Loss availability does not defeat the specific restriction
For the stated Income-tax Act, 2025 framework, section 120 overrides other provisions to prohibit set-off of any loss, brought forward or otherwise, or unabsorbed depreciation against qualifying undisclosed income included in total income consequent to a search under section 247, requisition under section 248 or survey under section 253, excluding a survey under section 253(4). A large loss register is therefore not enough to support a nil-income conclusion.
Establish the proceeding and governing period
Retain the authorisation or survey record, relevant dates, statutory route and assessment documents. Do not apply new section numbers indiscriminately to proceedings governed by the repealed Act: section 536 and the actual transition facts require separate review. This article addresses the 2025 Act restriction for the applicable period, not the tax rate or block-period computation for every search case.
Undisclosed has a statutory meaning
Section 120(2) refers to section 301. Its definition includes the specified income/property and incorrect expense, exemption, deduction or allowance claims within its stated scope. Do not substitute the ordinary meaning of “an adjustment” for that definition. Identify exactly which assessed amount qualifies and why. Equally, simply calling a discovered receipt ordinary business income does not itself remove section 120 where its conditions are satisfied.
Both current losses and old losses are covered
The phrase brought forward or otherwise prevents a shortcut using a current-year loss instead of an older cohort. Unabsorbed depreciation is expressly covered too. Keep current-year depreciation classification distinct from unabsorbed allowances and analyse the actual computation under its governing provisions; this guide does not invent a universal rule for every deduction not addressed by the stated set-off bar.
Keep restricted income separate from unrelated profits
A section 120 restriction on qualifying undisclosed income does not itself establish that every other income stream loses all lawful set-off. Compute ordinary income and eligible offsets under their own conditions, while preventing them from leaking into the protected amount. Preserve a reconciliation between proposed additions, sustained qualifying income, ordinary income and the loss schedules. If an appellate order changes the qualifying amount, recompute the working from that order.
A blocked set-off is not automatically a permanently cancelled loss
Do not mark an entire opening loss as utilised just because software tried to net it against restricted income. Determine its remaining eligibility, expiry and other restrictions independently. Reconcile the filed return, assessment computation and closing loss register. The examples stipulate qualifying undisclosed income and applicable section 120 facts; they show income/set-off arithmetic only, excluding final tax, surcharge, cess, interest and penalty.
Framework checked on 26 October 2026. Read the primary provisions.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Brought-forward business loss
Assume qualifying undisclosed income ₹10,00,000 and otherwise available old business loss ₹6,00,000. Set-off against that income is ₹0 under section 120. The protected income remains ₹10,00,000, not ₹4,00,000.
Illustrative example 2: Current loss also blocked
Qualifying undisclosed income ₹8,00,000 meets a current loss ₹3,00,000 that the software proposes to net against it. The section 120 working preserves ₹8,00,000; the attempted ₹5,00,000 result is ₹3,00,000 too low.
Illustrative example 3: Unabsorbed depreciation
Assume qualifying income ₹7,00,000 and unabsorbed depreciation ₹9,00,000. Permitted set-off against this income is ₹0, so ₹7,00,000 remains in the restricted compartment. Review the ₹9,00,000 balance separately.
Illustrative example 4: Two offset pools do not change the bar
Qualifying undisclosed income ₹12,00,000, old loss ₹4,00,000 and unabsorbed depreciation ₹5,00,000 produce attempted offsets ₹9,00,000. They cannot reduce that compartment to ₹3,00,000; it remains ₹12,00,000.
Illustrative example 5: Separate ordinary income
Assume qualifying restricted income ₹10,00,000 plus ordinary profit ₹8,00,000. Independently establish that ₹3,00,000 loss is lawfully usable only against that ordinary profit. The two model compartments are ₹10,00,000 and ₹5,00,000, total ₹15,00,000, without offsetting the restricted ₹10,00,000.
Illustrative example 6: Changed sustained amount
Assume an authoritative order reduces qualifying undisclosed income from ₹10,00,000 to ₹6,00,000. The reduction is ₹4,00,000. On unchanged section 120 assumptions, blocked losses still do not reduce the remaining ₹6,00,000; do not carry forward the superseded ₹10,00,000 as the current figure.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify governing law | Period and section 536 transition review. |
| 2 | Identify the statutory route | Search, requisition or relevant survey records. |
| 3 | Check the survey exclusion | Section 253(4) facts. |
| 4 | Establish qualifying income | Section 301 definition and supporting finding. |
| 5 | Reconcile the sustained amount | Current assessment/appellate order. |
| 6 | Separate offset pools | Current losses, old losses and unabsorbed depreciation. |
| 7 | Block prohibited set-off | Restricted-income computation. |
| 8 | Compute other income separately | Independently eligible ordinary offsets. |
| 9 | Preserve remaining balances | No fictional utilisation; review expiry. |
| 10 | Close return-to-order reconciliation | Income compartments, taxes and loss registers. |
Sixteen practitioner FAQs
1. Does section 120 cover only old losses?
It also states losses brought forward or otherwise.
2. Is unabsorbed depreciation covered?
It is expressly included.
3. Does a current loss bypass the bar?
No, on the stated qualifying facts.
4. Is every tax adjustment undisclosed income automatically?
Apply section 301 and the actual statutory findings.
5. Does relabelling a receipt resolve the issue?
Substance and statutory conditions govern.
6. Which search section is stated?
Section 247 of the 2025 Act.
7. Which requisition section is stated?
Section 248.
8. Does every section 253 survey fall within the wording?
The provision excludes a survey under subsection (4).
9. Must old proceedings be analysed separately?
Check governing period and transition provisions.
10. Does this article prescribe a universal search tax rate?
No. It addresses the set-off restriction.
11. Are all ordinary income offsets automatically barred too?
Analyse unrelated income under its own applicable rules.
12. Can software net all compartments together?
Prevent prohibited offsets against the qualifying income.
13. Does a blocked claim mean the loss was utilised?
Do not record fictional utilisation.
14. Is the remaining loss automatically permanent?
Its own eligibility, expiry and other restrictions still apply.
15. What if appeal reduces the qualifying amount?
Reconcile to the authoritative revised finding and amount.
16. What should the reviewer reproduce?
Proceeding, definition, sustained income, blocked offsets and closing balances.
Conclusion
Section 120 prevents current or brought-forward losses and unabsorbed depreciation from reducing qualifying undisclosed income arising through the specified search, requisition or survey routes. Establish the statutory income and proceeding before separating protected income from other computations.