Aggregation of Income and set off and carry forward of losses

1. Sec. 68 Unexplained – cash credit :
 Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof, or the explanation offered is not satisfactory, the sum so credited may be charged as income of the assessee for that previous year.
 For the purpose of avoiding the applicability of sec. 68, the burden rest with the assessee to prove that—
 the identity of the creditor is established;
 the capacity of the creditor is beyond doubt; and
 Genuiness of transaction
2. Sec. 69 – Unexplained Investments
 If in the financial year relevant to an assessment year, the assessee has made investments which are not recorded in the books of account, if any, maintained by him, and the assessee offers no explanation or unsatisfactory explanation, the value of the investments may be deemed to be the income of the assessee for such financial year.
3. Sec. 69A – Unexplained money, jewellery etc
 If in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable articles which are not recorded in the books of accounts, if any, maintained by the assessee and the assessee offers no explanation or unsatisfactory explanation, the money and value of assets so found may be deemed to be the income of the assessee for such financial year. Value as on the date of acquisition will be considered.
4. Sec. 69B – Investments not fully disclosed
 If in any financial year, the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article and the assessing officer finds that the amount expended for making such investments exceeds the amount recorded in the books and the assessee offers no explantion or unsatisfactory explantion the excess amount may be deemed to be the income of the assessee for such financial year.
5. Sec. 69C – Unexplained expenditure
 If in any financial year the assessee has incurred any expenditure and offers no explantion about the source of such expenditure, or the explanation offered is not satisfactory, then the expenditure to the extent it is not satisfactory explained may be deemed to be the income of the assessee for such financial year.
 Such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.
6. Sec. 69D – Any amount borrowed/repaid on hundi
 If in any amount is borrowed on hundi from any person or any amount thereon is repaid to such person otherwise than by an account payee cheque drawn on a bank, the amount so  borrowed or repaid shall be deemed to be the income of the person borrowing/repaying the amount for the previous year in which it is borrowed or repaid.
 Once an amount is deemed as income at the time of borrowal, it cannot be deemed as income at the time of repayment.
 Amount repaid shall include the amount of interest paid on amount borrowed.
7. Sec. 70 – Inter source adjustment
 Where the net result of computation for any assessment year in respect of any source of income falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other sources under the same head.
8. Sec. 71 – Inter head adjustment
 Where the net result of computation under any head of income in respect of any  had other than capital gain. Assessment year is a loss, the assessee shall be entitled to have such loss set off against his income assessable for that assesssment year under any other head of income.
9. Exceptions
(i) In respect of the following type of losses the provisions of  Sec. 70 and 71, will not be applicable :
 Loss from speculation business :
 Loss from the activity of owning and maintaining race horses.
 Loss from speculation business cannot be set off against any other business income and cannot be set of against income under any other head of income. It can only be carried forward to be set off against speculation income in the subsequent assessment year.
(ii) From A.Y. 2003-04 short term capital loss can be set off from any capital gain(long term or short term) but long term capital gain loss can now be set off only against long term capital gain. Short term capital losses can not be set off from other sources.
(iii) *If in respect any assessment year, the net result of the computation under the head “Profit 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.
*Important :
Loss arising from security transactions not allowed u/s 94(7) in certain cases :
Where any person acquires or buys any securities or unit within a period of three months prior to record date and sells or transfers the same within a period of 3 months  (nine months in case of unit) and further dividend receivable is exempt, then, the loss, if any, arising from such transaction shall be ignored to the extent such loss does not exceed the amount of dividend income.
10. Carry Forward of Losses :

IMPORTANTSec. 58 deals with inadmissible exenses in case of income from other sources. As per provision under this section no deduction shall be allowed in respect of winning from lotteries, cross word puzzles, cardgames, races including horse race, betting etc. However in respect of the activity of owning and maintaing race horses expenses incurred shall be allowed even in the absence of any stake money earned. Such lossess shall be allowed to be carried forward for 4 years u/s 74A.

11. Sec. 72A. Amalgamation/demerger of a company :
 In case of amalgamation of companies, the unabsorbed losses and unabsorbed depreciation of the amalgamating company owning an industrial undertaking or a ship shall be deemed to be the loss or depreciation of the amalgamated company for the previous year in which the amalgamation was effected and such loss or depreciation shall be set off or carried forward for a period of 8 assessment years. accordingly, subject to the following conditions:-
 Condition to be satisfied by amalgameting company -
1. The amalgamating company has been engaged in the business, in which the accumulated loss occurred or depreciation remain unabsorbed for three or more years.
2. The amalgamating company has had continuously as on the date of the amalgamation at least 75% of book value of fixed asset held by two year prior to the date of amalgamation.
 Condition to be satisfied by amalgamated company -
1. The amalgamated company holds continuously for a minimum period of 5 years from the date of amalgamation at least 3/4th of the book value of fixed assets of the amalgamating company acquired in a scheme of amalgamation;
2. The business of the amalgamating company should be continued by the amalgamated company for a minimum period of 5 years from the date of amalgamation; and
3. The amalgamated company fulfills the following conditions prescribed under Rule 9C to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose;
(a) The amalgamated company shall achieve the level of production of at least 50% of the installed capacity (capacity as on the date of amalgamation) of the said undertaking before the end of 4 years from the date of amalgamation and continue to maintain the said minimum level of production till the end of 5 years from the date of amalgamation. Central Government has the power to modify this requirement on an application made by the amalgamated company.
(b) The amalgamated company shall furnish to the Assessing Officer, a certificate in form No. 62 verified by a Chartered  Accountants in this regard.
 In a case where any of the above conditions are not complied with the set off of loss or depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be the income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with.
 According to sub-section (4) of Section 72A, in the case of a demerger, the accumulated loss and unabsorbed depreciation of the demerged company shall be allowed to be carried forward and set off in the hands of the resulting company. Where such loss or unabsorbed  depreciation is not directly relatable to the undertakings transferred to the resulting company, it shall be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company. The Central Government may notify conditions as it considers necessary to ensure that the demerger is for genuine business purpose.
12. Sec. 78 – Change in constitution and Succession :
1. If a change has occurred in the constitution of a firm the loss attributable to the share of  a retired or deceased partner remaining unabsorbed shall not be allowed to be set off & carried forward by the firm. This restriction shall not apply to unabsorbed depreciation.
2. If any person carrying on business or profession has been succeeded in such capacity by another person otherwise than by inheritance, then the successor cannot have the loss of predecessor carried forward and set off against his income.
13. Sec. 79 – carry forward and setoff of loses in case of certain     companies
 In case of company, not being a company in which public are substantially interested, where a change in share holding has taken place in a previous year, then no loss incurred in any year prior to the previous year shall be carry forward and set off against the income of previous year unless on teh last day of previous year in which the loss was incurred, the shares of the company carrying not less than 51% voting power were beneficially held by the same person.
 Note : This provision shall not be apply to a change in voting power.
14. Sec. 80 – Loss Returns
 No loss, which has not been determined in pursuance of a return filed in accordance with the provisions of Sec. 139(1), shall be carried forward under the provision of Sec. 72, 73, 74 and 74A. This condition does not apply to loss from house property carried forward u/s. 71B and unabsorbed deprecation carried forward u/s 32(2).