J.P. Devadhar, J.

1. This appeal filed under Section 260 A of the Income Tax Act, 1961 (`Act’ for short) was initially heard by a Division Bench of this Court and by an order dated 19-12-2008, the said Division Bench requested the learned Chief Justice to constitute a Larger Bench to consider the following question of law:

“Whether, in the facts and circumstances of the case, for the purposes of availing allowable special deduction under Chapter VI-A of the Income-tax Act, the gross total income is required to be computed by deducting allowable depreciation even though the assessee had disclaimed the same for the purposes of regular assessment?”

2. On the above question of law, the Division Bench observed that there are conflicting decisions rendered by the two Division Benches of this Court in the case of Grasim Industries Limited V/s. C.I.T. reported in 245 I.T.R. 677 (Bom) and in the case of M/s. Scoop Industries (P) Limited V/s. Income Tax Officer reported in 289 I.T.R. 195 (Bom). The Division Bench further observed that since the above two decisions do not go hand-in-hand, and run counter to each other, the issue ought to be resolved by a Larger Bench. Accordingly, the learned Chief Justice has constituted this Full Bench for resolving the above controversy.

3. Facts relevant to the present case are that the Respondent [hereinafter referred to as `the assessee’ is a Company incorporated under the Companies Act, 1956 and is engaged in the manufacture of master batches and compounds at its units situated at Daman.

4. The assessment year [`AY’ for short] involved herein is AY 1997-1998.

5. In the assessment year in question, the assessee filed its return of income without claiming depreciation. For that purpose, the assessee in its return of income, added back depreciation (as per books) to the net business profit, because, the net business profit under the Profit and Loss Account (`P & L A/c.’ for short) was arrived at after deducting depreciation (as per books). Thus, in the return of income, the assessee computed total income (under Chapter IV) without claiming depreciation. After making deductions and additions as per claims that are allowable and disallowable under the Act, the assessee determined the gross total income, on which 100% deduction was claimed under Section 80-IA of the Act.

6. The above return of income was processed under Section 143 (1) of the Act and intimation of acceptance of the return of income was issued under Section 143 (1) of the Act without any adjustment.

7. Subsequently, the above assessment was reopened by the assessing officer [`A.O.’ for short] on the ground that 100% deduction under Section 80-IA of the Act was liable to be determined on the gross total income computed after deducting all deductions allowable under Section 30 to 43D of the Act including current depreciation allowable under Section 32 of the Act. As the assessee had computed the gross total income without deducting depreciation allowable under the Act, the assessment was sought to be reopened. The assessee in its reply, relying upon the decision of the tribunal in the case of the assessee for AY 1996-1997 contended that the assessee had the option to claim or not to claim current depreciation and in the present case, the assessee had opted not to claim current depreciation and, therefore, the current depreciation cannot be thrusted upon the assessee when not claimed. However, the AO rejected the contention of the assessee and passed a reassessment order by computing the gross total income after deducting the current depreciation allowable under Section 32 of the Act and after setting off the brought forward loss of AY 1996-1997. The gross total income so computed being loss, as per Section 80A(2), no deduction was allowable under Section 80-IA of the Act.

8. Being aggrieved by the above reassessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [`CIT (A)’ for short], w