Section 10A deduction must be computed before set-off of brought forward losses and depreciation.

Section 10A deduction for an eligible undertaking is computed on a standalone basis at the stage of arriving at the unit's profits, before applying set-off and carry forward provisions for brought forward business losses and depreciation. The reasoning is that the deduction attaches to the profits of the eligible unit itself and cannot be postponed until after inter-head or intra-head adjustments. The computation provisions for set-off of losses and unabsorbed depreciation do not override this independent deduction stage. On that basis, the deduction is allowed before reducing the eligible profits by earlier losses and depreciation.

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Issues: Whether deduction under section 10A is to be allowed before setting off brought forward business losses and depreciation, i.e. at the stage of computing profits of the eligible undertaking.

Analysis: The governing principle applied was that section 10A deduction is attributable to the eligible undertaking itself and must be computed independently on a standalone basis, before the exercise of set-off and carry forward under the provisions dealing with inter-head and intra-head adjustments. The reasoning adopted from the binding authorities was that the deduction under section 10A is to be given effect to at the stage of computing profits and gains of the eligible unit, and not after reducing such profits by brought forward losses of other units or earlier years. The relevant computation provisions could not be telescoped so as to postpone the deduction until after set-off of unabsorbed losses.

Conclusion: Deduction under section 10A must be allowed before setting off brought forward business losses and depreciation. The issue is decided in favour of the assessee.

Ratio Decidendi: For an eligible undertaking, section 10A deduction is to be computed independently at the stage of profits of that undertaking, prior to the application of set-off and carry forward provisions.

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