Unabsorbed depreciation must be set off before Chapter VI-A deductions, with Section 80J carry-forward limited by statute.

Under the Income-tax Act, 1961, gross total income for Chapter VI-A deductions must first be computed in accordance with the Act, so unabsorbed depreciation is set off before considering deduction under Section 80J. The statutory definition in Section 80B(5) therefore gives priority to depreciation adjustment over the Chapter VI-A deduction claim. The text further notes that the deficiency under Section 80J cannot be carried forward beyond the period allowed by the proviso to Section 80J(3), and that this limitation can validly be applied in rectification proceedings under Section 154.

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Issues: Whether unabsorbed depreciation had to be given priority over deduction under Section 80J of the Income-tax Act, 1961 while computing gross total income for the purposes of Chapter VI-A, and whether the deficiency under Section 80J could be carried forward beyond the period permitted by the proviso to Section 80J(3).

Analysis: The statutory definition of gross total income under Section 80B(5) requires the total income to be computed in accordance with the provisions of the Income-tax Act, 1961 before any deduction under Chapter VI-A is made. On that basis, unabsorbed depreciation has to be set off first, and only thereafter can the gross total income for Chapter VI-A be determined. The limitation on carrying forward deficiency under the proviso to Section 80J(3) was therefore correctly applied in rectification proceedings under Section 154.

Conclusion: Unabsorbed depreciation had priority over the Section 80J deduction, and the rectification disallowing carry forward beyond the statutory limit was upheld in favour of the Revenue.

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