High Court Allows Export-Oriented Unit's Unabsorbed Depreciation Carryover

The High Court held in favor of the assessee, an export-oriented unit entitled to tax exemption under section 10B, allowing the carryover of unabsorbed depreciation from 2002-03 to 2003-04. The court emphasized that section 10B(6) does not apply for the year 2003-04, directing the Assessing Officer to recompute eligible depreciation and carryover unabsorbed depreciation based on the amendment and the Supreme Court decision in CIT v. Manmohan Das. The Tribunal's decision was set aside, and the case was remanded for fresh orders with directions to consider the assessee's submissions.

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Issues involved:
The issue in this case is whether the assessee, a 100% export-oriented unit (EOU) entitled to tax exemption under section 10B of the Income Tax Act, is justified in carrying over depreciation loss from 2002-03 to 2003-04.

Judgment Summary:

Issue 1: Entitlement to carry over depreciation loss

The assessee, an EOU enjoying tax exemption under section 10B, initially had 100% income exclusion. However, an amendment in 2001 limited the exemption to 90% of the income, allowing for depreciation and carry over of unabsorbed depreciation under section 32(2) of the IT Act. The Assessing Officer (AO) disallowed the carry forward of unabsorbed depreciation for the assessment year 2003-04, citing section 10B(6). The High Court held that section 10B(6) does not apply for the year 2003-04, as it pertains to the period following the end of the tax exemption. The court directed the AO to recompute the eligible depreciation and carry over unabsorbed depreciation from 2001-02 onwards based on the amendment, following the decision of the Supreme Court in CIT v. Manmohan Das [1966] 59 ITR 699 (SC).

Issue 2: Application of Supreme Court decision

The court emphasized that eligibility for carry forward of unabsorbed depreciation should be considered in the succeeding year, as per the Supreme Court's ruling in CIT v. Manmohan Das. The Tribunal's order was set aside, and the case was remanded to the AO for fresh orders, with directions to hear the assessee before passing the orders.

In conclusion, the High Court ruled in favor of the assessee, allowing for the carry forward of unabsorbed depreciation and business loss from 2001-02 onwards, and directed the AO to recompute the eligible depreciation accordingly.

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