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 taxpayerValidity unconfirmed
  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 department
  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 taxpayerValidity unconfirmed
  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.
• Balaji Landmarks LLP v CBDT High CourtHelps taxpayerValidity unconfirmed
  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.
• Cargill India Pvt Ltd v CBDT High CourtHelps departmentValidity unconfirmed
  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 taxpayerValidity unconfirmed
  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 taxpayerValidity unconfirmed
  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 departmentValidity unconfirmed
  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 Dr M.A.M. Ramaswamy High CourtHelps departmentValidity unconfirmed
  My client's winnings from horse race betting are taxed at the special rate. Can his business loss be set off first, so that only the net is taxed under s.115BB?
  No, on this Madras High Court authority. Section 115BB is a standalone special provision under Chapter XII and the special rate applies to the entire income of winnings from horse racing, not to a figure arrived at after setting off losses from other sources. The Court expressly carved out income from the activity of owning and maintaining race horses, which is dealt with separately and carries its own set-off and carry forward regime in s.74A(3).
• CIT v Darshan Securities Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  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.
• 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 taxpayerValidity unconfirmed
  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.
• ACIT v Lurgi India International Services Pvt Ltd ITATHelps taxpayerValidity unconfirmed
  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.
• Bangiya Gramin Vikash Bank v ACIT ITATHelps taxpayerValidity unconfirmed
  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.
• ACIT v Goldmine Shares and Finance Pvt Ltd ITATHelps departmentValidity unconfirmed
  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.
• 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.

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.