TL Business Loss Sec 72

Carry Forward of Business Losses

Carry Forwardof Business Loss other than speculation loss [Sec.72]

Loss under the head Profits and gains of business or profession (other than speculation loss) can be carried forward and set off against income under the same head.

Period for which carry-forward shall be allowed : 8 assessment years immediately succeeding the assessment year in which such loss is first computed.

Exceptions to the above period

Closure of business due to specified reasons [Sec. 33B]

Where any loss remains unabsorbed of a business undertaking, which is discontinued due to damages caused by:
(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or
(ii) riot or civil disturbance; or
(iii) accidental fire or explosion; or
(iv) action by an enemy or action taken in combating an enemy (whether with or without a declaration of war)
and such business is re-established, reconstructed or revived by the assessee, within a period of 3 years from the end of the previous year in which such mishap took place.
Treatment : Losses of such business [including the past eligible losses (to be carried forward)] shall be adjusted with profit of the year in which business is so revived and if the loss cannot be wholly setoff, then it shall further be allowed to be carried forward for 7 years.

Set off of losses relating to the year of closure of business against deemed profit [Sec. 41(5)]

Where any part of loss (not being a speculation loss), which arose during the previous year remains unabsorbed in the previous year in which business ceased to exist, then such loss shall be allowed to be carried forward for any number of years (without restriction of 8 years) against income chargeable to tax u/s 41(1); (3); (4); (4A). Such loss can be set off even if the return of loss is not submitted in time.

Loss from specified business referred to u/s 35AD shall be adjusted only against profit from specified business referred to under that section.

Who can set-off the brought forward loss
Business losses can be carried forward and set off against the profits of the assessee who incurred the loss i.e. assessee must be same to carry forward the loss. However, this rule has the following exceptions:

Business losses and unabsorbed depreciation of an amalgamating company can be set-off against the income of the amalgamated company if the amalgamation is within the meaning of sec. 72A of the Income tax Act.
Business losses and unabsorbed depreciation of a proprietary concern or a partnership firm succeeded by a company as per sec. 47(xiii) and (xiv), can be carried forward by succeeded company.
As per sec. 78(2), where the assessee acquires the business through inheritance, losses of such business may be carried forward for balance number of years.
In case of demerger, loss of demerged company shall be carried forward and set-off by resulting company.

Note: In following case losses cannot be carried forward :

Business, of an HUF where the business of the HUF is taken over by the Karta of HUF;
Proprietorship business, where such business is taken over by a firm in which proprietor is one of the partner;
A firm being succeeded by another firm;
A firm where the business of the firm is taken over by one of the partner of the firm.