Section 143(1) Adjustment without Notice Invalid – Carry Forward of Loss & Unabsorbed Depreciation Allowed by ITAT Kolkata

ITO Vs United Provinces Sugar Company Pvt. Ltd. (ITAT Kolkata)

In this case, CPC passed intimation u/s 143(1) while processing return and disallowed carry forward of business loss ₹22.62 Cr and unabsorbed depreciation ₹31.68 Cr without issuing mandatory notice u/s 143(1)(a). CIT(A) allowed assessee’s appeal holding adjustment void ab initio, which was affirmed by ITAT.

The assessee had filed return for AY 2024-25 claiming refund after set-off of brought forward losses, and such losses were consistently accepted in earlier years’ intimations. However, CPC made adjustment without giving any show-cause opportunity or reasons in intimation order. ITAT observed that first proviso to sec.143(1)(a) mandates notice before any adjustment and absence of such notice renders action invalid.

Tribunal further noted that brought forward losses were accepted in past assessment years and no new material existed to deny carry forward during processing stage. Since AO lacked power to disallow carry forward loss through 143(1) without due process, CIT(A)’s direction to allow set-off and permit carry forward of balance loss & depreciation was upheld.

Result:

Revenue appeal dismissed; CIT(A) order sustained allowing carry forward of business loss & unabsorbed depreciation.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the revenue is directed against the order dated 28.03.2025 of the Addl/JCIT(A)-9, Delhi (hereinafter referred to as the “CIT(A)”) passed u/s 250 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment year 2024–25.

2. Brief facts of the case are that during the year under consideration, the assessee filed its return of income on 11.10.2024 claiming a refund of Rs.15,61,200/- pursuant to set-off of brought forward business loss against the returned income. Intimation order u/s. 143(1) of the Act was directly passed on 01.11.2024, assessing a refund of Rs.16,22,410/- and allowing setoff of brought forward loss against income as done in the return of income. However, the order did not capture the schedule of carry forward business loss and unabsorbed depreciation for earlier years.

3. Aggrieved by the above order, the assessee filed appeal before the ld. CIT(A) wherein the ld. CIT(A) allowed the appeal of the assessee by observing as under:

“6.1 The appellant was issued notice u/s 250 of the IT Act and in response to the notice, the appellant filed written submission. On the basis of the written submission, statements of facts and the documents furnished along with the Form 35, the appeal is decided on merit.

6.2 On perusal of the above grounds of appeal, it is found that the appellant is an unlisted public company engaged in the manufacturing of sugar. During the year under consideration, the Appellant e-filed its return of income on 11.10.2024 claiming a refund of Rs.15,61,200/- pursuant to set off of brought forward business loss against the returned income. But AO disallowed the quantum of carry forward of business loss amounting to Rs.22,62,99,067/- and unabsorbed depreciation amounting to Rs.31,68,32,220/- in the impugned intimation order dated 01.11.2024. On perusal of grounds of appeal, it is found that the action of AO in disallowing carry forward of business loss and unabsorbed depreciation in absence of any reason/justification, more particularly when the same losses have been accepted by the ld. AO in earlier years is not as per law. Also, the appellant submits that the Assessing Officer has disallowed carry forward of business loss and unabsorbed depreciation without furnishing any reason for its disallowance. As the appellant has neither been given intimation notice u/s. 143(1)(a) of the Act nor has the impugned Intimation order stated any reason for disallowing the carry forward of business loss and unabsorbed depreciation. The appellant has also invited attention to the decision of the Hon’ble Delhi Tribunal in the case of Fortum SAR B.V. V. ADIT, CPC (ITA NO.2028/Del/2023, dated 27.06.2024 wherein facts of the case are similar and the adjustment made by the CPC was not upheld.

It is clearly stated in 1st proviso to Section 143(1) (a) that no adjustment can be made without providing notice for adjustment either physically or electronically, but in case of the appellant no such notice has been served. Accordingly, the adjustment done is bad in law and void ab initio. In view of the aforesaid judicial decision, the AO is directed that the set off of business loss be allowed against the income of Rs.22,28,70,110/-, as rightly done in the impugned intimation order and the balance business loss of Rs.22,62,99,068/- and unabsorbed depreciation of Rs.31,68,32,220/- be allowed to be carried forward for set off against income of future years. So, in view of above discussion the grounds of appeal are allowed.

6.3 In view of the above, Grounds has explained in the submission made by appellant, the appeal raised by the appellant is hereby allowed. While other grounds are general in nature and need not to be adjudicated upon.”

4. Aggrieved and dissatisfied, the revenue is in appeal before us raising the following grounds of appeal:

5. Contrary to that, the ld. AR supports the impugned order by submitting that the Assessing Officer disallowed carry forward of business loss and unabsorbed depreciation without furnishing any reason for its disallowance and the assessee was not given intimation notice u/s. 143(1)(a) of the Act nor the impugned intimation order stated any reason for disallowing the carry forward of business loss and unabsorbed depreciation. The ld. AR further submits that the disallowance is not justified when the set off of losses has been allowed in the impugned intimation order and the brought forward losses have been accepted by the Assessing Officer in earlier assessment years. The ld. AR filed intimation order u/s. 143(1) of the Act dated 06.01.2020 for A.Y 2018-19, rectification order u/s 154 of the Act, intimation orders passed in A.Ys 2019-20, 2020-21 and 2021-22, intimation order u/s. 143(1) of the Act for the assessment year 2022-23. The ld. AR further submits that there was no justification in the order of the Assessing Officer in disallowing carry forward of business loss and unabsorbed depreciation more particularly when the same losses have been accepted by the Assessing Officer in earlier years. His submission is that the impugned intimation order passed by the Assessing Officer without giving any opportunity of being heard and no power is vested with the Assessing Officer u/s. 143(1)(a) of the Act to disallow carry forward of loss. He states that there is no infirmity in the impugned order of the ld. CIT(A).

6. Upon hearing the submissions of the counsels of the respective parties and on perusal of the documents filed by the assessee before us which the assessee had already filed before the ld. CIT(A), we find that an intimation order u/s. 143(1) of the Act dated 06.01.2020 for AY 2018-19, wherein, the Assessing Officer accepted the brought forward losses and further, the losses of AY 2019-20, AY 2020-21 and AY 2022-23 have also been accepted by the Assessing Officer in the intimation orders or rectification orders which is apparent from the documents filed by the assessee. We further find that for A.Y 2021-22, the assessee had claimed loss of Rs.23,25,181/-, however, the Assessing Officer raised a demand of Rs.3,04,550/- in the Intimation order against the same. We also find that the assessee filed an appeal before the Hon’ble CIT(A) against the intimation order and the ld. CIT(A) allowed the appeal in favour of assessee which is evident from the copy of the CIT(A)’s order for AY 2021-22 filed by the assessee. attached at page 229 – 240 of FPB and in A.Y 2023-24, the assessee has claimed set off of brought forward losses against the returned income which has been duly accepted by Assessing Officer in the Intimation order, copy of the Intimation order for A.Y 2023­24 is also furnished by the assessee. From the discussion above, it is clear that the brought forward business loss has been consistently accepted and allowed to be set off against the income determined and we find substance in the argument of the ld. AR that the action of Assessing Officer in disallowing carry forward of business loss and unabsorbed depreciation in absence of any reason/justification, more particularly when the same losses have bene accepted by the Assessing Officer in earlier years, is bad in law. Further, we find that admittedly in the present case, no show cause notice was issued to the assessee in terms of first proviso to Section 143(1)(a) of the Act was issued by the CPC before carrying out the adjustment. We note that in this case, the assessee had filed return of income within time claiming set off brought forward business loss and unabsorbed depreciation, however, the impugned initiation order u/s 143(1) of the Act was passed without granting any opportunity and the assessee filed rectification application u/s 154 of the Act, however, the rectification application has not been disposed of. Going over the above discussion, we find no fault in the order of the ld. CIT(A) and the same is upheld.

7. In view of the above discussion, the appeal filed by the revenue is dismissed.

Kolkata, the 3^rd February, 2026.