I have been searching and thought it would be in BaseWeapon.cs, sadly I cannot seem to find it. I found these lines:
Code:
bool ignoreArmor = ( a is ArmorIgnore || (move != null && move.IgnoreArmor( attacker )) );

            damageGiven = AOS.Damage( defender, attacker, damage, ignoreArmor, phys, fire, cold, pois, nrgy, chaos, direct, false, this is BaseRanged, false );

            double propertyBonus = ( move == null ) ? 1.0 : move.GetPropertyBonus( attacker );

The problem is, AI is scaling on damage increase.
 
armorIgnore cap in AOS.cs:

if ( !deathStrike )
totalDamage = Math.Min( damage, 35 ); // Direct Damage cap of 35
 
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