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2011 (9) TMI 276 - HC - Income Tax100% EOU - Exemption u/s 10B - Export profit - set off of unabsorbed depreciation carried forward from earlier years as provided under section 32(2) - Revision u/s 263 - Held that - Section 10B(6) does not deal with computation of business profit during the period the assessee enjoys exemption under Section 10B(4) of the Act. On the other hand this sub-section is only an embargo against the assessee claiming any carried forward benefit under the sections referred to therein in the assessment for the assessment year following the end of the tax holiday enjoyed by the assessee under Section 10B(4) of the Act. - carried forward depreciation should be set off in the computation of business profit even during the period assessee enjoys exemption under Section 10B(4) of the Act. - Decision in CIT v. Himatasingike Seide Ltd. (2006 (8) TMI 125 - KARNATAKA High Court) followed - Decided in favor of revenue.
Issues: Method of computation of deduction eligible under Section 10B(4) for a 100% export-oriented industrial unit.
Analysis: The judgment revolves around the interpretation of the provisions of Section 10B of the Income-tax Act concerning the deduction of export profit for a 100% export-oriented industrial unit. The primary issue in question is whether the deduction of export profit should be granted based on the profit of the industrial unit computed under the Act, including the set-off of unabsorbed depreciation carried forward from earlier years. The controversy arose when the Commissioner of Income Tax ordered the revision of assessments, stating that the deduction under section 10B(4) must be computed after setting off carried forward unabsorbed depreciation as provided under Section 32(2) of the Act. The Tribunal allowed the assessee's claim, declaring that the deduction should be granted based on the profit of the industrial unit before setting off unabsorbed depreciation. The Revenue challenged this decision, arguing that business profit should be first computed in accordance with Sections 28 to 43D of the Act, including the set-off of carried forward depreciation, before calculating the deduction under Section 10B(4). The court analyzed the relevant provisions of Section 10B, emphasizing that the deduction on export profit must be determined with reference to the profit of the eligible industrial unit. The court highlighted that the profit to be considered for determining export profit is the business profit of the undertaking, which should be computed according to Sections 30 to 43D of the Act. The court rejected the assessee's contention that exclusion should be allowed before computing business income, emphasizing that the business profit must be determined first, including the set-off of carried forward depreciation. The court referred to a Karnataka High Court decision, stating that business profit should be computed in accordance with Sections 28 to 43D, and unabsorbed depreciation should be set off during this computation. Furthermore, the court disagreed with the Tribunal's interpretation that the deduction under Section 10B(4) should be made before setting off unabsorbed depreciation. The court emphasized that business profit should be determined first based on Sections 30 to 43D, and the deduction under Section 10B(4) should be calculated with reference to the export turnover and total turnover after considering the business profit. The court highlighted that the purpose of computation is to determine total business profits for granting the deduction under Section 10B(4) accurately. Additionally, the court clarified that Section 10B(6) does not deal with the computation of business profit during the exemption period under Section 10B(4) but rather restricts carried forward benefits after the tax holiday period. In conclusion, the court allowed the appeals by reversing the Tribunal's orders and restoring the Commissioner of Income Tax's orders for the first four years. The court upheld the order of the Commissioner of Income Tax (Appeals) for the assessment year 2005-06, emphasizing the correct method of computation for the deduction eligible under Section 10B(4) for a 100% export-oriented industrial unit.
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