TMI Blog2008 (5) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... ruction of business already in existence as well as by transfer of all plant and machinery previously used to a new business for any purpose as contained in cls. (ii) and (iii) of sub-s. (2) to s. 10A? - HELD THAT:- The shifting of existing business from one place to another place does not amount to forming a business by splitting or reconstruction or by transfer of plant and machinery previously used. In the facts and circumstances of the case formation of new business by splitting up a business already existing is totally ruled out. As far as reconstruction is concerned, it is not a case of transfer of asset and ownership of assets. Moreover, it is only shifting of existing business from a domestic area to STPI and getting approval as 100 per cent export-oriented undertaking. Therefore it is not establishing a new business by transfer of plant and machinery used previously for any purpose. We are of the considered view that this is not a case of setting up of a new business but only transfer of business place of existing business to a new place located in STPI area and thereafter getting the approval from the authorities and thereby the assessee becomes entitled to deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings to set aside an issue and what is permissible is only a set aside of an assessment and that therefore the order is void. 5. The CIT failed to appreciate that there was no splitting or reconstruction which would disqualify an assessee from the benefit of s. 10A by virtue of s. 10A(2)(ii). 6. The CIT failed to appreciate that there was no violation of the conditions stipulated in s. 10A(2)(iii). 7. The CIT failed to appreciate that the original order of assessment made under s. 143(3) had already merged with the order of the CIT(A) even on the date of initiation of proceedings under s. 263 and that therefore he lacked the power to initiate proceedings under s. 263. 8. The CIT failed to appreciate that having issued a notice for the asst. yr. 2001-02, he could not have completed the proceedings for the asst. yr. 2002-03. 2. During the hearing of the case the counsel for the assessee submitted that the assessee does not want to press ground Nos. 1, 2 and 8. Therefore the ground Nos. 1, 2 and 8 are dismissed as not pressed. 3. The brief facts of the case as regards ground Nos. 3 to 7 are that the assessee is engaged in the business of export of computer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional space was available in Anna Nagar, the company decided to give up the newly developed office in Teynampet in March/April, 2001. Thereby the assessee consolidated all its offices in Anna Nagar in the new office premises. It is further submitted that the Anna Nagar office was furnished newly and the equipment, cabling etc. required were also procured afresh. For this purpose the company had obtained a term loan from Export Import Bank of India, Chennai for an amount of ₹ 5 crores. As per the requirement of the letter of sanction of loan, the assessee need to obtain the statutory auditors, certificate certifying procurement of equipment, furniture, cablings etc. and that all these documents were produced before the lower authorities. It is further submitted that the assessee left all the furniture, fixtures, equipment, AC, networking etc. in the previous premises occupied by it. However, some plant and machinery were brought to the new unit for the simple reason that the bank and institution have put in a condition that the plant and machinery procured and held with the company served as charged as loan and hence should not be disposed of. Therefore since there was a char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,32,02,927. Thereafter the CIT passed the impugned order dt. 17th March, 2006 under s. 263 of IT Act and revised the assessment by observing that the assessee is not eligible to claim deduction under s. 10A as the condition stipulated under s. 10A(2)(ii) and (iii) are not satisfied. Accordingly he directed the AO to pass a de novo order on the issue after scrutinizing in a fair and legal angle. The opinion of the CIT while passing the impugned order under s. 263 was based on the fact that from the depreciation schedule the WDV of brought forward assets forms 52.4 per cent of the value of assets as on 30th Jan., 2000. Therefore he opined that the new business is formed by splitting and reconstruction of business already in existence as well as by transferring the machinery and plant previously used. It is pertinent to note here that the plant and machinery which was brought by the assessee at the new place of business was bearing charge of the bank and financial institution against the loan already availed by the assessee. Therefore the assessee could not dispose of these plant and machinery till the repayment of the earlier loan and consequently discharge of charge. This is a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed as follows in the above decision (p. 671) : 'Now fully appreciating the distinction which counsel for the Revenue has sought to make between the case of a reconstruction of a company and the case of reconstruction of a business, these observations, as we read them, are equally illuminating in the context of a business already in existence in the case of a newly established industrial undertaking.' The Delhi High Court also in CIT vs. Ganga Sugar Corporation Ltd. (1973) 92 ITR 173(Del) accepted the above concept of 'reconstruction' in the following passage (pp. 179 and 180) : 'We have given the matter our earnest consideration and are of the view that in the reconstruction of a business, as in the reconstruction of a company, there is an element of transfer of assets and of some change, however partial or restricted it may be, of ownership of the assets. The transfer, however, need not be of all the assets. It is nonetheless imperative that there should be continuity and preservation of the old undertaking though in an altered form. The concept of reconstruction of business would not be attracted when a company which is already running one indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another. The action of the Revenue amounts to inserting a clause in the statute that once a unit qualifies for exemption under s. 10A, the same cannot be shifted to another location and in that case the business will lose exemption under s. 10A. This in our opinion cannot be sustained. 7.5 From the above, it is clear that the shifting of existing business from one place to another place does not amount to forming a business by splitting or reconstruction or by transfer of plant and machinery previously used. In the facts and circumstances of the case formation of new business by splitting up a business already existing is totally ruled out. As far as reconstruction is concerned, it is not a case of transfer of asset and ownership of assets. Moreover, it is only shifting of existing business from a domestic area to STPI and getting approval as 100 per cent export-oriented undertaking. Therefore it is not establishing a new business by transfer of plant and machinery used previously for any purpose. In the Circular No. 1 of 2005, dt. 6th Jan., 2005 the point whether an undertaking set up in domestic territory which is subsequently approved as 100 per cent EOU by the Board appo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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