Chapter VII - Set Off, or Carry Forward and Set Off of Losses
Section 120
Section 120: no set off of losses against undisclosed income from search, requisition or survey
Section 120 stops a taxpayer from using brought-forward losses or unabsorbed depreciation to shelter undisclosed income that comes to light because of a search, requisition, or survey action - ensuring such income is taxed without the cushion of past losses.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Irrespective of anything 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).
(2) For the purposes of this section, the expression “undisclosed income” for any tax year shall have the meaning as referred to in section 301.
Introduction
Income treated as undisclosed after a qualifying search, requisition or survey cannot be reduced by losses or unabsorbed depreciation. The provision excludes a survey under Section 253(4) and borrows the meaning of undisclosed income from Section 301.
Key takeaways
Loss set-off barred
Losses and unabsorbed depreciation cannot be set off against undisclosed income included in total income following the specified search, requisition or survey actions.
Defined undisclosed income
The provision uses the meaning of undisclosed income in Section 301 and excludes the particular survey category stated in Section 120(1).
The bar on set-off
Irrespective of any other provision of the Act, brought-forward loss (or otherwise) or unabsorbed depreciation cannot be set off against undisclosed income that is included in the total income of any tax year, where that inclusion is consequent to a search conducted under Section 247, a requisition under Section 248, or a survey conducted under Section 253 - except a survey conducted under Section 253(4).
Meaning of "undisclosed income"
For this section, "undisclosed income" for any tax year carries the meaning given to it in Section 301.
Scope of the bar
The prohibition covers both current or brought-forward losses and unabsorbed depreciation. First establish that the income is undisclosed income within Section 301 and arose consequent to a listed action.
Step-by-step flow for applying Section 120
- 1
Was the income included in total income consequent to a search, requisition or survey?
The listed actions are a search under Section 247, a requisition under Section 248 and a survey under Section 253.
- No: Section 120 does not apply; the ordinary set-off rules govern.
- Yes: Go to the next step.
- 2
Was it a survey under Section 253(4)?
- Yes: That survey is excluded from the bar in Section 120(1).
- No: Go to the next step.
- 3
Is the amount "undisclosed income" as referred to in Section 301?
- No: Section 120 does not apply to that amount.
- Yes: Go to the next step.
- 4
Ring-fence the undisclosed income
No loss (brought forward or otherwise) and no unabsorbed depreciation may be set off against it. Any loss set-off against the other income of the year is tested under the ordinary provisions.
Practical checklist
Do
- Identify the statutory search, requisition or survey authority and preserve the action record.
- Classify income under Section 301 before testing loss or depreciation set-off.
Avoid
- Do not apply loss carry-forwards to undisclosed income covered by this section.
- Do not include a Section 253(4) survey in this bar.
Illustrative example
Worked example: brought-forward loss after a search
Hypothetical facts (illustration only, not a real taxpayer): Following a search under Section 247, ₹9,00,000 of undisclosed income (within the meaning of Section 301) is included in Mr. Joshi's total income for a tax year. His regular business income for that year is ₹5,00,000, and he has a brought-forward business loss of ₹12,00,000.
Identify the ring-fenced amount
The ₹9,00,000 is undisclosed income included consequent to a search under Section 247, so Section 120(1) applies to it.
Bar on set-off
None of the ₹12,00,000 brought-forward loss can be set off against the ₹9,00,000.
Regular income
Assuming the ordinary carry-forward provisions (such as Section 112) otherwise permit it, the loss may be set off against the ₹5,00,000 regular business income, leaving ₹12,00,000 − ₹5,00,000 = ₹7,00,000 of loss.
Outcome
- The full ₹9,00,000 of undisclosed income stays in total income without any loss or depreciation set-off.
- The remaining ₹7,00,000 of loss continues to be governed by the ordinary carry-forward rules, not by Section 120.
Glossary
- Unabsorbed depreciation
- A depreciation allowance carried beyond its original tax year.
- Undisclosed income
- Income with the meaning assigned by Section 301 for this prohibition.
Frequently asked questions
Can a business carry forward loss be used to reduce undisclosed income found in a tax search?
No - Section 120 specifically blocks the set-off of brought-forward loss or unabsorbed depreciation against undisclosed income included in total income as a consequence of a search under Section 247, a requisition under Section 248, or a survey under Section 253.
Does the bar apply to every kind of survey?
No - it excludes a survey conducted under Section 253(4). Surveys of that specific kind are not covered by this restriction.
Need help applying this provision to your situation?
Get help responding to a search, requisition or survey assessmentLast updated 9 October 2026