Carried forward Business Loss - Belated Return AY 2025-26

[PRIYAM KHAMBHATA]

Respected Sir

My client is Partnership Firm and its Return of Income filed with Business Loss of Rs.70L after due date. Accordingly, Business loss is wipeout.

Now, such Partnership Firm would be taken over by Pvt. Limited Company in the month of October 2026. But Pvt Ltd Company is raised a query that Business Loss of Rs.70L is not to be allowed to set off against business income. Therefore, Pvt Limited Company is not interested to take over of my client Partnership Firm. In this situation, what action would be taken to get such business loss to be allowed against business income by Successor Pvt Ltd Co.

Please guide me

[Sanjeev Agarwal]

For the Rs. 70 lakh business loss of the partnership firm, the key issue is that the return was filed after the section 139(1) due date. Ordinarily, such business loss cannot be carried forward under section 139(3)/80.

Recommended route:

1. Apply for condonation under section 119(2)(b) for the delay in filing the loss return. Establish genuine/reasonable cause, genuineness of the Rs. 70 lakh loss, supporting books/audit report and absence of tax-avoidance motive.

2. If condonation is granted and the loss becomes a legally eligible accumulated loss, structure the October 2026 firm-to-company succession to satisfy the specific conditions applicable to succession of a firm by a company.

3. Broadly, the succession should transfer the business assets/liabilities, all partners should become shareholders in the prescribed proportion, consideration should be only through shares, and the prescribed 50% voting-power continuity for five years should be maintained.

4. Do not assume that succession itself revives the belated loss. First cure the carry-forward eligibility through condonation.

5. If condonation is rejected, the proposed company should not assume that the Rs. 70 lakh can be set off merely because it acquires the firm's business.

Bottom line: First pursue 119(2)(b) condonation; simultaneously design the October 2026 succession to satisfy the specific firm-to-company loss-transfer conditions.

AI Summary

Belated business-loss returns require condonation before a successor company may claim loss carry-forward after firm succession.
Business loss declared in a return filed after the due date is ordinarily ineligible for carry-forward. Condonation of delay under section 119(2)(b) must first be sought by establishing genuine cause, the genuineness of the loss, supporting records, and absence of tax-avoidance motive. If condonation makes the loss eligible, firm-to-company succession must satisfy applicable loss-transfer conditions, including transfer of business assets and liabilities, prescribed partner shareholding, share-only consideration, and voting-power continuity.