Mandamus Issued Over Denial Of Set-Off Claim

Case Details: K2 Family (P.) Trust vs. Deputy Commissioner of Income-tax - [2026] 182 taxmann.com 19 (Bombay)

Judiciary and Counsel Details

B. P. Colabawalla & Amit S. Jamsandekar, JJ.
Harsh Shah, Paras Savla, Advs. & Percy J. Pardiwalla, Sr. Adv. for the Petitioner.
Ms. Mamta Omle, Adv. for the Respondent.

Facts of the Case

The petitioner Trust earned short-term capital gains from the sale of equity shares and units of equity-oriented mutual funds on which STT was paid [STCG (STT paid)]. It also incurred short-term capital loss from the sale of equity shares on which STT was paid [STCL (STT paid)].

The petitioner was desirous of computing its total income by setting off the STCL (STT paid) against the STCG (non-STT paid). However, when the petitioner attempted to do so while filing its Return of Income electronically, the income-tax utility did not permit a claim to be made 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 first set off the STCL (STT paid) against the STCG (STT paid), and only if any losses remained was a set-off of the balance STCL (STT paid) allowed against the STCG (non-STT paid). Aggrieved by this, the petitioner filed a writ petition to the Bombay High Court.

High Court Held

The High Court held that the Income Tax Department processes the return of income under Section 143(1) of the Income Tax Act. At this stage, adjustments in the nature of arithmetical errors, incorrect claims 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 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 Income Tax 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 Income Tax 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. Ultimately, the hierarchy of appellate authorities under the Act will determine which view is correct.

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 a 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 scrutinise 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 Income Tax Act.

Therefore, the High Court directed the Respondent to modify the utility for filing the Return of Income so that the Petitioner is not required to approach the Court again for filing its future Returns of Income.

List of Cases Reviewed

Samir Narain Bhojwani v. Dy. CIT [2020] 115 taxmann.com 70 (Bombay)
Lupin Limited v. DCIT WP No.3565 of 2023, dated 26-3-2024
Tata Sons Pvt. Ltd. v. DCIT Writ Petition No.3109 of 2022, dated 26-3-2024
Chamber of Tax Consultants v. DIT (systems) [2025] 170 taxmann.com 707 (Bombay)/[2025] 303 Taxman 451 (Bombay)/[2025] 473 ITR 85 (Bombay) (para 21) followed

List of Cases Referred to

iShares ESG Aware MSCI ETF v. Dy. CIT(International Taxation)–2(2)(2) [2025] 175 taxmann.com 289 (Mumbai – Trib.) (para 4)
Vanguard Emerging Markets Stock Index Fund a Series of VISPLC v. ACIT (International Taxation) [2025] 174 taxmann.com 1066 (Mumbai – Trib.) (para 4)
CIT v. Rungamatee Trexim Pvt. Ltd. [IT Appeal No. 812 of 2008, dated 19-12-2008] (para 4)
First State Investments (Hongkong) Ltd. v. Asstt. DIT (International Taxation) [2009] 33 SOT 26 (Mumbai) (para 4)
Lupin Limited v. DCIT [WP No.3565 of 2023, dated 26-3-2024] (para 12)
Samir Narain Bhojwani v. Dy. CIT [2020] 115 taxmann.com 70 (Bombay) (para 15)
Tata Sons Pvt. Ltd. v. DCIT [Writ Petition No.3109 of 2022, dated 26-3-2024] (para 17)
Chamber of Tax Consultants v. DIT (systems) [2025] 170 taxmann.com 707 (Bombay)/[2025] 303 Taxman 451 (Bombay)/[2025] 473 ITR 85 (Bombay) (para 18)
Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1 (SC)/[2006] 284 ITR 323 (SC) (para 20).