07 April 2011
73A. Carry forward and set off of losses by specified business (1) Any loss, computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business. (2) Where for any assessment year any loss computed in respect of the specified business referred to in sub-section (1) has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee has no income from any other specified business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and— (i) it shall be set off against the profits and gains, if any, of any specified business carried on by him assesssable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.] Authors comments about facility for set off of loss: Section 73A imposes a restriction that loss of a specified business can be set off only against profit of any other specified business. This is not justified for the following reasons: 1. A specified business ( as defined in S.35AD (8) (c) may be a new business or an existing old business. For example, there are many fertilizer producing companies having accumulated losses. After insertion of production of fertilizer in meaning of specified business, the loss of old existing fertilizer plants will cease to be eligible for set off except against income of any specified business. For example in case of Duncan Agro Ltd. the loss of fertilizer business will not be eligible for set off against income of its tea business. Author feels that this is not intention. 2. Specified businesses are capital intensive business having long gestation period. Even when normal depreciation is allowed, such businesses have no taxable profit in many initial years (unless profits are transferred from other business). This is because such businesses generally break even after a long period of at least 5-6 years. Therefore, having taxable profit is with very less probability. 3. It will require at least two specified businesses. Out of which one can be eligible for special deductions allowed u/s 35AD and another can be specified business which has not availed or which was not eligible for deduction u/s 35AD. E.G. old fertilizer plant. 4. Deduction of capital expenditure is allowed as an incentive to make investment in specified businesses and that too within specified period. Therefore, there should not be any restriction on loss of such business to be set off only against any other specified business only.
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