Set-off of brought forward loss depends on the character of current year income and proof that profits are speculative.

Brought forward business loss can be set off only in accordance with the character in which it was assessed, and speculative loss cannot be adjusted against non-speculative business income. The assessee cannot reclassify earlier years' assessed loss as a different category for set-off. However, where the current year's profit is itself from speculation business, set-off is available to that extent. The Assessing Officer must verify the character of the current year income, and the assessee bears the burden of proving the factual basis for the claim.

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Issues: Whether the assessee could claim set-off of brought forward business loss against the current year's income to the extent the current year profit was from speculation business, and whether the Assessing Officer was required to verify the character of the current year income for allowing such set-off.

Analysis: The loss eligible for carry forward and set-off is the loss as assessed in the earlier years, and a speculative loss cannot be adjusted against non-speculative business income. The assessee could not re-characterise the earlier years' returned loss differently from what had been assessed. At the same time, if part of the current year's business profit arose from speculation business, the brought forward speculative loss could be set off to that extent. The factual verification of the current year's income stream remained necessary, and the burden to prove the claim on facts lay on the assessee.

Conclusion: Set-off was directed only to the extent the current year profit was found to be speculation income, subject to verification by the Assessing Officer and proof by the assessee.

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