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CA Final · Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses

Nagar Co-operative Bank Ltd amalgamated with Sahyadri Co-operative Bank in the tax year, on 1 October. The predecessor had accumulated loss of Rs 60,00,000 and had carried on banking for five years and held the required fixed assets. Sahyadri bank holds three-fourths of the book value of the acquired fixed assets but, in year three after the amalgamation, sells half of them and continues business for five years. Under section 118 of the Income-tax Act, 2025, which statement is correct?

The loss set off earlier is deemed to be the successor bank's income in the year of breach. The successor must hold at least three-fourths of the acquired fixed assets for five years; selling half in year three violates this, and continuing the business does not cure it.

  1. AThe set off already made is deemed to be income of the successor bank in the year the condition is breachedCorrect
  2. BThe set off already made stays valid because the business continued for five years
  3. COnly the future carry forward is lost; past set off remains
  4. DThe loss is apportioned between the two banks in the ratio of assets

Explanation

Section 118(3)(b)(i) requires holding at least three-fourths of the acquired fixed assets continuously for five years. Selling half in year three breaches it, and under sub-section (5) the set off made is deemed to be income of the successor bank for the year of non-compliance. Continuing the business does not cure the asset breach.

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