11 May 2014
actually it cannot be set off. The loss (which is nothing but excess of expenses over income) from illegal business is not permitted. refer http://law.incometaxindia.gov.in/dittaxmann/incometaxacts/2008itact/casesec37%281%29.htm
and http://www.itatonline.org/articles_new/index.php/the-law-on-deductibility-of-expenditure-incurred-for-an-unlawful-purpose/