Book profit computation governs section 80HHC deduction, with section 115JA overriding normal income computation rules.

Section 115JA was treated as a self-contained code for computing book profit, so the Assessing Officer could not go beyond the adjustments expressly permitted in the Explanation. On that basis, deduction under section 80HHC had to be computed by reference to book profits under the special book-profit scheme, not by applying the normal computation provisions for business income. The court followed the earlier Division Bench view and gave primacy to the statutory mechanism governing book profit computation. Deduction under section 80HHC was therefore allowed on book profits, and the Revenue's contention failed.

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Issues: Whether deduction under section 80HHC was to be computed on the basis of book profits under section 115JA or on the basis of eligible profits under the normal computation provisions.

Analysis: The Court applied the earlier Division Bench view that section 115JA is a self-contained provision for computation of book profit and that the Assessing Officer cannot travel beyond the statutory adjustments permitted in the Explanation. It was held that the deduction under section 80HHC, when considered in the context of book profit computation, has to be worked out with reference to the book profits and not with reference to the normal computation of business income. The reasoning followed the principle that the special scheme for determining book profits prevails over the regular computation where the statute so provides.

Conclusion: Deduction under section 80HHC was correctly allowed on the basis of book profits, and the issue was decided against the Revenue.

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