Non claim of Carry Forward Loss in Next AY Not Valid Reason to Reject DTVSV Application: Delhi HC [Read Order]

The High Court of Delhi ruled that non-claim of carry forward loss in the next assessment year (AY)is not a valid reason to reject an application under the Direct Tax Vivad Se Vishwas Scheme, 2024 (DTVSV) Scheme.

IE Venture Fund,petitioner-assessee, filed its return of income for AY 2022–23 on 29.07.2022, declaring a loss of ₹17.68 crore to be carried forward. However, it later clarified that it did not intend to claim this loss.

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The return was picked up for scrutiny, and a notice under Section 143(2) was issued on 01.06.2023. In response, the petitioner stated that it was only engaged in investment activities and not in any business or profession, so it was not required to maintain books of account under Section 44AA.
Later, on 15.03.2024, the Assessing Officer(AO) issued a show cause notice asking why the payment of ₹17.68 crore to Smart Web Internet Services Limited should not be disallowed. The petitioner accepted the proposed addition, stating that the expense was auto-populated in the return and not actually claimed.
An assessment order dated 21.03.2024 disallowed the expenditure and assessed total income at ₹16,537/-. The AO also initiated penalty proceedings under Section 270A for under-reporting due to misreporting.
Aggrieved by the order, the petitioner filed an appeal before the Commissioner of Income Tax Appeals[CIT(A)] on 20.04.2024. Meanwhile, it also filed a declaration under the DTVSV Scheme introduced under the FA2 Act, effective from 01.10.2024. The declaration was rejected—first on 28.10.2024, then on 27.12.2024, and finally on 17.02.2025, as reflected on the portal. The rejection orders were not available on record.
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The petitioner application under the DTVSV Scheme was rejected on 17.02.2025. As per the remarks uploaded on the portal, the rejection was based on the fact that the case did not fall under Rule 9 of the DTVSV Rules, and there was no change in facts or law from the earlier rejections dated 28.10.2024 and 27.12.2024.
Justice Vibhu Bakhru and Justice Tejas Karia examined the petitioner’s rejection under the DTVSV Scheme, which was based on the case not falling under Rule 9 of the DTVSV Rules. Rule 9 explained how to calculate disputed tax when there was a reduction in loss or unabsorbed depreciation, allowing the petitioner to either pay tax on the reduced amount but keep the original loss or accept the reduced loss. The petitioner had to choose this option voluntarily and could not be forced.
The designated authority said Rule 9 did not apply, so the petitioner’s dispute was not covered under the scheme. The Court reviewed the definitions of ‘appellant’ and ‘disputed tax’ and found that the petitioner qualified as an appellant since an appeal was pending. Both parties agreed that whether the dispute was ‘disputed tax’ depended on the rule allowing inclusion of tax on the loss or carry forward of the reduced loss.
Section 96 of the Finance Act excluded certain cases from the scheme, but the petitioner did not fall under any exclusion. The authorities rejected the application because the petitioner did not claim carry forward loss for the next assessment year, citing Rule 9. However, the Court held that Rule 9 guided disputed tax calculation but did not limit the scheme’s scope.
The bench ruled that not claiming carry forward loss in the following year did not prevent settling the earlier dispute under the scheme. It distinguished between being entitled to carry forward loss and actually claiming it. The dispute settlement depended only on the relevant assessment year, not later years. The authority’s refusal based on the petitioner’s subsequent action was incorrect.
The petitioner had the right to carry forward nil losses since the entire loss was reduced by the assessing officer. The Court allowed the petition, set aside the rejection, and directed the authority to process the application according to the scheme and rules.

To Read the full text of the Order CLICK HERE

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