Section 80-IA deduction cannot be reduced by notional carry-forward of losses already set off in earlier years.

Section 80-IA is a profit-linked incentive, and section 80-IA(5) operates as a deeming provision only for computing the quantum of deduction by treating the eligible business as the sole source of income for the relevant years. Losses of the undertaking that had already been absorbed in earlier years could not be notionally carried forward again to reduce the deduction. The court followed its earlier decision, found no material factual distinction, and upheld the assessee's entitlement to the deduction while rejecting the Revenue's challenge.

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Issues: Whether the assessee was entitled to deduction under section 80-IA of the Income-tax Act by computing the eligible business's profits without notionally bringing forward losses that had already been set off in earlier years.

Analysis: The deduction under Chapter VI-A is a profit-linked incentive. Section 80-IA(5) operates as a deeming provision with a non obstante clause for the limited purpose of computing the quantum of deduction, treating the eligible business as the only source of income for the relevant years. Once earlier losses of the undertaking had already been absorbed against other income, they could not be reopened or notionally carried forward again for the purpose of reducing the deduction under section 80-IA. The Court followed the earlier decision of the same Court and found no material distinction on facts.

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

Final Conclusion: The appeal was dismissed and the Tribunal's order allowing the assessee's claim was confirmed.

Ratio Decidendi: For deduction under section 80-IA, losses already set off in earlier years cannot be notionally brought forward again to recompute the profits of the eligible business for the relevant assessment year.

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