Applicability of Section 79A on set-off of losses

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…

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