Section 80-IA deduction must be computed without reopening prior losses already set off against other income.

Section 80-IA deduction is computed on the basis that the eligible business is the only source of income from the initial assessment year, but the legal fiction in sub-section (5) is confined to that computation. Earlier losses that had already been set off and absorbed against other income cannot be notionally brought forward again to reduce the deduction. The analysis therefore treats Chapter VI-A relief as a profit-linked incentive and limits retrospective reopening of prior-year losses for section 80-IA computation.

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Issues: Whether the assessee was entitled to deduction under section 80-IA of the Income-tax Act, 1961 when the losses of earlier years had already been set off and absorbed against other income, and whether such earlier losses could be notionally brought forward and reopened for computing deduction.

Analysis: The deduction under Chapter VI-A is in the nature of a profit-linked incentive. For section 80-IA, the computation provision in sub-section (5) treats the eligible business as the only source of income for the relevant period and operates from the initial assessment year. The legal fiction created by that provision is limited to computing the deduction and does not permit the Revenue to look back and reopen losses of years that were already set off against other income. Earlier losses already absorbed cannot be notionally carried forward again merely for reducing the deduction under section 80-IA.

Conclusion: The assessee was entitled to deduction under section 80-IA, and the earlier set-off losses could not be reopened or notionally carried forward against the eligible business.

Ratio Decidendi: For the purpose of section 80-IA, the eligible business must be computed as if it were the only source of income from the initial assessment year, and losses already set off in prior years cannot be retrospectively brought forward in computing the deduction.

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