Tribunal allows depreciation deduction under sections 10A/10B

The Tribunal found the judgment in Indian Rayon Corpn. Ltd. applicable and ruled that depreciation must be allowed when computing eligible income for deduction under sections 10A/10B. The appeal was partly allowed, upholding the CIT(A)'s decision to deduct Rs. 14.31 crore of depreciation from the profits of the business for computing the deduction under sections 10A/10B.

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Issues Involved:
1. Applicability of the judgment in Indian Rayon Corpn. Ltd. v. CIT to the present case.
2. Whether depreciation must be allowed while computing eligible income for deduction under sections 10A/10B.

Issue-wise Detailed Analysis:

1. Applicability of the Judgment in Indian Rayon Corpn. Ltd. v. CIT:
The Tribunal initially did not allow the deduction under sections 10A/10B on Rs. 14,31,96,372/- representing the amount of depreciation, referencing the judgment in Indian Rayon Corpn. Ltd. v. CIT. The assessee contended that this judgment was not applicable as the facts differed, specifically noting that in Indian Rayon Corpn., the claim for depreciation was made after claiming deduction under section 80HH. The Tribunal recalled the order to give the assessee an opportunity to be heard on the applicability of this judgment.

The Tribunal noted that in Indian Rayon Corpn. Ltd., the Bombay High Court held that profits derived from a newly started undertaking must be computed according to sections 29 to 43A, including depreciation. The Tribunal found that this judgment was applicable to the present case as both involved the computation of profits for deduction purposes, and there was no specific definition of "profits of the business" in section 10A, similar to section 80HH.

2. Whether Depreciation Must Be Allowed While Computing Eligible Income for Deduction Under Sections 10A/10B:
The assessee argued that depreciation should not be mandatory for computing eligible income under sections 10A/10B, citing the Supreme Court's judgment in CIT v. Mahendra Mills, which held that an assessee cannot be forced to claim depreciation. However, the Tribunal noted that Explanation 5 to section 32, inserted by the Finance Act 2002, mandates that depreciation shall be allowed whether or not the assessee claims it.

The Tribunal examined the provisions of section 10A, particularly sub-section (6), which indicates that depreciation must be considered as if it had been claimed and allowed during the years of deduction. The Tribunal concluded that the profits of the business must be computed in a commercial sense, which includes allowing depreciation. The Tribunal held that the assessee's method of computing profits without depreciation was not permissible, as it would lead to higher profits and deductions, contrary to the statutory provisions.

The Tribunal upheld the CIT(A)'s decision to deduct Rs. 14.31 crore of depreciation from the profits of the business for computing the deduction under sections 10A/10B, finding the approach consistent with the judgment in Indian Rayon Corpn. Ltd. and statutory requirements.

Conclusion:
The Tribunal found that the judgment in Indian Rayon Corpn. Ltd. was applicable and that depreciation must be allowed while computing eligible income for deduction under sections 10A/10B. The appeal was partly allowed, upholding the CIT(A)'s order on the issue of depreciation.

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