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The manner of determination of quantum of deduction as provided under s.80-IA(5) of the Act has since been clarified by the CBDT Circular No. 1 of 2016 dated 15-2-2016 and is devoid of controversy any more. Having regard to the wide ranging controversies, the CBDT circular has given categorical interpretation on exercise of option of choosing 'initial assessment year' referred to sub-section (5) of Section 80-IA of the Act in favour of the assessee. The CBDT has also clarified that embargo placed under s.80-IA(5) of the Act for quantification of deduction of profits and gains of an eligible business would apply from the assessment years immediately succeeding 'initial assessment years' only. Having regard to express elucidation by CBDT, the CIT(A), in our view, has rightly decided the issue of manner of computation of quantum of deduction under s.80-IA(5) of the Act in favour of the assessee. The assessee, thus, while determining the eligible profit, is not required to notionally reduce losses arising from eligible business in the earlier years already set off against other business of assessee in terms of Sections 70, 71 & 72 of the Act prior to exercise of option of 'initial assessment year'. The losses arising in 'eligible business', if any, subsequent to earmarking of 'initial assessment year' shall however continue to be governed by embargo placed in Section 80-IA(5) of the Act.

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Section 80-IA of the Income-tax Act, 1961—Deduction— While determining the eligible profit, assessee is not required to notionally reduce losses arising from eligible business in the earlier years already set off against other business of assessee in terms of Sections 70, 71 & 72 prior to exercise of option of 'initial assessment year'. The losses arising in 'eligible business', if any, subsequent to earmarking of 'initial assessment year' shall however continue to be governed by embargo placed in Section 80-IA(5)- - DY. CIT V/s CHHOTABHAI JETHABHAI PATEL & CO. - [2020] 183 ITD 603 (ITAT-AHMEDABAD)