Section 120 — No set off of losses against undisclosed income consequent to search, requisition and survey. Successor to s.79A of the 1961 Act.
Section 120 is in Chapter VII — Set Off or Carry Forward and Set Off of Losses, which runs from section 108 to section 121.
Sub-section (1) applies irrespective of anything contained in any other provision of the Act. No loss, whether brought forward or otherwise, and no unabsorbed depreciation, may be set off against undisclosed income which is included in the total income of any tax year consequent to a search conducted under section 247, a requisition made under section 248, or a survey conducted under section 253 — but a survey under section 253(4) is expressly excluded. Sub-section (2) gives "undisclosed income" for any tax year the meaning referred to in section 301.
If losses could absorb income unearthed in a search or a survey, a person caught with undisclosed income could end up paying nothing on it, and the detection machinery would carry no cost. The section removes set-off from that income alone. The carve-out for a section 253(4) survey keeps the bar away from the narrow verification visit directed at deduction and collection of tax at source, which is not an income-detection exercise.
The bar is absolute within its field: it overrides every other provision of the Act, and it covers current-year losses as well as brought-forward losses, since the words are "whether brought forward or otherwise", together with unabsorbed depreciation. But it attaches only to the undisclosed income component of the total income — losses may still be set off against the rest of that year's income in the ordinary way. Which receipts and claims count as undisclosed income is not settled here: sub-section (2) sends you to section 301, where the expression is defined to take in money, bullion, jewellery, virtual digital assets and other valuable articles, expenditure, and entries in books or transactions representing undisclosed income or property, as well as an expense, exemption, deduction or allowance claimed and found to be incorrect.
An assessee carries forward a business loss of 80 lakh rupees. A search under section 247 leads to 1 crore rupees of undisclosed income being included in that year's total income, alongside 40 lakh rupees of ordinary business income. The 80 lakh may be set off against the 40 lakh of ordinary income, but not a rupee of it against the 1 crore — sub-section (1) forbids it, so tax falls on the whole of that 1 crore.
In the assessment order that follows a search, requisition or survey, where the Assessing Officer refuses the set-off, and in the computation filed for such a year — it is the provision cited against a return that has absorbed the addition with carried-forward losses.
any loss, whether brought forward or otherwise or unabsorbed depreciation, shall not be allowed to be set off against any undisclosed income which is included in the total income of any tax year
a survey conducted under section 253, not being a survey under section 253(4)
See the full 1961 to 2025 concordance.