2017 (11) TMI 726 - HC - Income Tax

Entitlement to benefit of deduction u/s. 10B - ITAT justification in allowing the benefit of deduction u/s. 10B even to the acquired unit of M/S. Anjali Exports despite of the facts the same was not having certificate of Export Oriented Unit which was mandatory requirement - agreement of assignment of business - Held that - In our considered opinion, MOU was entered on 24.03.2007 in that view of the matter any benefit will be taken from the date of MOU and the effect will be given in the relevant year. 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 reversed as M/s. Anjali Exports who started its operation from assessment year 05-06 was entitled for deduction for 10 years. However, the business of M/s. Anjali exports was taken over by assessee firm, therefore, Ms. Anjali Export 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 Powers or in case of M/s. Veto Electric Power Pvt. Ltd. The view taken by the Tribunal is required to be confirmed. The issue is answered in favour of assessee

Summary

Issues:
Challenge to Tribunal's order on deduction u/s. 10B for acquired unit of M/S. Anjali Exports without Export Oriented Unit certificate.

Detailed Analysis:
1. Facts of the Case: The appellant, a partnership concern, reconstituted as M/s Veto Electro Power and acquired M/s Anjali Exports, both claiming deduction u/s 10B. The merger led to shared accounts without separate audit.

2. AO & CIT (A) Observations: CIT (A) noted the reconstitution, acquisition, and conversion of firms, emphasizing the continuity of business operations. The assessing officer's disallowance of deduction for M/s Anjali Exports was challenged based on factual and legal grounds.

3. Tribunal's Findings: The Tribunal addressed the technical objections raised by the AO regarding MOUs and successor companies. It clarified that the deduction under section 10B is allowable for 10 years, with the successor company eligible to claim it post-conversion.

4. Judgment & Conclusion: The High Court upheld the Tribunal's decision, emphasizing that the benefit from the MOU would be effective from the date of signing. The view taken by the Tribunal favored the assessee against the Department, leading to the dismissal of the appeal.

In conclusion, the judgment analyzed the reconstitution, acquisition, and conversion of firms, emphasizing the eligibility of the successor company for deduction u/s 10B. The decision highlighted the continuity of business operations and the technical objections raised by the AO, ultimately affirming the Tribunal's findings in favor of the assessee.