Technical dismissal of Appeal by FAA for ₹1.42Cr Loss Set-off Claim: ITAT restores to AO for Denovo Adjudication [Read Order]

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) set aside the First Appellate Authority’s (FAA) technical dismissal of appeal regarding disallowance of losses of ₹1.42 crore set off claim and restored the matter to the Assessing Officer (AO) for de novo adjudication.

The assessee, M/s. Capital Fortunes Pvt. Ltd. is a company which filed its return for AY 2020-21 on 15.02.2021, declaring income of ₹4.08 crore. The CPC processed the return under Section 143(1) on 24.12.2021, determining income at ₹5.54 crore by disallowing set-off of brought forward losses of ₹1.42 crore, rejecting dividend exemption of ₹2.59 lakh due to ITR clerical errors, and adding employees’ PF contribution of ₹56,673, causing double disallowance.

Aggrieved, the assessee filed an appeal before the FAA and a rectification under Section 154. The CPC rejected the rectification, and the FAA dismissed the appeal on the technical ground of merger, holding that the Section 143(1) order merged with the rectification application, rendering the appeal non-maintainable.

Before the ITAT, the assessee argued, the loss set-off was eligible and correctly carried forward and the dividend exemption was valid but improperly disclosed in ITR. PF contribution was already disallowed in computation, leading to double taxation. It was contended that genuine claims cannot be denied on technicalities. The Revenue supported the FAA’s merger theory.

The two member bench of Shri Vijay Pal Rao and Shri Madhusudan Sawdia held that the FAA erred by refusing to examine merits. Further observed that the approach of the First Appellate Authority is not in accordance with the settled principle that genuine claims of the assessee should not be rejected merely on technicalities.

The assessee had raised issues relating to eligibility of set-off of brought forward losses, exemption of dividend income, and disallowance of employees’ contribution. These go to the merits of computation of income and require verification of facts.

The denial of relief solely on the ground of technical merger is not justified. The bench viewed that technicalities cannot override substantive justice, especially when issues involve factual verification (loss eligibility, dividend exemption, double disallowance).

Restoring the matter to the AO, the tribunal directed to verify the loss set-off (₹1.42 crore), re-examinating dividend exemption and correct the PF disallowance. The appeal was allowed statistically, with all contentions open for the AO’s reconsideration.

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