Section 80-IA profit-linked deduction cannot be cut down by reintroducing earlier losses already set off against other income.

Section 80-IA deduction cannot be reduced by notionally bringing forward earlier-year losses that were already absorbed against other income. The Madras HC followed the view that Chapter VI-A deductions under Section 80-IA are profit-linked incentives and that the deeming fiction in sub-section (5) is confined to computing eligible business profits as if that business were the only source of income for the relevant period. It does not permit reopening or re-carrying forward losses of prior years that have already been set off. The Court also accepted that the language of Sections 80-I and 80-IA does not require such absorbed losses to be notionally revived for deduction computation.

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Issues: Whether deduction under Section 80-IA of the Income-tax Act, 1961 can be denied by notionally bringing forward and setting off losses of earlier years that had already been absorbed against other income.

Analysis: The Court followed the earlier binding view that Chapter VI-A deductions under Section 80-IA are profit-linked incentives. It held that sub-section (5) creates a limited deeming fiction for computing profits of the eligible business as the only source of income for the relevant period, but that fiction does not permit reopening losses of prior years that had already been set off. The Court also approved the view that the language of Sections 80-I and 80-IA does not require earlier absorbed losses to be notionally carried forward again for deduction computation.

Conclusion: Deduction under Section 80-IA could not be denied on the ground of earlier losses already set off, and the issue was decided in favour of the assessee.

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