Capital loss denied over revised ITR, ITAT relief
The Income Tax Appellate Tribunal (ITAT) Bangaluru has granted relief to a taxpayer whose claim to carry forward a capital loss of Rs 2.99 lakh in a revised income tax return (ITR) was rejected by the Income Tax Department.
The judgement came in a case filed by Mr Joshi from Kathriguppe, Bengaluru. According to the submission, Joshi had filed his original ITR on October 5, 2021, declaring a taxable income of Rs 1.31 crore. Nearly six months later, on March 31, 2022, he filed a revised ITR, reporting additional short-term capital gains of Rs 4.63 lakh and long-term capital gains (LTCG) of Rs 2.26 lakh. He also paid the additional tax arising from these capital gains disclosures.
In his original ITR, Joshi had claimed a capital loss of Rs 5.26 lakh for carry forward. However, after disclosing additional capital gains in his revised ITR, the carry forward loss amount reduced to Rs 2.99 lakh, which he claimed as a long-term capital loss. The revised claim became the subject of dispute with the income tax department.
The Centralised Processing Cell (CPC), Bengaluru, denied Joshi's claim to carry forward the current year's loss of Rs 2.99 lakh. Further, despite reporting foreign dividend income of Rs 1.14 lakh and filing Form No. 67, the CPC also disallowed the foreign tax credit of Rs 39,044 that Joshi had claimed in his original ITR.
Aggrieved by the denial. Joshi challenged the income tax department's decision before the Commissioner of Income Tax (Appeals) [CIT(A)]. His main grievance was the denial of the foreign tax credit of Rs 39,044. The CIT(A) directed the income tax assessing officer (AO) to verify Form No. 67 and provide the foreign tax credit for the assessment year 2021-22 in accordance with the law. Since the CIT(A) had already issued directions on this issue, the ITAT did not adjudicate the foreign tax credit claim.
Regarding the carry forward of loss, the CIT(A) held that an ITR reporting a loss must be filed within the due date prescribed under Section 139 (1) for the loss to be eligible for carry forward to the future years. Since this condition was not met, CIT(A) rejected Joshi's claim to carry forward the loss.
Unhappy with the order, Joshi appealed before the ITAT Bangalore. Joshi himself fought his case in ITAT Bangalore.
Also read: Income Tax department labels her stock market trader, denies investor status; she fights and wins Rs 54 crore capital loss claim at ITAT
Before the ITAT Bangalore, Joshi argued that he was aggrieved by the denial of his claim to carry forward the capital loss of Rs 2.99 lakh. He submitted that his original ITR had been filed within the due date prescribed under Section 139 (1). Therefore, he contended that the filing of a revised ITR did not invalidate his claim to carry forward the loss.
Joshi argued that CIT(A) erred in treating his revised ITR as an independent ITR for the purpose of Section 139, instead of recognising that revised ITR serves to replace the original ITR, which was filed within the prescribed due date.
Joshi further relied upon the Circular issued by the Central Board of Direct Taxes (CBDT), which states that if the ITR is filed within the extended due date, it should be considered as filed within the due date, and the carry forward of the loss should be permitted.
Prashant Maharishi, Vice-President and Keshav Dubey, judicial member of ITAT Bangalore, heard his case on March 23, 2026, and passed a judgement in his favour on June 11, 2026.
Why did the taxpayer win the case?
Akhil Chandna, Partner and Global People Solutions Leader, Grant Thornton Bharat, said to ET Wealth Online: The taxpayer succeeded because the statutory condition for carrying forward a capital loss had already been satisfied by filing the original return of income within the due date prescribed under section 139(1).
The subsequent revised income return, filed under section 139(5), merely corrected the computation of capital gains, disclosed additional taxable income, paid the consequential tax liability, and recomputed the net capital loss at Rs 2,99,750.
Chandna says: "It did not alter the fact that the original return was filed on time. The Tribunal reaffirmed the settled legal principle that a valid revised return substitutes the original return and is not an independent return for determining eligibility to carry forward losses."
According to Chandna, from a practical perspective, the ruling clarifies that taxpayers should not lose the benefit of carrying forward eligible losses merely because they subsequently revise a return to correct omissions or reporting errors, provided the original return was filed within the prescribed timeline under section 139(1).
Since the denial by the CPC was based only on the timing of the revised return and not on the genuineness of the loss, the ITAT directed the Assessing Officer to allow the carry forward and future set-off of the capital loss of Rs 2,99,750.
Chandna says: "The decision reinforces that procedural compliance should not override a substantive tax entitlement where the conditions of the Act have otherwise been fulfilled."
What did ITAT Bangalore say?
The ITAT Bangalore said that after their careful consideration they found that the CPC (Centralised Processing Cell) made an error.
The ITAT Bangalore said that the CPC has stated that the due date of filing of the original ITR was extended up to December 31, 2021, and Joshi had filed his ITR on October 5, 2021, which was subsequently revised on March 31, 2022.
The judgement came in a case filed by Mr Joshi from Kathriguppe, Bengaluru. According to the submission, Joshi had filed his original ITR on October 5, 2021, declaring a taxable income of Rs 1.31 crore. Nearly six months later, on March 31, 2022, he filed a revised ITR, reporting additional short-term capital gains of Rs 4.63 lakh and long-term capital gains (LTCG) of Rs 2.26 lakh. He also paid the additional tax arising from these capital gains disclosures.
In his original ITR, Joshi had claimed a capital loss of Rs 5.26 lakh for carry forward. However, after disclosing additional capital gains in his revised ITR, the carry forward loss amount reduced to Rs 2.99 lakh, which he claimed as a long-term capital loss. The revised claim became the subject of dispute with the income tax department.
The Centralised Processing Cell (CPC), Bengaluru, denied Joshi's claim to carry forward the current year's loss of Rs 2.99 lakh. Further, despite reporting foreign dividend income of Rs 1.14 lakh and filing Form No. 67, the CPC also disallowed the foreign tax credit of Rs 39,044 that Joshi had claimed in his original ITR.
Aggrieved by the denial. Joshi challenged the income tax department's decision before the Commissioner of Income Tax (Appeals) [CIT(A)]. His main grievance was the denial of the foreign tax credit of Rs 39,044. The CIT(A) directed the income tax assessing officer (AO) to verify Form No. 67 and provide the foreign tax credit for the assessment year 2021-22 in accordance with the law. Since the CIT(A) had already issued directions on this issue, the ITAT did not adjudicate the foreign tax credit claim.
Regarding the carry forward of loss, the CIT(A) held that an ITR reporting a loss must be filed within the due date prescribed under Section 139 (1) for the loss to be eligible for carry forward to the future years. Since this condition was not met, CIT(A) rejected Joshi's claim to carry forward the loss.
Unhappy with the order, Joshi appealed before the ITAT Bangalore. Joshi himself fought his case in ITAT Bangalore.
Also read: Income Tax department labels her stock market trader, denies investor status; she fights and wins Rs 54 crore capital loss claim at ITAT
Before the ITAT Bangalore, Joshi argued that he was aggrieved by the denial of his claim to carry forward the capital loss of Rs 2.99 lakh. He submitted that his original ITR had been filed within the due date prescribed under Section 139 (1). Therefore, he contended that the filing of a revised ITR did not invalidate his claim to carry forward the loss.
Joshi argued that CIT(A) erred in treating his revised ITR as an independent ITR for the purpose of Section 139, instead of recognising that revised ITR serves to replace the original ITR, which was filed within the prescribed due date.
Joshi further relied upon the Circular issued by the Central Board of Direct Taxes (CBDT), which states that if the ITR is filed within the extended due date, it should be considered as filed within the due date, and the carry forward of the loss should be permitted.
Prashant Maharishi, Vice-President and Keshav Dubey, judicial member of ITAT Bangalore, heard his case on March 23, 2026, and passed a judgement in his favour on June 11, 2026.
Why did the taxpayer win the case?
Akhil Chandna, Partner and Global People Solutions Leader, Grant Thornton Bharat, said to ET Wealth Online: The taxpayer succeeded because the statutory condition for carrying forward a capital loss had already been satisfied by filing the original return of income within the due date prescribed under section 139(1).
The subsequent revised income return, filed under section 139(5), merely corrected the computation of capital gains, disclosed additional taxable income, paid the consequential tax liability, and recomputed the net capital loss at Rs 2,99,750.
Chandna says: "It did not alter the fact that the original return was filed on time. The Tribunal reaffirmed the settled legal principle that a valid revised return substitutes the original return and is not an independent return for determining eligibility to carry forward losses."
According to Chandna, from a practical perspective, the ruling clarifies that taxpayers should not lose the benefit of carrying forward eligible losses merely because they subsequently revise a return to correct omissions or reporting errors, provided the original return was filed within the prescribed timeline under section 139(1).
Since the denial by the CPC was based only on the timing of the revised return and not on the genuineness of the loss, the ITAT directed the Assessing Officer to allow the carry forward and future set-off of the capital loss of Rs 2,99,750.
Chandna says: "The decision reinforces that procedural compliance should not override a substantive tax entitlement where the conditions of the Act have otherwise been fulfilled."
What did ITAT Bangalore say?
The ITAT Bangalore said that after their careful consideration they found that the CPC (Centralised Processing Cell) made an error.
The ITAT Bangalore said that the CPC has stated that the due date of filing of the original ITR was extended up to December 31, 2021, and Joshi had filed his ITR on October 5, 2021, which was subsequently revised on March 31, 2022.
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