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Section 79 – carry forward of loss- information in ITR – Schedule CFL is only informative and does not amount to a claim

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Section 79 – carry forward of loss- information in ITR – Schedule CFL is only informative and does not amount to a claim
November 8, 2017
All Articles by: CA DEV KUMAR KOTHARI       View Profile
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Section 79 and related S. 143

Scope of this article:

Scope of this article is restricted to aspect of providing information in the Income Tax Return of company, about past losses suffered by company, which can be set off in future, when company has assessable income.

Particularly so, when during the current previous year for which ROI is being filed, there is change in 51% or more shares held in company and company is not a company in which public are substantially interested to which S.79 apply.

Provision in year of set off will govern:

It is well settled that carry forward and set off provisions as applicable in the year in which set off is sought will be applicable.

In this regard we can refer to judgment of the Supreme Court reported as  1979 (10) TMI 2 - SUPREME Court. In this case question was:  Whether, on the facts and circumstances of the case, the assessee was entitled in law to set-off unabsorbed loss of ₹ 15,50,189 of the assessment year 1950-51 against the business income of the assessment year 1960-61 .

The Supreme Court  confirmed judgment of the High court and answered question in negative meaning that  law applicable is the law that is in force in 1960-61 that is the year in which set off of loss is sought against income chargeable in any subsequent year and not the law which prevailed in the year in which loss was suffered.

Therefore, in some circumstances loss can be set off in future for example:

  • In case in future, majority shareholding again changes and 51% or more shares are again held by the same shareholders who held 51% or more shares in the previous year in which loss was suffered.

For this purpose  shares as on the closing day of previous year in which profit / income is assessable, and closing day of the previous year in which loss was suffered are relevant.

  • In case in future company become a company in which public are substantially interested (listed company or subsidiary of listed company, or shares held by government companies etc.) then also loss may be c/f and set off depending on provisions in that year.
  • Changes in provisions which may allow carry forward of past losses and set off in subsequent years.

Information about past losses in ITR:

For example, in ITR 6 for AY 2017-18, in Schedule CFL details of losses to be carried forward to future years is to be given.

This is an informative schedule. There is no case of a claim for set off so as to reduce taxable income. The claim for set off will be made only in the year in which assessee company has chargeable income against which such loss can be set off.

Change in shareholding: Therefore, even if there is change in shareholding and as per present changed shareholding, such loss may not be eligible for set off, but in future it may again be eligible for such set off in case applicable law or facts and circumstances changes which make loss eligible for set off.

Disputed amount of loss: This information can be based on ROI of company for earlier years, even if there is some reduction by the AO in assessment order and there is live dispute by the assessee to establish its entitlement for loss as claimed in ROI of earlier year. In case AO has reduced loss and there is no pending dispute, then loss as per assessment order should be given.    

Related provision Section 143:

On reading of provision of S.143  also we find that the AO is required to make adjustments u/s 143.1  or  issue notice u/s 143(2) only in respect of losses set off against chargeable income, which has impact of reducing income or tax payable. Therefore, information provided in Schedule CFL is not relevant for S.143.1 as well as S.143.2. Because computation of income for the year is not effected by information in Schedule CFL.

AO can make adjustments and can also issue notice u.s. 143.2 in relation to verification of Schedule BFlA – Details of income after set off of brought forwarded losses of earlier years.

Therefore there is no provision for  prima facie adjustments and scrutiny of losses  which are merely c/f  and set off of which will be relevant for assessment in subsequent years.


By: CA DEV KUMAR KOTHARI - November 8, 2017



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