· hearing of appeal fixed before ... attention of the bench was drawn on copy of the letter ......

INCOME TAX OFFICER vs. VETO ELECTROPOWERS

ITAT, JAIPUR ‘B’ BENCH

R.K. Gupta, J.M. & M.L. Gusia, A.M.

ITA No. 337/Jp/2010; Asst. yr. 2007-08

24th December, 2010

(2011) 56 DTR (Jp)(Trib) 313 : (2011) 8 ITR 76

Section 10B, 250,

Asst. Year 2007-08

Decision in favour of Assessee

Counsel appeared :

Smt. Irina Garg & Ram Niwas Yadav, for the Appellant : R.C. Shah, for the Respondent

ORDER

R.K. GUPTA, J.M. : This is an appeal by Department against the order of learned CIT(A) relating to asst. yr. 2007-08. 2. Following grounds have been taken by the Department in its appeal : "(i) Whether on the facts and in the circumstances of the case and in law the CIT(A) was justified in holding that business can be assigned retrospectively by one firm to another firm for the purpose of claiming deduction under s. 10B. (ii) Whether on the facts and in the circumstances of the case and in law the CIT(A) was justified in holding that deduction under s. 10B is allowable in case of acquisition of one firm by another firm despite the fact that as per the provisions of s. 10B deduction is allowable only in the case of merger of company with another company. (iii) Whether on the facts and in the circumstances of the case and in law the CIT(A) was justified in deciding the case without giving proper opportunity to the AO to appear by passing the order on 4th Feb., 2010 before the due date of hearing i.e., 8th Feb., 2010." The learned CIT Departmental Representative requested the Bench to take ground No. 3 first. It was stated that the case of the assessee was fixed for hearing on 8th Feb., 2010. However, learned CIT(A) has decided the appeal of the assessee on 4th Feb., 2010 without affording opportunity of being heard to the AO. Relevant provisions of law were also explained before the Tribunal that as per provisions, it is mandatory on the part of the learned CIT(A) to afford opportunity to the AO before deciding any appeal of the assessee. Therefore, it was submitted that the matter should be sent back to the file of learned CIT(A) to decide the same afresh after affording opportunity of being heard to the AO. The learned counsel of the assessee strongly opposed the contention of learned CIT Departmental Representative. It was submitted that on written request on behalf of the assessee the learned CIT(A) has advanced the date of hearing of appeal fixed before him on 8th Feb., 2010. It was submitted that Department was going to take coercive measure against the assessee for recovery of the demand raised by way of assessment order passed on 30th Dec., 2009. It was submitted that the AO denied exemption under s. 10B partly on account of M/s Anjali Exports which was purchased by the assessee as a going concern on slump sale basis. It was further submitted that there was a valid reason for requesting the learned CIT(A) for advancement of the appeal fixed for 8th Feb., 2010. It was submitted that before expiry of 30 days as provided under the IT Rules for recovery of the demand, the AO

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concerned issued a premature notice for recovery of the demand along with interest under s. 220(2). Attention of the Bench was drawn on copy of notice issued for recovery of demand. It was further submitted that in the notice issued for making the payment, the AO has specifically mentioned that if the payment is not made, then coercive measure will be adopted. Attention of the Bench was drawn on copy of notice dt. 29th Jan., 2010 placed on record at p. 216 of the compilation. It was further submitted that the detailed written submissions filed before learned CIT(A) were given to the AO on 3rd Feb., 2010. Attention of the Bench was drawn on copy of the letter along with detailed written submissions given to the AO which were filed in his office, which are placed on record at p. 218 of the compilation. It was also submitted that the assessee moved an application in response to notice of demand dt. 29th Jan., 2010 requesting the AO that notice issued by him is premature as demand notice along with the assessment order under s. 143(3) for the assessment year under reference was served on the assessee on 31st Dec., 2009 and demand fell due after 30 days. Copy of this letter is placed in the paper book at p. 219. It was further submitted that the AO told the learned counsel of the assessee who filed this letter, that the Department will take coercive measure if the demand is not paid in response to notice dt. 29th Jan., 2010. In these circumstances, it was submitted that the assessee requested learned CIT(A) for advancement of hearing of the appeal from 8th Feb., 2010 to 4th Feb., 2010. The learned CIT(A) fairly agreed and he directed the counsel of the assessee to inform the AO and to give a copy of written submissions filed before him. Accordingly, as stated above, the AO was informed along with copy of written submissions filed before learned CIT(A). It was further submitted that the AO based at Jaipur itself even has not bothered to request learned CIT (A) to give a date if he wants to file any reply in response to the written submissions filed on behalf of the assessee. Therefore, it will be a great injustice to the assessee if the matter is remanded back to the file of learned CIT(A) who after discussing the issue in detail and taking into consideration each and every objection of the AO for denying deduction under s. 10B on account of M/s Anjali Exports, has allowed the issue in favour of the assessee. No additional evidence was filed before learned CIT(A) as whatever the details were filed before AO were filed before learned CIT(A) and whatever the written submissions were filed before AO were filed before learned CIT(A) though explaining the objections raised by AO in his order. Therefore, it was submitted that matter should not be sent back to the file of learned CIT(A) for any reason. At this point of time, the Bench asked learned CIT Departmental Representative to call upon the AO who passed the order to file his submissions in regard to the findings given by learned CIT(A), as there is already a finding of learned CIT(A) in detail and it will be beneficial to the Department to object at this point of time. If the matter is sent back to the file of learned CIT(A), then they will not have any benefit of finding of learned CIT(A). Thereafter, the learned CIT Departmental Representative agreed to this proposition of the Bench by stating that a suitable direction may be given for calling the AO concerned. In this background, an interim order was passed by the Tribunal on 21st Oct., 2010 by which the above reasons were stated and the Department was directed to call the AO concerned for filing his reply or submissions in respect to the issue raised before the Tribunal on merit. Thereafter, the matter was adjourned for 16th Nov., 2010. On this date another CIT Departmental Representative Shri Rajeev Sahai along with present AO of the same Ward i.e. Ward 6(1) Shri Sunil Kumar appeared, as the regular CIT Departmental Representative, Smt. Irina Garg was on leave. The learned CIT Departmental Representative stressed upon the Bench that the legal issue raised through ground No. 3 should be decided first as per mandatory provisions of law, the matter should be sent back to the file of learned CIT(A) to decide the issue afresh after affording opportunity of being heard to the AO. Various discrepancies noted by the AO in his order, were also explained by learned CIT Departmental Representative, Shri Rajeev Sahai. It was pointed out by the Bench that on last hearing the arguments have already been made in respect to legal issue raised through ground No. 3 and thereafter it was thought proper to give opportunity to the AO to file his written submissions. Therefore, it is not correct to say on this date that the legal issue should only be decided. It was also pointed out that the Tribunal is supposed to dispose of all the grounds raised before it. Therefore, it is incumbent upon the Tribunal to dispose all the grounds raised before it. However, the learned CIT Departmental Representative requested that legal ground should only be disposed of first. The matter was taken as heard. However, after rising of the Court, learned CIT Departmental Representative submitted that in fact the AO concerned who passed the impugned assessment order could not be informed for his submission on merit, therefore, a date may be given for making submissions on merit. In view of these facts, the



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case was adjourned for 23rd Nov., 2010 for hearing the appeal on merit. However, on 22nd Jan., 2010 the learned Departmental Representative filled an adjournment application that many complicated issues are involved in this case and AO is busy in time-barring matters, therefore, an adjournment should be given. In view of these facts and circumstances, the matter was adjourned to 2nd Dec., 2010. On 2nd Dec., 2010 learned CIT Departmental Representative Smt. Irina Garg along with Shri Ram Niwas Yadav, the concerned AO who passed the impugned assessment order appeared on behalf of the Department. The AO concerned filed a detailed written submissions comprising of 7 pages which was taken on record, copy of the same was given to learned counsel of the assessee. The AO read the written submissions filed before the Tribunal. It was submitted that he was not allowed opportunity of being heard by learned CIT(A), therefore, the matter should be restored to the file of learned CIT(A) as there are many issues which are to be explained to the learned CIT(A). At this point of time, the Tribunal asked as to why "you are interested in sending the matter back to the file of learned CIT(A) when you are given proper opportunity to file your objections, specifically there is material before you in shape of finding of learned CIT(A) which can be controverted here before the Tribunal. The Tribunal is final fact-finding body, therefore, what purpose will be served if the matter is restored to the file of learned CIT(A)". Thereafter the AO explained various discrepancies noted by him in his order and attention of the Bench was drawn on various defective certificates filed by the assessee before him as well as before learned CIT(A). It was submitted that firstly it is stated that M/s Anjali Exports was purchased on slump sale basis by the then M/s Veto Electropowers by entering into a MoU dt. 15th Jan., 2007 and thereafter by another assignment of agreement dt. 24th March, 2007 again M/s Veto Electric Power (P) Ltd. acquired M/s Anjali Exports. Accordingly it was submitted that how there could be two MoUs for acquiring the same firm i.e. M/s Anjali Exports. It was explained that M/s Anjali Exports was purchased on slump sale basis by M/s Veto Electropowers, thereafter M/s Veto Electric Power (P) Ltd. has entered into another agreement of assignment on 24th March, 2007 with same firm M/s Anjali Exports and acquired all the assets w.e.f. 1st April, 2006. Therefore, the MoUs are sham in nature. It was further submitted that they have reconstructed the business and, therefore, as per provisions of law, deduction is not allowable. Attention of the Bench was drawn on various paras of the written submissions filed by the AO concerned. The learned Departmental Representative also supported the arguments of the AO. It was stated that various discrepancies were noted by the AO while completing the assessment and he has rightly denied the deduction under s. 10B on account of M/s Anjali Exports. It was further submitted that AO was more than reasonable who has allowed deduction on the profit earned by M/s Veto Electropower as AO has denied deduction only on the profits earned by M/s Anjali Exports. It was again stated that since proper opportunity was not given to the AO by learned CIT(A) who advanced the date of hearing, therefore, matter should be sent back to the file of learned CIT(A). In reply the learned counsel of the assessee filed detailed written submissions along with soft copy of written submissions. It was submitted that he has already explained the reasons for advancement of the date of hearing and, therefore, matter should not be sent back to the file of learned CIT(A). On merit, he submitted that the learned Departmental Representative has not argued any new things as whatever points are raised, are on the basis of assessment order passed. These very objections have already been raised by the AO in his assessment order while denying deduction under s. 10B. The learned CIT(A) has already taken all these objections into consideration and then by giving detailed reasoning, has allowed the appeal of the assessee. Accordingly he placed strong reliance on the order of learned CIT(A). We have heard rival submissions and considered them carefully. Before taking into consideration the grounds of the Department raised in its appeal, we would like to discuss the facts of the present case. The facts relating to the issue involved in the appeal of the Department have been discussed by the CIT(A) in his order from pp. 2 to 6. The facts discussed by learned CIT(A) at pp. 2 to 6 are as under : "The only issue involved in the aforesaid grounds of appeal is that whether under facts and circumstances of the case the AO was justified in disallowing deduction claimed under s. 10B of IT Act in respect of industrial undertaking acquired from Anjali Exports amounting to Rs. 8,25,38.959. On perusal of assessment order it is noticed that the appellant firm had filed the return of income for the present assessment year having previous year from 1st April, 2006 to 19th March, 2007. The appellant firm was engaged like last year in manufacturing and export activity of PVC insulated armoured and unarmoured control purpose copper cables. The appellant firm started business activity w.e.f. 1st April, 2001. Thereafter, the firm has set up an 100 per cent export oriented undertaking (EOU) at B-9, (B-1), Malviya Industrial Area, Jaipur which commenced operation on 18th Oct., 2001. Another location was added on 5th Sept.,



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2005 at B-9A, Malviya Industrial Area, Jaipur which commenced operation on 15th Sept., 2005. The appellant firm claimed exemption/deduction under s. 10B of IT Act in respect of the income of the above unit which was granted in the past by AO from year to year. The firm at that time was known as M/s V.K. Exports. On 6th Dec., 2006 the existing two partners of the firm namely, Sh. Vishnu Kumar Gurnani and Sh. Rajesh Gurnani reconstituted the firm and following 6 persons were further admitted to the partnership firm w.e.f. 6th Dec., 2006 with the following shares in profit/losses. S. Name of new partner Share in % for No. profit/losses Sh. Dinesh Babulal Real Estate (P) 75% Ltd. Sh. Kishore Kumar Gurnani 1% Sh. Babulal Gurnani 7% Sh. Narayandas Gurnani 5% Sh. Dinesh Gurnani 1% Sh. Vijay Pamnani 1% The existing 2 partners revised their share of profit and losses as 9 per cent for Sh. Vishnu Kumar Gurnani and 1 per cent for Sh. Rajesh Gurnani. With effect from same date namely 6th Dec., 2006 by continuing the same business the name of the firm was changed from "V.K. Exports" to "Veto Electropowers". Subsequently, as per agreement dt. 30th Dec., 2006, Sh. Rajesh Gurnani having 1 per cent share in the profit and loss retired as a partner and the remaining 7 partners continued the same business w.e.f. 31st Dec., 2006. As a result of retirement the share of Sh. Babulal Gurnani which was 7 per cent was increased to 8 per cent and there was no other change. Subsequently, the aforesaid reconstituted firm on 15th Jan., 2007 had acquired the EOU through an MoU which was being run by M/s Anjali Exports as 100 per cent EOU unit set up earlier on 2nd Jan., 2002 at F-6, Malviya Nagar Industrial Area, Jaipur. The said unit had earlier commenced the operations on 18th July, 2004 and it was engaged in exactly same manufacturing and export activity which was being carried upon the appellant firm. M/s Anjali Exports before being acquired by appellant firm upto asst. yr. 2006-07 was claiming exemption/deduction in respect of its income for the unit under s. 10B which was also allowed by the AO of M/s Anjali Exports. The appellant firm had acquired the aforesaid EOU unit of M/s Anjali Exports w.e.f. 1st April, 2006 by the above MoU on slump sale basis. Subsequently, on 24th March, 2007 the appellant firm converted into a private limited company in the name of "M/s Veto Electropower (P) Ltd." The said private limited company has signed another MoU with M/s Anjali Exports. According to AO the books of accounts of M/s Anjali Exports are not maintained separately and no separate audit of the accounts of M/s Anjali Exports and M/s Veto Electropowers was made. In this background during the course of assessment proceedings a show cause was issued explaining the claim made under s. 10B and such show cause has been reproduced in the body of assessment order. Thereafter, the AO has referred certain extracts from the MoU of appellant firm with M/s Anjali Exports on 15th Jan., 2007. On the basis of said MoU the AO has formed a prima facie opinion that a new concern has come into existence in place of M/s Veto Electropower and M/s Anjali Exports. Thereafter, he had referred Sch. 16 of audit report which was regarding acquiring the business of M/s Anjali Exports. According to AO there was reconstruction of business of M/s Veto Electropower. Subsequently, the AO has reproduced the provisions of s. 10B of IT Act in support of observation that the exemption is available for undertaking and not for the assessee and the exemption is not allowable for the undertaking which is formed by the reconstruction of business already in existence. Thereafter. by referring the MoU dt. 15th Jan., 2007 he had raised the issue of propriety for the MoU dt. 24th March, 2007 between M/s Veto Electropower (P) Ltd. and M/s Anjali Exports. Thereafter the AO has referred the provisions of s. 10B(7A) and a further show-cause notice was issued seeking justification for the deduction claimed under s. 10B. Thereafter, explanation furnished on 24th Dec., 2009 was reproduced from page Nos. 7 to 12 of the assessment order. However, the said reply has not been considered satisfactory. The AO had referred the provisions of s. 10B(1) and by referring copy of certificate issued by Jt. Development Commr., Noida referred three units were mentioned at the bottom of the certificate. According to AO the said certificate is with reference to PAN "AACCV4353N" which was of M/s Veto Electropower India (P) Ltd. But according to him the appellant has not furnished any certificate in which unit F-6 at Malviya Industrial Area, Jaipur of M/s Anjali Exports is added with M/s Veto Electropower having PAN "AACFV8795P". Thereafter, AO has referred CBDT Circular No. l, dt. 6th Jan., 2005 [(2005) 193 CTR (St) 85] according to which the deduction shall be available only from the year in which unit has got approval as 100 per cent EOU and shall be available only for the remaining period of 10 consecutives assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles as a DTA unit. According to AO since the appellant has not taken certificate of l00 per cent EOU for M/s Anjali Exports at F-6, Malviya Industrial Area, Jaipur as required by the aforesaid circular therefore, it is not entitled to claim the deduction under s. 10B of IT Act for the income of M/s Anjali Exports. According to AO as per provisions of s. 10B(1) the deduction is allowable for 10 consecutive assessment years to the same assessee and therefore, such deduction for the income of M/s Anjali Exports is not allowable to the appellant firm. Thereafter, the AO has referred Circular No. 7 of 2003 on the issue of insertion of



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new sub-s. 7A to s. 10B according to which the intention of statute is to allow merger or acquisition of only Indian Company and no merger is allowable other than Indian company such as firm, foreign company etc.Subsequently, AO has referred the Speech to the Finance Bill, 2003 according to which no deduction shall be allowable where the ownership or the beneficial interest in the undertaking is transferred to any means in other than Indian company. Since, w.e.f. 1st April, 2006 M/s Anjali Exports has been merged with M/s Veto Electropower therefore, the deduction of profit of M/s Anjali Exports is not allowable in the case of appellant firm. These facts were further brought to the notice of Authorised Representative by AO vide order sheet entry dt. 29th Dec., 2009 and then the Authorised Representative has referred the case of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (2006) 104 TTJ (Del) 306 : (2006) 100 ITD 125 (Del) but it was for asst. yr. 2000-01 before the introduction of s. 10B(7A). With this discussion the AO has disallowed the deduction/exemption churned under s. 10B for the unit of M/s Anjali Exports at Rs. 8,25,38,959." 12. Challenging the said view of AO Sh. R.C. Shah advocate and Authorised Representative of appellant has furnished the copies of certificate of IEC number issued by the Jt. Development Commr., Noida Special Economic Zone from Ministry of Commerce and Industry dt. 22nd Aug., 2001 issued to M/s V.K. Exports having endorsement in respect of various 3 units including of unit at F-6, Malviya Nagar Industrial Area, Jaipur which was being run by M/s Anjali Exports with another endorsement for the change of name of unit at serial No. l of the certificate as Veto Electropowers India (P) Ltd. copy of appellant firm’s letter dt. 15th March, 2007 to the Development Commr., Noida Special Economic Zone about acquisition of 100 per cent EOU unit located at F-6, Malviya Nagar Industrial Area, Jaipur from M/s Anjali Exports by MoU dt. 15th Jan., 2007 w.e.f. 1st April, 2006, copy of letter dt. 18th Jan., 2007 of Development Commr., Noida Special Economic Zone addressed to M/s V.K. Exports which was earlier the name of the appellant firm regarding noting of changes in partnership firm having the names of new partners and regarding change of name of the firm from M/s V.K. Exports to M/s Veto Electropowers with an instruction to keep the letter attached with original LOP dt. 23rd July, 2001, copy of MoU dt. 15th Jan., 2007 between M/s Veto Electropowers and M/s Anjali Exports, copy of agreement of assignment of business dt. 24th March, 2007 between Veto Electropowers (India) (P) Ltd. with Anjali Exports, copy of Tribunal, Delhi Bench decision in the case of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (supra), copy of Tribunal, Chennai Bench decision in the case of Komaran System (P) Ltd. vs. Asstt. CIT (2007) 14 SOT 1 (Chennai)(URO). Copy of audited final accounts of M/s Veto Electropowers (formerly V.K. Exports). Besides this Sh. Shah has made following further submissions : "5. By a memorandum of undertaking (MoU) executed on 15th Jan., 2007 the above firm of M/s Veto Electropowers acquired the EOU from a partnership firm of M/s Anjali Exports. This industrial undertaking was a 100 per cent EOU unit set up by M/s Anjali Exports on 2nd Jan., 2002 at F-6, Malviya Nagar Industrial Area, Jaipur. This unit had commenced operation on 18th July, 2004 and it was manufacturing PVC/copper wires and cables which were exported out of India. M/s Anjali Exports was claiming exemption/deduction in respect of the income of this unit under s. 10B and this was being granted by its AO. M/s Veto Electropowers had acquired the above EOU unit of M/s Anjali Exports w.e.f. 1st April, 2006 by the above MoU. The above unit was acquired on slump sale basis. It may be noted that by the above acquisition of EOU of M/s Anjali Exports by M/s Veto Electropowers, the partnership firm of M/s Anjali Exports was not dissolved. It continued its existence even after 31st March, 2007 and it holds its PAN and continues to be a partnership firm under the Partnership Act. M/s Veto Electropowers (firm) was converted into a private limited company under Part IX of the Companies Act under the certificate of incorporation received on 19th March, 2007. Thus, w.e.f. 20th March, 2007 the business of the firm was continued in the name of M/s Veto Electropowers (India) (P) Ltd. In the meantime the consideration payable by the firm to M/s Anjali Exports was determined at valuable consideration on slump sale basis. Therefore, it was necessary to execute an agreement for assignment of business of M/s Anjali Exports to the above private limited company to regularize the transfer of assets of the EOU known as ‘Anjali’. By an agreement to assignment of business dt. 24th March, 2007 executed by M/s Anjali Exports (Assignor) and M/s Veto Electropowers (India) (P) Ltd. (Assignee) industrial unit (EOU) of M/s Anjali Exports as a going concern was assigned to the company w.e.f. 1st April, 2006 on a slump sale basis. It may be stated that this agreement of assignment of business was required to be executed by the company to complete the legal formality for assignment of EOU unit for which the firm had signed MoU on 15th Jan., 2007 after the due deligence was completed and the slump price was finally fixed by the parties. M/s Veto Electropowers (firm) by its letter No. NEPZ/2006-07 dt. 15th March, 2007 intimated to the Development Commr., Noida Special Economic Zone. Noida about acquisition of the 100 per cent EOU unit located at F-6, Malviya Nagar Industrial Area, Jaipur from M/s Anjali Exports by MoU dt. 15th Jan., 2007 w.e.f. 1st April, 2006. By another letter dt. 21st



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March, 2007, M/s Veto Electropowers (India) (P) Ltd., addressed to the Development Commr., Noida Special Economic Zone, Noida, requested for change of implementing agency of the EOU from the name of M/s Anjali Exports to M/s Veto Electropowers [now converted under Part IX of the Companies Act into Veto Electropowers (India) (P) Ltd.]. The company requested him to make necessary changes in IEC, RCMC and green card etc. On the basis of this request, the Development Commr. has made the following endorsements on the certificate of IEC number. ‘Address of factory at serial No. 3 may be read as B-9 (B-1) and B-9A, Malviya Industrial Area, Jaipur. F-6, Malviya Industrial Area, Jaipur. E-2, Malviya Industrial Area, Jaipur’. Name of the unit V.K. Exports to read as M/s Veto Electropowers (India) (P) Ltd. Similar amendments were made in the RCMC and green card. This shows that the EOU unit of M/s Anjali Exports was recognized by the Government authorities as belonging to the above M/s Veto Electropowers known as M/s Veto Electropowers (India) (P) Ltd. 8. During the accounting period 1st April, 2006 to 19th March, 2007 (asst. yr. 2007-08) the firm of M/s Veto Electropowers (firm) have maintained separate books for its existing EOU and for EOU of M/s Anjali Exports acquired by it w.e.f. 1st April, 2006. The accounts of each EOU and accounts of the firm are audited. For the purpose of its final accounts, the firm has shown figures of income, expenditure, assets and liabilities of ‘Anjali EOU’ and ‘Veto EOU’ separately and has also shown total of both the units for ascertaining its total assets, liabilities, income, expenditure and net profit. The firm has claimed 100 per cent exemption in respect to both the EOU units. Such exemption was claimed for its existing unit at Rs. 9,89,45,991 and for EOU unit acquired from Anjali Exports at Rs. 8,25,38,959. Audit report and Annexures thereto were filed with AO along with IT return. 9. The complete books of accounts are maintained and were subjected to audit book of accounts consist cash book, ledger, journal, stock register, sale and purchase register, sales, purchases and expenses are fully vouched. 10. Both M/s Anjali Exports and M/s V.K. Exports were enjoying benefits under s. 10B. 11. The final agreement for acquisition of the undertakings of purchase of M/s Anjali Exports was signed on 24th March, 2007. Since the appellant was converted into company on the day of resigning of agreement, the agreement was entered into by the successor corporate entity of the appellant firm affirming earlier state of affairs. The MoU was only for confirmation of earlier action of erstwhile firm. 12. The return was processed under s. 143(1) and subsequently, the case was selected from scrutiny by issue of notice under s. 143(2) dt. 25th Sept., 2008 duly served on the appellant firm. In response to the same, the Authorised Representative attended from time to time and filed the hard copies of return of income along with acknowledgement of ITR, e-filed copy of IT return, computation of income, audited accounts, audit report under the Companies Act, 1956. Tax audit report for both the concerns along with details in Form No. 3CD vide submission dt. 5th Oct., 2009. Further details and explanations as required and called for in relation to assessment were filed from time to time. Books of accounts and other records as required by the AO were also produced during the course of the hearings held on various dates. Books of accounts were also produced before the learned AO on 27th Nov., 2009. The appellant firm is eligible for the deduction under s. 10B in respect of both the units and has also furnished, the copy of the letter of permission and green card as a proof of 100 per cent EOU vide submission dt. 5th Oct., 2009. The said permission also has necessary endorsements duly enshrined thereon. 13. The case was discussed and order under s. 143(3) dt. 30th Dec., 2009 was served on 31st Dec., 2009 assessing total income at Rs. 8,25,38,959 after disallowing the deduction under s. 10B for the undertaking M/s Anjali Exports acquired during the year by the appellant firm. 14. Disallowance of deduction under s. 10B for M/s Anjali Exports. During the year under consideration, the appellant firm purchased the undertaking on slump sale basis of one of its group concern M/s Anjali Exports, which is also eligible for claiming deduction under s. 10B for a valuable consideration w.e.f. 1st April, 2006. 15. The appellant claimed as follows vide its various submissions made during the course of assessment proceedings :



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15.1 That the deduction under s. 10B is qua undertaking and not qua assessee. So far as the requirements as stipulated in the provisions of s. 10B are met and complied with change in the ownership of an undertaking will not result into disallowance of deduction under s. 10B. In fact ownership has also not changed. 15.2 Change in the ownership of an undertaking does not amount to reconstruction of business. 15.3 Separate books of accounts were maintained for the unit of M/s Anjali Exports and the same was produced before the learned AO on 29th Dec., 2009. 15.4 Separate books of accounts were maintained and audit of the undertakings have been carried out by the auditors of the appellant firm and the reports thereof were submitted vide submission dt. 5th Oct., 2009. 15.5 The accounts of M/s Anjali Exports have been merged with the accounts of M/s Veto Electropowers for preparation of consolidated balance sheet as at 19th March, 2007 and not otherwise. 15.6 The appellant firm has not purchased any asset or liability of M/s Anjali Exports. In fact, the appellant firm has purchased the EOU of M/s Anjali Exports. 15.7 Even the learned AO on p. 5 of the assessment order has agreed that the exemption under s. 10B is for undertaking and not for assessee. The learned ITO has observed as under : ‘From the above, it is clear that (i) the exemption is for undertaking and not for assessee (ii) from s. 10B(2)(ii) it is clear that this exemption is not allowable for the undertaking which is formed by reconstruction of business already in existence.’ 15.8 The MoU entered into between M/s Anjali Exports and the appellant firm was not a final agreement. On finalization of consideration for slump sale, the final agreement was executed on 24th March, 2007. Since the appellant firm was corporatized on 20th March, 2007, M/s Veto Electropowers India (P) Ltd. entered into the agreement with M/s Anjali Exports. It was an agreement of assignment of business made for just confirmation of earlier MoU. 15.9 M/s Anjali Exports was an eligible unit for deduction under s. 10B and the same was registered with the Jt. Development Commr., Noida, NEPZ. After acquisition by the appellant firm, the undertaking was included in the certificate of the appellant firm for IEC number issued by Jt. Development Commr., Noida, NEPZ. The acquisition was informed to the authority under Para 9-1 of chapter of EXIM Policy 2004-09 vide letter of the appellant firm dt. 15th March, 2007 filed with them on the same date, since the amendment in the certificate was made on 24th March, 2007 on the basis of our intimation vide our letter dt. 22nd March, 2007 about the conversion of the appellant firm into private limited company under Part IX of the Companies Act, 1956 on dt. 20th March, 2007, the certificate has been issued in the name of the corporatized entity directly due to the above conversion. 16. While rejecting the claim of the appellant, the learned AO has assigned reasons as under : 16.1 M/s Veto Electropowers is formed after reconstitution of M/s V.K. Exports on 30th Dec., 2006. 16.2 The partners and name of assessee firm have been changed during the reconstitution of business. 16.3 After purchase of M/s Anjali Exports, both the undertakings have merged and reconstitution of the business came into existence because all the old plant and machinery, assets, liabilities etc. have been purchased by M/s Veto Electropowers. 16.4 The books of accounts of M/s Anjali Exports and M/s Veto Electropower have been merged. 16.5 No separate audit has been made of M/s Anjali Exports and M/s Veto Electropowers. 16.6 The ownership of undertaking M/s Anjali Exports has changed.



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16.7 Sec. 10B(2)(iii) clarified that the deduction is not allowed to such undertaking which is formed by the transfer to a new business of machinery or plant previously used for any purpose. 16.8 In case of assessee, after purchase of M/s Anjali Exports, a new concern comes into existence because all the assets and liabilities are purchased by the assessee firm. In view of law mentioned above deduction under s. 10B is not allowable to the assessee concern. 16.9 Considering the facts of the case and both the MoUs discussed above, it is clear that from both the undertakings a new concern has come into existence and new concern has used old plant and machinery therefore, the assessee is not entitled for claiming exemption under s. 10B. 16.10 The assessee firm has not produced certificate of 100 per cent EOU. Therefore, the assessee firm has not qualified the primary and essential condition of having 100 per cent EOU for F-6, Malviya Industrial Area, Jaipur (M/s Anjali Exports). 16.11 A new sub-s. (7A) in s. 10A and a new sub-s. (7A) in s. 10B have been inserted to provide that where an undertaking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowable in the hands of the amalgamated or the resulting company. Thus the intention of statute is to allow merger or acquisition of only Indian company. Thus the intention of statute is to allow merger or acquisition of only Indian company. No merger is allowable to assessees other than Indian company such as firm, foreign company etc. 16.12 After introduction of the s. 10B(7A) it is clear that deduction is allowable after change of ownership, acquisition and merger only in case of Indian company. Other than Indian company, in case of acquisition, merger, change of ownership no deduction under s. 10B is allowable. From the above discussion, it is clear that the deduction under s. 10B for profit of M/s Anjali Exports is not allowable in case of M/s Veto Electropowers for the year under consideration. 17. The appellant submits that the allegations of the learned AO are against the facts on record. 17.1 No new concern as alleged has come into existence. The acquisition of M/s Anjali Exports has not given birth to a new concern. Both M/s Veto Electropowers and M/s Anjali Exports were in existence which is proved by following facts : (a) PAN (AACFV8795P) of prior and post-acquisition existing firm i.e. M/s Veto Electropowers is same and the return for asst. yr. 2007-08 has been filed by the same firm which has been filing the return since asst. yr. 2002-03. (b) All other registrations of M/s Veto Electropowers such as IEC No. registration with Ministry of Commerce and Industry, excise and customs authorities etc. continued to remain in the name of same firm i.e. M/s Veto Electropowers. (c) M/s Veto Electropowers and M/s Anjali Exports are carrying on their old activity and identity. (d) This is a case of acquisition by one bigger unit of another small one. In the process, M/s Veto Electropowers had emerged as a bigger firm with the large capital and assets. 17.2 While facts are different there is no merger of M/s Anjali Exports into M/s Veto Electropowers. There is an acquisition of an entity of 100 per cent EOU unit by the another 100 per cent EOU unit through slump sales. Therefore, there is no reconstruction of business as defined in s. 10B. The Oxford Dictionary has also defined word ‘reconstruction’ i.e. build again. This acquisition is reorganization only instead of reconstruction. On analysis of the terminology adopted in cl. (ii) of sub-s. (2) of s. 10B, it becomes clear that the world ‘splitting up’ and the world ‘reconstruction’ are attached to business already in existence. Hence, these words qualify business and not the ownership of the business. The meaning of the word ‘reconstruction’ is given in the Judicial Dictionary by K.J. Iyer, Eighth edition 1980, wherein the word ‘reconstruction’ is expressed by synonymous to ‘rebuild’. Thus, if there is change in ownership from one person to another but the business continues to be the same, it cannot be said that the undertaking is formed as a result of reconstruction. The objectives of this reorganization are : (i) better management, (ii) achieving economies of scale, (iii) revamping of production facilities and diversification, (iv) market expansion, (v) better finance, (vi) operational synergy, (vii) making M/s Veto Electropowers more competitive, (viii) ensuring better services to customers. Indian businesses are gearing up for global size operations. Sizes of an organization has acquired central place as a strategy of survival and



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growth in the competitive economy. There is a move towards a phase where only a few giant organizations will exist in a sector and business activities will be guided by the maxim of ‘survival of the fittest’. In the case of Textile Machinery Corporation Ltd. vs. CIT 1977 CTR (SC) 151 : (1977) 107 ITR 195 (SC) Hon’ble apex Court has dealt with ‘reconstruction’ and has observed as under : ‘An undertaking is formed out of the existing business if the physical identity with the old unit is preserved. This has not happened here in the case of the two undertakings which are separate and distinct. If any undertaking is not formed by reconstruction of the old business that undertaking will not be denied the benefit of s. 15C simply because it goes to expand the general business of the assessee in some directions. As in the instant case, once the new industrial undertakings are separate and independent production units in the sense that commodities produced and the result achieved are commercially tangible products and the undertakings can be carried on separately without complete absorption and losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business.’ The two undertakings of the assessee were physically separate units for all purposes and no reconstruction/setting up of plant and machinery have been taken place in physical terms also. Both the units of M/s Veto Electropowers have separate identities and continued to use the same plant and machinery. There is no question of using old plant and machinery by a new resulting concern. It should be noted that the reorganization of M/s Veto Electropowers, Jaipur and M/s Anjali Exports (AE) is a complete tax neutral exercise not aimed to gain any undue tax advantage. Both of the entities (prior to acquisition) were EOUs and already availing benefits of s. 10B. Such status has remained same (i.e. EOU) even after the acquisition of M/s Anjali Exports by M/s Veto Electropowers. As M/s Veto Electropowers for the consolidated results of M/s Veto Electropowers and M/s Anjali Exports. The purpose of barring ‘reconstruction/splitting-up’ of a business already in existence is to discourage the business entities to convert their existing investment in non-EOU business to a new entity and avail the benefits of s. 10B on their old investments itself. However, in our case, there can’t be such motive behind reorganization as both of the entities i.e. M/s Veto Electropowers and M/s Anjali Exports were already availing the benefits under s. 10B. I would like to draw your kind attention towards s. 10B(1) of the IT Act, 1961 which provides as follows : ‘Subject to the provisions of this section, a deduction of such profits and gains as derived by a hundred per cent EOU from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.’ Thus, from the reading of the above provision, it is clear that deduction in respect of the profit of the undertaking will be allowed from the income of the assessee. Therefore, the benefit under s. 10B is available to an undertaking and not to the assessee. Thus, the deduction under s. 10B is qua undertaking and not qua assessee. So far as the requirements as stipulated in the provisions of s. 10B are met and complied with by the undertaking, change in the ownership of an undertaking will have no effect on the eligibility of the undertaking to claim deduction under s. 10B. Your Honour will appreciate that even the learned AO on p. 5 of the assessment order has agreed that the exemption under s. 10B is for undertaking and not for assessee. 23. The s. 10B(2) of IT Act, 1961 provides as under : This section applies to any undertaking, which fulfils the following conditions namely : (i) it manufactures or produces any articles or things or computer software; (ii) it is not formed by the splitting up or the reconstruction of a business already in existence : Provided that this condition shall not apply in respect of any undertaking, which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in s. 33B, in the circumstances and within the period specified in that section : (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Therefore, from the language of section it is clear that assessee concern does not come in the clutches of above section as there is no reconstruction or splitting up of business. The assessee unit is an undertaking, which is established from record. Both the units are availing benefits under s. 10B of IT Act, hence assessee concern has not availed any wrong exemption. The assessee has claimed deduction being an undertaking, which is allowable in Act. It is also clear from the record there is no transfer of a new business or machinery or plant previously used for any other purpose. They are manufacturing units.



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24. The next allegation, as made by learned ITO relates that the unit has not obtained 100 per cent EOU certificate for M/s Anjali Exports, F-6, Malviya Industrial Area, Jaipur is also against facts on record. M/s Anjali Exports was 100 per cent EOU set up on 2nd Jan., 2002 at F-6, Malviya Industrial Area, Jaipur commenced operation on 18th July, 2004 and enjoying benefits under s. 10B since then. The undertaking of M/s Anjali Exports was taken over by M/s Veto Electropowcrs vide MoU dt. 15th Jan., 2007 retrospectively w.e.f. 1st April, 2006 and when the undertaking was acquired by M/s Veto Electropowers was converted into a private limited company w.e.f. 19th March, 2007 the application was to be made in the name of M/s Veto Electropowers (P) Ltd. Such applications have been made within 90 days as per clause No. 9.1 of foreign trade policy for 2004-09 which reads as under : ‘An IEC holder must get the change in name/address/constitution incorporated within 90 days of such change. Provided, however, RA issuing IEC may, condone delay on payment of penalty of Rs. 1000. Change in constitution, aforesaid, does not include change in directors of public limited company.’ Since the undertaking of M/s Anjali Exports was acquired by the firm converted into private limited company the certificate was issued in the name of the said company. M/s Veto Electropowers made an application on 15th March, 2007 and M/s Veto Electropowers (India) (P) Ltd. made an application on 21st March, 2007 (copies enclosed) and hence there is nothing lacking as alleged. The appellant has fully and truly complied with requisite formalities. The relevant portion of foreign trade policy is reproduced for perusal. ‘6.34(6) Authorize change in name of company or implementing agency and change from a company to another.’ ‘6.34(10) Permit merger of two or more units into one unit provided units fall within jurisdiction of same DC/designated officer subject to conditions that activities are covered under provision of board banding.’ ‘63.37.1 Existing DTA units may also apply for conversion into an EOU/EHTP/STP/BTP unit, but no concession in duties and taxes would be available under scheme for plant, machinery and equipment already installed. On conversion, they would get income-tax concessions but limited to a period of 10 years from original commencement of manufacture or that prescribed under s. 10 of IT Act whichever is earlier. For this purpose, DTA unit may apply to DC/designated officer concerned in same manner as applicable to new units. In case, there is an outstanding export commitment under EPCG scheme/advance authorization scheme, it will follow the procedure laid down in Appendix 14-1-O of HBP vl.’ ‘6.37.2 Existing EHTP/STP/BTP units may also apply to conversion/merger to EOU unit and vice versa. In such cases, units will continue to avail permissible exemption in duties and taxes as applicable under relevant scheme. EHTP/STP/BTP units desiring conversion as an EOU may apply to DC concerned through officer designated by DoIT/DoBT in same manner as applicable to new units. Likewise EOU desiring conversion into EHTP/STP/BTP may apply to officer designated by DoIT/DoBT through concerned.’ 25. The next allegation of the learned ITO is that after acquisition of undertaking of M/s Anjali Exports the name stands changed to M/s Veto Electropowers and in the opinion of learned ITO the deduction is allowable to same assessee. This opinion is not at all correct according to intention of Act and the policy. As per para No. 6.34(6) of the foreign trade policy quoted above name can be changed and two firms can also be merged as per provisions of cl. 6.34(10) of this said policy. The provisions of IT Act are also clear on this issue. 26. I may invite your attention to the judgment of Delhi Bench of Tribunal, in case of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (2006) 104 TTJ (Del) 306 : (2006) 100 ITD 125 (Del) wherein the Hon’ble Bench has dealt with this issue. The judgment is discussed in detail as under : Formerly, M/s Pinnacle Exports started functioning in financial year 1993-94. It was hundred per cent export-oriented unit. The firm was carrying on the business of development and export of software and data processing permission for setting up hundred per cent EOU was granted to the firm by STPI on 14th Dec., 1992. The firm was also granted approval to claim exemption under ss. 10A and 10B. The EOU was making exports to the American company, namely M/s Tech Enterprises. It was working under the control of USA company, as even funds were provided by this company to the firm. In 1997 the firm converted into company. At this time all assets and liabilities of firm became the property of the company and all the partners of the firm became shareholders of the company. The capital of the partnership firm became the paid up capital of the company. In view of the undisputed facts, it is clear that on conversion from firm of company. There was merely a change in the ownership of undertaking. There was no change in the business of the undertaking which was already in existence. Neither the business activity was rearranged of reorganized nor the same was reconstructed. The business activity carried out by the firm remained the same without any alteration or change. After incorporation the company continued to carry out the same business i.e. software export. In fact on conversion even in the ownership there was little change because even the firm was formed by the shareholders of American company and in the company incorporated on conversion, the same



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partners became the shareholders and subsequently all the shares were sold to the American company, which was exercising full control earlier also. However, we are not concerned with the change in the ownership rather we are to enquire as whether there was any change or reconstitution of the building of the undertaking. On close scrutiny and analysis of the terminology adopted in cl. (ii) of sub-s. (2) of s. 10B, it becomes clear that the word ‘splitting-up’ and the word ‘reconstruction’, are attached to business ‘already in existence’. Hence, these words qualify business and not the ownership of the business. Hence, if the business of the undertaking is formed by splitting up by reconstruction, then the undertaking will not be qualified for claiming exemption. The AO as well as the learned CIT(A) have not pointed out as to in what manner there was any change in the business of the undertaking. The business of the undertaking was not formed by splitting up of the old business or by reconstruction of the old business i.e. business already in existence. The Departmental authorities have laid much emphasis on the change in the ownership and it appears that they have not properly appreciated the terminology used in the provision referred to above. The intention of the legislature in using the words is clear and has been expressed in unequivocal terms and noting can be subtracted or added to the terms or words used in a statutory provision. The meaning of word ‘reconstruction’ can also be understood in the context in which this word appears. If we consider the scheme of the special provision and go through the provisions of ss. 32, 32A and 33B and examination of the sub-clause of sub-s. (2) together then it will be clear that the legislature intended to disqualify those undertakings which are formed by rearranging the components or equipments of the earlier business and that is the reason that sub-cl. (iii) says in specific terms that the undertaking to be qualified for exemption under s. 10B should not be formed by the transfer to a new business of machinery or plant previously used for any purpose. Thus, the emphasis is on the previous business, business already in existence or old business establishment. However, if the new undertaking has been formed and conditions laid down in various clauses of sub-s. (2) are not applicable, then the exemption cannot be denied to the undertaking. The business structure and continuity of the business activity has to be seen and not the continuity of the same ownership of the undertaking . Thus, there is a difference between the ownership of the undertaking and the business activity of the undertaking and if the latter remains unaffected or unchanged by subsequent change in the ownership then it cannot be said that the business of the undertaking has been reconstructed. Finally Hon’ble Members have observed that undertaking acquired by the assessee company remained the same and the observation of the AO that undertaking acquired by the company is nothing, but reconstruction of business already in existence cannot be accepted. In above said judgment, case of CIT vs. Texspin Engg. & Mfg. Works (2003) 180 CTR (Bom) 497 : (2003) 263 ITR 345 (Bom) has also been considered, by Bombay High Court. In this case, it has been held that when a firm is treated as a company, all the properties of the firm vest in the limited company, but debt vesting is not consequent or incidental to a transfer. It has been followed by Jodhpur Bench in case of Chetak Enterprises (P) Ltd. vs. Asstt. CIT (2005) 92 TTJ (Jd) 611 : (2005) 95 ITD 1 (Jd). In this case also it has been held that it cannot be said that EOU owned by the assessee company is formed as a result of reconstruction of EOU owned by the firm. The same analogy has been adopted by Hon’ble Supreme Court in case of Textile Machinery Corporation Ltd. as submitted earlier. I may also invite your kind attention in the case of Kumaran System (P) Ltd. vs. Asstt. CIT (2007) 14 SOT 1 (Chennai)(URO). The facts of the case are : The assessee company had filed its return of income for the asst. yr. 1999-2000 on 31st March, 2000 admitting an income of Rs. 2,09,340 and claimed exemption of Rs. 1,20,11,083 under s. 10A. The same was allowed while processing the return under s. 143(1)(a), however, later it was found that the assessee was converted from partnership firm to private limited company on 15th Feb., 1999 as per the provisions of s. 575 of the Companies Act, 1956. As per this provision all assets and liabilities vest in the company and this company was recognized by software technology parks of India (STPI) on 15th April, 1999. According to the AO, the assessee was not entitled to exemption under s. 10A for the income earned between the period 15th Feb., 1999 to 31st March, 1999 as the company was not recognized under STPI for this period and the recognition came only w.e.f 15th April, 1999 and the earlier recognition issued to the firm w.e.f. 6th Oct., 1998 was not applicable to the private limited company as the registration was granted to the firm only. Further the AO was of the opinion that since STPI recognition was granted w.e.f. 15th April, 1999, the assessee was entitled to exemption under s. 10A only from the asst. yr. 2000-01. Hence, the assessment was reopened and the exempted income was brought to tax by denying exemption under s. 10A. Further, even the deduction under s. 80HHE was denied for the reason that the erstwhile partnership firm had filed a return for the asst. yr. 1999-2000 upto the date of conversion, i.e., 14th Feb., 1999 and claimed



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deduction under s. 80HHE. Aggrieved, the assessee carried the matter in appeal before the CIT(A) who confirmed the order of the AO. The Hon’ble Bench has held that the benefit of s. 10A is available to an industrial undertaking which has begun of begins to manufacture or produce articles or things during the previous year relevant to asst. yr. 1994-95 or any subsequent assessment year in any electronic hardware technology park or software technology park as the case may be. The conditions laid down in cls. (ii) and (iii) of s. 10A are to be fulfilled. The industrial undertaking is required to be approved by electronic hardware technology park or software technology park and required to produce certificate from the auditor in the prescribed Form No. 56F with Annex. ‘A’ as per r. 16D of the IT Rules, 1962. The main reason for which the exemption was denied by the lower authorities was that the assessee was not approved by STPI for the assessment year under consideration and it was approved only on 15th Feb., 1999 which fell under the asst. yr. 2000-01. The assessee was not a new unit and it was carrying on the business which was entitled to deduction under s. 10A vide STPI recognition dt. 6th Oct., 1998, was in the name of the firm which was converted into a private limited company, due to operation of law as per Part IX of Companies Act, 1956 and all the properties and liabilities of the firm were vested with the limited company. There was a mere change of name and the composition in the ownership of the undertaking and business of the undertaking had not changed as the same partners had become directors of the company. The business activities of the newly constituted company remained the same. The business of the assessee was not formed by splitting of the old business or reconstruction. The undertaking or the assessee remained the same. The letter issued by STPI clearly stated that all the approvals issued by their office like permission, IEC, green card etc., stood valid under new name, thus, it means that the authorities of STPI substituted the name of the firm with the assessee. As held in the case of Vali Pattabhirama Rao vs. Sri Ramanuja Ginning & Rice Factory (P) Ltd. (1986) 60 Com Cas 568 (AP), there shall be statutory vesting of all the properties of the previous firm in the newly incorporated company without any need for separate conveyance. In view of this, if the firm was entitled to s. 10A exemption, the assessee was also entitled to this exemption. because the assessee had stepped into the shoes of firm. The erstwhile firm was entitled to s. 10A exemption for ten consecutive assessment years beginning from the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture articles or things. The period of ten years commences from the financial year relevant to the assessment year in which the undertaking begins to manufacture or produce articles or things. In the instant case, the firm started to manufacture in the asst. yr. 1999-2000. Since the registration was granted by STPI on 6th Oct., 1998, the assessee was entitled to exemption under s. 10A from the asst. yr. 1999-2000 for a period of ten consecutive assessment years. The question of splitting up or reconstruction did not arise as the lower authorities themselves had admitted that it was not a new business formed by splitting up or reconstitution of existing business and the assessee was entitled to deduction for the asst. yr. 2000-01. When the lower authorities had admitted that this undertaking was not formed by splitting up or reconstruction, there was no reason for denial of the exemption for the asst. yr. 1990-2000. Hence, the assessee was entitled to exemption under s. 10A though the STPI letter was issued on 15th April, 1999. The next allegation of the learned AO is that books of accounts of M/s Anjali Exports have not been separately maintained. This is also not correct on record. I may invite your attention to copy of audited balance sheet dt. 7th Jan., 2007 where balance sheets of M/s Anjali Exports and M/s Veto Electropowers have been separately compiled along with balance sheet of both the concerns. I really fail to understand as to how the learned ITO could make such a wrong statement copy of audited balance sheet, P&L a/c, along with Annexures thereto were enclosed. Copies of relevant pages are enclosed. (a) the next issue raised by the learned ITO is relating to provision of s. 10B(7A) and according to the learned ITO, the said provision deals with merger of assessee companies only, debars claim of the assessee under s. 10B. This view is not correct, it is a special provision for companies but does not debar assessees other than companies. (b) the learned ITO has not looked into the provisions of sub-s. (9) and sub-s. (9A) of s. 10B which were omitted w.e.f. 1st April, 2004 by the Finance Act, 2003, the relevant provisions are reproduced below : ‘(9) where during any previous year the ownership or the beneficial interest in the undertaking is transferred by any means, the deduction under sub-s. (1) shall not be allowed to the assessee for the assessment year relevant to such pervious year and the subsequent years." "(9A) Notwithstanding anything contained in sub-s. (9), where as a result of reorganization of business, a firm or a sole proprietary concern is succeeded by a company and the ownership or beneficial interest in the undertaking of the



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firm or the sole proprietary concern is transferred to the company, the deduction to the company, as the same would have been allowed to such firm or sole proprietary concern, as the case may be if the reorganization had not taken place : Provided that : (a) In the case of a firm, the aggregate of the shareholding in the company of the partners of the firm is not less than fifty-one per cent of the total voting power in the company and their shareholding continues to be as such for the period for which the company is eligible for deduction under this section.’ Your Honour will appreciate that the above sub-s. (9) is omitted w.e.f. 1st April, 2004. Therefore, prior to this omission, if an undertaking eligible for deduction under s. 10B was sold or its buyer/recipient of the undertaking. This clearly reveals the intention of law is to now allow the buyer of the undertaking of 100 per cent EOU to enjoy the benefits under s. 10B. It is pertinent to note by the assessee acquiring the undertaking from asst. yr. 2004-05 onwards. In this regard, we wish to bring your kind attention to the explanatory memorandum to the Finance Act, 2003 regarding the above amendments. The relevant extract of the explanatory memorandum are reproduced here : ‘Allowing deduction under ss. 10A and 10B in the case of amalgamation or demerger : Under the existing provisions of sub-s. (9) of s. 10A and sub-s. (9) of s. 10B, the deductions under ss. 10A and 10B are not allowed to the assessee where the ownership or the beneficial interest in the undertaking is transferred by any means. However, this condition is not applicable where as a result of the reorganization of the business; a firm or sole proprietary concern is succeeded by a company, due to the provisions of sub-s. (9A) of s. 10A and sub-s. (9A) of s. 10B. The Expln. 1 below sub-s. (9A) of s. 10A and sub-s. (10B). The Expln. 1 below sub-s. (9A) allows the continuance of the benefit where as a result of change in ownership, the resultant entity is a public limited company or is a venture capital company. With the view to give boost to the export led growth, it is necessary to eliminate the hurdles in the mergers and acquisitions (M&A) and other modes of business restructuring. It is accordingly, proposed to insert a new sub-s. (7A) in s. 10A and sub-s. (7A) in s. 10B, to provide that where an undertaking of an Indian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowable in the hands of the amalgamated or the resulting company. However, no deduction shall be admissible under these sections to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place. As a consequence, sub-ss. (9), (9A) and Explanation thereafter in ss. 10A and 10B, become redundant and are proposed to be omitted, so that the tax benefit is not lost on change of ownership of the eligible undertaking. The proposed amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the asst. yr. 2004-05 and subsequent years.’ On perusal of the above amendment and explanatory memorandum, the following points emerge : (1) Prior to 1st April, 2004, if an undertaking was sold or ownership was transferred by any means, the deduction under s. 10B was not allowed.(2) Even in case of corporation or sole proprietorship or partnership firm, deduction was denied prior to 1st April, 2004, if the voting power of the erstwhile partners was less then 51 per cent in the resultant company. Even this provision has been deleted w.e.f. 1st April, 2001. (3) The object of the legislature in deleting the above two restriction clauses is to remove hurdles in the mergers and acquisitions (M&A) and other modes of business restructuring. The purpose is to give boost to the export-led growth. (4) Since the above provisions are deleted w.e.f. 1st April, 2004, any change in the ownership of the undertaking will have no effect on the admissibility of the deduction under s. 10B. Thus in case of sale after 1st April, 2001 of an undertaking which is eligible for deduction under s. 10B, the deduction under s. 10B will continue to be allowed to the assessee buyer of the undertaking for the remaining period of deduction. Therefore, as explained above, the legislature is very clear in its intention that the deduction under s. 10B is qua undertaking and not qua assessees. Therefore the deduction under s. 10B cannot be denied on the ground that the ownership of the undertaking has changed hands. 31. It may be noted that s. 10B was inserted in the IT Act to grant exemption to 100 per cent EOU income by the Finance Act, 1988 w.e.f. 1st April, 1989. The said section was amended from time to time and was replaced by the present section by the Finance Act, 1999 w.e.f. 1st April, 2000. CBDT has issued a circular No. F-l5/5/63 (IT-AI) dt. 13th Dec., 1963 clarifying that the benefit of deduction under s. 80J/84 (where the wording is the same as in s. 10B) is attached to the undertaking and so the transferee of the undertaking can claim the benefit under the said section. The relevant part of the said circular reads as under : ‘The Board agrees that benefit of s. 84 attaches



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to the undertaking and not to the owner thereof. The successor will be entitled to the benefit for the unexpired period for five years provided the undertaking is taken over as a running concern.’ ‘The principle is followed in various cases while deciding the issue in relation to deduction under ss. 80HH, 80-I, 80-IA, 80B etc. (Reference is invited to decisions in CIT vs. P.K. Engg. & Forging (P) Ltd. (1996) 87 Taxman 101 (Cal) and A.G.S. Tiber & Chemicals Industries (P) Ltd. vs. CIT (1997) 141 CTR (Mad) 467 : (1998) 233 ITR 207 (Mad). In the cases of ITO vs. Hindustan Petroleum Corporation Ltd. (1986) 25 TTJ (Bom) 28, ITO vs. SLM Maneklal Industries Ltd. (1986) 17 ITD 515 (Ahd) and Shah Granites (P) Ltd. vs. ITO (1987) 28 TTJ (Bom) 83 it has been held that the benefit is attached to the undertaking and not its owner and deduction is available to the successor. In the case of Asstt. CIT vs. IIS Infotech Ltd. (2004) 82 TTJ (Del) 174 also it has been held that a 100 per cent EOU unit enjoying tax exemption under s. 10B having merged with the assessee, the assessee was entitled to enjoy tax-free status with respect to the said EOU unit because the benefit under s. 10B is always attached to the industrial undertaking irrespective of the fact as to who owns it. The AO, in his assessment order dt. 30th Dec., 2009 has stated in para 4 that "From the above notes on accounts, it is clear that M/s Anjali Exports completely merged with M/s Veto Electropower and a different concern apart from these two concerns came into existence. Therefore, from the above facts, it is clear that there is reconstruction of business of M/s Veto Electropower." The above view of the said AO is not at all justified. He has placed reliance on s. 10B(2)(ii) which provides that "the EOU unit should not be formed by the splitting up, or the reconstruction, of a business already in existence". It may be noted that the word "reconstruction’’ goes with the "business of EOU" and not with the "owner" of the EOU. This principle is accepted in the decisions cited earlier in the cases of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (2006) 104 TTJ (Del) 306 : (2006) 100 ITD 125 (Del), Kumaran Systems (supra), CIT vs. Texspin Engg. & Mfg. Works (2003) 180 CTR (Bom) 497 : (2003) 263 ITR 345 (Bom), Chetak Enterprises (P) Ltd. vs. Asstt. CIT (2005) 92 TTJ (Jd) 611 : (2005) 95 ITD 1 (Jd). No old plant and machineries were acquired and used. M/s Anjali Exports continued to hold its existence. There is no restriction in M/s V.K. Exports changing its name. Change of partner is immaterial for exemption/deduction under s. 10B. No new undertaking came into existent. The issue under dispute relates to interpretation of an exemption provision and as held by many judicial pronouncements require liberal interpretation and where two views are possible then the view favouring assessee is to be taken. When the legislature brings in the statute an incentive provision for the encouragement or advancement of a specific purpose, activity or objective, then such provision has to be liberally interpreted so as to advance the purpose behind it. In this context, one may rely on the following judgments : Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC) : (1992) 62 Taxman 480 (SC). This judgment related to s. 15C of the old Act (s. 80J of the new Act). The relevant part of the judgment may be summarized as follows : ‘A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not frustrate it.’ As per CIT vs. Gujarat Aluminium Extrusions (P) Ltd. (2003) 184 CTR (Guj) 297 : (2003) 263 ITR 453 (Guj), it is a settled legal position that the provision for exemption or relief should be construed liberally and in favour of the assessee. As already pointed out, s. 10A is an exemption provision and, therefore, the same is required to be construed liberally and in favour of the assessee. Even if there is an ambiguity, a view favourable to the assessee must be accepted. If there is any ambiguity regarding the interpretation of the statue, a view favourable to the assessee must be accepted. Reliance for this proposition is placed on following judgment of Supreme Court : CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) the relevant part of the judgment may be summarized, as follows : ‘If the Court finds that language of a taxing is ambiguous or capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee.....’ (p. 192) CIT vs. Naga Hills Tea Co. Ltd. 1973 CTR (SC) 329 : (1973) 89 ITR 236 (SC). The relevant part of the judgment may be summarized as follows : ‘If a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has got to be accepted’. (p. 236) CIT vs. Podar Cement (P) Ltd. Etc. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) : (1997) 92 Taxman 541 (SC) It was, inter alia held in this case that in case of ambiguity, a construction of



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the statute, beneficial to the assessee has to be preferred. With these factual and legal background, we request your Honour to kindly allow the deduction under s. 10B of the IT Act, 1961." 13. The learned CIT(A) after taking into consideration the finding of AO along with the objection of the AO and written submissions filed on behalf of the assessee found that AO was not justified in rejecting the claim of deduction under s. 10B on the profit earned by M/s Anjali Exports. The learned CIT(A) once again discussed the facts of the case in his finding and then arrived at a conclusion that issue is covered by the decision of Tribunal in case of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (2006) 104 TTJ (Del) 306 : (2006) 100 ITD 125 (Del) and allowed the issue in favour of the assessee. The finding of learned CIT(A) have been recorded at pp. 22 to 26 of his order which are as under : "I have considered facts of the case and arguments taken by Sh. Shah quite carefully. Basic facts of the case regarding reconstitution of the firm, introduction of the new partners, retirement of the partner, change of name of the firm as M/s Veto Electropowers (formally known as M/s V.K. Exports), acquisition of undertaking namely, M/s Anjali Exports an 100 per cent EOU unit w.e.f. 1st April, 2006 by the MoU dt. 15th Jan., 2007 and conversion of M/s Veto Electropowers into a private limited company w.e.f. 20th March, 2007 as M/s Veto Electropowers (India) (P) Ltd. are already reproduced in earlier part of this appellant order and therefore, it is not considered necessary to reproduce them again. On factual appreciation of development of the events it is undisputedly clear that M/s V.K. Exports after reconstitution of the firm had changed its name to Veto Electropowers 6th Dec., 2006 and thereafter, by a MoU dt. 15th Jan., 2007 M/s Veto Electropowers acquired the export-oriented undertaking from a partnership firm namely, M/s Anjali Exports. Such industrial undertaking was a 100 per cent EOU unit set up by M/s Anjali Exports on 2nd Jan., 2002 at F-6, Malviya Industrial Area, Jaipur which has commenced manufacturing operation on 18th July, 2004 which was claiming exemption/deduction in respect of the income of the said unit under 10B of IT Act which was also granted by the AO of M/s Anjali Exports. I have also gone through the copy of MoU dt. 15th Jan., 2007 and copy of agreement of assignment of business with Anjali Exports according to which M/s Anjali Exports was having a manufacturing unit at F-6, Malviya Industrial Area, Jaipur and w.e.f. 1st April, 2006 all the assets and liabilities of the said unit/said business as on 1st April, 2006 becomes the assets and liability of the appellant firm. It is clear that the appellant firm had acquired on slump sale basis the aforesaid 100 per cent EOU unit set up by M/s Anjali Exports at F-6, Malviya Nagar Industrial Area, Jaipur. Thereafter, the appellant firm vide their letter dt. 11th Jan., 2007 to the Development Commr., Noida Special Economic Zone has intimated regarding change in the name of partnership firm from M/s V.K. Exports to M/s Veto Electropowers and regarding change of partners in the partnership firm and in response to the Asstt. Development Commr. from the office of Development Commr., Noida Special Economic Zone vide his two letters dt. 18th Jan., 2007 has informed the noting regarding change in the partners and regarding change in the name from M/s V.K. Exports to M/s Veto Electropowers. Further, from the perusal of copy of certificate of IEC number dt. 22nd Aug., 2001 with endorsement having mention of 3 different units which includes one unit at F-6, Malviya Ind. Area, Jaipur earlier owned by M/s Anjali Exports which makes it clear that in the certificate issued by Jt. Development Commr., Noida Special Economic Zone the 100 per cent EOU of M/s Anjali Exports is covered through the endorsement and since by the time of issuing this endorsement the appellant firm had converted into a private limited company w.e.f. 20th March, 2007 therefore, the name of the unit in the certificate was stated as M/s Veto Electropowers India (P) Ltd. This is a case of appellant firm for the according year upto 19th March, 2007 because thereafter, it was converted into a private limited company. With this factual discussion supported with documentary evidence it is clear that the appellant firm had acquired all the assets and liabilities for the 100 per cent EOU of M/s Anjali Exports situated at F-6. Malviya Ind. Area, Jaipur and this fact is evidenced by the endorsement made by Jt. Development Commr., Noida Special Economic Zone to the original certificate issued to M/s V.K. Exports whose name has been changed as M/s Veto Electropowers which is the case of present appellant firm. It is clear that this not a case of new concern coming into existence but the manufacturing and export activity being run in 100 per cent EOU by M/s V.K. Exports and M/s Anjali Exports was continuing as such. Further, from the perusal of copy of P&L a/c and balance sheet of M/s Veto Electropowers (formally V.K. Exports) as on 19th March, 2007 and for the period from 1st Jan., 2006 to 19th March, 2007 it is clear that separate figures of various accounts namely income and expenditure for Anjali Exports and Veto Electropowers were given along with consolidated figure of the audited accounts and therefore, the AO is factually incorrect in his finding that there were no separate books of accounts and separate audit of M/s Anjali Exports and M/s Veto Electropowers. In fact, with such separate audited figures only the AO could come to know about the exemption claimed under s. 10B pertaining to 100 per cent EOU of M/s Anjali Exports which was disallowed at Rs. 8,25,38,959. The AO is also not correct in his observation that M/s Anjali



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Exports has completely merged with M/s Veto Electropower because as per MoU M/s Anjali Exports had transferred/sold assets/liabilities of its 100 per cent EOU at F-6, Malviya Nagar Ind., Area, Jaipur. Such acquiring of business of M/s Anjali Exports cannot be said as reconstruction of business as referred by AO and on this issue there is direct judgment of Tribunal, Delhi Bench in the case of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (2006) 104 TTJ (Del) 306 : (2006) 100 ITD 125 (Del) in which Hon’ble Tribunal has referred the term reconstruction as per the dictionary meaning as given in Judicial Dictionary by K.J. Iyer where the word reconstruction is expressed by synonym ‘rebuild’. Thus, if there is change of ownership from one person to another person but the business continues to be the same. It cannot be said that the undertaking is formed as a result of reconstruction. Further, by referring the conversion of the firm into company, Hon’ble Tribunal has observed that it could not be said that there was any transfer. On incorporation of a company consequences as per the provisions of the Companies Act, 1956 and other statutory provisions follow ensue. Thus there is merely statutory vesting and it could not be said that EOU owned by assessee company was formed as a result of reconstruction of EOU owned by the firm. Further, the PAN of prior and post acquisition of appellant firm i.e. M/s Veto Electropower is the same and all other registrations of M/s V.K. Exports such as IEC number, registration with Ministry of Commerce and Industry. Excise and customs authorities etc. continued to remain in same manner in new name namely M/s Veto Electropowers. This is a clear case of acquisition of an entity of 100 per cent EOU unit by the another 100 per cent EOU unit through slump sale. It shall not be out of place to analyze that the reorganization of M/s Veto Electropowers and M/s Anjali Exports is complete tax neutral exercise not aimed to gain any undue tax advantage. As per provisions of s. 10B(1) the deduction in respect of an undertaking and it is not to the assessee and therefore, deduction under s. 10B is qua undertaking and qua assessee and therefore, the change in the ownership of an undertaking will have no effect on the eligibility of the undertaking to claim deduction under s. 10B of IT Act. As per para No. 6.34(6) of the foreign trade policy the name can be changed and the two firms can also be merged as per provisions of cl. 6.34 (10) of the said policy. Further, the observation of AO regarding provisions of s. 10B(7A) for denying the deduction/exemption on the ground that as per this provision the benefit is available to only Indian companies and not to other entity is far from correct. The said sub-section only prohibits the companies other than Indian companies but the AO has conveniently ignored the provisions of sub-ss. (9) and (9A) of s. 10B which were omitted w.e.f. 1st April, 2004 by Finance Act, 2003 and with such omission it makes prominently clear that there is no such ban now on the availability of such deductions in case of the firms. Rather in explanatory memorandum it is clear that sub-ss. (9) and (9A) become redundant so that the tax benefit is not lost on the change of ownership of the eligible undertaking. With this discussion and analysis of facts and evidence in my considered view the AO was not justified in disallowing the deduction/ exemption claimed under s. 10B of IT Act in respect of 100 per cent EOU of M/s Anjali Exports at Rs. 8,25,38,959 and AO is thereby directed to allow the same." As stated above, now the Department is in appeal here before the Tribunal. We will deal with the ground No. 3 first which is legal ground raised by the Department. After taking into consideration the arguments of learned CIT Departmental Representatives S/Shri Rajiv Sahai and Smt. Irina Garg from time to time and taking into consideration the arguments of the AO concerned who passed the impugned order and taking into consideration the reply filed on behalf of the assessee, we find that though it is mandate of the law that the learned CIT(A) before disposing of the appeals have to allow opportunity to both the sides i.e. the assessee and the Department. The appeal of the assessee was fixed for hearing on 8th Feb., 2010 and the learned CIT(A) has issued notice to the AO for filing his comments if he wants to file on or before 8th Feb., 2010. Copy of the notice received by the AO was filed on behalf of the Department during the appellate proceedings which is placed on record. Thereafter the assessee vide notice dt. 29th Jan., 2010 was informed by the AO that the demand raised by the impugned assessment order should be paid immediately along with interest under s. 220(2) of the Act otherwise a coercive measure will be taken against him. Copy of this notice is placed in the compilation at p. 216. Thereafter assessee filed letter in the office of the AO that appeal of the assessee has already been fixed for hearing on 8th Feb., 2010. Therefore, the recovery proceedings should be kept in abeyance till the disposal of the appeal. However, as stated by learned Authorised Representative that the AO has not acceded the request of the assessee and he was going to take coercive measure against the assessee. In these circumstances assessee filed letter dt. 3rd Feb., 2010 before learned CIT(A) for preponing the hearing of the appeal from 8th Feb., 2010 to 3rd Feb., 2010 or 4th Feb., 2010. Accordingly, the learned CIT(A) after accepting the request of the assessee preponed the date of hearing from 8th Feb., 2010 to 4th Feb., 2010 and the assessee informed the AO that appeal of the assessee has been preponed from 8th Feb., 2010 to 4th Feb., 2010. Copy of the written submissions filed before



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learned CIT(A) were also enclosed along with the letter filed before AO. From these facts it is established that assessee has informed the AO that date of hearing of appeal before learned CIT(A) has been preponed from 8th Feb., 2010 to 4th Feb., 2010. If the AO wanted to say anything, he should have approached the learned CIT(A). He may have requested for some time. However, neither the AO appeared before learned CIT(A) nor requested for further time. It is also noted that both the authorities i.e. AO as well as learned CIT(A) sit in the same building i.e. Aaykar Bhawan Building, Jaipur, therefore, it was not impossible for the AO to appear before learned CIT(A) on the date of hearing on 4th Feb., 2010. Both the learned CIT Departmental Representative as well as the AO concerned who passed the impugned assessment order have vehemently argued that the opportunity was not given to the AO before deciding the appeal by learned CIT(A), therefore, matter should be remanded back to the file of learned CIT(A). We have taken into consideration this aspect and found that it will be futile exercise if the matter is restored back to the file of learned CIT(A) as learned CIT(A) has discussed the issue in detail. Every objection raised by the AO in his order and thereafter taking into consideration the detailed written submissions filed before him on behalf of the assessee found that the deduction is allowable. Therefore, we are not inclined to accept the argument of the Department that matter should be sent back to the learned CIT(A) and the ground on merit should not be decided at this point of time. 18. Various Courts have time and again held that if the matter has already been discussed by learned CIT(A) in appeal, then Tribunal should decide the appeal of either party on merit instead of remanding the matter back. As stated above, there is evidence on record that AO was informed about the preponement of the date of hearing, therefore, it cannot be said that no opportunity was given to the AO by learned CIT(A). The Department could not controvert the fact that the information given to the AO vide letter dt. 3rd Feb., 2010 in regard to preponement of the appeal was not filed on behalf of the assessee in the office of ITO, Ward 6(1), Jaipur. The learned counsel of the assessee has relied upon, in support of his contention that matter should not be restored to the file of learned CIT(A) on various case laws. 19. First decision relied upon by the assessee is in case of Raja Vikramaditya Singh (Decd.) vs. CIT (1987) 64 CTR (MP) 28 : (1988) 169 ITR 55 (MP), the Hon’ble Indore Bench of Madhya Pradesh High Court has held "that the power of Tribunal to remand a matter in an appropriate case to investigate fresh facts cannot be disputed, but that power must be exercised with proper discretion and it should not be exercised if all the basic facts required for disposal of the matter are already on record. It would not be a sound exercise of discretion by an appellate authority to remit a case to the subordinate authority for writing such order as would, in the opinion of the appellate authority be a proper and better order". 20. Second case law on which reliance has been placed is in case of CIT vs. Harikishan Jethalal Patel (1987) 65 CTR (Guj) 54 : (1987) 168 ITR 472 (Guj). The Hon’ble Gujarat High Court has held : "that in cases where foundational facts do not exist raising even a remote doubt regarding the genuineness of the firm and/or the transaction in question, a second innings should not be permitted to the Revenue as it would result in avoidable hardship and harassment to hundreds of assessees whose cases stand covered by the aforesaid decision of the Supreme Court. It was only because the ITO thought that the transaction in question was a genuine one and the agricultural land was transferred to the firm, the genuineness of which was not in doubt, that the ITO, after deducting the cost of acquisition of the land, computed the capital gain at Rs. 1,32,172 and added the same to the net income of the assessee for the asst. yr. 1976-77. The genuineness of the firm as well as the transaction was, therefore, never in doubt. Therefore, the Tribunal was right in law in not remanding the matter to the ITO for redeciding the issue." 21. While holding so, the decision in case of CIT vs. Smt. Dhirajben R. Amin (1982) 31 CTR (Guj) 255 : (1983) 141 ITR 875 (Guj) and decision in case of Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 172 : (1985) 156 ITR 509 (SC) were referred. 22. Third decision on which reliance has been placed is in case of Rajesh Babubhai Damania vs. ITO (2001) 169 CTR (Guj) 346 : (2001) 251 ITR 541 (Guj). In this case it has been held : "that it was the duty of the Tribunal to



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ascertain the reasons which were given by the CIT(A) in whose order the order of the AO had merged. The Tribunal committed an error of law in restoring the matter to the AO." 23. We have also taken into consideration all other arguments of learned Departmental Representatives by which the learned Departmental Representatives have strongly argued that matter should go back to the file of learned CIT(A), it is not understandable that why they want to go before learned CIT(A). It was stated by the Bench during the course of hearing that there is a material i.e. in the shape of order of learned CIT(A) and the Department could easily controvert the finding of learned CIT(A), and if they have some other material which has not been taken into consideration at the time of completing the assessment also can be relied upon here before Tribunal now. For this reason only the opportunity was given to the Department to call for the concerned AO with his record for making his submission or placing some other material if he wants. No useful purpose will be served if the matter is restored to the file of learned CIT(A) as learned CIT(A) has given a detailed reasoning. In this respect we further find support from the order of Hon’ble apex Court in case of Suresh Chand AIR 1988 SC 247 wherein it was observed that "in case where it is found that no useful purpose will be served by a remand and the issue can be decided on admitted facts, empty formality must be eschewed to advance the cause of justice". Even otherwise, the Department is free to advance their argument on merit and to controvert the detailed reasoning given by learned CIT(A). The Department has called upon the AO concerned also to make submissions or objections in respect to the finding of learned CIT(A) on merit and he has filed written submissions also in response to that besides oral arguments of the AO as well as the arguments advanced by learned CIT Departmental Representative who appeared from time to time. Therefore, it is not in the interest of justice that the matter should go back to the file of learned CIT(A) as it will unnecessarily delay the finality of the issue the Tribunal being final fact-finding body. In view of the above facts and circumstances we reject ground No. 3 of the Department by which it is requested that matter should go back to the file of learned CIT(A) to decide the same afresh after affording opportunity of being heard to the Department. Now we will take up the other grounds of the Department on merit. After hearing learned CIT Departmental Representative Smt. Irina Garg and the AO concerned, who passed the impugned assessment order and taking into consideration the orders of the learned CIT(A) and the arguments of learned counsel, we find that learned CIT(A) has examined all the issues raised in the order of AO in detail. Whatever the objections were raised by the AO in refusing deduction under s. 10B on the profit earned by M/s Anjali Exports have been met with by learned CIT(A) while giving his detailed reasoning which is reproduced somewhere above in this order. It will be a futile exercise to record once again the finding of learned CIT(A). The AO has filed 7 pages written submission. In first 2 pages the AO has stated that the matter should be sent back to the file of learned CIT(A). From pp. 3 to 7 the argument on merit have been advanced by the AO by which it is submitted that apart from reiterating many observations and findings contained in the assessment order which primarily included conditions of s. 10B(2) having not been fulfilled as it being a case of reconstruction as an entirely new undertaking has emerged as a result of purchase of M/s Anjali Exports by the assessee and (2) in addition to that even under the provisions of sub-s. (7A), deduction under s. 10B of the Act in case of succession of an industrial undertaking is allowable only in the case of a transfer of the undertaking of an Indian company in the scheme of amalgamation or demerger and (3) in the instant case none of the conditions have been met as assessee neither is a company nor there being any amalgamation or demerger of a company and (4) all other cases of succession having been made ineligible by implication as having not been specifically prescribed in the statute and (5) the said transaction gets strengthened by the simultaneous omitting of provisions of sub-s. (9A) of the Act, thus there being no occasion for allowing claim of deduction under s. 10B of the Act to the assessee in respect of income of M/s Anjali Exports and also the other finding in the assessment order. Thereafter the AO has mentioned that besides these objections raised in the assessment order, other submissions which would have been made before learned CIT(A) if the undersigned was allowed an opportunity. Thereafter various submissions have been made by AO in his written submissions. In these submissions summarily it has been mentioned that in case the learned CIT(A) considers that in the case of succession of an undertaking the deduction under s. 10B is also allowable to the assessee other than Indian company and case of succession carried out in a manner other than the manner prescribed under s. 10B(7A) the scheme of amalgamation or demerger, the fulfilling of other mandatory conditions prescribed under s. 10B has also to be considered/examined. The attention of the Bench is drawn on sub-s. (3) of s. 10B. Accordingly it is stated that for claiming deduction under s. 10B the sale proceeds have to be



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brought into India by the assessee. In this case the sale proceeds from export made by M/s Anjali Exports have not been brought into India by the assessee as same has been brought into by M/s Anjali Exports, partnership firm and a different assessee. It is further stated that in case of succession of business of M/s Anjali Exports, the conduct of the respective parties to the transaction is very crucial and needs to be examined and investigated because what is material in the present condition is action of the parties to the agreements how they have actually acted upon the various agreements. It is mentioned that this aspect was not examined by him because he has already disallowed the deduction claimed. It is further stated that assessee firm is claiming that the business of M/s Anjali Exports has been taken over retrospectively w.e.f. 1st April, 2006 through a MoU signed on 15th Jan., 2007 and the assessee is also submitting that business of M/s Anjali Exports has been taken over retrospectively by M/s Veto Electric Power (P) Ltd. successor company of assessee firm which has been incorporated on 20th March, 2007 through an agreement of assignment of business dt. 24th March, 2007 entered into with M/s Anjali Exports through its partner Shri Babu Lal Gurnani. It is submitted that both the submissions mentioned above are contradictory to each other and, therefore, there is no question of allowing deduction to the assessee and if deduction can be allowed that can be allowed in case of successor company M/s Veto Electric Power (P) Ltd. It is further submitted that the copies of IT return of M/s Anjali Exports for asst. yrs. 2006-07 and 2007-08 along with copy of IT return of M/s Veto Electric Power (P) Ltd. for asst. yr. 2007-08 should be called and should be examined. We have gone through the above submissions and found that most of the objections raised by the AO in his assessment order have already been taken into consideration by learned CIT(A) while disposing of the appeal of the assessee. The further submissions advanced by the AO, we find that they do not have much substance. The first objection raised by the AO is that the sale proceeds were not received by the assessee as they were received by M/s Anjali Exports. In this regard we would like to mention that by a MoU dt. 15th Jan., 2007 the business of M/s Anjali Exports have been taken over retrospectively w.e.f. 1st April, 2006. Whatever the sales made by M/s Anjali Exports, the payment against those sales has to come in the name of M/s Anjali Exports. Bank account in the name of M/s Anjali Exports is not closed and the same is deposited in the bank account of M/s Anjali Exports which has been taken over by assessee. Therefore, whatever the sale proceeds are received, that has to be treated as received by the assessee for the reason that on account of slump sale entire business including turnover have been taken over by the assessee firm w.e.f. 1st April, 2006. Therefore, we see no substance in these submissions of the AO. Next is that simultaneously two agreements have been entered into. First is by the assessee between M/s Anjali Exports MoU dt. 15th Jan., 2007 and second by agreement of assignment of business dt. 24th March, 2007 entered into by M/s Anjali Exports with M/s Veto Electric Power (P) Ltd., a successor company of assessee firm which has been incorporated on 20th March, 2007. In these submissions also, we do not find much weight. The assessee firm has filed its return from 1st April, 2006 to 19th March, 2007 i.e. the date when the assessee firm existed. From 20th March, 2007 the assessee firm was converted into a private limited company in the name of M/s Veto Electric Power (P) Ltd. Therefore, the assessee is eligible for deduction for the period from 1st April, 2006 to 19th March, 2007. We have examined the IT return and computation of the company for asst. yr. 2007-08 in which it has been clearly mentioned that company was incorporated w.e.f. 20th March, 2007. Copy of complete return has been filed and in respective column no amount of income or deduction has been mentioned or claimed. This copy of return was filed on behalf of the assessee as required by the Bench. We have also seen the copies of returns for asst. yrs. 2005-06 and 2006-07 in case of M/s Anjali Exports which is placed on record and found that the AO concerned has allowed deduction under s. 10B in case of M/s Anjali Exports. For asst. yr. 2007-08, there is no return of income filed by M/s Anjali Exports as the same has been taken over by the assessee firm w.e.f. 1st April, 2006. The contention in this respect, therefore, does not hold good. Accordingly, we hold that there was no question of claiming deduction by the company who is a successor of the assessee firm. The assessee firm has filed its return of income from 1st April, 2006 to 19th March, 2007 the period for which it was existed. The assessee firm has filed the return taking into consideration the income of M/s Anjali Exports and of itself. We further find that on one hand the AO has stated that this is a reconstruction of business and on the other hand, the AO himself has allowed the deduction under s. 10B on the profits earned by the assessee. It means to this extent he has not treated the reconstruction of the business. The AO has not allowed deduction on the profit earned by M/s Anjali Exports. In the course of hearing of the appeal, the AO has also submitted that deduction can be allowed in the hands of M/s Anjali Exports. Whether it is claimed in the hands of M/s Anjali Exports or in the



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hands of assessee or in the hands of successor company, there is no dispute in allowability of deduction. All conditions are satisfied for claiming deduction under s. 10B at the end of the assessee as well as at the end of M/s Anjali Exports. The Department itself has allowed deduction under s. 10B in case of both the concerns i.e. assessee and M/s Anjali Exports for earlier period. M/s Anjali Exports started its business from 2005-06 and claimed deduction under s. 10B first time which has been allowed by the AO. The assessee firm started its business activity from asst. yr. 2001-02 and filed its return from time to time claiming deduction under s. 10B and the Department has allowed deduction under s. 10B. It means all the conditions for claiming deduction under s. 10B has already been satisfied. Therefore, the contention of learned Departmental Representative and the AO concerned that conditions of s. 10B are not satisfied are not correct. As stated above, the various other objections raised by AO while denying deduction under s. 10B have already been taken into consideration by learned CIT(A) while disposing the appeal of the assessee. The learned CIT(A) has found that the decision of the Tribunal in case of Tech Books Electronics Services (P) Ltd. vs. Addl. CIT (supra) in which the reconstruction of business and taking over the business activity of erstwhile partnership firm then converted into private limited company has taken into consideration and has held that there is no reconstruction of business as old business on which deduction was already allowed has converted into private limited company. Its partners have become directors or shareholders of the company, therefore, the company was held eligible for deduction under s. 10B. The facts are similar in the present case also as business of another partnership concern were taken over by another partnership concern having common partner and, therefore, in our considered view the learned CIT(A) has rightly held that the assessee is eligible for deduction under s. 10B on the profits of both the concerns i.e. of assessee and M/s Anjali Exports. The other objection of the AO is that an agreement of assignment of business was also entered into by M/s Anjali Exports and M/s Veto Electric Power (P) Ltd., therefore, there was a contradiction in MoUs entered into by assessee and the successor company. This is a technical objection of the AO. There will be no impact on the revenue either M/s Anjali Exports is taken over by assessee firm or by its successor company. The successor company is not a new entity as the same was converted from partnership firm to private limited company. All its partners were taken as directors or shareholders of the successor company. Upto 19th March, 2007 there were two firms in existence. M/s Anjali Exports were taken over by assessee firm and, therefore, the profits of M/s Anjali Exports have been shown in the hands of the assessee firm. From 20th March, 2007 the assessee firm has been converted into a private limited company and from that date the successor company is doing the business in the name of private limited company. In the name of private limited company again there is no dispute in respect to allowability of deduction under s. 10B. Only condition is that under s. 10B deduction is allowable for 10 years. It is not a case that the private limited company will take deduction for another 10 years. For the years the firm M/s Veto Electric Power formerly known as M/s V.K. Exports have been allowed deduction in those years will be excluded from the period of 10 years and for remaining period only the successor company, in our considered view can claim deduction under s. 10B. Therefore, there is no case of Department that by an act of entering into MoU the company is extending the period of deduction. Rather the facts are reverse as M/s Anjali Exports who started its operation from asst. yr. 2005-06 was entitled for deduction for 10 years. However, the business of M/s Anjali Exports was taken over by assessee firm, therefore, M/s Anjali Exports lost its deduction for remaining years i.e. about 7 years, as the deduction can be allowed only for 10 years i.e. in case of M/s Veto Electric Power or in case of M/s Veto Electric Power (P) Ltd. Therefore, for this reason also we see no infirmity in the finding of learned CIT(A) in holding that deduction under s. 10B is allowable. 38. We further noted that learned CIT(A) has successfully dealt with the objection of the AO that no separate books of account have been maintained by both the concerns i.e. assessee and M/s Anjali Exports. Copy of separate audited balance sheet, P&L a/c etc. along with consolidated P&L a/c have been placed on record which clearly established that separate books of account were maintained by both the firms simultaneously. It is clear from the order of AO also who has quantified the deduction in case of assessee firm and disallowed the deduction claimed on the profit of M/s Anjali Exports. From this act of AO again it is clearly established that separate books of accounts were maintained.



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39. We further noted that if there was some deficiency that was only on technical issues that two MoUs are entered into, that the business of a concern was taken over with retrospective effect. 40. The Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. Mst. Katiji & Ors. (1987) 62 CTR (SC) 23 : (1987) 167 ITR 471 (SC) while disposing the appeal though on account of condonation of delay in filing appeal have held : "When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay." 41. Therefore, in view of the decision of Hon’ble apex Court, technicality should not come into substantial justice of the assessee which otherwise is eligible for deduction under s. 10B. In view of these facts and circumstances and in view of detailed reasons given by learned CIT(A), we confirm the order of learned CIT(A) on merit also. 42. For the sake of clarification, we have gone through each and every document in which the attention of the Bench was drawn on either by learned CIT Departmental Representative, AO concerned or by learned counsel of the assessee. They are nothing but in those documents certain technicalities, deficiencies may be involved otherwise no document suggested that assessee has indulged in some act of unreasonableness by which it can be said that the deduction is not allowable. Attention of the Bench has been drawn on pp. 51, 52 and some other pages where copy of certificate issued by Central Government authority in the name of M/s V.K. Exports is placed. In this certificate cuttings are made. Cuttings are in respect to addition/change of name of the firm i.e. M/s V.K. Exports to M/s Veto Electropower and then from M/s Vetro Electropower to M/s Veto Electropower (P) Ltd. Similarly in the same certificate the addition of the firm M/s Anjali Exports is made. In these papers nothing is unusual as appropriate authority has to make the new entry by cutting old entry with effect from the respective date from which date the amendment is required in the certificate. Even otherwise, if there is any deficiency it was only on account of technicality. 43. In the result, appeal of the Department is dismissed.



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· hearing of appeal fixed before ... attention of the bench was drawn on copy of the letter ......

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