Section 79A has been inserted by the Finance Act, 2022 to clarify that no set off of
any losses whether brought forward or otherwise or unabsorbed depreciation
u/s.32(2) shall be allowed against undisclosed income i.e. either returned or
assessed.
The amendment makes it clear that it is applicable from assessment year 2022-23
and onwards. A question arises as to whether in case where a search has
commenced after 01.04.2021, but in respect of undisclosed income of assessment
years upto assessment year 2021-22, the provisions of section 79A would be
applicable and whether a set off of either the brought forward losses or current
losses or unabsorbed depreciation would be prohibited for upto assessment year
2021-22. It is quite clear form the amendment that this provision will take effect only
from assessment year 2022-23 and consequently will not apply to assessment year
upto assessment year 2021-22 even though the search has commenced after
01.04.2021.
Even the memorandum explaining the Finance Bill makes it clear that the
amendment will apply only from assessment year 2022-23 and subsequent
assessment years. The same is also clarified by Circular No.23 / 2022 dated
03.11.2022 where it is stated that the amendment in section 79A would apply only
from assessment year 2022-23.
One may also notice the decision in Reliance Jute Industries Ltd v CIT [1979] 120
ITR 921 (SC) where the Supreme Court has laid down that it is the cardinal principle
of tax laws that the law to be applied is the law which is in force in that assessment
year unless provided expressly or by necessary implication.
A similar view can also be found in the decision of the Gujarat High Court in General
Motors India (P) Ltd v DCIT [2013] 257 CTR (Guj) 123 where they held that the
amendment in section 32(2) restricting the number of years of carry forward will only
apply prospectively from the year of amendment and the brought forward
unabsorbed depreciation prior to the assessment year restricting the time frame from
such carry forward will continue to the carried forward indefinitely.
The view that the law which is in force in that assessment year is to be applied
unless provided expressly or by necessary implication can also be found in Brij
Mohan v CIT [1979] 120 ITR 1 (SC).
Thus one can safely conclude that irrespective of the date of search, for computing
the income upto assessment year 2021-22 any current year losses or brought
forward losses or unabsorbed depreciation can be set off against any undisclosed
income offered through the return of income or added in an assessment, provided
the conditions otherwise relating to set off, carry forward and set off of losses and
unabsorbed depreciation are satisfied.
