TMI Blog2010 (12) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, 1961, and in denying the assessee s claim for exemption from tax under section 10A of the said Act in respect of the profits and gains of Rs.19,99,084/-, derived by her new industrial undertaking, set up at Falta Free Trade Zone, during the financial year relevant to the assessment year 2005-06, and, in that view of the matter, in arbitrarily reversing the order passed by the Commissioner of Income Tax (Appeals) XIX, Kolkata, whereby such exemption was allowed? 2. Whether on a correct interpretation of Section 10A of the Income Tax Act, 1961, the Tribunal substantially erred in law in holding that the assessee shifted/transferred her existing business from Non-SEZ Area to Falta Free Trade Zone , and that the same amounted to splitting up or reconstruction of a business already in existence within the meaning of section 10A (2) (ii) of the said Act, and, therefore, the findings of the Tribunal to this effect were illegal, invalid, unreasonable, based on irrelevant considerations, and, therefore, otherwise perverse? By the said order it was made clear that appeal is not required to be heard with formality which was dispensed with. The above appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the provisions of Section 10A (2) (ii). The conditions laid down in Section 10A(2)(ii) have not been fulfilled because the appellant had not started new business but shifted and reconstructed her business which was already in existence in an area outside SEZ as was evident from the Auditor s remark stating that the said organization had resumed its operation at the aforesaid SEZ from 1st January 2005 at the address of the same business as that of the earlier business meant that no new business had been started at the aforesaid SEZ. However, the fact that the closing stock of the value of Rs.6,65,421/- as on 31st December 2004 of the earlier business had been carried over to the new business as opening stock as on 2005. The business was merely shifted to new location. The appellant does not fulfil the conditions laid down in Section 10A (2) (i) because she did not bring nor used any new machinery to the new business hence she had not manufactured nor produced anything during the period of 1st January 2003 to 31st March 2005 in FSEZ. On receipt of the said notice the assessee furnished detailed explanation by letter dated 27th December 2007 answering all the queries made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t will reveal that there has been no violation of Section 10A (2) (ii) and/or Section 10(5) of the Act. He contends that the appellant/assessee did not split and/or reconstruct the business already in existence within the meaning of Section 10A (2) of the Act. He further submits that the filing of the audit report with the returns under Section 10A(5) is procedural, directory and not mandatory and requirement therein is fulfilled even if the same is filed in course of assessment proceeding and before the assessment is completed, and sometimes the same may be filed even in the course of appellate proceedings. His further contention is that the activity involving assembling of different parts or components whether manually or mechanically to bring into existence of different marketable products like electronic and engineering equipments is new venture. The appellant startedmanufacturing articles or things within the meaning of section 10A(2) (ii) of the said Act. Mere use of the stock inputs and raw materials of old business in the newly set up business for manufacturing the finished products cannot be treated to be splitting up of the business. The learned Counsel for the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income Tax (Appeal) on analysis of facts and evidence came to the conclusion that the business activity at SEZ of the appellant was neither a split up nor a reconstructed one. It appears to us that the decision of the C.I.T. (Appeals) is based on compact fact findings with appreciation of evidence. The impugned judgment of the learned Tribunal held that the assessee-appellant in this case transferred the business already in existence at non SEZ area to SEZ area. It is also held by the learned Tribunal that the business of the appellant at SEZ was formed by reconstruction of a business already in existence. Thus, the appellant is not entitled to deduction as her case falls within the mischief of clause (ii). We notice also that the Assessing Officer came to conclusion on fact that the business was shifted from non SEZ to SEZ at Falta. Then, again he has said the assessee has merely reconstructed her own old business after shifting it to Falta SEZ. This finding in our view really helps the assessee for legally there is no prohibition of the shifting of business with lock, stock and barrel in order to get the benefit of deduction under the aforesaid section. The said Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of the pronouncement of the high authorities in the mater of the definition of the reconstruction of business already in existence. The Supreme Court in case of Textile Machinery Corporation Limited v. Commissioner of Income Tax reported in (1977) 107 ITR 195, while interpreting the same language namely reconstruction of business already in existence as mentioned in the earlier Income Tax Act 1922 in its section 15C2(i). At page 205 of the said report while relying on the observation of Buckley, J. what the Supreme Court has accepted is as follows:- What does reconstruction mean? To my mind it means this, an undertaking of some definite kind is being carried on, and the conclusion is arrived at that it is not desirable to kill that undertaking, but that it is desirable to preserve it in some form, and to do so, not by selling it to an outsider who shall carry it on--that would be a mere sale but in some altered form to continue the undertaking in such a manner as that the persons now carrying it on will substantially continue to carry it on. It involves, I think, that substantially the same business shall be carried on and substantially the same persons shall carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench observed that expression reconstruction represents a legal conception. The reconstruction of a business or an industrial undertaking must necessarily involve the concept that the original business or undertaking is not to cease functioning, and its identity is not to be lost or abandoned. The concept essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The underlying idea of a reconstruction evidently must be and this is brought out by the section itself - of a business already in existence . There must be continuation of the activities and business of the same industrial undertaking. The undertaking must continue to carry on the same business though in some altered or varied form. If the alterations and changes are substantial, there would be little scope for describing what emerges as a reconstruction of the business. Thus, for instance the ownership of a business or an undertaking changes hands not ostensibly but in reality and effectively, that would not be reconstruction or if the very nature of the business is changed, that again would not be reconst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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