No set off of losses against undisclosed income consequent to search, requisition and survey
[Section-120 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 120(1) of Income Tax Act 2025
120(1) Irrespective of anything to the contrary contained in any other provision of this Act, any loss, whether brought forward or otherwise or unabsorbed depreciation, shall not be allowed to be set off against any undisclosed income which is included in the total income of any tax year, consequent to a search conducted under section 247 or a requisition under section 248 or a survey conducted under section 253, not being a survey under section 253(4).
Section 120(2) of Income Tax Act 2025
120(2) In this section, the expression “undisclosed income” for any tax year shall have the meaning assigned to it in section 301.
FAQs on Section 120(2) of Income Tax Act 2025
What does Section 120(1) of the Income Tax Act, 2025 state?
Section 120(1) prohibits the set-off of any loss, including brought forward losses and unabsorbed depreciation, against undisclosed income included in the total income as a result of a search, requisition, or survey (excluding surveys under section 253(4)).
Is brought forward business loss allowed to be set off against undisclosed income?
No, brought forward business loss cannot be set off against undisclosed income under Section 120(1).
Can unabsorbed depreciation be adjusted against undisclosed income?
No, unabsorbed depreciation is not allowed to be set off against undisclosed income under Section 120(1).
Does this disallowance apply even if other provisions of the Act allow set-off?
Yes, Section 120(1) applies irrespective of anything to the contrary in any other provision of the Act.
From which date is Section 120 effective?
Section 120 is effective from 1st April, 2026.
What types of proceedings lead to this disallowance?
The disallowance applies if income arises due to a search under section 247, a requisition under section 248, or a survey under section 253 (other than under section 253(4)).
Is survey under section 253(4) also covered by the disallowance under section 120(1)?
No, surveys under section 253(4) are specifically excluded.
What is meant by “undisclosed income” in this context?
The term “undisclosed income” is as defined in Section 301 of the Income Tax Act, 2025.
Does this section apply only to income discovered due to search and survey?
Yes, it applies only to undisclosed income arising from actions under sections 247, 248, or 253 (except 253(4)).
Can set-off be claimed in later years against such undisclosed income?
No, losses cannot be set off against such income in the current or future years once it is categorized as undisclosed under this section.
Are losses incurred in the same year (not just brought forward) also disallowed from set-off?
Yes, even current year losses are not allowed to be set off against undisclosed income.
Does Section 120 override all other provisions related to loss set-off?
Yes, it overrides all contrary provisions of the Act.
Is this provision applicable to individuals, firms, companies, and all taxpayers alike?
Yes, it applies universally to all categories of assessees where undisclosed income is involved.
Why has such a provision been introduced?
To ensure that undisclosed income discovered during enforcement actions is taxed fully without being reduced by artificial or prior-period losses.
Can undisclosed income be reduced by capital losses or speculative losses?
No, all types of losses, whether capital, speculative, or otherwise, are disallowed from being set off against undisclosed income under Section 120(1).
Is there any exception provided for genuine cases of hardship or unintentional non-disclosure?
No such exceptions are provided under this section; the disallowance is absolute once the income qualifies as “undisclosed” per the section.
What if the assessee voluntarily offers the income for tax after a survey?
If the income is deemed “undisclosed” as per section 301 and arises from a qualifying action (excluding section 253(4) surveys), the set-off restriction still applies.
Are reassessment or reopening cases covered under this section?
No, unless such reassessment is based on income found during a search, requisition, or qualifying survey.
Does this affect the computation of total income?
Yes, the total income will include the undisclosed income without allowing any set-off of losses against it.
Is this provision applicable retrospectively?
No, it applies prospectively from 1st April, 2026.
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