A survey during a search on a connected group threw up excess stock, and it was added for AY 2007-08. The department says my unabsorbed depreciation cannot be set off against it, and now cites section 79A. Is that right?
No, on both counts, for a year before AY 2022-23. The Madras High Court held that unabsorbed depreciation carried forward takes the character of current year depreciation under s.32(2) and, read with ss.71 and 72, can be set off against income of the current year other than capital gains — including an addition of unaccounted stock in business; and it recorded that s.79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not assist the Revenue for an earlier year.
Decided by the High Court (Dr Justice Anita Sumanth and Mr Justice Mummineni Sudheer Kumar) on 2026-01-23, reported as T.C.A. No. 48 of 2013 (Madras High Court); Assessment Year 2007-08. It bears on section 79A, section 32(2), section 70, section 71, section 72, section 115BBE, section 69, section 132, section 133A, section 153C, section 143(3), section 154 of the Income Tax Act 1961, in Search, Survey & Block Assessment, Cash Credits & Unexplained Money, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the only decision located that decides anything on s.79A, and it does two things for a practitioner. (The only other order found to mention the section, Rsd Containers Private Limited v. ITO, ITAT Jaipur, 6 August 2025, invokes it at its para 10.4 merely as an aid to construction for Assessment Year 2017-18 and does not apply it; and a nil phrase search on Indian Kanoon is not proof that nothing else exists.) For open years up to AY 2021-22 it is direct authority that the s.79A bar has no retrospective reach, so the department cannot import the 2022 policy into an older search assessment. For AY 2022-23 onwards it cuts the other way: the Court's own reasoning shows exactly what s.79A was enacted to stop, so the same argument on the same facts would now fail. The judgment is also useful on the older and larger fight about Fakir Mohmed Haji Hasan — the Gujarat High Court decision that deemed income under ss.68 to 69D falls under no head and so admits no set-off. The Madras High Court declined to follow it, noting that ss.71 and 72 were not considered in that case and that the Gujarat High Court itself has since distinguished it in Radhe Developers, Shilpa Dyeing & Printing Mills and Krishnamegh Yarn Industries. Note the limit the Court itself drew: the set-off it allowed was of current year loss against current year income 'barring under the head capital gains'. And note para 24 — the Court refused to enter the s.115BBE prospectivity debate because the assessment had been made under s.143(3) read with s.153C and not under s.115BBE, which is itself a charging provision.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A search under s.132 was carried out on 27 September 2006 in the premises of one Periyasamy, with a simultaneous survey under s.133A in the business premises of connected entities including the assessee. On the seized and impounded records an assessment for AY 2007-08 was completed on 30 December 2008 under s.143(3) read with s.153C. Physical stock was valued first at about Rs 53.83 lakhs and, after correcting errors, at Rs 31,83,700, and that amount was added as unaccounted stock in business. The assessment, and the classification of the addition as unaccounted stock, became final. The assessee then applied under s.154, saying that its claim of unabsorbed depreciation loss of Rs 11,06,525 had not been given effect to in the computation and that credit for Rs 6 lakhs of advance tax had not been given. On 19 February 2010 the Assessing Authority allowed the advance tax credit but rejected the set-off, reasoning that the addition represented unrecorded investments falling within s.69, that s.69 income is not under the head 'Profits and gains of business or profession', and that s.32(2) allows carry forward and set-off of unabsorbed depreciation only against that head; he relied on the Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT (2001) 247 ITR 290. The Commissioner (Appeals) and the Tribunal concurred. Three substantial questions of law were admitted on 18 February 2013, the second of them noting that the Assessing Officer had not in fact invoked s.69 to make the addition.
The Tax Case (Appeal) was allowed, with no costs (para 25). The substantial questions of law were answered in favour of the assessee and against the Revenue (para 20). Unabsorbed depreciation carried forward assumes the character of current year loss under s.32(2), and the entitlement to set it off against business income or other income barring capital gains follows from s.72 read with the scheme of ss.71 and 72, so current year loss is liable to be set off against current year income barring income under the head 'Capital gains' (paras 17 and 18). Section 79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not benefit the Revenue in a case of this vintage (para 19).
The Court began from s.32(2): unabsorbed depreciation which is carried forward assumes the character of current year loss, and the entitlement to set it off against business income or other incomes barring capital gains is clear from s.72, which provides for set-off against other income as well in the absence of the assessee returning income from business (para 17). That position had simply been omitted from consideration by the authorities below; and the same omission infects Fakir Mohmed Haji Hasan, in which ss.71 and 72 were not taken note of — a point since recorded by the Gujarat High Court itself in Radhe Developers India Ltd., Shilpa Dyeing & Printing Mills P. Ltd. and Krishnamegh Yarn Industries (para 18). On the Revenue's reliance on s.79A, the Court set out the section's effect and then disposed of the argument on commencement alone: the section was inserted by the Finance Act 2022 with effect from 1 April 2022 only (para 19). The Court recorded at para 20 that the Revenue acceded to the position on ss.71 and 72, its Senior Standing Counsel being unable to defend the proposition that those sections had been wholly lost sight of (para 14). On s.115BBE, the Court noted the substitution by the Taxation Laws (Second Amendment) Act 2016 with effect from 1 April 2017 and the accepted prospectivity of the s.115BBE(2) set-off bar based on CBDT Circular No. 11/2019 (paras 21 to 23), but held the point irrelevant because the assessment had not been made under s.115BBE, which is a charging provision by itself, but under s.143(3) read with s.153C (para 24).
However, as Section 79A has been inserted vide Finance Act 2022, with effect from 01.04.2022 only, this argument does not benefit the revenue in this case.
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Handle my notice → Ask a CA on WhatsAppNo, on both counts, for a year before AY 2022-23. The Madras High Court held that unabsorbed depreciation carried forward takes the character of current year depreciation under s.32(2) and, read with ss.71 and 72, can be set off against income of the current year other than capital gains — including an addition of unaccounted stock in business; and it recorded that s.79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not assist the Revenue for an earlier year. This was decided by the High Court (Dr Justice Anita Sumanth and Mr Justice Mummineni Sudheer Kumar) and bears on section 79A, section 32(2), section 70, section 71, section 72, section 115BBE, section 69, section 132, section 133A, section 153C, section 143(3), section 154 of the Income Tax Act 1961. It is reported as T.C.A. No. 48 of 2013 (Madras High Court); Assessment Year 2007-08. This is the only decision located that decides anything on s.79A, and it does two things for a practitioner. (The only other order found to mention the section, Rsd Containers Private Limited v. ITO, ITAT Jaipur, 6 August 2025, invokes it at its para 10.4 merely as an aid to construction for Assessment Year 2017-18 and does not apply it; and a nil phrase search on Indian Kanoon is not proof that nothing else exists.) For open years up to AY 2021-22 it is direct authority that the s.79A bar has no retrospective reach, so the department cannot import the 2022 policy into an older search assessment. For AY 2022-23 onwards it cuts the other way: the Court's own reasoning shows exactly what s.79A was enacted to stop, so the same argument on the same facts would now fail. The judgment is also useful on the older and larger fight about Fakir Mohmed Haji Hasan — the Gujarat High Court decision that deemed income under ss.68 to 69D falls under no head and so admits no set-off. The Madras High Court declined to follow it, noting that ss.71 and 72 were not considered in that case and that the Gujarat High Court itself has since distinguished it in Radhe Developers, Shilpa Dyeing & Printing Mills and Krishnamegh Yarn Industries. Note the limit the Court itself drew: the set-off it allowed was of current year loss against current year income 'barring under the head capital gains'. And note para 24 — the Court refused to enter the s.115BBE prospectivity debate because the assessment had been made under s.143(3) read with s.153C and not under s.115BBE, which is itself a charging provision. If it applies to you, the first step is this: Establish the assessment year before anything else. For AY 2021-22 and earlier this judgment is available; for AY 2022-23 onwards s.79A applies on its own terms and this authority does not carry over.
A search under s.132 was carried out on 27 September 2006 in the premises of one Periyasamy, with a simultaneous survey under s.133A in the business premises of connected entities including the assessee. On the seized and impounded records an assessment for AY 2007-08 was completed on 30 December 2008 under s.143(3) read with s.153C. Physical stock was valued first at about Rs 53.83 lakhs and, after correcting errors, at Rs 31,83,700, and that amount was added as unaccounted stock in business. The assessment, and the classification of the addition as unaccounted stock, became final. The assessee then applied under s.154, saying that its claim of unabsorbed depreciation loss of Rs 11,06,525 had not been given effect to in the computation and that credit for Rs 6 lakhs of advance tax had not been given. On 19 February 2010 the Assessing Authority allowed the advance tax credit but rejected the set-off, reasoning that the addition represented unrecorded investments falling within s.69, that s.69 income is not under the head 'Profits and gains of business or profession', and that s.32(2) allows carry forward and set-off of unabsorbed depreciation only against that head; he relied on the Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT (2001) 247 ITR 290. The Commissioner (Appeals) and the Tribunal concurred. Three substantial questions of law were admitted on 18 February 2013, the second of them noting that the Assessing Officer had not in fact invoked s.69 to make the addition. The matter was decided on 2026-01-23 by the High Court (Dr Justice Anita Sumanth and Mr Justice Mummineni Sudheer Kumar). On those facts the High Court held as follows. The Tax Case (Appeal) was allowed, with no costs (para 25). The substantial questions of law were answered in favour of the assessee and against the Revenue (para 20). Unabsorbed depreciation carried forward assumes the character of current year loss under s.32(2), and the entitlement to set it off against business income or other income barring capital gains follows from s.72 read with the scheme of ss.71 and 72, so current year loss is liable to be set off against current year income barring income under the head 'Capital gains' (paras 17 and 18). Section 79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not benefit the Revenue in a case of this vintage (para 19).
The Court began from s.32(2): unabsorbed depreciation which is carried forward assumes the character of current year loss, and the entitlement to set it off against business income or other incomes barring capital gains is clear from s.72, which provides for set-off against other income as well in the absence of the assessee returning income from business (para 17). That position had simply been omitted from consideration by the authorities below; and the same omission infects Fakir Mohmed Haji Hasan, in which ss.71 and 72 were not taken note of — a point since recorded by the Gujarat High Court itself in Radhe Developers India Ltd., Shilpa Dyeing & Printing Mills P. Ltd. and Krishnamegh Yarn Industries (para 18). On the Revenue's reliance on s.79A, the Court set out the section's effect and then disposed of the argument on commencement alone: the section was inserted by the Finance Act 2022 with effect from 1 April 2022 only (para 19). The Court recorded at para 20 that the Revenue acceded to the position on ss.71 and 72, its Senior Standing Counsel being unable to defend the proposition that those sections had been wholly lost sight of (para 14). On s.115BBE, the Court noted the substitution by the Taxation Laws (Second Amendment) Act 2016 with effect from 1 April 2017 and the accepted prospectivity of the s.115BBE(2) set-off bar based on CBDT Circular No. 11/2019 (paras 21 to 23), but held the point irrelevant because the assessment had not been made under s.115BBE, which is a charging provision by itself, but under s.143(3) read with s.153C (para 24). In the words reproduced by the source cited on this page: "However, as Section 79A has been inserted vide Finance Act 2022, with effect from 01.04.2022 only, this argument does not benefit the revenue in this case." The decision followed or applied Fakir Mohmed Haji Hasan v. CIT (2001) 247 ITR 290 (Guj.) — not followed; ss.71 and 72 held not to have been considered there; CIT v. Radhe Developers India Ltd. (Guj.) — relied on as distinguishing Fakir Mohmed Haji Hasan; CIT v. Shilpa Dyeing & Printing Mills P. Ltd. (Guj.) — relied on; Krishnamegh Yarn Industries v. ACIT (Guj.) — relied on; CIT v. Chensing Ventures (2007) 291 ITR 258 (Mad.) — cited by the assessee and reflected in the third substantial question; CBDT Circular No. 11/2019 dated 19 June 2019 — noted at para 23.
It was decided by the High Court on 2026-01-23 and is reported as T.C.A. No. 48 of 2013 (Madras High Court); Assessment Year 2007-08. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 79A, section 32(2), section 70, section 71, section 72, section 115BBE, section 69, section 132, section 133A, section 153C, section 143(3), section 154, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Tax Case (Appeal) was allowed, with no costs (para 25). The substantial questions of law were answered in favour of the assessee and against the Revenue (para 20). Unabsorbed depreciation carried forward assumes the character of current year loss under s.32(2), and the entitlement to set it off against business income or other income barring capital gains follows from s.72 read with the scheme of ss.71 and 72, so current year loss is liable to be set off against current year income barring income under the head 'Capital gains' (paras 17 and 18). Section 79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not benefit the Revenue in a case of this vintage (para 19). It arises in Search, Survey & Block Assessment, Cash Credits & Unexplained Money, Assessment & Scrutiny and How Tax Law Is Read matters, on section 79A, section 32(2), section 70, section 71, section 72, section 115BBE, section 69, section 132, section 133A, section 153C, section 143(3), section 154 of the Income Tax Act 1961, and was decided by Dr Justice Anita Sumanth and Mr Justice Mummineni Sudheer Kumar. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Check the label the Assessing Officer actually put on the addition. Here the addition was made and had become final as 'unaccounted stock in business', and the Court treated the AO's own reliance on s.69 as an afterthought raised only at the rectification stage — the second substantial question was framed precisely on the AO not having invoked s.69. If the department relies on Fakir Mohmed Haji Hasan, put the three later Gujarat High Court decisions — Radhe Developers India Ltd., Shilpa Dyeing & Printing Mills P. Ltd. and Krishnamegh Yarn Industries — against it, and point to the fact that ss.71 and 72 were not considered there. Do not overstate the set-off: the Court allowed current year loss against current year income barring income under the head 'Capital gains'. Where the assessment is under s.143(3) read with s.153C rather than under s.115BBE, note that the s.115BBE(2) prospectivity argument and CBDT Circular No. 11/2019 may be beside the point — the Court so held at para 24. Remember the route: the claim here was pressed by a s.154 rectification application after the assessment had become final, and the High Court treated that as a permissible route because the set-off had simply been omitted from the computation.
Validity check could not be completed. Validity check could not be completed. The judgment is recent (23 January 2026) and no later treatment of it was searched for or found; whether the Revenue has taken it further is not known to this entry. Note the built-in limit on its reach: the s.79A holding is a holding on commencement only, so the judgment is of no assistance for Assessment Year 2022-23 or later, where s.79A applies in terms. The judgment declines to follow the Gujarat High Court in Fakir Mohmed Haji Hasan; that divergence, and the later Gujarat decisions said to distinguish it, have not been independently read on this pass. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two figures for the same claim appear in the judgment and do not reconcile: paras 5 and 6 put the unabsorbed depreciation loss at Rs 11,06,525 while the first substantial question of law, as framed and reproduced at para 11, puts it at Rs 11,70,675. The judgment does not resolve the difference and neither does this entry. The judgment runs to 25 numbered paragraphs; paras 1 to 13 and 14 to 25 were transcribed in two separate passes and the last paragraph, 25, is the disposal. Paragraph 19 (the s.79A paragraph) was additionally confirmed word for word on a docfragment pass, as was the sentence quoted from para 18. The judgment reproduces s.115BBE(2) at para 21 in the form 'clause (a) and clause (b) of sub-section(1)', which matches the department's later section pages but not its 2016 and 2017 pages; and it spells the section '115BEE' in that extract. The Indian Kanoon listing gives the date as 23 January 2026, which matches the document; the Madras High Court site footer on the page records upload on 24 February 2026. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Tax Case (Appeal) was allowed, with no costs (para 25). The substantial questions of law were answered in favour of the assessee and against the Revenue (para 20). Unabsorbed depreciation carried forward assumes the character of current year loss under s.32(2), and the entitlement to set it off against business income or other income barring capital gains follows from s.72 read with the scheme of ss.71 and 72, so current year loss is liable to be set off against current year income barring income under the head 'Capital gains' (paras 17 and 18). Section 79A, inserted by the Finance Act 2022 with effect from 1 April 2022, does not benefit the Revenue in a case of this vintage (para 19).
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