Bombay HC directs Income Tax department to allow lawful claims in e-filing utility

K2 Family Private Trust Vs DCIT (Bombay High Court)

It has been an open secret that the Income Tax Department has been using the Income Tax Return filing Utilities and Schemas for enforcement of their interpretation of the Income Tax Act. The utilities, which are supposed to help assessees in filing and preparation of forms, have become a hurdle in asserting lawful claims. However, the Judiciary has been a guardian of assessees, who are denied their claims due to mechanical utilities and schemas. A recent case exemplifying this persistent issue is K2 Family Private Trust v. Deputy Commissioner of Income Tax [W.P.(L) No. 38249 of 2025], in which the Hon’ble Bombay High Court heard both parties and directed the department to allow the assessee to file returns with lawful claims, whether in online or offline format.

Case Facts and Assessee’s Position

In this case, the assessee had income under the head Capital Gains, comprising:

• STCG (STT paid): ₹17.67 crores
• STCL (STT paid): ₹13.26 crores
• STCG (Non-STT): ₹2.59 crores

The assessee, as any prudent taxpayer, sought to calculate its tax liability in the least outflow possible, while remaining lawful. The assessee prepared its return setting off STCL (STT paid) first against STCG (Non-STT) and then against STCG (STT paid). Due to the difference in taxability between STCG (STT-paid) and STCG (non-STT), this method of set-off resulted in lower tax liability for the assessee. Importantly, this method of set-off is not barred by any provisions of the Income Tax Act and is permitted under Section 70. However, the department’s utility did not allow this claim.

The Utility Obstruction

The department’s utility set off STCL (STT paid) first against STCG (STT paid) and then against STCG (Non-STT), calculating a tax liability much higher than what the assessee had estimated. The assessee faced a dilemma: the electronic filing system did not permit tax calculation in the desired manner. To prevent penal consequences, the assessee filed its return as per the utility’s calculation by the due date. Subsequently, the assessee lodged a grievance with the department regarding the utility’s limitation and also wrote to the Assessing Officer and CBDT for revision of its return to claim the appropriate set-off. As expected, no relief was provided.

As the deadline for revising the return approached, the assessee filed a writ petition in the Bombay High Court for relief.

Arguments and Judicial Reasoning

Assessee’s Counsel’s Position:

The assessee’s counsel argued that if assessees are not allowed to interpret the law and make claims in returns, the procedures of assessment, scrutiny, and appeals become meaningless. The counsel emphasized that returns are filed under ‘Self-Assessment’ by the assessee, yet the department compels its own interpretation of law, leaving no scope for the assessee’s application. The counsel relied on various precedents to support this view and represented that the method of set-off adopted by the assessee is lawful with no statutory restriction.

Department’s Counsel’s Position:

The department’s counsel argued that allowing set-off in the manner sought by the assessee would result in revenue loss. The counsel also submitted that modifying the utility as desired by the assessee was not an appropriate method, and the assessee’s claim would be entertained during the limited scrutiny case.

To counter this, the assessee’s counsel cited Goetz (India) Ltd. v. CIT, where the apex court ruled that fresh claims by an assessee can only be made through filing of a revised return.

The Court’s Decision

The Hon’ble Bombay High Court, in its decision, ordered the department to:

1. Modify the utility to permit filing of revised returns by the assessee, and

2. Accept the assessee’s revised return in paper mode if the utility modification was not completed, processing such return under Section 139 irrespective of the statutory requirement for electronic filing.

Conclusion

The decision of the Hon’ble Bombay High Court reiterates a fundamental principle of fiscal law: the provisions laid by the legislature cannot be overridden by technical backdoors. Self-assessment requires genuine assessee discretion in lawful interpretation; utilities must serve assessees, not constrain them. This judgment reinforces the judiciary’s role in protecting taxpayers’ constitutional and statutory rights against procedural impediments.

But in contrast to this, the cost to avail relief of the kind availed by the assessee in the above case, is not worth every time. Because of this practical constraint, the department usually has its way in most of the cases.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.

2. The present Writ Petition is filed seeking a writ of mandamus directing the Respondents to forthwith amend the on-line utility for filing the Return of Income under Section 139 of the Income Tax Act, 1961 (“the IT Act”) so as to enable the Petitioner to claim a set-off in accordance with Section 70(2) of the IT Act, as interpreted and understood by the Petitioner, or in the alternative for the Respondents to accept and process a paper return wherein the Petitioner will make the said claim.

3. The Petitioner Trust had inter-alia earned the following income/incurred a loss during the previous year relevant to A.Y.2025-26:-

i) short term capital gains from sale of equity shares and units of equity oriented mutual funds on which STT (Securities Transaction Tax) was paid [STCG (STT paid)] aggregating to Rs.7,27,88,354.28/- before 23^rdJuly 2024 and Rs.10,39,73,782.21/- after 23^rd July 2024;

ii) short term capital loss from sale of equity shares on which STT was paid [STCL (STT paid)] in the sum of Rs.2,73,94,464.26/-before 23^rdJuly 2024 and Rs.10,52,70,441.02/- after 23^rd July 2024; and

iii) short term capital gains from sale of debt mutual funds on which STT was not paid [STCG (non-STT paid)] aggregating to Rs.52,85,241.68/- before 23^rdJuly 2024 and Rs.2,06,48,196.17/-after 23^rd July 2024.

4. The Petitioner was desirous of computing its total income inter-alia by first setting off the STCL (STT paid) earned by it against the STCG (non-STT paid). According to the Petitioner this was in accordance with the mandate of Section 70(2) of the IT Act. Further, according to the Petitioner the following decisions supported its case, viz., CIT v. Rungamatee Trexim Pvt. Ltd. [ITA No. 812 of 2008, Calcutta High Court], First State Investments (HongKong) Ltd. v. ADIT [(2011) 8 ITR (T) 315 (Mumbai)], iShares ESG Aware MSCI ETF v. DCIT [(2025) 175 com289 (Mumbai-Trib)] and Vanguard Emerging Markets Stock Index Fund a Series of VISPLC v. ACIT [(2025) 174 taxmann.com 1066 (Mumbai-Trib.)].

5. However, when the Petitioner attempted to do so while filing its Return of Income electronically, the Petitioner noted that the income-tax utility did not permit the making of a claim where the total income was computed by setting off the STCL (STT paid) against the STCG (non-STT paid). The Petitioner noticed that the utility provided on the income-tax portal first set-off the STCL (STT paid) against the STCG (STT paid) and if any losses remained, only then a set-off of the balance STCL (STT paid) was allowed against the STCG (non-STT paid). According to the Petitioner this programming logic was not in accordance with the provisions of the IT Act but the utility did not provide any option to by-pass the said logic and file a Return of Income with a claim that the Petitioner believed it was legitimately entitled to.

6. Due to this problem in the Income Tax Portal, the Petitioner electronically filed its Return of Income in ITR-5 for the A.Y.2025-26 on 15^thSeptember 2025 in accordance with the programming logic of the utility, i.e., by first setting-off the STCL (STT paid) against the STCG (STT paid).

7. Thereafter, the Petitioner lodged a grievance on the Income Tax Portal, bearing No.22915679 on the same day, i.e., 15^thSeptember 2025 requesting that the utility be amended to allow the legitimate claim by the Petitioner, so that it could raise its claim by filing a revised Return of Income within the statutory timelines. The Petitioner also filed a letter dated 15^th September 2025 with Respondent No.1, its Assessing Officer, requesting him to provide a resolution. The Petitioner also filed an application with Respondent No.3, the CBDT, on 23^rd October 2025 to issue appropriate directions to Respondent No.2, the DGIT (Systems), for suitably modifying the utility to permit a set-off in the order chosen by the assessee. However, none of these authorities have taken any steps to redress the Petitioner’s grievance.

8. Since the last day to file a revised return for the A.Y.2025-26 is 31^stDecember 2025, the Petitioner has approached this Court under its extra-ordinary jurisdiction to intervene and resolve the situation.

9. At the time of hearing, counsel for the Petitioner explained that the Petitioner had earned the following capital gains:

He stated that the Petitioner wanted to set-off the losses in the following manner:

However, the utility of the income tax portal set-off the losses in a manner which resulted in the below position:

* excluding surcharge & cess

10. Counsel explained that when an assessee is filing a return of his income, he is required to compute his income, determine the taxes thereon, discharge such taxes and only then file a Return of Income within the prescribed due date. This process in tax terminology is referred to as “self-assessment” and is primarily governed by the provisions of Section 139 and Section 140A of the IT Act. After an assessee files his Return of Income, the income tax department processes it under Section 143(1) of the IT Act. At this stage adjustments in the nature of arithmetical errors, incorrect claim apparent from records, etc. which are specified in Section 143(1)(a), can be made to the assessee’s income and an intimation along with the amount of tax payable is issued to the assessee under Section 143(1). If aggrieved, the assessee can avail of remedies provided by the Act, including filing of an appeal. After the stage of processing a return in terms of Section 143(1) stage, the department may also select the assessee’s return for a scrutiny assessment by issuing a notice under Section 143(2) of the IT Act. The assessment proceedings culminate in an assessment order under Section 143(3), against which various remedies, including that of filing an appeal, is available to the assessee. Thus, the scheme of the IT Act is that an assessee has to compute his income in accordance with his understanding of the law and, thereafter, the revenue’s role begins and it frames an assessment having regard to the interpretation they put on the relevant provisions of the law and, ultimately, the hierarchy of the appellate authorities under the Act will determine which of the views is correct.

11. Counsel argued that when an assessee is prevented from making a claim in the Return of Income, it amounts to a determination of that claim at the very threshold, i.e., at the stage of filing of the return itself. This effectively forecloses examination of the claim during the assessment proceedings and, if necessary, adjudication through the appellate hierarchy. If an assessee is not permitted to make a claim merely because the income tax department is of the view that such claim is not sustainable as per its interpretation, the very purpose of assessment and an appellate mechanism to redress the grievances stands defeated. The Act contains detailed provisions enabling the income tax department to scrutinize and verify a return, and to accept or reject a claim based on established procedure. Such verification is intended to take place after the return is filed. By disallowing the making of a claim at the stage of filing the return itself, the assessment process is rendered nugatory and the validity of a claim is pre-decided unilaterally by the Department-an approach wholly alien to the scheme of the IT Act.

12. To buttress his point Counsel relied on the judgement of this Court in the case of Lupin Limited v. DCIT [WP No.3565 of 2023, 26^thMarch 2024] and highlighted that Lupin wanted to make a claim of deduction, based on a view taken by this Court which was affirmed by the Hon’ble Supreme Court. However, the electronic mode of filing the return did not permit the assessee to do so. On a Writ Petition being filed and on a direction by this Court, a manual return was permitted to be filed for making the said claim. When the manual return was processed, Lupin’s claim was accepted. Hence, it was argued that the utility cannot be designed to prevent an assessee from making a claim, the correctness of which will be determined by the adjudication and appeal process as provided in the Act.

13. Counsel for the Petitioner argued that the claim of set-off which the Petitioner was desirous of making in the present case was in consonance with the view expressed in various decisions, including one judgment of the Calcutta High Court, CIT v. Rungamatee Trexim Pvt. Ltd. [ITA No.812 of 2008, Calcutta High Court] where in it was held as under:

“The Commissioner of Income Tax (Appeals) in his order held as follows:

“………In Ground Nos.5 and 6 the assessee has objected to the mode of set off adopted by the Assessing Officer in assessing income from short term capital cases. During the year under consideration the assessee earned short term capital gain of Rs.7,29,584/- in transaction in shares where security transaction tax was not paid and income was subject to tax at normal rate. The assessee also earned short term capital gain of Rs.2,27,564/- in transaction in shares where security transaction tax was paid and income was eligible for concessional rate of tax under section 111A. Rangamatee order pr.6 The assessee also suffered short term capital loss of Rs.7,17,660/- in transactions in shares involving payment of security transaction tax. In the impugned order the A.O. computed the capital gain in the following manner without discussing any reasons for adopting such mode of computation.

Calculation of income/loss from capital gain

I have perused the assessment order and have considered submissions of the A/R. In the impugned order the A.O. has not given any reasons for first sitting off short term capital gain with STT against short term capital STT and then allow ofset off of remaining loss of Rs.4,90,096/-against short term capital gain without STT. The mode ofset off adopted by the A.O. shown that be accepted in principle that short term capital loss with STT can be legally set off against short term capital gain without STT. According to the assessee, the chronology for the set off by the A.O. was contrary to chronology adopted by the assessee, only because the assessee’s mode resulted in concessional rate of the tax being applied to higher amount of short term capital gain which resulted more tax benefit to an assessee.

On perusal of the provision of section 70, I find that there is no prohibition nor the Act compels the assessee to first set off short term capital gain with STT against short term capital loss with STT and then allows set off against short term capital gain without STT. In absence of any specific mode of set off provided in the Act and in absence of any prohibition and in absence of any specific chronology for set off prescribed in the Act, the assessee was entitled to exercise his option with regard to the chronology of set off which was most beneficial to the assessee. It is settled proposition of law that when a provision of the Act gives option to the assessee, such option should be exercised which will favour the assessee and not the revenue. The A/R for the assessee was well justified in relying on the decision of the Calcutta High Court and the Circular of the Board dated 7.7.1955 since the principles laid down therein appeared to be fully applicable.”

The Commissioner of Income Tax (Appeals) therefore came to the conclusion in favour of the asessee. He further came to the conclusion that the disallowance has been made on presumption.

In these circumstances, the order passed by the Commissioner of Income Tax and subsequent thereto, the Commissioner of Income Tax (Appeals) had already considered the case of the department and upheld the order passed by it. We have carefully considered the said question and in our considered opinion, there is no illegality or irregularity in respect of the order so passed by the learned Tribunal. We, accordingly, find that there is no reason to interfere with the order so passed by the learned Tribunal and further the order so passed by the learned Tribunal does not suffer from any illegality or irregularity and we find that no substantial question of law is involved in this appeal. Hence, we dismiss the appeal.”

(emphasis supplied)

14. Further, it was submitted that the issue as to whether an assessee can be debarred from making a claim in the Return of Income is no longer res integra. There were several instances where this Court had intervened and allowed the assessee to file a Return of Income wherein it was permitted to make a claim that it desired.

15.0 In this regard, the learned counsel relied on a judgment in the case of Samir Narain Bhojwani v. DCIT [(2020) 115 com70 (Bombay)] wherein it was held as under:

“7. We find that the claim sought to be urged by the petitioner viz. Set off of business profits of this year offered to tax under the head “capital gain” being set off against carried forward loss is prima facie supported by the decisions of the Tribunal in the case of M.K. Creations v. ITO [IT Appeal No. 3885 (Mum.) of 2014, dated 7-4-2017] and in ITO v. Smart Sensors & Transducers Ltd. [2019] 104 taxmann.com  129/176 ITD 104 (Mum. – Trib) It is also not disputed before us by the Revenue that the return of income in electronic form is self populated i.e. on filling in some entries, the other entries in the return are indicated by the system itself. Thus, the petitioner is unable to make a claim which according to him, he is entitled to in law. In case, the petitioner is compelled to file in the prescribed electronic form, it could be declared by the Assessing Officer as defective (if all entries are not filled) or raise a demand for tax on the basis of the declared income under Section 143(1) of the Act or if the assessment is taken to scrutiny under Section 143(3) of the Act, then the petitioner will not be entitled to raise a claim of set off under Section 72 of the Act during the assessment proceedings. This in view of the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v CIT [2006] 157 Taxman 1/284 ITR 323  wherein it has been held that if a claim is not made by the assessee in its return of income, then, the Assessing Officer would have no power to entertain a claim otherwise then by way of revised return of income. The revised return of income if the petitioner attempts to file, would result in the petitioner not being able to make the claim, for which the revised return is filed as the revised return of income would also have to be filed in the prescribed electronic form which does not provide for such an eventuality. Thus, for the purposes of the subject assessment year if the return of income is filed electronically, it would have given up at least before the Assessing Officer his claim to benefit of section 72 of the Act. This whether the return of income is processed under section 143(1) of the Act or under goes scrutiny under section 143(3) of the Act.

8. The purpose and object of e-filing of return to have simplicity and uniformity in procedure. However, the above object cannot in its implementation result in an assessee not being entitled to make a claim of set off which he feels he is entitled to in accordance with the provisions of the IT Act. The allowability or dis-allowability of the claim is a subject matter to be considered by the Assessing Officer. However, the procedure of filing the return of income cannot bar an assessee from making a claim under the Act which he feels he is entitled to. We accept the Assessing Officer’s submission that in terms of Rule 12 of the Rules, the returns are to be filed by the petitioner only electronically and he is bound by the Act and the Rules, thus cannot accept the paper return. However, in terms of section 139D of the IT Act, it is for the CBDT to make rules providing for filing of returns of income in electronic form. This power has been exercised by the CBDT in terms of Rule 12 of the Rules. However, the form as prescribed do not provide for eventuality that has arisen in the present case and may also arise in other cases. Thus, this is an issue to be brought to the notice of the CBDT, which would in case it finds merits in this submission, issue necessary directions to cover this gap.

9. In the normal course, we would have directed the petitioner to file representation with the CBDT making a demand for justice, before we considered issuing of a writ of mandamus. However, in the peculiar facts of this case, the petitioner is required to file return of income by 31st October, 2019. It is only now when the petitioner was in the process of filing his return electronically that the petitioner realized that he is unable to make a claim of set off under Section 72 of the Act, even though the claim itself is prima facie allowable in view of the decisions of the Tribunal in M.K. Creation (supra) and Smart Sensors & Transducers Ltd. (supra). In the absence of the petitioner filing its return of income on or before 31^st October, 2019, the petitioner is likely to face penal consequences. We also in the present facts are of the view that awaiting the order of the Assessing Officer under section 139(9) of the Act, declaring the return as defective, will not help as the issue would continue to remain even if a fresh return is filed. The issue raised is a fundamental issue, which needs to be addressed by the CBDT.

10. It is in these aforesaid unusual circumstances, that we have not adopted the course of directing the petitioner to first demand justice from the Authority concerned before moving this Court in its writ jurisdiction. This view of ours is also supported by the fact that Mr. Walve, learned Counsel appearing for the Revenue on instructions states that the Assessing Officer who is present in Court states that in his experience he has not come across a case like this where the return which are prescribed under section 139D of the Act r/w Rule 12 of the Rules do not take into account the situation where the assessee’s claim cannot be considered. Moreover, from the facts as noted above, this situation (like the present) may not be restricted only of this petitioner but could generally arise in other cases also.

11. Therefore, it would be appropriate that the petitioner make a representation on the above issue to the CBDT, who would then consider it in the context of facts involved in the present case and issue necessary guidelines for the benefit of the entire body of the assessees, if the petitioner is right in his claim that the prescribed return of income to be filed electronically provides prohibits an assessee from making its claim. However, in the meantime, the petitioner without prejudice to his rights and contentions would file the return of income in electronic form on the system before the last date. Besides, also file his return of income for the subject assessment year in paper form with the Assessing Officer before the last date. This return of income in paper form would be accepted by the Assessing Officer without prejudice to the Revenue’s contention that such a return cannot be filed.

12. In the meantime, till such time as the CBDT takes a decision on the petitioner’s representation, the respondent Revenue would not act upon the electronically filed return of income so as to initiate any coercive recovery proceedings. The petitioner is directed to file a representation with the CBDT before the last date of filing the return of income expires i.e. 31st October, 2019. If such a representation is filed within the above time (with a copy thereof to the Assessing Officer), the CBDT would consider and dispose of the same as expeditiously as possible. The Assessing Officer will also bring to the notice of the CBDT the aforesaid anomaly and the decision of this Court. It is only after the decision of the CBDT would the return of income of the petitioner for the subject assessment year be taken up for consideration.

13. Before closing, we would emphasize that we have directed the petitioner to make a representation to the CBDT, to enable it to take a proper view on it. The issue raised by the petitioner does not appear to be an issue only in an individual case, but may affect the whole body of the assessees’ (whose claim may not fit in the prescribed proforma). Thus, a clarification on this issue by the CBDT may be beneficial to the entire body of assessee, in fact, who seek to make a claim which according to them, the prescribed proforma does not provide for.

14. The petition is disposed of in the above terms.”

(emphasis supplied)

16. The learned counsel for the Petitioner also relied on the decision of this Court in the case of Lupin Limited v. DCIT [WP No.3565 of 2023, 26^thMarch 2024] wherein the Court observed as under:

“1. The learned Additional Solicitor General (“ASG”) appearing for Respondents states, in view of the directions given by this Court on 5^th February 2024, the Revenue has processed the paper returns filed by Petitioner under Section 143(1) of the Income Tax Act, 1961 (“the Act”).

2. Mr. Pardiwalla states the Assessing Officer (“AO”) has allowed Petitioner’s claim and passed an order dated 21st March 2024 giving effect to the order passed by this Court on 5th February 2024 under Section 260 read with Section 143(1) of the Income Tax Act, 1961 (“the Act”) for both the years.

3. Mr. Pardiwalla states, Petitioner may have certain grievances as regards the order passed by the AO on 21st March 2024 and for that will take such steps as advised in accordance with law including filing an appeal. Mr. Pardiwalla, states, keeping open the rights and contentions of the parties, Petitions may be disposed with liberty to take such steps as advised in accordance with law.

4. We need to note that in the order dated 16th December 2022, leave to file paper returns was granted subject to final outcome in the Petitions. Since the paper returns have been processed, in our view, nothing will remain in these Petitions.

5. Petitions are disposed accordingly with the liberty as prayed for.

6. We clarify that we have not made any observation on the merits of the matter.”

17. He also relied on the decision of this Court in the case of Tata Sons Pvt. Ltd. v. DCIT in [Writ Petition No.3109 of 2022, 26^thMarch 2024] wherein the Court observed as under:

“1. Pursuant to the liberty granted by this Court on 24th November 2022, Petitioner has filed paper returns of income for Assessment Year (“AY”) 2021-22 and 2022-23.

2. The learned Additional Solicitor General (“ASG”) appearing for Respondents states, in view of the directions given by this Court on 5^thFebruary 2024, the Revenue has processed the paper returns filed by Petitioner under Section 143(1) of the Income Tax Act, 1961 (“the Act”).

3. Mr. Pardiwalla states, Petitioner has certain grievances on that and will take such steps as advised in accordance with law including filing an appeal. Mr. Pardiwalla, states, keeping open the rights and contentions of the parties, Petitions may be disposed with liberty to take such steps as advised in accordance with law.

4. We need to note that in the order dated 11th March 2022, leave to file paper returns was granted subject to final outcome in the Petitions. Since the paper returns have been processed, in our view, nothing will remain in these Petitions.

5. Petitions are disposed accordingly with the liberty as prayed for.

6. We clarify that we have not made any observation on the merits of the matter.”

18. He also relied on the judgment in the case of Chamber of Tax Consultants v. DGIT (systems) [(2025) 473 ITR 85 (Bombay)] wherein it was held as under:

“56. The importance of making a claim in the return of income is enunciated by the ratio of the decision of the Supreme Court in the case of Goetze (India) Ltd. v. CIT wherein the argument of an assessee to permit him to make a claim by way of a letter without making a claim in the return of by filing revised return was rejected. This highlights the importance of making a claim in the return of income itself. Any attempt to deny an assessee to make a claim in the return of income which he believes to be bona fide would deny him to pursue his claim under any provisions of the Act because the starting point is the return of income.

57. The scheme of the Income-tax Act also guides us in the direction that a claim must be made in the return of income. Section 80AC provides for deduction not to be allowed unless the assessee furnishes the return of his income. Therefore, looking at the scheme of the Income-tax Act as a whole, the claim cannot be denied from being made by modifying utilities, which prohibits an assessee from raising a claim in the return of income at the threshold itself.

58. We may draw support based on the observations made by various courts for arriving at our aforesaid analysis and conclusions :

(a) In the case of CIT v. Ranchhoddas Karsondas the Supreme Court made the following observations with respect to taking cognisance of a return filed which was below the taxable limit (page 575 of 36 ITR) :

“It is a little difficult to understand how the existence of a return can be ignored, once it has been filed. A return showing income below the taxable limit can be made even in answer to a notice under section 22(2). The notice under section 22(1) requires in a general way what a notice under section 22(2) requires of an individual. If a return of income below the taxable limit is a good return in answer to a notice under section 22(2), there is no reason to think that a return of a similar kind in answer to a public notice is no return at all. The conclusion does not follow from the words of section 22(1). No doubt, under that sub-section only those persons are required to make a return, whose income is above taxable limits, but a person may legitimately consider himself entitled to certain deductions and allowances, and yet file a return to be on the safe claims. But it may be that on a correct processing his income may be found to be above th exempted limit. No doubt, it is futile for a person not liable to tax to rush in with a return, but the return in law is not a mere scrap of paper. It is a return, such as the assessee considers represents his true income.”

(b) In the case of Samir Narain Bhojwani v. Dy. CIT, the co-ordinate Bench of this court had an occasion to consider whether electronic filing of return of income can deny an assessee to reflect his claim in the online return form, under section 72 of the Act. In para 8, the court observed as under (page 565 of 14 ITR-OL) :

“8. The purpose and object of e-filing of return to have simplicity and uniformity in procedure. However, the above object cannot in its implementation result in an assessee not being entitled to make a claim of set off which he feels he is entitled to in accordance with the provisions of the Act. The allowability of dis-allowability of the claim is a subject matter to be considered by the Assessing Officer.

However, the procedure of filing the return of income cannot bar an assessee from making a claim under the Act which he feels he is entitled to. We accept the Assessing Officer’s submission that in terms of rule 12 of the Rules, the returns are to be filed by the petitioner only electronically and he is bound by7 the Act and the Rules, thus cannot accept the paper return. However, in terms of section 139D of the Act, it is for the Central Board of Direct Taxes to make rules providing for filing of returns of income in electronic form. This power has been exercised by the Central Board of Direct Taxes in terms of rule 12 of the Rules. However, the form as prescribed do not provide for eventuality that has arisen in the present case and may also arise in other cases. Thus, this is an issue to be brought to the notice of the Central Board of Direct Taxes, which would in case it finds merits in this submission, issue necessary directions to cover this gap.”

(c) The Allahabad High Court in CIT v. N. Khan and Brothers in the context of penalty made the following observation with respect to the right of an assessee while filing the return of income (page 340 of 92 ITR) :

“Now, under section 139(1) a duty is cast upon every person to file a voluntary return if his income exceeds the maximum amount which is not chargeable to Income-tax. The question arises as to which income is contemplated by this provision, the income which the assessee believes to be his income or which is finally assessed by the Income-tax Officer. It is clear that at the time when a person is required to file a voluntary return, to assessment has yet been made against him. He is thus to be guided by what he himself believes to be his income. It is possible and it happens very frequently that an assessee may not consider a particular item to be his income and yet the Income-tax Officer may hold otherwise. In such a case, if what he considers to be his income is less than the amount which is not chargeable to Income-tax, he is not required to file a voluntary return even if the income finally assessed is more than the maximum amount which is not chargeable to Income-tax. Of course, the belief of the assessee must be bona fide. In the instant case, the total income assessed by the Income-tax Officer includes a sum of Rs.40,000 on account of unexplained cash credits. These cash credits could not be considered by the assessee to be its income.

According to the assessee, they represented loans. During the course of assessment proceedings the assessee surrendered this amount for inclusion in its income but the Tribunal has found that the surrender was made because the assessee found itself unable to produce evidence which could satisfy the Income-tax Officer. In these circumstances it cannot be said that the assessee itself should have treated the cash credits to be its income. As has been rightly pointed out by the Tribunal the fact that the Inspecting Assistant Commissioner of Income-tax had absolved the assessee of the charge of concealment with respect to the cash credits during the course of proceedings for levy of penalty under section 271(1)(c) goes a long way to show that the belief of the assessee that cash credits were not items of taxable income was bona fide one. Thus, the sum of Rs.40,000 must be deducted out of the income assessed to find out if the balance was still more than the maximum amount not chargeable to Income-tax. Now, after deducting Rs.40,000 the balance is less than Rs.25,000 which is the maximum amount not chargeable to Income-tax in the case of a registered firm. Clearly, the assessee was under no obligation to file any voluntary return under section 139(1) of the Act, and, as such, was not liable to any penalty under section 271(1)(a). ”

(d) The above view expressed by the Allahabad High Court in the case of CIT v. N. Khan and Brothers was reiterated by the Calcutta High Court in the case of CIT v. Aminchand Payarelal Ltd. wherein the High Court in para 14 observed as under (page 227 of 182 ITR) :

“Section 139(1) of the Act provides that an assessee has to file a return within the time prescribed therein if his total income during the relevant previous year exceeded the maximum amount which is not chargeable to Income-tax. In this case, the contention of the assessee was that as it had suffered loss and also ultimately filed a loss return and, accordingly, there is justification for not filing the return within the time specified under section 139(1). The income contemplated under section 139(1) which imposes a duty on a person to file a voluntary return is the income which the assessee believes to be his income and not the income which is finally assessed. In such a case, if what the assessee considers to be his income is less than the maximum not chargeable to tax, he is not required to file a voluntary return. Even if, ultimately, his income is assessed at a figure which is taxable, he may not be liable for penalty under section 271(1)(a). To that extent, the Tribunal is right in principle. The holding of a bona fide belief of an assessee that his income is less than the maximum not chargeable to tax is essentially a question of fact. Merely because the accounts disclosed a loss, it could not be a bona fide ground for not filing a return under section 139(1). According to accountancy principles, there may not be profit, but from the point of view of taxation, there may be profit having regard to the exclusion or inclusion of certain items of income and expenditure.”

(d) The Delhi High Court in the case of CIT v. DCM Ltd. authored by his Lordship Sanjiv Khanna J., (as he then was) observed that law does not bar or prohibit an assessee from making a claim, which he believes may be accepted or is plausible.

59. We may also observe that in the course of the hearing, our attention was drawn by both the learned senior counsel and the learned Additional Solicitor General to the subject matter of Writ Petition No.3565 of 2023 in the case of Lupin Ltd. v. Dy. CIT wherein the assessee was prevented from making the claim of deduction based on the Supreme Court decision since electronic mode of filing the return was not permitting the assessee to do so. On a writ petition being filed and on a direction by this court, a manual return was permitted to be filed for making the said claim. We were informed that while processing the manual return, the claim of the assessee was accepted. We are referring to this decision for the limited purpose to bring our point in support of our analysis that certainly the utility cannot be designed to prevent an assessee from making a claim which subsequently by adjudication and appeal process may be found to be correct.

60. The co-ordinate Bench in the case of Tata Sons Pvt. Ltd. v. Dy. CIT in Writ Petition No.3109 of 2022 also permitted the assessee to file paper return which came to be processed and thereafter an appeal against such processing was filed by the assessee. This decision is also relied upon to the limited extent that the online system did not provide to make a claim which was permitted by paper return and processed accordingly.

61. Therefore, it is not that an assessee can be debarred from making a claim in the return of income whether online or manual.

62. We may, however, clarify that if any such claim is made, the Revenue would certainly be free to examine the same as per the provisions of the Act. Both the Revenue and the assessee have remedies under the Act for testing the validity of such a claim. We, however, refrain from expressing any views on whether the submissions made by the learned senior counsel for the petitioners or the learned Additional Solicitor General are correct since that would be something which has to be examined by the quasi-judicial authorities under the Act in the first instance and not by a writ court in its exercise of extraordinary jurisdiction.”

19. On the other hand, Ms. Mamta Omle Counsel for the Respondents argued that revenue will suffer a loss if this adjustment is allowed. This is because the STCG arising from transfer of equity oriented mutual funds on which STT has been paid, the tax is charged at (15% prior to July 2024, now 20% for subsequent transactions) and is distinct from normal STCG which is taxed at the regular slab or applicable rates. Ms. Omle further stated on the Petitioner’s request for either modifying the utility to permit the making of the claim or the filing of a paper return wherein the claim could be made, were not appropriate. She stated on instructions that the Petitioner’s Return of Income for A.Y.2025-26 will be selected for a limited scrutiny only to decide on the legitimacy of the Petitioners claim of first setting-off STCL (STT paid) against STCG (non-STT paid). Once a decision on this issue is taken in the assessment order, then, the law can take its course.

20. In response to this argument, the learned counsel for the Petitioner submitted that the proposition suggested by Ms.Omle was in conflict with the judgment of the Apex Court in the case of Goetze (India) Ltd. vs. CIT [(2006) 284 ITR 323 (SC)] wherein it was held that an assessee cannot make a fresh claim for deduction before the Assessing Officer, other than by filing a revised return which was also noted in an earlier judgment of this court in Chamber of Tax Consultants (supra). Hence, it was imperative for the Petitioner to file a revised Return of Income making a claim that it desires to do.

21. After hearing both sides, we are of the view that this Court has time-and-again allowed assessees to raise claims in their Return of Income, when such claims were blocked by the online-utility. The judgments of our Court in the cases of Samir Bhojwani (supra), Lupin Limited (supra), Tata Sons Pvt. Ltd. (supra) and Chamber of Tax Consultants (supra) are squarely applicable to this case. Hence, there is no reason why the Petitioner should not be allowed to make a claim in its Return of Income. The due date for filing the revised Return of Income is 31^stDecember 2025. Hence, we direct Respondent No.3 to modify the utility for filing of the Return of Income in a manner that the Petitioner can first claim a set-off of STCL (STT paid) against the STCG (non-STT paid), and if any losses remain, only then set-off the STCL (STT paid) against the STCG (STT paid). In case Respondent No.3 is unable to do so on or before 28^thDecember 2025, then, we direct Respondent No.1 to accept the revised Return of Income for the AY 2025-26 in paper mode on or before 31 December 2025 and that such return be accepted and processed as a valid return under Section 139(5) of the IT Act notwithstanding the statutory mandate. Further, even in the event the utility is not modified by 28 December 2025, we direct Respondent No. 3 to modify the utility for filing of Return of Income so that Petitioner is not required to approach this Court again for filing of its future Returns of Income.

22. We clarify that we have not expressed any opinion on the merits of the claim for the mode of set off.

23. Rule is made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

24. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.

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CA Aftab Ranjan Sehgal | Ranjan Sehgal & Associates | Contact: arsehgalca@gmail.com