Section 80HH deduction requires prior set-off of unabsorbed losses and depreciation before computing eligible profits.

For computing deduction under section 80HH of the Income-tax Act, eligible profits must be arrived at only after setting off unabsorbed losses and unabsorbed depreciation. The court followed the settled principle that the deduction base is the profit remaining after such prior adjustments, rather than the gross business profit. On that basis, the computation had to include those set-offs before determining the amount eligible for deduction, and the issue was answered in favour of the Revenue.

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Issues: Whether, for computing deduction under section 80HH of the Income-tax Act, 1961, unabsorbed losses and unabsorbed depreciation were required to be set off before arriving at the eligible profits.

Analysis: The relevant computation had to be made after adjusting unabsorbed losses and unabsorbed depreciation. The governing principle had already been settled by the Supreme Court and by this Court, which held that the amount exigible for deduction under section 80HH must be determined only after such prior deductions.

Conclusion: The question was answered in the affirmative, against the assessee and in favour of the Revenue.

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