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2008 (11) TMI 663 - AT - Income TaxClaim for deduction u/s 10A/10B - 100 per cent EOU - scope of undertaking - assessee transferred the plant and machineries from another company - AO noted that it was merely a case of transfer of machinery and held that not entitled to deduction u/s.10A or 10B. HELD THAT - A plain reading of the section 10A, would make it clear that not only units located in SEZ which are eligible for deduction under cl. (c) of sub-s. (2) of this section, but even the units located in any free trade zone or any electronic hardware technology park or software technology park are also eligible for the deduction. This is further clear because after cls. (a) and (b) the word used is 'or' which means every clause would have independent effect. Therefore, we reject the objection raised by the ld DR that since the unit is not located in SEZ area, the assessee is not eligible to the deduction. Admittedly, the unit is located in Software Technology Park of India and even copy of the approval letter has been placed on record. A combined reading of sub-ss. (i), (ii), (iii ), (iv) and (v) would make it abundantly clear that deduction refers to particular undertaking. Though the term 'undertaking' is not defined u/s.10A but such terms which are not defined in a particular provision would be understood in commercial parlance or business parlance. An undertaking in a normal parlance would have constitute business activity and not just any activities or liabilities or any combination thereof. In fact, the High Court had made the observations while considering the meaning of undertaking in the case of A.G.S. Tiber and Chemicals Industries (P) Ltd. 1996 (7) TMI 14 - MADRAS HIGH COURT . The benefit of this deduction attaches to a particular undertaking and not to the whole business. Admittedly, the assessee has taken over the medical transcription unit from K.G. Information Systems (P) Ltd. It clearly shows that not only the unit or undertaking itself was transferred to the assessee by KGISPL but also the obligations of exports etc., in view of the exim policy were also taken over by the assessee. Therefore, this is a plain case of purchase of business undertaking. Moreover, it was also pointed out by the ld counsel for the assessee that undertaking was purchased in the year 2001 and deduction has already been allowed to the assessee company for the asst. yrs. 2002-03 and 2003-04, Though the deduction has been allowed u/s.143(1) of the Act, i.e., without examining all the facts in detail we are of the view that it is too late in the day to examine the question of formation of the undertaking after a lapse of more than two years. Therefore, following the Board's circular as well as the decision in the case of A.G.S. Tiber and Chemicals Industries (P) Ltd. (supra), we find nothing wrong with the order of the CIT(A). The appeal filed by the Revenue is dismissed.
Issues Involved:
1. Legality of the CIT(A)'s order. 2. Transfer of plant and machinery from another company and its impact on deduction under Section 10A/10B. 3. Approval requirements under Section 10B. 4. CIT(A)'s failure to provide reasons for rejecting the AO's claim. 5. Applicability of decisions and circulars relied upon by the appellant. 6. Separate existence of the appellant and transferee companies. 7. Definition and approval of an Export Oriented Unit (EOU) under Section 10B. Detailed Analysis: 1. Legality of the CIT(A)'s Order: The Revenue contended that the CIT(A)'s order was opposed to law, facts, and circumstances of the case. The CIT(A) allowed the appeal of the assessee on the additions made by the AO amounting to Rs. 1,34,02,718. 2. Transfer of Plant and Machinery: The AO observed that the assessee had transferred assets valued at Rs. 27,30,512 from another company, KGISL, which were previously used. This constituted 72% of the total value of the assets, violating conditions under Section 10B(b)(3)(ii) and (iii) of the IT Act. The AO also noted that specific approval for 100% EOU was not obtained, and approval from Software Technology Park of India (STPL) could not constitute the assessee as a 100% EOU. 3. Approval Requirements under Section 10B: The CIT(A) was argued to have not considered the fact that the transfer of assets was qualified by the appellant's chartered accountant in the "notes on accounts" during the financial year 2001-02. The CIT(A) concluded that approval obtained from STPL was sufficient for making a claim under Section 10B, as the Central Government had not notified any authority under Section 14 of the Industries (Development and Regulation) Act, 1951 for this purpose. 4. CIT(A)'s Failure to Provide Reasons: The Revenue argued that the CIT(A) reproduced the submissions of the AO and the appellant without providing findings or reasons for rejecting the AO's claim. The CIT(A) relied on various decisions and circulars, which the Revenue claimed were not applicable to the appellant's facts and circumstances. 5. Applicability of Decisions and Circulars: The CIT(A) relied on the decision of Asstt. CIT v. IIS Infotech Ltd. [2004] and Circular No. F. No. 15/5/63-IT(A-1), dt. 13th Dec., 1963. The AO distinguished these by stating that the circular was issued concerning Section 84 and not applicable to Sections 10A or 10B. The decision of Madras High Court in Madras Machine Tools Manufacturers Ltd. v. CIT [1975] was also considered distinguishable by the AO. 6. Separate Existence of Companies: The Revenue argued that the appellant company and transferee company (KGISL) were different entities, and there was no merger of the two companies. The CIT(A) noted that the entire undertaking engaged in medical transcription was transferred to the appellant company, including machinery, contracts, books, records, and employees. 7. Definition and Approval of EOU: The CIT(A) failed to discuss the meaning of EOU for the purpose of Section 10B. The Revenue argued that the appellant ought to have obtained approval as prescribed under Section 14 of the IDRA, which was not obtained. The CIT(A) concluded that the benefit of Section 10A is specific to the undertaking and not to the assessee, and the transfer of the medical transcription unit was a transfer of the whole business undertaking. Conclusion: The Tribunal found no merit in the Revenue's contentions and upheld the CIT(A)'s order. It concluded that the assessee's unit was eligible for deduction under Section 10A, as it was located in a Software Technology Park, and the transfer of the medical transcription unit constituted a transfer of the whole business undertaking. The appeal filed by the Revenue was dismissed.
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