M/S. ZENITH EXPORTS LIMITED,KOLKATA vs. ACIT, CIRCLE - 5, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA [Before Shri Mahavir Singh, JM & Shri Waseem Ahmed, AM] I.T.A Nos. 05 & 06/Kol/2011 Assessment Year: 2004-05 M/s. Zenith Exports Limited Vs. Assistant Commissioner of Income-tax, (PAN: AAACZ0986F) Circle-5, Kolkata. (/Appellant) (Respondent) Date of hearing: 03.09.2015 Date of pronouncement: 22.09.2015 For the Appellant: Shri Manish Tiwari, FCA For the Respondent: Shri Alok Kr. Nag, JCIT, Sr. DR ORDER Per Mahavir Singh, JM: Both these appeals by assessee are arising out of separate orders of CIT(A)-VI, Kolkata in Appeal No. 035/CIT(A)-VI/09-10/Cir-5/Kol & 1093/CIT(A)-VI/Cir-5/2009-10 both dated 29.10.2010. Separate assessments were framed by ACIT, Circle-5, Kolkata u/s. 147/143(3) & u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2004-05, vide his orders dated 26.11.2009 and 29.12.2006 respectively.

2 ITA Nos.05 & 06/K/2011 M/s. Zenith Exports Limited, AY:2004-05 at Kolkata and Factory sites at Ahmedabad under the name of Zenith Spinners as well as 100% EOU at Karnataka in the name of Zenith Textiles. The assessee claimed adjustment of unabsorbed depreciation in respect of Zenith Textiles a 100% EOU and also filed supporting documents and the evidence before AO during the course of assessment proceedings. But the AO rejected the explanation and disallowed carried forward of unabsorbed depreciation in respect of 100% EOU known as Zenith Textiles as detailed below: “Assessment Year Amount of unabsorbed depreciation denied to be carried forward 1997-98 Rs. 7,67,01,019/- 1998-99 Rs. 5,98,94,082 Rs.13,65,95,001/-” The AO noted the provision of section 10B(6) and section 32 of the Act and that in view of these provisions the deduction for any of the relevant assessment year ending before 01.04.2007 is to be treated as given full effect for the assessment year itself. Therefore, the AO observed as under: “……Therefore, unabsorbed depreciation pertaining to assessment year 2000-01 or earlier hyears cannot be allowed to be carried forward and set off. Therefore, the amount of unabsorbed depreciation to be allowed to be carried forward for assessment year 1997-98 would be Rs.1,21,17,053/- (Unabsorbed depreciation determined of Rs.8,88,18,072/- minus unabsorbed depreciation not allowed to be carried forward relating to Zenith Textiles of Rs.7,67,01,019/-. 7. And the amount of unabsorbed depreciation allowed to be carried forward for AY 1998-99 would be only Rs.5,57,854/- (unabsorbed depreciation determined of Rs.6,04,51,882/- minus unabsorbed depreciation, which related to Zenith Textiles – Rs.5,98,94,082/-).” Therefore, the AO for the relevant AY 2004-05 disallowed the claim of unabsorbed depreciation to be carried forward u/s. 10B(6) of the Act relating to Zenith Textiles at Rs.7,67,01,019/-. 4. Aggrieved, assessee preferred appeal before CIT(A), who after considering the submissions of the assessee confirmed the action of AO in relation to the claim of unabsorbed depreciation relating to AY 1997-98 as under: “7. On the merit of the action taken by the AO during the appellate proceedings also the AR of the assessee made the same submissions which were made during assessment proceedings. I have considered all the facts and circumstances of this issue and the submissions made by the AR of the assessee. In his submission the Ld. AR has accepted that according to the provisions of section 10B(6) unabsorbed depreciation of EOU relating to assessment years

3 ITA Nos.05 & 06/K/2011 M/s. Zenith Exports Limited, AY:2004-05 upto 2000-01 is not admissible while computing income of subsequent asstt. years. However, Ld. A.R. submitted that the disallowance of set-off of brought forward unabsorbed depreciation of assessment years 1997-98 and 1998-99 is wrong on the part of the AO. For assessments year 1997-98 and 1998-99 is wrong on the part of the AO. For assessments year 1997-98 Ld. AR claimed that the set-off of unabsorbed depreciation should be allowed because in that year the assessee did not claim deductionu/s.10B. For assessment year 1998-99 Ld. AR. has pointed out that the unabsorbed depreciation has already been reduced by the assessee itself in the revised computation of income and therefore, the question of not allowing set off of such unabsorbed depreciation does not arise. I would like to take up this issue for the two assessment years separately. Assessment Year 1997-98 In respect of this assessment year if we look at the language of section 10B(6) it can be seen that according to this section depreciation in relation to any building, machinery, plant or furniture used for the purposes of the business of the EOU related to any previous year relevant to assessment year 2000-01 or before shall be treated as given full effect to for that assessment year itself and no depreciation shall be allowed to be carried forward as provided in Clause (2) of section 32. From the language of this provision it is clear that for any 100% EOU undertaking belonging to the assessee depreciations related to previous years relevant to asstt. Years 2000-01 and before are not allowed to be carried forward. This provision does not mention that the unabsorbed depreciation will not be carried forward. This provision does not mention that the unabsorbed depreciation will not be carried forward only when the deduction u/s. 10B is claimed by the assessee. Here the criterion is not based on claim of deduction u/s. 10B has been claimed in any years. Therefore, I agree with the AO that the unabsorbed depreciation of Rs.7,67,01,019/- related to 100% EOU unit M/s. Zenith Textile for asstt. Year 1997-98 will not be allowed to be carried forward and cannot be set off with the profit for asst. year 2004-05.” Aggrieved, now assessee is in second appeal before Tribunal. 5. We have heard rival submissions and gone through facts and circumstances of the case. Before us, Ld. Counsel for the assessee stated that the unit of Zenith Textiles run by the assessee company is a 100% EOU and it is subsidiary of the assessee company. Ld. Counsel also stated that there is no dispute that according to the provisions of section 10B(6) of the Act unabsorbed depreciation of EOU relating to AY upto 2001-02 is not admissible while computing income of subsequent assessment years. According to him, the AO failed to consider that Zenith Textiles was approved by Govt. of India as a 100% EOU on 26.09.1997 and assessee did not make any claim for deduction u/s. 10B of the Act for that assessment year i.e AY 1997-98. According to him, the restriction imposed u/s. 10B(6) of the Act so far as unabsorbed depreciation of Rs.7,67,01,019/- cannot hold good as the assessee did not claim any deduction u/s. 10B of the Act in AY 1997-98 and the same can be verified from the computation sheet attached with the return of income. The assessee drew our attention to approval order of Govt. of India dated 26.09.1997 filed in the paper book along with computation sheet and return of income. We have gone through

4 ITA Nos.05 & 06/K/2011 M/s. Zenith Exports Limited, AY:2004-05 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. This issue of assessee’s appeal is allowed. 6. The appeal for AY 2004-05 in ITA No. 06/K/2011 is against the order of CIT(A) in not admitting the appeal as there was a delay in filing of appeal for an about 6 months and 19 days. For this, assessee has challenged that it was not allowed reasonable opportunity of being heard and for this following three grounds are raised: “1. That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong and unjustified in holding that there is no evidence of sickness of the Accountant without allowing the appellant reasonable, adequate and effective opportunity to produce certificate of ill health. 2. That on the facts and in the circumstances of the case, Ld. CIT(A) is wrong in holding that the delay in presenting appeal is not due to sufficient cause by entertaining irrlelevant and extraneous facts. 3. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in dismissing assessee’s appeal by rejecting the condonation petition for delay.” 7. We have heard rival contentions and gone through facts and circumstances of the case. At the outset Ld. counsel for the assessee stated that he is ready to produce

5 ITA Nos.05 & 06/K/2011 M/s. Zenith Exports Limited, AY:2004-05 evidences before CIT(A) in respect to illness of the Accountant and will prove that the delay is not deliberate and willful. On query from the bench, Ld. Sr. DR fairly agreed that let the issue be set aside to the file of CIT(A) for fresh adjudication, first on delay and thereafter he can decide merits also. In view of the concession given by both the sides, we remand the matter back to the file of CIT(A), with a direction to CIT(A) that he will allow reasonable opportunity of being heard to the assessee to prove his bona fides in respect to condonation of delay and if delay is condoned, then on merits also. This appeal of assessee is allowed for statistical purposes. 8. In the result, appeal of assessee in ITA No. 05/Kol/2011 is allowed and ITA No. 06/Kol/2011 is allowed for statistical purposes. 9. Order is pronounced in the open court on 22.09.2015 Sd/- Sd/- (Waseem Ahmed) (Mahavir Singh) Accountant Member Judicial Member Dated : 22nd September, 2015 व�र�ठ �निज स�चव Jd.(Sr.P.S.) आदेश क� ��त�ल�प अ�े�षतः- Copy of the order forwarded to: 1. अपीलाथ�/APPELLANT- M/s. Zenith Exports Limited, 19, R. N. Mukherjee Road, Kolkata-700 001. 2 ��यथ�/ Respondent – ACIT, Circle-5, Kolkata. 3. आयकर क�मशनर (अपील)/ The CIT(A), Kolkata 4. आयकर क�मशनर/ CIT Kolkata �वभा�गय ��तनीधी / DR, Kolkata Benches, Kolkata 5. स�या�पत ��त/True Copy, आदेशानुसार/ By order, सहायक पंजीकार/Asstt. Registrar.