SET OFF AND CARRY FORWARD IN CASE OF CERTIAN COMPANIES

SET OF CARRY FORWARD OF LOSSES- SPECIAL CASES (SECTION 79 & 79A)

1. Carry Forward and set-off of losses in case of certain companies (Section 79)?

Where a change in shareholding has taken place during the P.Y in the case of a closely held company, no loss incurred in any year prior to the P.Y shall be carried forward and set-off against the income of the P.Y, unless on the last day of the P.Y, at least 51% of equity shares were held by persons who held at least 51% of the equity shares on the last day of the year or years  in which the loss was incurred.

Provided that even if the above condition is not satisfied in case of eligible start-up (80-IAC), loss incurred in any year prior to the P.Y shall be allowed to be carried forward and set off against the income of the P.Y if all the equity shareholders of such company who held shares on the last day of the year or years in which the loss was incurred, continued to hold those shares on the last day of such P.Y and such loss has been incurred during the period of 10 years from the year in which such company is incorporated.

Following changes in shareholding shall not be considered as a change in shareholding:

Example 1:

Loss Incurred by Nayan Pvt. Ltd. in P.Y 2023-24 & earned income for P.Y 2024-25.

Losses of P.Y 2023-24 can be set off against income of P.Y 2024-25 because 51% or more equity shares held by the same person on 31/03/2024 and 31/03/2025.

Example 2:

Loss Incurred by Nayan Pvt. Ltd. in P.Y 2023-24 & earned income for P.Y 2024-25.

Losses of P.Y 2023-24 cannot be set off against income of P.Y 2024-25 because 51% or more equity shares are not held by the same person as on 31/03/2024 and 31/03/2025. However, if Nayan Pvt. Ltd. is an eligible start-up as per section 80-IAC the losses of P.Y 2023-24 can be set off because all the shareholders on 31/03/2024 continue as shareholders on 31/03/2025. (Assume loss incurred in the first 10 Years of incorporation).

Example 3:

Loss Incurred by Nayan Pvt. Ltd. in P.Y 2023-24 & earned income for P.Y 2024-25.

Losses of P.Y 2023-24 cannot be set off against income of P.Y 2024-25 because 51% or more equity shares are not held by the same person as on 31/03/2024 and 31/03/2025. However, if Nayan Pvt. Ltd. is an eligible start-up as per section 80-IAC the losses of P.Y 2023-24 still cannot be set off against the income of P.Y 2024-25 because all the shareholders as on 31/03/2024 are not shareholders as on 31/03/2025.

2. Carry forward and set-off of losses consequent to search, requisition and survey?

Where consequent to a search u/s 132 or a requisition us/ 132A or a survey u/s 133A (other than TDS/ TCS survey), the total income of any P.Y of an assessee includes any undisclosed income, set-off of any losses or unabsorbed depreciation not allowed against such undisclosed income.

Undisclosed income means: -

1. Income of the P.Y represented by money, bullion or other valuable article or any entry in the Books of Accounts or other documents or transactions found during search or requisition or survey which has: -

1. 1. 1. 1. 1. Not been recorded on or before the date of search or requisition or survey, in the books of accounts or no other documents maintained in the normal course relating to such P.Y or

1. 1. 1. 1. 2. Not been disclosed to the Principal Chief Commissioner of Income Tax (PCCIT) or Chief Commissioner of Income Tax (CCIT) or Principal Commissioner of Income Tax   (PCIT) or Commissioner of Income Tax (CIT) before the date of search or requisition or survey; or

2. Income of the P.Y represented by any entity in respect of an expense recorder in Books of Accounts or other documents maintained in the normal course relating to the P.Y which is found to be False and which would not have been found to be so, had the search not been initiated or the survey not been conducted or the requisition not been made.