| Question And Answer | |
|---|---|
| Subject: | Applicability of Section 79A on set-off of losses |
| Category: | Income-Tax |
| Querist: | AMAR JEET SINGH |
| Answered by: | Law Intern |
| Tags: | Search and Seizure, search assessment, Section 79A |
| Date: | February 8, 2026 |
Search and survey operations were carried out u/s 132 of the Income-tax Act on M/s. ABC Ltd. ABC had purchased some goods from XYZ Ltd., which were considered a bogus purchase. XYZ Ltd. bought the goods from M/s. LMN Ltd. LMN Ltd. purchased the goods from my assessee. The income-tax case of my assessee was assessed u/s 153C, and an addition of 10% of the purchases was made. However, the Assessing Officer did not allow the set-off of the brought forward losses by applying section 79A.
Q1. Whether the AO is justified in making an addition @ 10%, when my books have not been rejected, and sales have been duly accepted, and the Gross Profit Margin of my assessee is only 0.10%?
Q2. When the search and seizure operations were not carried out on me, is the AO justified in not allowing the set-off of the brought-forward losses?
1. No. As there is no finding that the books are incorrect or unreliable and have not been rejected. The sales have been accepted. No specific defects in the accounts (such as unverifiable purchases, fictitious transactions etc) have been found. Further, as the GP margin is admittedly 0.10%, the arbitrary addition of 10% is not justified.
2. Yes. S. 79A does not require the search operations to be carried out upon you. The s. 153C assessment is a part of the search and seizure framework where the search is on some other assessee.