Section 80-IA deduction cannot be reduced by earlier losses already absorbed against other income, the Madras HC affirmed.

Section 80-IA deduction is computed on the profits of the eligible business on a profit-linked basis, and sub-section (5) requires that business to be treated as the only source of income for the relevant period. Losses or depreciation of earlier years that have already been set off against other income cannot be notionally brought forward again to recompute and reduce the deduction. The Madras HC followed the existing binding view and found no factual distinction requiring a different result, so the assessee remained entitled to the deduction 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, 1961 by ignoring losses of earlier years that had already been set off against other income.

Analysis: Deduction under Chapter VI-A and section 80-IA is a profit-linked incentive intended for the eligible business. Sub-section (5) of section 80-IA contains a non obstante and deeming provision for computation of profits of the eligible business as if it were the only source of income for the relevant period. Once earlier losses or depreciation of the undertaking have already been absorbed against other income in prior years, they are not to be notionally brought forward again for recomputation of deduction under section 80-IA. The Court followed the earlier binding view and found no distinction on facts warranting a different result.

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

Ratio Decidendi: For deduction under section 80-IA, losses of years earlier than the initial assessment year that have already been set off against other income cannot be reopened or notionally brought forward to reduce the eligible business profit again.

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