2015 (12) TMI 126 - AT - Income Tax

Deduction u/s. 10B - whether unabsorbed depreciation cannot be set off against the profit for the relevant assessment year as the assessee being a 100% Export Oriented Unit (EOU) - Held that - We have gone through the approval granted by Assistant Development Commissioner, Cochin Export Processing Zone dated 26.09.1997 in regard to M/s. Zenith Textiles, a unit of Zenith Exports Ltd. whereby it is declared as 100% EOU. It means that this concern was declared as 100% EOU w.e.f. 26.09.1997. As per the provisions of section 10B of the Act, which are attracted to EOUs like one of the units run by the assessee company i.e. Zenith Textiles, there is no controversy that under the provisions of section 10B(6) read with section 32 of the Act, if any deduction for any relevant assessment years ending before 01.04.2001 has been given full effect then the same neutralizes the provision of section 32(2) of the Act. However, in the present case, while working out unabsorbed depreciation for AY 1997-98, the AO has considered incorrect facts and figures. The fact is that M/s. Zenith Textiles was approved under Special Scheme of Govt. of India as a 100% EOU only on 26.09.1997 and accordingly, assessee claimed deduction u/s. 10B of the Act in respect this unit for and from AY 1998-99. According to us, there being no claim made for deduction u/s. 10B of the Act in AY 1997-98, the unabsorbed depreciation relatable to Zenith Textiles is not hit by the provision of section 10B(6) of the Act factually. Accordingly, we are of the considered view that the assessee s claim of unabsorbed depreciation relatable to AY 1997-98 is to be allowed and the AO is directed accordingly. The orders of the lower authorities i.e. the AO and that of the CIT(A) are reversed.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance of set-off of unabsorbed depreciation for a 100% Export Oriented Unit (EOU) against profit for the relevant assessment year.
2. Condonation of delay in filing appeal due to illness of the Accountant.

Issue 1: Disallowance of set-off of unabsorbed depreciation for a 100% EOU:
The case involved appeals by the assessee against the CIT(A)'s order confirming the AO's decision on unabsorbed depreciation set-off. The primary contention was whether unabsorbed depreciation related to a 100% EOU, Zenith Textiles, could be set off against profits for the assessment year. The AO disallowed the set-off based on provisions of section 10B(6) and section 32 of the Income-tax Act, 1961. The AO held that unabsorbed depreciation for years ending before 01.04.2007 cannot be carried forward. The CIT(A) upheld this decision. However, the Tribunal reversed the lower authorities' orders. The Tribunal noted that the assessee did not claim deduction u/s. 10B for AY 1997-98 and that Zenith Textiles was approved as a 100% EOU only from 26.09.1997. Therefore, the unabsorbed depreciation for AY 1997-98 was allowed to be carried forward, contrary to the AO and CIT(A)'s decisions.

Issue 2: Condonation of delay in filing appeal:
The second appeal related to the delay in filing the appeal for AY 2004-05. The CIT(A) rejected the appeal due to a delay of 6 months and 19 days. The assessee contended that the delay was due to the illness of the Accountant. The Tribunal considered the submissions and remanded the matter back to the CIT(A) for fresh adjudication on the delay issue. Both sides agreed to allow the assessee to prove the reasons for the delay. The Tribunal directed the CIT(A) to provide a reasonable opportunity for the assessee to establish the reasons for the delay and subsequently decide on the merits of the appeal. The appeal was allowed for statistical purposes.

In conclusion, the Tribunal allowed the appeal regarding the disallowance of set-off of unabsorbed depreciation for the 100% EOU, Zenith Textiles, for AY 1997-98. Additionally, the matter of condonation of delay in filing the appeal for AY 2004-05 was remanded back to the CIT(A) for fresh adjudication.