Section 80-IA deduction excludes notional carry-forward of losses already set off against other income.

For deduction under Section 80-IA, earlier years' losses that were already absorbed against other income cannot be notionally brought forward and adjusted against the profits of the eligible business. The statutory fiction in Section 80-IA(5) applies only to computation of deduction from the initial assessment year onward and does not permit reopening exhausted losses from prior years. The reasoning follows the settled Chapter VI-A principle that profit-linked incentives do not authorise a notional recomputation of losses once they have been set off. The issue is answered in favour of the assessee and against the Revenue.

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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 can be notionally brought forward and adjusted against the profits of the eligible business.

Analysis: Section 80-IA grants deduction for profits derived from an eligible business, and sub-section (5) deems the eligible business to be the only source of income for computing the quantum of deduction. The statutory fiction operates only for determining the deduction from the initial assessment year onward and does not permit reopening of earlier years' losses that have already been absorbed and set off against other income. The reasoning followed the earlier view that profit-linked incentives under Chapter VI-A do not allow a notional recomputation of losses once they stand exhausted in prior years.

Conclusion: Earlier losses already set off cannot be brought forward notionally for the purpose of computing deduction under Section 80-IA. The issue is answered in favour of the assessee and against the Revenue.

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