has not carried forward the loss pertaining to AY 2019-20 in the return filed for AY 2020-21. The assessee has submitted that it has inadvertently missed to carry forward the loss and that the same should be allowed to be setoff against the taxable income offered during the year under consideration.

7. The claim of carry forward of loss has to be made in the return of income under schedule CFL. The schedule shows the ‘Total loss Carried forward to future years’. In the return filed by the assessee for AY 202021, the total loss to be carried forward to future years was declared as Rs. 27,08,590/-. The statute provides ample time to the assessee to file a revised return of income under the provisions of section 139 subsection (5) to rectify any wrong statement made. But the assessee has not filed any revised return for AY 2020-21. Therefore, the reply filed by the assessee is not found to be acceptable. Penalty proceedings u/s 270A are initiated for under reporting of income on this issue.”

2.4. The draft assessment order was thus passed u/s 144C(1) r.w.s. 143(3) of the Act on 28/03/2025.

Aggrieved upon receipt of the draft assessment order, assessee filed its objections before the Dispute Resolution Panel (DRP).

3. The assessee furnished before the DRP the details of brought forward losses from the preceding years and submitted that the accumulated losses pertained to A.Ys. 2019-20 to 2021-22. It was explained that, due to an inadvertent error, the loss relating to A.Y. 2019-20 was not reflected in the return filed for A.Y. 2020-21. The assessee further submitted that the said omission was subsequently noticed and rectified in the returns filed for A.Ys. 2021-22 and 2022-23.

3.1. The assessee further relied upon the provisions of sections 72 and 80 of the Act governing carry forward and set-off of losses and submitted that the losses had been duly determined and claimed in the returns of income filed for the respective years. However, the DRP, after considering the submissions of the assessee, upheld the proposed variation made in the draft assessment order.

Pursuant to the directions of the DRP, the Ld. AO passed the impugned assessment order and disallowed the claim of set-off of brought forward losses amounting to Rs.6,04,94,915/-.

Aggrieved by the impugned order passed by the Ld. AO, the assessee is in appeal before this Tribunal.

4. Before us, the Ld. AR submitted that the return of income for A.Y. 2019-20 was filed within the due date prescribed under section 139(1) of the Act and the losses sought to be carried forward were duly disclosed therein. Accordingly, the statutory conditions prescribed for carry forward of losses stood satisfied. It was submitted that there is no dispute regarding the assessee’s eligibility to carry forward the losses determined for A.Y. 2019-20.

4.1. The Ld.AR contended that the impugned disallowance arose solely on account of an inadvertent omission by the assessee in not reflecting the losses pertaining to A.Y. 2019-20 in Schedule CFL while filing the return of income for A.Y. 2020-21. It was submitted that non-disclosure of such brought forward losses in the relevant schedule of a subsequent year’s return cannot extinguish or invalidate the losses which had already been validly determined and carried forward pursuant to a return filed within the prescribed time.

4.1.1. The Ld. AR submitted that the omission to disclose the brought forward losses pertaining to A.Y. 2019-20 in the return filed for A.Y. 2020-21 was merely a human error and neither deliberate nor intended to claim any undue benefit. It was contended that such an inadvertent or clerical omission cannot deprive the assessee of the benefit of carry forward and set-off of losses, which are otherwise allowable under the provisions of the Act.

In support of the aforesaid contentions, the Ld. AR placed reliance upon the following decisions:-

•

ITO v. Jinvan Builders (P.) Ltd. [1999] 69 ITD 258 (Nagpur)

•

Chandrashekar Hemanth v. ITO (Bangalore – Trib.)

4.2. On the contrary, the Ld. DR relied on the orders passed by the authorities below.

We have perused the submissions advanced by both sides in light of the records placed before this Tribunal.

5. The assessee has filed the following statement showing the brought forward and set-off of short-term capital loss and longterm capital loss for the relevant assessment years:-

AY	Short Term Capital Gain / (Loss)	Long Term Capital Gain / (Loss)	Short Term Capital Gain / (Loss) – C/fd	Long Term Capital Gain / (Loss) – C/fd	Date of Return Filing	Due Date of Return Filing
2019-2020	(3,57,65,841)	(1,31,09,367)	(3,57,65,841)	(1,31,09,367)	23-10 2019	31-10 2019
2020-2021	(1,36,24,889)	1,09,16,299	(27,08,590)		21-12 2020	15-02 2021
2021-2022	(1,32,47,310)	18,04,355	(1,14,42,955)		30-12 2021	15-03 2022
2022-2023		25,31,838			31-10 2022	07-11 2022
2023-2024
B/f Losses			(4,99,17,386)	(1,05,77,529)
Set-off in AY 20232024			(4,99,17,386)	(1,05,77,529)

		Total Set-off in AY 20232024		(6,04,94,915)

5.1. From the above table, it is evident that the assessee had consistently incurred short-term capital losses during A.Ys. 201920, 2020-21 and 2021-22, whereas long-term capital loss arose only in A.Y. 2019-20. It is noted that the assessee had carried forward the long-term capital loss pertaining to A.Y. 2019-20; however, the short-term capital loss pertaining to the same year was not reflected as carried forward. In respect of the other two assessment years, since the assessee had earned long-term capital gains, only the net figure was carried forward.

5.1.1. It is also not in dispute that the assessee had filed its return of income for A.Y. 2019-20 within the due date prescribed under section 139(1) of the Act and, therefore, had complied with the statutory conditions for carry forward of losses. It is further undisputed that where the return is filed within the prescribed time, the losses determined for such assessment year are eligible to be carried forward for the period specified under the Act in terms of sections 72(1), 73(2), 73A(2), 74(1)/(3) and 74A(3) read with section 80 of the Act.

5.2. In terms of the aforesaid provisions, losses are required to be determined where the return of income is filed within the prescribed due date. Once such losses are determined, the assessee becomes entitled to carry forward the same and claim setoff against the income of subsequent years. In the present case, it is undisputed that the short-term capital loss and long-term capital loss for A.Y. 2019-20 were accepted by the Ld. AO pursuant to the return of income filed by the assessee. Accordingly, in terms of section 80 of the Act, the assessee is entitled to carry forward such losses and set off the same against the capital gains arising in subsequent years.

5.2.1. The assessee, therefore, cannot be denied the benefit of carry forward and set-off of losses pertaining to A.Y. 2019-20 merely on account of an inadvertent omission in reflecting such losses in the Schedule CFL while filing the return of income for A.Y. 2020-21. The eligibility to carry forward such losses stood crystallised once the return for A.Y. 2019-20 was filed within the prescribed time and the losses were determined by the Ld.AO. A subsequent procedural lapse in reporting the carried forward figure in a subsequent year’s return cannot have the effect of extinguishing the losses otherwise validly determined under the Act.

5.2.2. In the facts of the present case, there is no dispute regarding the genuineness of the losses, the year in which such losses arose, or the assessee’s compliance with the requirement of filing the return within the time prescribed under section 139(1) of the Act. The omission pointed out by the Revenue is merely a technical and inadvertent error, which cannot override the substantive right available to the assessee under sections 72 to 74A read with section 80 of the Act.

5.2.3. Accordingly, we hold that the assessee is entitled to carry forward the losses pertaining to A.Y. 2019-20 and claim set-off of the same against the eligible income earned during the year under consideration. The Ld. AO is, therefore, directed to allow the claim of carry forward and set-off of such losses in accordance with the provisions of the Act and give effect to the above directions.

Accordingly, the grounds raised by the assessee stand allowed. In the result, appeal filed by the assessee stands allowed.