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Issues: Whether, for deduction under section 80-IA of the Income-tax Act, losses of earlier years already set off against other income could be notionally brought forward and recomputed while determining the eligible business income.
Analysis: Section 80-IA is a profit-linked incentive provision. Sub-section (5) creates a limited deeming fiction for computing the profits of the eligible business as if it were the only source of income for the relevant years. That fiction does not permit reopening losses or depreciation of years preceding the initial assessment year when such losses have already been absorbed against other income. The same interpretation had already been adopted in the earlier binding decision relied upon by the Court, and no distinguishing factual or legal basis was shown to take a different view.
Conclusion: The assessee was entitled to the deduction under section 80-IA without notionally carrying forward prior losses already set off; the question was answered in favour of the assessee and against the Revenue.
Ratio Decidendi: While computing deduction under section 80-IA, losses and depreciation of years prior to the initial assessment year that have already been set off cannot be reopened or notionally brought forward; the statutory fiction in section 80-IA(5) is confined to the computation of profits of the eligible business for the relevant deduction period.
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