The assessee was engaged in the business of manufacturing and selling of abrasives, refractories, grinding wheels etc. For the A. Y. 1992-93 the Assessing Officer allowed deduction u/s. 80-I of the Income-tax Act, 1961. Subsequently he rectified the assessment order u/s. 154 notionally carrying forward the losses of the earlier years and setting of the losses against the profit available during the A. Y. 1992-93 and thereby negative the claim for deduction u/s. 80-I.

Carborundum Universal Ltd. vs. JCIT; 371 ITR 275 (Mad):

The assessee was engaged in the business of manufacturing and selling of abrasives, refractories, grinding wheels etc. For the A. Y. 1992-93 the Assessing Officer allowed deduction u/s. 80-I of the Income-tax Act, 1961. Subsequently he rectified the assessment order u/s. 154 notionally carrying forward the losses of the earlier years and setting of the losses against the profit available during the A. Y. 1992-93 and thereby negative the claim for deduction u/s. 80-I. Similarly, he also withdrew the deduction for the A. Y. 1993-94. The Tribunal upheld the order of the Assessing Officer:

On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and Held as under:

“i) Once the depreciation allowance and the development rebate for the past assessment years were fully set off against the total income of the assessee for those assessment years, the question of carrying forward of losses does not arise, for the purpose of determining the deduction u/s. 80-I of the Income-tax Act, 1961.

ii) The losses incurred by the industrial undertaking claiming deduction u/s. 80-I, which had been already set off against the profits of the industrial undertaking, should not be notionally carried forward and set off against the profits generated by the industrial undertaking during the relevant assessment year for determining deduction u/s. 80-I.”