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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Direct Tax Laws & International Taxation

Case: Tanvi Engineering Pvt Ltd, a closely held company with no listed shares, has a brought-forward business loss of Rs 80 lakh from an earlier year. On the last day of that loss year, A held 60% and B held 40% of voting power. During the current year A sold 30% to C, and B sold 10% to D. The current year's business profit before set-off is Rs 50 lakh. How much of the brought-forward loss can be set off against this profit?

Rs 50 lakh can be set off. A and B together still hold 60% of voting power, above the 51% continuity threshold, so the loss is not forfeited. Set-off is capped at the current year's profit of Rs 50 lakh, and Rs 30 lakh is carried forward.

  1. ARs 50 lakhCorrect
  2. BNil
  3. CRs 80 lakh
  4. DRs 20 lakh

Explanation

The loss carry-forward is retained if shares carrying at least 51% of voting power are beneficially held by the same persons as on the last day of the loss year. A (30%) and B (30%) still hold 60%, so the condition is met. Set-off is limited to current profit, which is Rs 50 lakh, leaving Rs 30 lakh to carry forward. Nil would apply only if continuity fell below 51%.

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