Even where the book profits liability is imposed, the amounts of business loss, unabsorbed depreciation, investment allowance, etc., at the beginning of the accounting year are to be adjusted and set off to the same extent as they would have been adjusted or set off had the assessee been assessed to tax in the regular way, in accordance with the provisions of sections 28 to 44 of the Act, and only the resultant amounts of loss and unabsorbed depreciation, etc., can be carried forward to the next year.
Had section 115J not been introduced, the assessee would have been entitled to carry forward the balance of the unabsorbed loss and unabsorbed depreciation of that assessment year. All that section 115J does is prevent the assessee from carrying forward the amounts which could otherwise have been carried forward.
Section 115J allows only the unabsorbed loss and depreciation to be carried forward as quantified under sub-section (1). The unabsorbed loss under sections 32(2), 32A(3), 72(1) and (2), 73(2), 74(1) and (3), and 74A would have been carried forward under the provisions of sections 72, 73, 74, and 74A, respectively.
An assessee can only set off the business loss and unabsorbed depreciation as per books of account under section 115J, and the loss carried forward is the balance of the unabsorbed depreciation in the relevant previous year to be set off against the profits and gains of that assessment year. All deductions under section 001 that could otherwise have been allowed are also set off in the next year, under the provisions of the Act.