Set off business loss
This query is : Resolved
28 July 2009
Hello Sir/Madam,
An assessee had no business income during the year. The general and administration expenses were shown by the company as business loss incurred during the year.
The business loss was set off against the house property income of the assessee during the year.
Is this correct.
Please reply with a case law if any
An assessee had no business income during the year. The general and administration expenses were shown by the company as business loss incurred during the year.
The business loss was set off against the house property income of the assessee during the year.
Is this correct.
Please reply with a case law if any
29 July 2009
As per sec 71
(1) Where in respect of any assessment year the net result of the computation under any head of income, other than Capital gains, is a loss and the assessee has no income under the head Capital gains, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than Capital gains, is a loss and the assessee has income assessable under the head Capital gains, such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head Capital gains (whether relating to short-term capital assets or any other capital assets).
[(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss and the assessee has income assessable under the head Salaries, the assessee shall not be entitled to have such loss set off against such income.]
(3) Where in respect of any assessment year, the net result of the computation under the head Capital gains is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.]
[(4) Where the net result of the computation under the head Income from house property is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section.]
Thus the treatment done by you is correct.
(1) Where in respect of any assessment year the net result of the computation under any head of income, other than Capital gains, is a loss and the assessee has no income under the head Capital gains, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than Capital gains, is a loss and the assessee has income assessable under the head Capital gains, such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head Capital gains (whether relating to short-term capital assets or any other capital assets).
[(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss and the assessee has income assessable under the head Salaries, the assessee shall not be entitled to have such loss set off against such income.]
(3) Where in respect of any assessment year, the net result of the computation under the head Capital gains is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.]
[(4) Where the net result of the computation under the head Income from house property is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section.]
Thus the treatment done by you is correct.
29 July 2009
Thank you for the reply
The set off of business loss with HP Income can be done.
But in the assessment of this company the ITO is questioning the existence of business loss itself as there is no business income during the year.As per him how can there be business loss on account of general and administrative expenses when there is no business income.
Is he correct. If not, any supportings?Please help
Regards,
Jyoti
The set off of business loss with HP Income can be done.
But in the assessment of this company the ITO is questioning the existence of business loss itself as there is no business income during the year.As per him how can there be business loss on account of general and administrative expenses when there is no business income.
Is he correct. If not, any supportings?Please help
Regards,
Jyoti
25 July 2025
This is an important issue — and you're absolutely right to seek clarity, especially in the context of “business loss without business income” and its set-off against house property income.
Let’s break it down and address both the legal and practical angles.
✅ Your Facts Recap:
The assessee (a company) had no business income during the year.
There were general and administrative expenses, resulting in a business loss.
The assessee set off the business loss against house property income.
The Assessing Officer (AO) questioned the very existence of business loss, saying:
“If there's no business income, how can there be a business loss?”
⚖️ Legal Position:
✅ 1. Section 71(1) – Inter-head Set-off:
If the result under one head (e.g., business) is a loss, and there's income under another head (e.g., house property), then the loss can be set off, except against salaries.
So, yes, business loss can be set off against house property income.
✅ 2. Can there be business loss without business income?
Yes, and there is strong legal backing for this.
If the business was already in existence, and the general administrative expenses were incurred in the normal course of maintaining the business, the loss is valid — even if there is no turnover or revenue in that year.
The Income Tax Act recognizes that business expenses can be incurred (e.g., salaries, rent, office expenses) even during periods of no income.
📚 Judicial Precedents Supporting You:
🔹 CIT v. Varnika Securities (P) Ltd. [(2006) 155 Taxman 403 (Delhi HC)]
Held:
Even if there is no business income in a particular year, business loss from expenditure incurred to keep the business running can still be claimed and set off under Section 71.
🔹 CIT v. Rampur Timber & Turnery Co. Ltd. [(1981) 129 ITR 58 (All.)]
Held:
Business loss due to administrative expenses in a year with no business income is still allowable if the business was not closed or discontinued.
🔹 CIT v. Ganga Properties Ltd. [(1993) 199 ITR 94 (Cal)]
Held:
So long as business is not discontinued, and expenses are incurred to preserve infrastructure and continue operations, loss can be claimed.
✅ Conditions to Validate Claim:
To support your position:
The company should have a continuing business setup (office, staff, etc.).
The expenses should be genuine and necessary to maintain business continuity.
The company should not have ceased business or wound up operations.
Filing audit report (if applicable) and books showing such expenses strengthens the claim.
🚫 If Business Was Discontinued:
If the AO can establish that the business ceased to exist, then such expenses may be disallowed as personal or capital expenses, not business expenses.
But merely not having income doesn't imply business is discontinued.
🧾 Conclusion:
Issue Answer
Can there be business loss without business income? ✅ Yes, if business exists and expenses are legitimate.
Can such loss be set off against house property income? ✅ Yes, under Section 71(1), unless against salaries.
Can AO disallow loss merely because there’s no income? ❌ No, unless he proves business has ceased.
Let’s break it down and address both the legal and practical angles.
✅ Your Facts Recap:
The assessee (a company) had no business income during the year.
There were general and administrative expenses, resulting in a business loss.
The assessee set off the business loss against house property income.
The Assessing Officer (AO) questioned the very existence of business loss, saying:
“If there's no business income, how can there be a business loss?”
⚖️ Legal Position:
✅ 1. Section 71(1) – Inter-head Set-off:
If the result under one head (e.g., business) is a loss, and there's income under another head (e.g., house property), then the loss can be set off, except against salaries.
So, yes, business loss can be set off against house property income.
✅ 2. Can there be business loss without business income?
Yes, and there is strong legal backing for this.
If the business was already in existence, and the general administrative expenses were incurred in the normal course of maintaining the business, the loss is valid — even if there is no turnover or revenue in that year.
The Income Tax Act recognizes that business expenses can be incurred (e.g., salaries, rent, office expenses) even during periods of no income.
📚 Judicial Precedents Supporting You:
🔹 CIT v. Varnika Securities (P) Ltd. [(2006) 155 Taxman 403 (Delhi HC)]
Held:
Even if there is no business income in a particular year, business loss from expenditure incurred to keep the business running can still be claimed and set off under Section 71.
🔹 CIT v. Rampur Timber & Turnery Co. Ltd. [(1981) 129 ITR 58 (All.)]
Held:
Business loss due to administrative expenses in a year with no business income is still allowable if the business was not closed or discontinued.
🔹 CIT v. Ganga Properties Ltd. [(1993) 199 ITR 94 (Cal)]
Held:
So long as business is not discontinued, and expenses are incurred to preserve infrastructure and continue operations, loss can be claimed.
✅ Conditions to Validate Claim:
To support your position:
The company should have a continuing business setup (office, staff, etc.).
The expenses should be genuine and necessary to maintain business continuity.
The company should not have ceased business or wound up operations.
Filing audit report (if applicable) and books showing such expenses strengthens the claim.
🚫 If Business Was Discontinued:
If the AO can establish that the business ceased to exist, then such expenses may be disallowed as personal or capital expenses, not business expenses.
But merely not having income doesn't imply business is discontinued.
🧾 Conclusion:
Issue Answer
Can there be business loss without business income? ✅ Yes, if business exists and expenses are legitimate.
Can such loss be set off against house property income? ✅ Yes, under Section 71(1), unless against salaries.
Can AO disallow loss merely because there’s no income? ❌ No, unless he proves business has ceased.
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