1. Provisions of Section 79 not to apply In case of Strategic Disinvestment of Public Sector Companies [Section 79 amended w.e.f. AY 2022-23]
Section 79 of the Act provides for carry forward and set-off of losses in case of certain companies Sub-section (I) of the said section, inter alia, provides that where a change in shareholding has taken place during the previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and act off against the income of the previous year. unless on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of year or years in which the loss was incurred. Sub-section (2) of the said section provides certain circumstances in which the provisions of sub-section (1) shall not apply. The benefit of section 79(2) has also been extended to facilitate the strategic disinvestment of public sector companies.
The Finance Hill, 2022 has inserted clause (f) under section 79(2) to provide that the provisions of section 79(l) shall not apply to an erstwhile public sector company subject to the condition that the ultimate holding company of such erstwhile public sector company. immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least 51% of the voting power of the erstwhile public sector company in aggregate.
Further sub-section (3) has been inserted under section 79 to provide that if the above condition is not complied with in any previous year after the completion of strategic disinvestment, the provisions of section 79(1) shall apply for such previous year and subsequent previous years.
The terms ‘erstwhile public sector company” and Strategic disinvestment” shall have the meaning assigned to in clauses (ii) and (iii) of the Explanation to clause (d) of Section 72A(1) respectively.
“Erstwhile public sector company” means a company which was a public sector company in earlier previous years and ceases to be a public sector company by way of strategic disinvestment by the Government:
“Strategic disinvestment” means sale of shareholding by the Central Government or any Slate Government in a public sector company which results in reduction of its shareholding to below 51% along with transfer of control to the buyer.
2. No set off of losses consequent to search & seizure or survey or requisition proceedings [Section 79A inserted by the Finance Bill 2022 w.e.f. AY 2022-23]
Chapter VI of the Act deals with aggregation of income and set off or carry forward of loss. In Sections 70 to 80 of the Act there are specific provisions relating to set off or carry forward and act off of losses while computing the income under various heads and with respect to different classes of persons.
It is noticed that in some cases, assessee claim set off of losses or unabsorbed depreciation, against undisclosed income corresponding to difference in stock, undervaluation of stock, unaccounted cash payment etc. which is detected during the course of search or survey proceedings. Currently there is no provision in the Act to disallow such set-oil and no distinction is made between undisclosed income which was detected owing to search & seizure or survey or requisition proceedings and income assessed in scrutiny assessment in the regular course of assessment though for incomes filling in sections 6t, 69 and 6913 etc., such restriction is there.
Allowing the adjustment of undisclosed income detected as a result of search or requisition or survey against the loss or unabsorbed depreciation is resulting in short levy of tax, The provision of non-adjustment of loss or unabsorbed depreciation against undisclosed income detected as a result of search or requisition or survey would help in ensuring that proper tax is paid on income detected due to a search or survey and also result in increased deterrence against tax evasion.
Therefore, the Finance Bill, 2022 has inserted a new section 79A which provides as under:
Notwithstanding anything contained in the Act, where consequent to
- a search initiated under section 132: or
- a requisition made under section 132A; or
- a survey conducted under section 133A, other than under section 133A(2A).
the total income of any previous year of an assessee includes any undisclosed income, no set off. against such undisclosed income, of any loss, whether brought forward or otherwise, or’ unabsorbed depreciation under section 32(2) shall be allowed to the assessee under any provision of this Act in computing hi total income for such previous year.