My client's section 35AD hotel has thrown up a large loss because the whole capital cost was written off. Can that loss be set against the profits of its other, ordinary business, and for how many years can it be carried forward?
No, it cannot. Section 73A(1) provides that any loss computed in respect of any specified business referred to in section 35AD "shall not be set off except against profits and gains, if any, of any other specified business". Section 73A(2) then allows the unabsorbed part — or the whole loss where there is no other specified business — to be carried forward to the following assessment year, subject to the other provisions of Chapter VI, to be set off against the profits of any specified business carried on by the assessee assessable for that year, and if it still cannot be wholly set off, to be carried forward to the following assessment year "and so on". There is no limit on the number of years, which is the one respect in which section 73A is more generous than the ordinary eight-year rule for business losses in section 72. The section was inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010 — the same Act and the same date as section 35AD itself — so it governs AY 2010-11 onwards.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2010-04-01, reported as Section 73A of the Income-tax Act, 1961. It bears on section 73A, section 73A(1), section 73A(2), section 35AD, section 72, section 80, section 139(3), section 35AD(3) of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters.
Section 73A is the price of the section 35AD deduction and it is the reason a section 35AD claim can be worth far less in cash than it looks. Writing off the entire capital cost of a hotel or a cold chain facility in the year it is incurred usually produces a very large loss, and section 73A quarantines that loss: it cannot go against the profits of the assessee's ordinary trading business, cannot go against house property or capital gains or any other head, and can only wait for another SPECIFIED business to make a profit. For an assessee with one specified business and nothing else in that class, the loss simply carries forward until that same business turns profitable. Three practical consequences follow. First, the ring-fence is symmetrical in one direction only: a specified business loss cannot go out, but nothing in section 73A stops a specified business PROFIT being reduced by an ordinary business loss under section 72, so the direction of travel matters when planning. Second, because section 73A(2) opens with "subject to the other provisions of this Chapter", the general machinery of Chapter VI continues to apply, which is where the requirement to file the return in time under section 139(3) read with section 80 becomes relevant — the library already holds an entry on that point in International Fresh Farm Products (India) Ltd v ITO. Third, the carry-forward has no time limit on the face of the section, which is a real advantage over section 72's eight years for a business whose profits are years away; but the loss can only ever be used against a specified business, so an assessee that exits the specified business never uses it at all. The interaction with section 35AD(3) is worth holding in mind at the same time: having claimed section 35AD, the assessee has also lost section 10AA and every Chapter VI-A heading C deduction for that business, so the section 35AD election ring-fences the loss and closes the profit-linked alternatives together.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The section in full, as transcribed: "73A. (1) Any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business. (2) Where for any assessment year any loss computed in respect of the specified business referred to in sub-section (1) has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee has no income from any other specified business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (i) it shall be set off against the profits and gains, if any, of any specified business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on." The footnote on the page stamped Year 2010 reads: "Inserted by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010."
Not a judgment. The statutory position is that a loss of a specified business referred to in section 35AD can be set off only against the profits of another specified business; that any unabsorbed part, or the whole loss where there is no other specified business, is carried forward to the following assessment year subject to the other provisions of Chapter VI and set off against the profits of any specified business assessable for that year; that the balance is carried forward again "and so on", with no limit on the number of years stated in the section; and that this regime governs AY 2010-11 onwards.
Not a judgment; no judicial reasoning is stated for the section itself.
Any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business.
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Handle my notice → Ask a CA on WhatsAppNo, it cannot. Section 73A(1) provides that any loss computed in respect of any specified business referred to in section 35AD "shall not be set off except against profits and gains, if any, of any other specified business". Section 73A(2) then allows the unabsorbed part — or the whole loss where there is no other specified business — to be carried forward to the following assessment year, subject to the other provisions of Chapter VI, to be set off against the profits of any specified business carried on by the assessee assessable for that year, and if it still cannot be wholly set off, to be carried forward to the following assessment year "and so on". There is no limit on the number of years, which is the one respect in which section 73A is more generous than the ordinary eight-year rule for business losses in section 72. The section was inserted by the Finance (No. 2) Act, 2009 with effect from 1 April 2010 — the same Act and the same date as section 35AD itself — so it governs AY 2010-11 onwards. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 73A, section 73A(1), section 73A(2), section 35AD, section 72, section 80, section 139(3), section 35AD(3) of the Income Tax Act 1961. It is reported as Section 73A of the Income-tax Act, 1961. Section 73A is the price of the section 35AD deduction and it is the reason a section 35AD claim can be worth far less in cash than it looks. Writing off the entire capital cost of a hotel or a cold chain facility in the year it is incurred usually produces a very large loss, and section 73A quarantines that loss: it cannot go against the profits of the assessee's ordinary trading business, cannot go against house property or capital gains or any other head, and can only wait for another SPECIFIED business to make a profit. For an assessee with one specified business and nothing else in that class, the loss simply carries forward until that same business turns profitable. Three practical consequences follow. First, the ring-fence is symmetrical in one direction only: a specified business loss cannot go out, but nothing in section 73A stops a specified business PROFIT being reduced by an ordinary business loss under section 72, so the direction of travel matters when planning. Second, because section 73A(2) opens with "subject to the other provisions of this Chapter", the general machinery of Chapter VI continues to apply, which is where the requirement to file the return in time under section 139(3) read with section 80 becomes relevant — the library already holds an entry on that point in International Fresh Farm Products (India) Ltd v ITO. Third, the carry-forward has no time limit on the face of the section, which is a real advantage over section 72's eight years for a business whose profits are years away; but the loss can only ever be used against a specified business, so an assessee that exits the specified business never uses it at all. The interaction with section 35AD(3) is worth holding in mind at the same time: having claimed section 35AD, the assessee has also lost section 10AA and every Chapter VI-A heading C deduction for that business, so the section 35AD election ring-fences the loss and closes the profit-linked alternatives together. If it applies to you, the first step is this: Keep the specified business result in a separate computation from the first year. Section 73A operates on a loss 'computed in respect of any specified business', so the ring-fence is only as good as the segmental computation, and the department will require one.
The section in full, as transcribed: "73A. (1) Any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business. (2) Where for any assessment year any loss computed in respect of the specified business referred to in sub-section (1) has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee has no income from any other specified business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (i) it shall be set off against the profits and gains, if any, of any specified business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on." The footnote on the page stamped Year 2010 reads: "Inserted by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010." The matter was decided on 2010-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that a loss of a specified business referred to in section 35AD can be set off only against the profits of another specified business; that any unabsorbed part, or the whole loss where there is no other specified business, is carried forward to the following assessment year subject to the other provisions of Chapter VI and set off against the profits of any specified business assessable for that year; that the balance is carried forward again "and so on", with no limit on the number of years stated in the section; and that this regime governs AY 2010-11 onwards.
Not a judgment; no judicial reasoning is stated for the section itself. In the words reproduced by the source cited on this page: "Any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business."
It was decided by the CBDT Circulars & Instructions on 2010-04-01 and is reported as Section 73A of the Income-tax Act, 1961. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 73A, section 73A(1), section 73A(2), section 35AD, section 72, section 80, section 139(3), section 35AD(3), 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 cuts both ways and is cited by both sides. Not a judgment. The statutory position is that a loss of a specified business referred to in section 35AD can be set off only against the profits of another specified business; that any unabsorbed part, or the whole loss where there is no other specified business, is carried forward to the following assessment year subject to the other provisions of Chapter VI and set off against the profits of any specified business assessable for that year; that the balance is carried forward again "and so on", with no limit on the number of years stated in the section; and that this regime governs AY 2010-11 onwards. It arises in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters, on section 73A, section 73A(1), section 73A(2), section 35AD, section 72, section 80, section 139(3), section 35AD(3) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. Do not set a specified business loss against ordinary business income, other heads, or capital gains in the return. The section forbids it in terms, and the adjustment will be made at processing. Where the assessee has more than one specified business, set the loss against the profits of the others in the same year first — that is what section 73A(1) permits — and carry only the balance forward. Carry the unabsorbed loss forward indefinitely and keep claiming it in the return each year. Section 73A(2) contains no time limit, unlike section 72; but nothing preserves it if it is not carried in the return. Watch the filing deadline. Section 73A(2) is expressly subject to the other provisions of Chapter VI, so the general conditions for carrying forward a loss continue to apply and a late return can destroy the carry-forward. Factor the ring-fence into the decision whether to opt for section 35AD at all. From AY 2020-21 the deduction is optional; the choice is between a hundred per cent immediate write-off whose loss is quarantined by section 73A, and ordinary depreciation whose loss is not.
Still good law. The text is verified in two consolidations of different vintages, 2009 and 2010, which print it identically, and the commencement is taken from the footnote in the later of them. The same two sub-sections are printed word for word again in a consolidation of 2012 vintage, so no amendment was made between 2010 and 2012 and none is recorded in any text read. A warning about the section number. 'Section 73A' is not unique to the Income-tax Act: there is a s.73A in the Indian Evidence Act, 1872, headed 'Proof as to verification of digital signature'. A search on the bare number will return it, and it carries no vintage to mark it out. Judicial treatment of the section has not been checked. This library already holds decisions tagged to s.73A in Sarovar Hotels P Ltd v DCIT, International Fresh Farm Products (India) Ltd v ITO and Gstaad Hotels Pvt Ltd v ACIT, none of which has been re-read for this entry. Two points on the words that do not depend on that. Sub-section (1) restricts the use of a loss computed in respect of any specified business referred to in s.35AD: it can be set off only against profits and gains of another specified business. Sub-section (2) then carries the unabsorbed loss forward to the following assessment year without any limit on the number of years, which is the feature that distinguishes it from an ordinary business loss. For a year governed by the Income-tax Act 2025 the successor of s.73A should be identified; that correspondence has not been established here. 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.
ON THE TEXT AND ITS CORROBORATION. Section 73A has been read in full in a consolidation of 2009 vintage, headed 'Carry forward and set off of losses by specified business', and again in one of 2010 vintage, which prints the same two sub-sections word for word and carries the footnote 'Inserted by the Finance (No. 2) Act, 2009, w.e.f. 1-4-2010'. The 2009 text carries no footnote list. A text of 2012 vintage prints the same two sub-sections again. THE LIMIT OF THAT CHECK. Only those vintages were examined, so the latest text held for this section is of 2012 vintage. The section is short and no amendment to it is recorded in any of them, but a later amendment cannot be excluded on that evidence, and none is claimed to have been checked. A WARNING ABOUT THE SECTION NUMBER. 'Section 73A' is not unique to the Income-tax Act. There is a s.73A in the Indian Evidence Act, 1872, headed 'Proof as to verification of digital signature'. A text of that section carries no vintage stamp to distinguish it, and a search on the bare number will return it alongside the income-tax provision. Check the Act before reading a word of it. ONE OBSERVATION ON THIS PAGE IS AN ARGUMENT AND NOT AUTHORITY. The statement in 'why_it_matters' that nothing in s.73A prevents an ordinary business loss being set against a specified business profit is a reading of the words of the section, which restrict only the use of a specified business LOSS. It is not supported by any decision that has been read, and it should be treated as an argument to be made rather than as settled law. ON WHAT THE SECTION DOES. Sub-section (1) provides that a loss computed in respect of any specified business referred to in s.35AD shall be set off only against profits and gains, if any, of any other specified business. Sub-section (2) carries the unabsorbed loss forward to the following assessment year, without any limit on the number of years for which it may be carried - which is what distinguishes it from an ordinary business loss under s.72, and which makes the identification of the business as a specified business the whole of the question. ON ONE CROSS-REFERENCE. The reference to International Fresh Farm Products (India) Ltd v ITO is to an entry this library already holds under ss.73A and 35AD. That decision has not been re-read for this entry, and nothing is stated here about its holding beyond the fact that the entry exists. 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.
Not a judgment. The statutory position is that a loss of a specified business referred to in section 35AD can be set off only against the profits of another specified business; that any unabsorbed part, or the whole loss where there is no other specified business, is carried forward to the following assessment year subject to the other provisions of Chapter VI and set off against the profits of any specified business assessable for that year; that the balance is carried forward again "and so on", with no limit on the number of years stated in the section; and that this regime governs AY 2010-11 onwards.
TaxSphere, “Statutory position — s.73A: a specified business loss can only be set off against another specified business, and it carries forward indefinitely”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-73a-a-specified-business-loss-can-only-meet-another-specified-business-and-it-carries-forward-without-limit/ (validity last checked 2026-09-09)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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We claimed section 35AD on a hotel and also want a Chapter VI-A deduction on the profits of the same hotel in a later year. The Assessing Officer says we cannot have both. Is that right, and does it affect only the year of the section 35AD claim?
CPC has refused to let me carry forward my s.35AD specified-business loss because the return went in late. Can the officer of the loss year decide that at all?
My section 35AD deduction was examined and allowed in scrutiny. Four years later the department wants to reopen and treat part of it as revenue expenditure so the loss runs under section 72 for eight years instead of indefinitely under section 73A. Can it?
We run hotels out of leased buildings and one unit is loss-making. The AO says only a newly constructed hotel is a specified business, so there is nothing to set off under s.73A. Is he right?
