Section 80-IA profits must be computed after mandatory depreciation under Section 32, even if taxpayer disclaims it

HC held that deduction under Section 80-IA is a special, profit-linked deduction and must be computed after reducing all deductions allowable under Sections 30 to 43D, including depreciation under Section 32, regardless of whether the assessee has "disclaimed" depreciation in the regular assessment. Section 80-IA operates as a self-contained code and cannot be used to confer an unintended additional benefit by manipulating profits. Relying on SC precedents on Chapter VI-A deductions, HC ruled that gross total income for Chapter VI-A must reflect all mandatory allowances. The AO was therefore justified in allowing depreciation and restricting the Section 80-IA deduction accordingly.

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Issues: Whether for the purpose of claiming deduction under Chapter VI-A (specifically Section 80-IA) the gross total income must be computed after deducting all deductions allowable under Sections 30 to 43D of the Income-tax Act, 1961 (including depreciation under Section 32), even where the assessee has computed total income under Chapter IV by disclaiming current depreciation.

Analysis: The Court analysed the statutory scheme distinguishing computation of business income under Chapter IV (Sections 3043D) from special, profit-linked deductions under Chapter VI-A. It examined Section 80-IA and related provisions (including Sections 80A, 80AB and 80-IA(7)) and relied on Supreme Court precedents (notably Liberty India, Distributors (Baroda) and subsequent authorities) holding that Chapter VI-A constitutes a separate code where deductions are linked to profits derived from the eligible business. The Court held that the quantum of deduction under Section 80-IA must be computed on the profits determined after allowing all deductions permissible under Sections 3043D. It rejected the submission that an assessees disclaimer of depreciation for Chapter IV computation can be used to inflate the Chapter VI-A deduction, and treated such a device as impermissible under the statutory scheme and Supreme Court authority.

Conclusion: The gross total income for the purpose of deduction under Chapter VI-A (including Section 80-IA) must be computed after deducting all deductions allowable under Sections 30 to 43D, including depreciation under Section 32, even if the assessee has computed income under Chapter IV by disclaiming current depreciation; outcome is in favour of the Revenue.

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