Intimation of loss.

291.

The Assessing Officer shall notify to the assessee by an order in writing the amount of the loss as computed by him for the purposes of section 111(1) or (2) or 112 or 113(2) or 115(1), where––

• (a) in the course of the assessment of the total income of any assessee, it is established that a loss has taken place; and
• (b) the assessee is entitled to have carried forward and set off such loss under the provisions of the said sections.

Explanation

Section Summary:

Section 291 of the new income tax law mandates that the Assessing Officer (AO) must formally notify the taxpayer (assessee) in writing about the amount of loss computed during the assessment process. This applies when a loss is identified during the assessment of total income, and the taxpayer is eligible to carry forward and set off the loss under specific sections of the Income Tax Act (sections 111(1), 111(2), 112, 113(2), or 115(1)).

Key Changes:

• Formal Notification Requirement: Previously, while losses were computed and allowed to be carried forward, there was no explicit requirement for the AO to formally notify the taxpayer in writing about the computed loss. This section introduces a procedural change to ensure transparency and clarity for taxpayers.
• Specific Sections Covered: The section explicitly references sections 111(1), 111(2), 112, 113(2), and 115(1), which deal with losses arising from capital gains, business income, and other specified sources.

Practical Implications:

• Taxpayer Awareness: Taxpayers will now receive a written confirmation of the computed loss, ensuring they are aware of the exact amount they can carry forward for future set-off.
• Dispute Reduction: This formal notification can help reduce disputes between taxpayers and tax authorities, as the taxpayer will have a clear record of the loss amount recognized by the AO.
• Compliance Burden: While this adds a step for the AO, it does not impose additional compliance requirements on taxpayers. However, taxpayers should ensure they retain this written notification for future reference.

Critical Concepts:

• Carry Forward and Set Off: Losses computed under the specified sections can be carried forward to future years and set off against income in those years, subject to the conditions outlined in the respective sections.
• Assessing Officer (AO): The tax officer responsible for assessing the taxpayer’s income and determining the tax liability or loss.

Compliance Steps:

1. Assessment Process: During the assessment of total income, the AO will compute any losses eligible for carry forward.
2. Written Notification: The AO will issue a written order to the taxpayer specifying the amount of loss computed.
3. Record Keeping: Taxpayers should retain this written notification for future reference, especially when claiming the loss in subsequent years.

Examples:

• Scenario 1: A taxpayer incurs a business loss of ₹5 lakh during the financial year. During the assessment, the AO computes the loss and issues a written notification confirming the ₹5 lakh loss. The taxpayer can now carry forward this ₹5 lakh loss to set off against future business income.
• Scenario 2: A taxpayer has a capital loss of ₹2 lakh from the sale of shares. The AO confirms this loss in writing, allowing the taxpayer to carry it forward and set it off against future capital gains.

This section ensures clarity and formalizes the process of loss computation and carry-forward, benefiting both taxpayers and tax authorities.