Issue for consideration:
a)In view of Section 79 of the Act, where a change in shareholding (i.e., 51%) has taken place in a previous year in the case of a company (being closely held company), no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year.
b)In the instant case, an issue arose whether unabsorbed scientific research expenditure would also be subject to same treatment as that of carry forward of losses in Section 79
c)Assessee’s contention was that the unabsorbed scientific research expenditure had to be treated at par with unabsorbed depreciation based on the principles laid down in the case of Mahyco Vegetable Seeds Ltd.  123 ITD 40 ( Mum.)
Tribunal held as under:
1)In the case of Mahyco Vegetable Seeds Ltd(Supra), the expenditure in question was unabsorbed capital expenditure incurred on scientific research claimed as deduction under section 35. Therefore, the unabsorbed capital expenditure on scientific research had the same effect as unabsorbed depreciation;
2)Therefore, for applying the above cited decision, it was necessary that the scientific research expenditure should have been capitalized before claiming deduction under section 35;
3)If assessee treated scientific research expenditure as revenue expenditure and claimed deduction thereof, it would give rise to business losses and couldn't be deemed as similar to unabsorbed depreciation.
4)Therefore, in such case there would be a business loss and the provisions of section 79 would be applicable- DEPUTY CIT V. TEJAS NETWORKS LTD. 55 taxmann.com 55 (Bangalore - Trib.)