Section 73A

Section 73A — the law in short

What the courts have decided on section 73A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• International Fresh Farm Products (India) Ltd v ITO ITATHelps taxpayerNo later treatment found
  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?
  On this Tribunal's view, no. Carry forward and set off are two separate stages: the officer of the loss year determines and notifies the loss, and it is the officer of the later year, when set-off is actually claimed, who decides whether s.80 read with s.139(3) bars it. The Bench set aside the CIT(A)'s order and directed the AO/CPC to remove the direction denying carry forward, expressly leaving the due-date objection alive for the year of set-off.
• Sarovar Hotels P Ltd v DCIT ITATHelps taxpayerNo later treatment found
  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?
  No, on this Tribunal's reading. 'Building and operating' a hotel in s.35AD(8)(c) means creating a facility and operating it, and creating the facility includes occupying an existing building on lease and making suitable modifications to run the hotel - so a leased-building hotel is a specified business and its loss can be set off under s.73A against the profits of another specified business. But a unit where the assessee only manages hospitality services for someone else's institution, without control of the facility, is not a specified business.
• 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.

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.