M/s. Manav, a firm, consists of four partners namely, X, Y, Z and M. They shared profits and losses equally during the year ended 31.3.2025. The…

CA Final · Direct Tax Laws and International Taxation · MTP · November 2026
M/s. Manav, a firm, consists of four partners namely, X, Y, Z and M. They shared profits and losses equally during the year ended 31.3.2025. The assessed business loss of the firm for the assessment year 2025-26 which it is entitled to carry forward amounts to ₹ 3,60,000. A new deed of partnership was executed among X, Y, Z and M on 1.4.2025 in terms of which they agreed to share profits and losses in the ratio of 15:15:20:50 respectively. Compute the amount of business loss relating to the assessment year 2025-26, which the firm is entitled to set off against its business income for the assessment year 2026-27. The business income of the firm for the assessment year 2026-27 is ₹ 3,30,000. Your answer should be supported by reasons.

Suggested Answer and Working Notes:

The firm is entitled to set off its brought forward business loss amounting to ₹ 3,60,000 relating to the assessment year 2025-26 to the extent of ₹ 3,30,000 against its business income of ₹ 3,30,000 for the assessment year 2026-27, as per the provisions of section 72(1). The balance unabsorbed business loss of ₹ 30,000 relating to the assessment year 2025-26 will be carried forward to assessment year 2027-28. Section 78(1) which deals with carry forward and set-off of losses in the case of change in constitution of firm is applicable only where there is retirement or death of a partner. It is not applicable to a case where there is a change in the ratio of sharing profits and losses amongst the existing partners. Therefore, section 78(1) is not applicable to the case of M/s. Manav.

Topics: Aggregation of income, set-off or carry forward of Losses

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