Section 80-IA deduction: prior losses already absorbed cannot be notionally brought forward again for recomputation.

Section 80-IA deduction is a profit-linked incentive computed on the fiction that the eligible business is the only source of income for the relevant period. Earlier years' losses that had already been set off against other income cannot be notionally brought forward again for recomputation of the deduction, because the statutory fiction is confined to working out eligible business income and does not reopen completed set-offs. Applying that principle, the assessee remained entitled to the deduction under Section 80-IA, and the Revenue's challenge failed.

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Issues: Whether the assessee was entitled to deduction under Section 80-IA of the Income-tax Act despite earlier years' losses having already been set off against other income.

Analysis: The deduction under Section 80-IA is a profit-linked incentive for an eligible business, and the computation under sub-section (5) proceeds on the fiction that the eligible business is the only source of income for the relevant period. The Court followed the earlier binding view that losses of years prior to the initial assessment year, once already absorbed against other income, cannot be notionally brought forward again for recomputation of deduction. The statutory fiction is limited to computing the eligible business income and does not permit reopening completed set-offs of earlier years.

Conclusion: The assessee was entitled to the deduction under Section 80-IA, and the Revenue's challenge failed.

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