Section 72

Section 72 — the law in short

What the courts have decided on section 72, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• PCIT v Wipro Ltd Supreme CourtHelps department
  A declaration was required by the due date and you filed it late. Is that fatal?
  Yes. Both limbs — furnishing the declaration, and doing so before the due date for the original return — are mandatory, not directory. A claim made only in a belated revised return does not qualify.
• CIT v Yokogawa India Ltd Supreme CourtHelps taxpayer
  Must my 10A unit's profits be reduced by other units' losses before the deduction?
  No. After the Finance Act 2000 the relief is a deduction rather than an exemption, but it is worked out while computing the profits of the eligible undertaking, before the setting off and aggregation that produces total income. Losses of other units and brought-forward losses therefore do not eat into it.
• CIT v Gold Coin Health Food P Ltd Supreme CourtHelps department
  My return declared a loss and even after the addition the assessed figure is still a loss. Can concealment penalty under section 271(1)(c) be levied when no tax is payable?
  Yes. A three-judge bench of the Supreme Court held that Explanation 4 to section 271(1)(c) is clarificatory and not substantive, so penalty was leviable even between 1 April 1976 and 1 April 2003 where the addition of concealed income merely reduced a returned loss and the assessed figure remained negative. Income in section 2(24) includes losses, as Harprasad had held, so the returned loss is no answer. The contrary view of a two-judge bench in Virtual Soft Systems Ltd v CIT was held not to be correct. The two assessees before the Court were spared, the Solicitor General having said the Department would not demand penalty from them.
• Synco Industries Ltd v Assessing Officer Supreme CourtHelps department
  My eligible unit made a profit but brought-forward losses of my other division wipe out my income. Can I still claim the Chapter VI-A deduction on the profitable unit?
  No. The Supreme Court held that gross total income must first be worked out under the Act, after intra-head and inter-head set off and after setting off brought-forward business losses and unabsorbed depreciation. Chapter VI-A deductions come out of that figure. If it is nil or a loss, section 80A(2) leaves nothing for the deduction to be given from, and none can be allowed. The non obstante clause in section 80-I(6), which treats the eligible undertaking as the only source of income, fixes the quantum of the deduction only; it does not decide eligibility.
• CIT v Madhukant M. Mehta Supreme CourtHelps taxpayer
  My client's father died and the heirs formed a firm to carry on his business. Can the firm use his brought-forward loss, or does s.78(2) stop it?
  It can, if the succession is by inheritance — s.78(2) denies the carry forward only where a business is succeeded to otherwise than by inheritance. The Supreme Court declined to interfere with the finding that heirs who executed a partnership deed within a month of the death and carried on the identical speculation business, in the same name, at the same premises, with the same constituents, had succeeded to the deceased's business by inheritance for the purposes of s.78(2).
• CIT v Subhulaxmi Mills Ltd Supreme CourtHelps taxpayer
  The officer has invoked s.79 after a change in our shareholding and struck out everything brought forward, including unabsorbed depreciation. Does s.79 reach unabsorbed depreciation?
  No. The Supreme Court agreed with the Gujarat High Court that when s.79 speaks of loss, it does not include unabsorbed depreciation or unabsorbed development rebate. Only the brought forward business loss is at risk under s.79; unabsorbed depreciation continues to be governed by s.32(2).
• CIT v J.H. Gotla Supreme CourtHelps taxpayer
  My wife's and minor children's share income from a firm is clubbed into my total income. Can I set my own carried forward business loss against it, when I am not a partner in that firm?
  Yes. The Supreme Court held that where the clubbing provision operates, the profit or loss from the business of the wife or minor child that is included in the assessee's total income must be treated as profit or loss from a business carried on by him for the purpose of carrying forward and setting off the loss. A strict literal reading would deny the set-off to the assessee, while the wife and children could not claim it either because the income is taxed in his hands, and Parliament cannot have intended that. The clubbing provision exists to counteract the transfer, not to punish the transferor.
• CIT v Mother India Refrigeration Industries (P) Ltd Supreme CourtHelps department
  I have brought forward business losses that will lapse in a few years. Can I set them off before this year's depreciation, so the losses do not run out?
  No. The Supreme Court held that current depreciation must be deducted first, before the unabsorbed carried forward business loss of earlier years is set off. The priority given to carried forward losses is over the unabsorbed depreciation that is being carried forward, not over the current year's depreciation. The deeming provision that treats carried forward depreciation as part of the following year's allowance is a legal fiction created for a definite purpose - so that it can be set against income under any head - and cannot be stretched further. The appeals were allowed and the reference answered against the assessee, with costs.
• Reliance Jute & Industries Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  When my loss arose, the law let me carry it forward indefinitely. The rule was later cut to eight years. Do I keep the old benefit as a vested right?
  No. The Supreme Court held that it is a cardinal principle of tax law that the law to be applied is that in force in the assessment year, unless otherwise provided expressly or by necessary implication. When the assessment for 1960-61 was made and the set-off provision invoked, it was the provision as it stood in that year - as amended in 1957 to allow only eight years - that governed. There was no question of a vested right under the earlier law. An assessment for one year is not, absent a contrary provision, affected by the law in force in another year, and a right claimed under the law of a particular year is ordinarily available only in a proceeding for that year.
• B. R. Ltd v V. P. Gupta, CIT Supreme CourtHelps taxpayerSuperseded by amendment
  My client stopped importing and now only exports. The officer says the old import loss dies because it is not the same business. Is he right?
  On the law as it stood, no — import and export were held to be the same business because there was one management, one organisation, one administration, one fund and one place of business, and unity of control rather than the nature of the two lines is the deciding factor. But before you argue this at all, check the year: the proviso to s.72(1)(i) that required the same business to continue was omitted by the Finance Act, 1999 with effect from 1 April 2000, so from assessment year 2000-01 a brought-forward business loss is set off against the profits of any business or profession carried on by the assessee.
• Cambay Electric Supply Industrial Co Ltd v CIT Supreme CourtCuts both ways
  The officer has disallowed a receipt on the ground that it is not 'derived from' our undertaking. Does the exact wording of the deduction section decide the point?
  It decides most of it, and this is the judgment that says so. Section 80E as it then stood used the words 'attributable to', and the Supreme Court held that expression is of wider import than 'derived from' and was chosen deliberately, wide enough to take in a balancing charge under s.41(2) on the sale of old machinery and buildings. The corollary is what bites today: s.80-IA, s.80-IB and s.80-IC all say 'derived from', so only receipts with a direct, first-degree connection to the undertaking qualify. On the second question the assessee lost: unabsorbed depreciation and development rebate of earlier years had to be deducted before the percentage relief was computed.
• CIT v Kulu Valley Transport Co (P) Ltd Supreme CourtHelps taxpayer
  I filed a return showing a loss after the due date but before any assessment was made. Can the officer refuse to determine the loss and refuse to let me carry it forward?
  No, on the 1922 Act. By a majority the Supreme Court held that a voluntary loss return filed at any time before the assessment is a good return which the Income-tax Officer cannot ignore, and the loss must be determined and carried forward. Section 22(1) is to be read with section 22(3), which is in effect a proviso to it, so a return filed within the time in section 22(3) is filed within the time prescribed and the condition in section 22(2A) is satisfied. Shah, J dissented, holding that reading it that way makes section 22(2A) otiose.
• CIT v Manmohan Das (Deceased) Supreme CourtHelps taxpayer
  In the loss year the officer recorded that the loss could not be carried forward, and we did not appeal. The officer of the set-off year now says that finding is final against us. Is it?
  No. The Supreme Court held that whether a loss may be carried forward to the following year and set off is to be determined by the Income-tax Officer dealing with the assessment of that subsequent year, and that a decision recorded in the loss year — under s.24(3) of the 1922 Act, the provision now corresponding to s.157 — that the loss cannot be set off is not binding on the assessee. Failure to appeal the loss year order therefore does not forfeit the claim.
• CIT v Jaipuria China Clay Mines (P) Ltd Supreme CourtHelps taxpayer
  I have a brought-forward business loss and brought-forward unabsorbed depreciation in the same year. Which one does the officer have to use first, and does it matter?
  The brought-forward business loss goes first; the unabsorbed depreciation is taken after it. The Supreme Court held the Legislature deliberately gave a preference to the deduction of losses first, because a carried-forward loss can only be used within a limited number of years while unabsorbed depreciation carries forward without that limit — set the depreciation off first and the loss simply expires unused.
• Gstaad Hotels Pvt Ltd v Assistant Commissioner of Income Tax High CourtHelps taxpayerNo later treatment found
  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?
  Not on these facts. The Bombay High Court quashed the s.148 notice, the two orders disposing of objections and all consequential proceedings, holding that where the original assessment was completed under s.143(3) and the reopening is beyond four years, the first proviso to s.147 requires a failure to disclose fully and truly all material facts, and a bald assertion of such failure without identifying which fact was not disclosed will not do. The Court expressly did not decide whether the expenditure was capital or revenue.
• M/s Sivasakthi Threads v Deputy Commissioner of Income-tax High CourtHelps taxpayerNo later treatment found
  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.
• Balaji Landmarks LLP v CBDT High CourtHelps taxpayerNo later treatment found
  I filed my loss return late on my CA's advice and lost the carry-forward. Will the delay be condoned?
  The Board could not refuse to condone the delay. A delay caused by acting on a professional's opinion is bona fide and not negligence, especially where the issue is fairly complex and unsettled, and refusing condonation would have permanently extinguished the carry forward of losses under s.139(3) read with s.80. The department loses nothing, because s.153(1B) gives the Assessing Officer twelve months from the end of the financial year of the return to assess. The delay was condoned and the assessment directed - but all contentions were kept open, so the losses themselves remain open to examination.
• Technovaa Plastic Industries Private Limited v Central Board of Direct Taxes High CourtHelps taxpayerNo later treatment found
  The resolution professional never filed the company's returns during the insolvency process. The new management filed them late and the carry forward of losses has gone. Will the Board condone the delay?
  It must, on these facts. The Gujarat High Court quashed the Board's order refusing condonation under s.119(2)(b) for Assessment Years 2018-19 and 2019-20 and condoned the delay itself, holding that where the suspended management had lost all powers from the date of admission under the Insolvency and Bankruptcy Code and the resolution professional had neither had the accounts audited nor filed the returns, and the new management filed them promptly after the resolution plan was approved, refusing condonation would frustrate the very purpose of the approved resolution plan and would amount to genuine hardship.
• Cargill India Pvt Ltd v CBDT High CourtHelps departmentUnder appeal
  We could not reach 50 per cent of the amalgamating company's installed capacity within four years. Will the Central Government relax Rule 9C if we show we genuinely tried?
  Not as a matter of course. The Delhi High Court held that the proviso to Rule 9C(a) is an exception, that the power to relax is not to be exercised liberally but only in exceptional cases and only to the extent necessary, and that the guiding purpose is the revival of the amalgamating company's industrial undertaking. Rejection was upheld where the threshold had still not been reached even within the extended period the applicant itself had asked for.
• PCIT v Burda Druck India Pvt Ltd High CourtHelps taxpayerNo later treatment found
  The assessment order for the loss year ends with a line saying the brought forward losses will not be allowed to be carried forward because our shareholding changed. Am I stuck with that when I claim the set-off later?
  No. The assessing officer of the loss year has only to notify the amount of the loss he has computed; whether that loss can be carried forward and set off is for the officer who deals with the year in which the set-off is claimed. The Delhi High Court upheld the Tribunal's direction to expunge the remark, and added that unabsorbed depreciation and capital losses do not fall within s.79 at all.
• PCIT (Central), Jaipur v Aacharan Enterprises Pvt Ltd High CourtHelps taxpayer
  The officer has added cash credits under s.68 and refuses to let me set my business loss against them. Can he do that for my year?
  It depends entirely on the assessment year. The Rajasthan High Court held that the bar in s.115BBE(2) on setting off any loss against income referred to in ss.68 to 69D was introduced by the Finance Act, 2016 with effect from 1 April 2017 and cannot be applied retrospectively, so for assessment year 2014-15 the set-off was allowed. From assessment year 2017-18 the statute forecloses the set-off and this decision is no help to you.
• Shankar Sales Promotion Pvt Ltd v CIT High CourtHelps taxpayerNo later treatment found
  My company lends money and also deals in shares. How is it decided which is the 'principal business' for the exclusion in the Explanation to s.73?
  There is no single test. The Calcutta High Court held that the memorandum of association, turnover, capital expenditure and the relation of profit to expenses are all relevant, that all of them must be judiciously analysed and assessed, and that what emerges is a tricky question of fact which the Tribunal must determine threadbare on the record. Because the Tribunal had not done that, the Court set its order aside and remitted the appeal with a direction to decide within six months.
• Yum Restaurants (India) P Ltd v ITO High CourtHelps departmentNo later treatment found
  Our shares moved from one group company to another. Do we lose our carried forward losses?
  Yes. A transfer of the entire shareholding from one holding company to another changes the beneficial ownership of the shares for s.79, even though the ultimate parent stays the same, so the earlier losses cannot be carried forward and set off.
• CIT v Darshan Securities Pvt Ltd High CourtHelps taxpayer
  The AO says my company's gross total income does not 'consist mainly' of the four excluded heads because he has left the share loss out of the business head. Is that the right computation?
  No. To decide whether the exception in the Explanation to s.73 applies you compute gross total income under the normal provisions of the Act, taking into account both the income and the loss under the head profits and gains of business or profession, and only then ask whether what results consists mainly of interest on securities, house property, capital gains and other sources. Section 73(1) is applied after the Explanation, not before it, because to apply the bar first in order to decide whether there is a speculation business at all would reverse the order of the statute.
• Goodricke Group Ltd v CIT-II, Kolkata — the s.33AB deduction is taken in computing the composite tea profit BEFORE rule 8 splits it sixty-forty, not on the forty per cent High CourtHelps taxpayer
  The Assessing Officer has applied rule 8 first and then given my tea company its section 33AB deduction on only forty per cent of the composite income, which has more than halved the claim. Which comes first — the section 33AB deduction or the sixty-forty apportionment?
  Section 33AB comes first. On 19 May 2011 a Division Bench of the Calcutta High Court held, in an appeal under section 260A for AY 1997-98, that the deduction under section 33AB is taken in computing the profit or loss of the composite tea business, and only after that profit or loss has been determined does rule 8 of the Income-tax Rules, 1962 come into play to work out how much of it is liable to tax. The Tribunal below had held the opposite — that the section 33AB deduction was to be calculated on forty per cent of the income determined under rule 8 — and the High Court set that finding aside as erroneous. The Court's route was the parenthesis in section 33AB(1)(b) itself, which fixes the ceiling by reference to the profits of the business "computed under the head 'Profits and gains of business or profession' before making any deduction under this section": that is a computation under Chapter IV-D, and rule 8 operates only on the figure that computation produces. In the same judgment, and on the assessee's own concession, the Court answered the section 80HHC question the other way — a Chapter VI-A deduction on a composite tea income comes AFTER the sixty-forty apportionment, following Union of India v Warren Tea Ltd (2004) 266 ITR 226 (Cal) and the Supreme Court in CIT v Williamson Financial Services (2008) 297 ITR 17.
• CIT v Shri Bharat R. Ruia (HUF) High CourtHelps department
  My derivative loss is for a year before assessment year 2006-07. Can I argue that clause (d) of the proviso to s.43(5) is clarificatory and covers it?
  No, in the Bombay High Court. Exchange-traded derivative transactions settled otherwise than by actual delivery are speculative transactions within the main part of s.43(5), and clause (d) of the proviso, inserted by the Finance Act 2005, operates prospectively from 1 April 2006 only. For years up to assessment year 2005-06 the loss is speculation loss.
• CIT v Govind Nagar Sugar Ltd High CourtHelps taxpayer
  The return was filed late, so the officer has refused to carry forward everything — including unabsorbed depreciation. Is depreciation really caught by the late return bar?
  No. The Delhi High Court held that s.80 and s.139(3) apply to business losses and not to unabsorbed depreciation, which is governed exclusively by s.32(2). There is accordingly no obligation to file the return within the prescribed time in order to carry forward depreciation.
• Velayudhaswamy Spinning Mills v ACIT High CourtHelps taxpayerHigh Courts differ
  My windmill lost money in its first years and those losses were set off against my other business income at the time. Now that the unit is profitable, can the officer bring those same losses back notionally under s.80-IA(5) and wipe out my deduction?
  Not on the Madras High Court's view. The fiction in s.80-IA(5) treats the eligible business as the only source of income, but it runs from the initial assessment year, and the initial assessment year is the year the assessee opts for under s.80-IA(2), not the year the undertaking started. Losses of years before that, which were actually absorbed against other income, are not revived: once the set off has taken place the Revenue cannot rework it and bring it back notionally. The Supreme Court dismissed the department's petitions against this judgment on 5 September 2016 without reasons. The Karnataka High Court has taken the opposite view, the Delhi High Court has expressly refused to follow Karnataka, and a Supreme Court appeal on the Karnataka judgment was admitted in October 2016.
• Gluhend India Private Limited v DCIT ITATHelps taxpayerNo later treatment found
  I filed this year's return late under section 139(4). The Assessing Officer has now refused to carry forward a capital loss and unabsorbed depreciation that both came from the earlier year, whose return was on time. Can he do that?
  No, on the Tribunal's reasoning. Section 80 read with s.139(3) attaches to the year in which the loss arises: if the return for the loss year was filed within the s.139(1) time, the loss has already become eligible for carry forward, and a belated return for a later year does not extinguish it. Unabsorbed depreciation stands on a stronger footing still — it is governed by s.32(2), and the s.80 restriction does not apply to it at all.
• Tanisha Chaudhary v Income-tax Officer, Ward 5(2)(4), Noida ITATHelps departmentNo later treatment found
  My AY 2020-21 return was 72 days late because of Covid and the short-term capital loss was refused. Four years on I want to set that loss off against this year's gains. Can I argue the delay in the current year's appeal?
  No. The Delhi Tribunal dismissed the appeal, holding that s.80 makes it mandatory to file the return of loss in terms of s.139(3), and that where the carry forward was denied when the loss year's return was processed under s.143(1), the remedy against that denial does not lie in an appeal for the later set-off year. Kulu Valley Transport was distinguished on its facts.
• ACIT v Lurgi India International Services Pvt Ltd ITATHelps taxpayerNo later treatment found
  Our Indian company's shares moved from one group company to another and the ultimate parent abroad did not change. The officer says 97 per cent of the shareholding changed and denies the brought forward losses. Which way does the Tribunal go?
  On these facts the Tribunal decided with the taxpayer, but it supplied almost no reasoning of its own. The Delhi Bench dismissed the Revenue's appeal in a single paragraph, finding merit in the assessee's submissions and no material from the Revenue contradicting the Commissioner (Appeals). What it left standing is the Commissioner (Appeals)'s reasoning that s.79 stresses beneficial ownership, that the ultimate holding company remained the same throughout the restructuring, and that CIT v AMCO Power Systems Ltd applied. The Revenue's ground founded on Yum Restaurants failed with the appeal, but the Tribunal did not address that decision.
• ACIT v Lahari Holiday Homes (P) Ltd — the s.115BAA option can be exercised in a revised return, and the MAT credit then goes ITATHelps taxpayer
  We filed the original return under MAT claiming MAT credit, then filed a revised return within the due date opting for s.115BAA. The Assessing Officer says that is a prohibited withdrawal of the option. Is it, and what happens to the MAT credit and our brought-forward losses?
  It is not a withdrawal. A revised return under s.139(5) substitutes the original return and assumes the character of a return under s.139(1), so an option exercised for the first time in a revised return filed within the due date is a valid first exercise — there was no earlier exercise capable of being withdrawn. But once the concessional regime is allowed, no MAT credit can be claimed for that year; and s.115BAA(2) bars set-off only of losses attributable to the deductions it specifies, not of ordinary brought-forward business and capital losses.
• Paramsukh Infradevelopers LLP v Income-tax Officer, Ward 1(1)(1), Agra ITATHelps taxpayerNo later treatment found
  My LLP was not required to be audited, but the partners had the accounts audited anyway. The CPC treated the return as belated and refused the carry forward of the business loss. Was the return late?
  No. The Agra Tribunal held that where the partners of an LLP that is exempt from audit under the first proviso to Rule 24(8) of the LLP Rules 2009 decide to have the accounts audited, the second proviso requires the audit to be carried out in accordance with those Rules, and the LLP then becomes a person whose accounts are 'required to be audited ... under any other law for the time being in force' within Explanation 2(a)(ii) to s.139(1). The due date accordingly moved to 30 September, the return filed on 17 September was in time, and the business loss was allowed to be carried forward.
• Bangiya Gramin Vikash Bank v ACIT ITATHelps taxpayerNo later treatment found
  Five regional rural banks were merged into our bank by a Central Government notification. The officer says s.72AA is only for banking companies and that s.72AB for cooperative societies only came in from assessment year 2008-09, so the merged banks' accumulated losses die. Is there any authority the other way?
  Yes, at Tribunal level. The Kolkata Bench held that the case fell under s.72AA because the assessee is a banking company doing the business of banking and the amalgamation of the five rural banks was brought into force under the directions of the Central Government by gazette notification, and allowed the set-off of the accumulated losses of the merged banks. The set-offs allowed were Rs. 352,68,36,000 for assessment year 2007-08 and Rs. 205,51,01,000 for assessment year 2008-09.
• M/s DFE Pharma India LLP v DCIT — AMT is charged on total income, so brought-forward losses are set off first ITATHelps taxpayerNo later treatment found
  The Assessing Officer accepted nil income under the normal computation after setting off brought-forward losses, but then charged AMT at 18.5 per cent on the net profit without allowing that set-off. Can he compute total income one way for the normal provisions and another way for AMT?
  No. Section 115JC charges the minimum tax on adjusted total income, and adjusted total income starts from the total income, which by s.2(45) is computed after giving effect to the provisions of the Act — including the set-off of brought-forward losses under s.72. The Assessing Officer's contrary interpretation, treating total income as net profit for AMT purposes only, was rejected.
• DCIT, Circle 7(1), Mumbai v. M/s. Piramal Enterprises Ltd. (ITAT Mumbai) — a scheme the High Court sanctioned cannot be attacked as a colourable device, but section 72A and Rule 9C still have to be satisfied ITATHelps taxpayerNo later treatment found
  The Assessing Officer says our merger was a device to buy the target's losses, even though the High Court sanctioned the scheme. How far does the sanction protect us, and what must we still prove?
  The Tribunal held that once the scheme of merger has been duly approved by the High Court, having in mind the larger public interest, it cannot be disturbed by the Revenue merely by alleging that the merger was done only to buy losses and was a colourable device — the more so where the Income Tax department, being part of the Union of India which is a party to the scheme petition, filed no objection before the High Court and preferred no appeal under section 391(7) of the Companies Act, 1956. But the Tribunal did not stop there. It went on expressly to address "the next crucial aspect" — whether the assessee had complied with section 72A read with Rule 9C, "which alone would enable it to get the benefit of set off of accumulated losses of amalgamating company in addition to the scheme of merger approved by the Hon'ble Bombay High Court" — and found on the facts that the conditions and the Rule 9C production and Form No. 62 requirements were satisfied.
• Bayer Material Science Pvt. Ltd. v. ACIT, Circle 10(3), Mumbai (ITAT Mumbai) — the three-fourths test is applied to each amalgamating company separately, and Rule 9C bites only at the end of four years ITATHelps taxpayer
  The Assessing Officer has denied our section 72A set-off in the very first year after the merger because we have not yet reached fifty per cent of installed capacity and have not filed Form No. 62. Can he do that before the four years are up?
  No. The Tribunal held that Rule 9C(a) requires the fifty per cent production level to be achieved before the END of four years from the date of amalgamation, so it may be achieved in the first, second, third or fourth year, and the Assessing Officer of an earlier year is not required — and by implication not entitled — to examine that condition at that stage. The Form No. 62 certificate under Rule 9C(b) is due for the first time only for the assessment year relevant to the previous year in which the prescribed production level is achieved, so a demand for it before that is premature. Separately, the Tribunal held that the three-fourths of book value test in section 72A(2)(b)(i) is applied qua the particular amalgamating company whose loss is being claimed, and that where two companies amalgamate in the same year the disposals of the second company's assets cannot be aggregated with the first's.
• Statutory position — s.72A(6B): inserted by the Finance Act, 2025 with effect from 1 April 2026, an inherited business loss runs only eight assessment years from the year it was first computed for the original predecessor entity, for any reorganisation effected on or after 1 April 2025 CBDT Circulars & InstructionsCuts both ways
  We are planning an amalgamation this year and the target has losses that are already several years old. Does the eight-year clock restart in our hands?
  No — not for an amalgamation or business reorganisation effected on or after 1 April 2025. Sub-section (6B) of section 72A provides that where any amalgamation or business reorganisation is effected on or after that date, any loss forming part of the accumulated loss of the predecessor entity under sub-section (1), (6) or (6A) which is deemed to be the loss of the successor entity shall be carried forward in the successor's hands for not more than eight assessment years immediately succeeding the assessment year for which such loss was first computed for the original predecessor entity. "Original predecessor entity" is defined in s.72A(7)(ab) as the predecessor entity in respect of the FIRST amalgamation under sub-section (1) or the first business reorganisation under sub-section (6) or (6A). Sub-section (6B) and the definition in s.72A(7)(ab) were inserted by the Finance Act, 2025 (Act No. 7 of 2025) with effect from 1 April 2026, so the provision first governs assessment year 2026-27 — which is the first assessment year in which a reorganisation effected on or after 1 April 2025 can fall, the two dates dovetailing exactly.
• Statutory position — s.72A(1) and s.72A(7)(aa): which amalgamations carry accumulated loss and unabsorbed depreciation across, and the closed definition of "industrial undertaking" CBDT Circulars & InstructionsCuts both ways
  We amalgamated a loss-making service company into ours. The Assessing Officer says section 72A does not apply at all because there is no industrial undertaking. Is that right, and what does the section actually cover?
  Section 72A(1) does not apply to every amalgamation. It applies to an amalgamation of (a) a company owning an industrial undertaking or a ship or a hotel with another company, (b) a banking company within s.5(c) of the Banking Regulation Act, 1949 with a specified bank, (c) one or more public sector companies with one or more public sector companies, or (d) an erstwhile public sector company with one or more companies where the share purchase agreement entered into under strategic disinvestment restricted immediate amalgamation and the amalgamation is carried out within five years from the end of the previous year in which that restriction ends. "Industrial undertaking" is exhaustively defined in s.72A(7)(aa) as an undertaking engaged in the manufacture or processing of goods, the manufacture of computer software, the business of generation or distribution of electricity or any other form of power, the business of providing telecommunication services (basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband network and internet services), mining, or the construction of ships, aircrafts or rail systems.
• Statutory position — section 79A: no set-off against undisclosed income found in a search, requisition or survey, from AY 2022-23 CBDT Circulars & InstructionsCuts both ways
  A search threw up unaccounted stock and cash and the Assessing Officer has added it. I have a large brought-forward loss and unabsorbed depreciation sitting there. Can I set them off against the addition?
  For AY 2022-23 and every later year, no. Section 79A, inserted by the Finance Act 2022 (Act No. 6 of 2022) with effect from 1 April 2022, says that where, consequent to a search under s.132, a requisition under s.132A or a survey under s.133A other than s.133A(2A), the total income of any previous year includes undisclosed income, no set-off of any loss — brought forward or of the current year — and no set-off of unabsorbed depreciation under s.32(2) shall be allowed against that undisclosed income under any provision of the Act.
• Statutory position — section 115UB(2) and (2A): which AIF losses pass through to the unit holder and which stay with the fund CBDT Circulars & InstructionsCuts both ways
  Our Category II AIF has a loss for the year. Can the investors set it off in their own returns, and what happens to the losses the fund accumulated before 2019?
  A business loss of the investment fund never passes through: section 115UB(2)(i) requires it to be carried forward and set off by the fund itself under Chapter VI and to be ignored for the purposes of sub-section (1). Any other loss passes through to the unit holder unless the unit was not held by him for at least twelve months, in which case section 115UB(2)(ii) requires it also to be ignored; and section 115UB(2A) deems non-business losses accumulated at fund level as on 31 March 2019 to be the loss of the unit holder who held the unit on that date, allowing him to carry it forward for the remaining period, with a proviso that the fund itself cannot use it on or after 1 April 2019.
• Statutory position — s.33AB: the tea, coffee and rubber development account — the deposit deadline, the forty per cent ceiling, the Form 3AC audit, and which assessment years each figure governs CBDT Circulars & InstructionsCuts both ways
  My client grows and manufactures tea. It put money into the NABARD account after the year had closed and now wants the section 33AB deduction. By when did the deposit have to be made, how much can be claimed, and what has to be filed by the specified date under s.44AB?
  Section 33AB(1) allows a deduction to an assessee carrying on the business of growing and manufacturing tea or coffee or rubber in India which has, "before the expiry of six months from the end of the previous year or before the due date of furnishing the return of his income, whichever is earlier", either deposited with the National Bank (NABARD) in a special account under a scheme approved by the Tea Board, Coffee Board or Rubber Board, or deposited in a Deposit Account under a scheme framed by that Board with the previous approval of the Central Government. The deduction is the LOWER of the amount deposited and forty per cent of the profits of that business computed under "Profits and gains of business or profession" before any deduction under section 33AB itself, and it is expressly given before brought-forward losses are set off under section 72. The forty per cent figure is not original: "forty" was substituted for "twenty" by the Finance Act, 2001 with effect from 1 April 2002, so twenty per cent governs assessment years up to AY 2001-02 and forty per cent AY 2002-03 onwards. Coffee and rubber were not in the section at all until the Finance Act, 2003 brought them in with effect from 1 April 2004 — that is, from AY 2004-05; for AY 2003-04 and earlier the section is a tea provision only.
• Statutory position — s.33ABA: the Site Restoration Fund for petroleum and natural gas — the deposit must be in before the year ends, the ceiling is twenty per cent, and the closure clawback is net of the Government's production share CBDT Circulars & InstructionsCuts both ways
  My client is an oil and gas producer under a production sharing contract. It missed the year end and deposited into the Site Restoration Account in April. Does the six-month grace that tea companies get apply here too, and what is the ceiling?
  No. Section 33ABA gives no grace at all: the deposit must be made "before the end of the previous year", not within six months of it, and that single word is the commonest way the deduction is lost. The section applies to an assessee carrying on the business of prospecting for, or extraction or production of, petroleum or natural gas or both in India in relation to which the Central Government has entered into an agreement with that assessee. The deposit is either with the State Bank of India in a special account under a scheme approved by the Government of India in the Ministry of Petroleum and Natural Gas, or in a Site Restoration Account under a deposit scheme framed by that Ministry. The deduction is the LOWER of the amount deposited and twenty per cent of the profits of that business computed under "Profits and gains of business or profession" before any deduction under section 33ABA — twenty, not the forty per cent that section 33AB allows — and it is given before brought-forward losses are set off under section 72. The section was inserted by the Finance (No. 2) Act, 1998 with effect from 1 April 1999, so it governs AY 1999-2000 onwards. One later amendment matters: Act No. 12 of 2020, with effect from 1 April 2020, substituted the audit limb of sub-section (2), so that from AY 2020-21 the accounts must be audited, and the report furnished, before the specified date referred to in section 44AB — one month before the section 139(1) due date — rather than along with the return.
• CBDT Circular No. 11/2019 — set-off of loss against s.115BBE income CBDT Circulars & InstructionsHelps taxpayer
  Is there anything from the Board itself I can put in front of the officer on setting off losses against s.68 or s.69 additions in an old year?
  Yes. Circular No. 11 of 2019 records the Board's view that an assessee is entitled to claim set-off of loss against income determined under s.115BBE up to assessment year 2016-17. It is the department's own instruction, so an Assessing Officer cannot take a contrary view for those years — and by the same document, the position from assessment year 2017-18 is that the set-off is denied.
• Statutory position — s.73A: a specified business loss can only be set off against another specified business, and it carries forward indefinitely CBDT Circulars & InstructionsCuts both ways
  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.
• Statutory position — the capital-loss asymmetry: sections 70(2), 70(3) and 74(1) from AY 2003-04 CBDT Circulars & InstructionsCuts both ways
  I have a long-term capital loss and short-term capital gains this year, and also a brought-forward long-term loss. Which loss can go against which gain, and for how long can I carry it?
  A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss can only be set off against a long-term capital gain. That asymmetry holds both within the year, under s.70(2) and s.70(3), and on carry forward, under s.74(1)(a) and s.74(1)(b); the carry forward is limited to eight assessment years by s.74(2). The present form of both sections was put in place by the Finance Act 2002 with effect from 1 April 2003, that is Assessment Year 2003-04.
• ACIT v Goldmine Shares and Finance Pvt Ltd ITATHelps departmentOverruled
  My windmill unit's early losses were already set off against my share trading profits. Must I now notionally bring those losses back and reduce the unit's profit before claiming section 80-IA?
  Yes, on this Special Bench view. The Ahmedabad Special Bench answered the reference in favour of the Revenue: because of section 80-IA(5), the profit of the eligible business for computing the deduction must be arrived at after deducting the notional brought forward losses and depreciation of that business, even though they were actually allowed as a set off against other income in earlier years. The sub-section creates a fiction that the eligible business is the assessee's only source of income, and a fiction must be carried to its logical conclusion. The fiction cuts both ways - other units' losses cannot reduce the eligible profit either - and the deduction remains limited to gross total income.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.