## Carry Forward of PGBP Loss — Successor Rule (Section 78)

### General Rule (Person-Specific Loss)

A brought-forward loss is person-specific:

→ Jisne loss incur kiya, wohi carry forward kar sakta hai.

→ Only the person who actually incurred the loss can carry it forward and set it off.

→ A SUCCESSOR cannot set off or carry forward losses of the predecessor.

### One Critical Exception — Inheritance

→ A Successor by INHERITANCE CAN set off and carry forward the losses of the predecessor.

→ This recognizes that legal heirs effectively step into the deceased's shoes for tax purposes.

### Implication for Business Reorganizations

This affects:

Sale of business → successor (buyer) cannot use seller's losses.
Demerger / amalgamation → governed by separate provisions (Section 72A).
Death of proprietor → heir CAN use deceased's losses.

### Inter-Business Set Off

→ Loss from one business CAN be set off against income from another business of the SAME assessee.

(There's no segregation of losses by individual business within the same person's PGBP.)

Worked example

### Example 1

Example 1 — Sale of Business:

Mr. X runs a textile business and accumulates ₹10 Lakh business loss over 3 years. In 2025, he sells the entire business to Mr. Y.

Analysis: Mr. Y (successor by purchase) CANNOT carry forward Mr. X's losses. They lapse for Mr. Y. Mr. X retains the right to set off but only against his own future income (if any).

Example 2 — Inheritance:

Mr. P, a sole proprietor, dies leaving accumulated business losses of ₹8 Lakhs. His son inherits the business and continues running it.

Analysis: Son (successor by inheritance) CAN set off and carry forward Mr. P's losses against his own future business income.

Example 3 — Multiple Businesses:

Mr. A runs Business X (profit ₹4 Lakhs) and Business Y (loss ₹2 Lakhs).

Analysis: Loss of Business Y can be freely set off against profit of Business X within the same assessee — net business income = ₹2 Lakhs.

⚠️ Common exam mistakes

Allowing the purchaser/successor of a business to carry forward predecessor's losses (except in inheritance).
Segregating losses business-by-business within the same assessee — they pool within PGBP for the same person.
Forgetting the inheritance exception — leading to unnecessary loss of valid losses for legal heirs.
Confusing 'successor by inheritance' with 'amalgamated company' — different sections apply.

Bare-Act text Section 78 · Income-tax Act, 1961 · click to expand

Loss from One Business can be set off from Income of another Business. Jisne Loss Incur kiya, Woh hi Carry forward kar sakta hai. Successor cannot Set Off or Carry Forward Loss of PREDECESSOR. Exception - A Successor by INHERITANCE can Set Off and Carry Forward the Loss of Predecessor.

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Loss from PGBP - Successor Rule

Worked example

⚠️ Common exam mistakes