TMI Blog2016 (6) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... PO. We also direct that Megasoft Ltd, shall be considered as a comparable only after effecting proper segmentation of its results as mentioned at para 15 above. TPO/AO is directed to rework the ALP of international transactions of the assessee accordingly. Needless to say that working capital adjustment has to be given to the assessee based on the work- out of such working capital, relating to the final set of comparables left in the list. Claim for deduction u/s.80JJAA - additional wages paid during the year consisted of a sum paid to 383 new regular workman employed in Unit-1 - engineers who were newly employed by the assessee were not considered as workers by the lower authorities - Held that:- The deduction is given on profits and gains derived from industrial undertaking engaged in manufacture of production of article or thing. It is only for quantification of the amount that 30% is applied. In our opinion the deduction is very much linked to the profits of the undertaking. We are therefore unable to accept this line of argument taken by the counsel. In the result, we hold that assessee is not eligible for deduction u/s.80JJAA of the Act, in respect of its units 2 , 3 and 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of its business undertaking located in Chandigarh, registered with STP authorities - slump sale - Held that:- It is not disputed that the Chandigarh unit came to the assessee through a slump sale. M/s. Virsa had given this undertaking to the assessee as a going concern. That such transaction was a slump sale has not been disputed by any of the lower authorities. It is also not disputed that the said M/s. Virsa was eligible for deduction u/s.10A of the Act and was claiming such deduction in the earlier years for such unit. As decided in M/S. SONATA SOFTWARE LTD. [2012 (4) TMI 99 - BOMBAY HIGH COURT] Slump sale could not be considered as a reconstruction of business. Similar view was also taken by the coordinate bench in the case of LG Soft India P. Ltd [2010 (5) TMI 825 - ITAT BANGALORE]. We are therefore of the opinion that assessee was eligible for claiming deduction u/s.10A for its Chandigarh unit for the balance sheet for the period of availability of deduction u/s.10A. We therefore set aside the orders of lower authorities in this regard and remit the issue back to the AO for consideration afresh in accordance with law for verifying whether the claim for deduction u/s.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by assessee and their margin were as under : 05. As per the assessee, its margin compared favourably with the arithmetic mean of the PLI of the comparables mentioned above and therefore there was no requirement of any adjustment on account of ALP. 06. When the matter was referred by AO to the TPO, TPO was of the opinion that selection of comparables made by assessee were not appropriate except for two companies, namely SIP Technologies Exports Ltd, and Mindtree Consulting Ltd. TPO thereafter made his own study of the capitaline, prowess data bases and zeroed in on a set of 26 comparables which inter alia consisted of two companies selected by the assessee and accepted by the TPO. The final set of comparables compiled by the TPO and their operating margin read as under : 07. On the arithmetic mean of 25.14% of PLI of the comparables selected by him, TPO allowed a working capital adjustment of 1.55% and arrived at adjusted arithmetic mean PLI of 23.59%. He thereafter worked out the shortfall u/s.92CA of the Act, as under : * Excluding Interest, donation, loss on sale of asset 08. When a proposal was put by the AO on these lines, assessee chos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of M/s. Hewlett- Packard (India) Globalsoft P. Ltd v DCIT [ITA.1031/Bang/2011, dt.23.09.2015] also, and this Tribunal following its decision in SAP Labs (supra) had directed the exclusion of the companies assailed here. As per the Ld. AR, if these companies are excluded, the final set of comparables that would remain are Datamatics Ltd, Geometric Ltd (seg), IGate Global Solutions Ltd, LGS Global Ltd, Mediasoft Solutions Ltd, Mindtree Consulting Ltd, Quintegra Solutions Ltd, R S Software (India) Ltd, R Systems International Ltd (seg), Sasken Communication Technologies Ltd (seg), and SIP Technologies Exports Ltd. As per the Ld. AR, Megasoft Ltd (seg) can be considered as a comparable if proper segmentation of its results were done. 11. Per contra, Ld. DR submitted that the functional similarity of the assessee and the parties in the cases relied on by the assessee could not be established by the Ld. AR. Therefore, according to him the decisions in the case of SAP Labs P. Ltd (supra) and M/s. Hewlett- Packard (India) Globalsoft P. Ltd (supra) could not be considered as a proper precedence. 12. We have perused the orders and heard the rival contentions. Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that this company is not a pure software development service company. It is further submitted that in a Mumbai Tribunal Decision of Capgemini India (F) Ltd v Ad. CIT 12 Taxman.com 51, the DRP accepted the contention of the assessee that Accel Transmatic should be rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore development centre for embedded software, net work system, imaging technologies, outsourced product development (iii) Accel IT Academy (the net stop for engineers)- training services in hardware and networking, enterprise system management, embedded system, VLSI designs, CAD/CAM/BPO (iv) Accel Animation Studies software services for 2D/3D animation, special effect, erection, game asset development. 4.3 On careful peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only and it was held as follows:- 7.8 Avani Cincom Technologies Ltd. ( Avani Cincom ): Here in this case also the segmental details of operating income of IT services and sale of software products have not been provided so as to see whether the profit ratio of this company can be taken into consideration for comparing the case that of assessee. In absence of any kind of details provided by the TPO, we are unable to persuade ourselves to include it as comparable party. Learned CIT DR has provided a copy of profit loss account which shows that mainly its earning is from software exports, however, the details of percentage of export of products or services have not been given. We, therefore, reject this company also from taking into consideration for comparability analysis. It was also highlighted that the margin of this company at 52.59% which represents abnormal circumstances and profits. The following figures were placed before us:- Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Profit and Loss Account as Deferred Revenue Expenditure (page 30 of PB-II). This amounts to nearly 8.28 percent of the sales of this company. It was therefore submitted that the acceptance of this company as a comparable for the reason that it is into pure software development activities and is not engaged in R D activities is bad in law. 43. Further reference was also made to the decision of the Mumbai Bench of the Tribunal in the case of Teva Pharma Private Ltd. v. Addl. CIT ITA No.6623/Mum/2011 (for AY 2007-08) in which the comparability of this company for clinical trial research segment. The relevant extract of discussion regarding this company is as follows: The learned D.R. however drew our attention to page-389 of the paper book which is an extract from the Directors report which reads as follows: The Company has developed a de novo drug design tool CELSUITE to drug discovery in, finding the lead molecules for drug discovery and protected the IPR by filing under the copy if sic (of) right/patent act. (Apprised and funded by Department of Science and Technology New Delhi) based on our insilico expertise (applying bio-informatics tools). The Company has dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason that this company has diverse business. It was submitted that, however, from the above extracts it is clear that this company is not into software development activities, accordingly, this company should be rejected as a comparable being functionally different. 45.From the material available on record, it transpires that the TPO has accepted that up to AY 06-07 this company was classified as a Research and Development company. According to the TPO in AY 07- 08 this company has been classified as software development service provider in the Capitaline/Prowess database as well as in the annual report of this company. The TPO has relied on the response from this company to a notice u/s.133(6) of the Act in which it has said that it is in the business of providing software development services. The Assessee in reply to the proposal of the AO to treat this as a comparable has pointed out that this company provides software products/services as well as bioinformatics services and that the segmental data for each activity is not available and therefore this company should not be treated as comparable. Besides the above, the Assessee has point out to several references in the annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in e-Business Consulting Services , consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ( KPO ) services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company s website which should be considered while evaluating the company s functional profile. It is also submitted by the learned Authorised Representative that KPO services are not comparable to soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded. In sum and substance, the plea set up by the assessee is that both the aforesaid concerns are engaged in development and sale of software products which is functionally different from the services undertaken by the assessee in its IT-services segment. 17. As per the discussion in para 6.3.2. of the order of the TPO, the reason advanced for including KALS Information Systems Ltd., is to the effect that the said concern s application software segment is engaged in the development of software which can be considered as comparable to the assessee company. The said concern is engaged in two segments namely application software segment and Training. As per the TPO, the application software segment is functionally comparable to the assessee as the said concern is engaged in software services. The stand of the assessee is that a perusal of the Annual Report of the said concern for F.Y. 2006-07 reveals that the application software segment is engaged in the business of sale of software products and software services. The assessee pointed out this to the TPO in its written submissions, copy of which is placed in the Paper book at page 420.3 to 420.4. The assessee further pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the IT Services segment. At the time of hearing, neither is there any argument put forth by the Revenue and nor is there any discussion emerging from the orders of the lower authorities as to in what manner the functional profile of the said concern has undergone a change from that in the immediately preceding year. Therefore, having regard to the factual aspects brought out by the assessee, it is correctly asserted that the application software segment of the said concern is not comparable to the assessee s segment of IT services. 20. With regard to the inclusion of Helios Matheson Information Technology Ltd., the assessee has raised similar arguments as in the case of KALS Information Solutions Ltd. (Seg). We have perused the relevant para of the order of the TPO i.e., 6.3.21, in terms of which the said concern has been included as a comparable concern. The assessee pointed out that as in the case of KALS Information Solutions Ltd. (Seg), in the instant case also for A.Y. 2006-07 the said concern was found functionally incomparable by the assessee in its Transfer pricing study and the said position was not disturbed by the TPO. The relevant portion of the Transfer prici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the TPO to include this company in the list of comparable companies. 12.4 We have heard the rival submissions and perused and carefully considered the material on record. We find that the assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable and the finding rendered in the case of Trilogy EBusiness Software India Pvt. Ltd. (supra) for Assessment Year 2007-08 is applicable to this year also. The argument put forth by assessee's is that Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products. It is also seen that the break up of revenue from software services and software products is not available. In this view of the matter, we hold that this company ought to be omitted from the set of comparable companies. It is ordered accordingly. vii) viii) M/S.Ishir Infotech Ltd. And Lucid Software Ltd : 20. As far as comparable companies listed at Sl.No.11 14 of the final list of comparable companies chosen by the TPO viz., M/S.Ishir Infotech Ltd. And Lucid Software Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of comparable companies for the purpose of determining ALP. x) Persistent Systems Ltd. 17.1.1 This company was selected by the TPO as a comparable. The assessee objected to the inclusion of this company as a comparable for the reasons that this company being engaged in software product designing and analytic services, it is functionally different and further that segmental results are not available. The TPO rejected the assessee's objections on the ground that as per the Annual Report for the company for Financial Year 2007-08, it is mainly a software development company and as per the details furnished in reply to the notice under section 133(6) of the Act, software development constitutes 96% of its revenues. In this view of the matter, the Assessing Officer included this company i.e. Persistent Systems Ltd., in the list of comparables as it qualified the functionality criterion. 17.1.2 Before us, the assessee objected to the inclusion of this company as a comparable submitting that this company is functionally different and also that there are several other factors on which this company cannot be taken as a comparable. In this regard, the learned Authorised Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike, functional dissimilarity, significant R D activity, brand value, size, etc. The TPO, however, rejected the contention put forth by the assessee and included this company in the set of comparables. 14.2 Before us, it was reiterated that this company is not functionally comparable to the assessee as it performs a variety of functions under the software development and services segment namely (a) Product design services (b) Innovation design engineering and (c) visual computing labs. In the submissions made the assessee had quoted relevant portions from the Annual Report of the company to this effect. In view of this, the learned Authorised Representative pleaded that this company be excluded from the list of comparables. 14.3 Per contra, the learned Departmental Representative supported the stand o the TPO in including this company in the list of comparables. 14.4.1 We have heard both parties and carefully perused and considered the material on record. From the details on record, we find that this company is predominantly engaged in product designing services and not purely software development services. The details in the Annual Report show that the segment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative submitted that :- (i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII-04- ITAT-PUNE-TP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the afore cited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 15.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the material on record that the company is engaged in product development and earns revenue from sale of licenses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y satisfies the software development sales 75% of the total revenue filter adopted by him. Another major flaw in the comparability analysis carried out by the TPO is that he adopted comparison of the consolidated financial statements of Wipro with the stand alone financials of the assessee; which is not an appropriate comparison. 13.4.2 We also find that this company owns intellectual property in the form of registered patents and several pending applications for grant of patents. In this regard, the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (ITA No.227/Bang/2010) has held that a company owning intangibles cannot be compared to a low risk captive service provider who does not own any such intangible and hence does not have an additional advantage in the market. As the assessee in the case on hand does not own any intangibles, following the aforesaid decision of the coordinate bench of the Tribunal i.e. 24/7 Customer.Com Pvt. Ltd. (supra), we hold that this company cannot be considered as a comparable to the assessee. We, therefore, direct the Assessing Officer/TPO to omit this company from the set of comparable companies in the case on hand fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities between the figures given in such annual report with the figures which were made available by the said company to the TPO pursuant to notice issued to them u/s.133(6) of the Act. No doubt at page 123 of TP order, TPO has stated that the software development service revenues were more than 75% based on the following figures : But how this segmentation was done by the TPO and the reconciliation of the said segmentation with the annual report of the assessee was never attempted or done. In such a situation we are of the opinion that Flextronics Software Solutions Ltd (seg) could not be considered as a proper comparable. We direct exclusion thereof. We are therefore of the opinion that Flextronics Software Systems Ltd (seg) has to be excluded from the list of comparables. 15. As for the comparability of Megasoft Ltd, observations of the Tribunal in HP Globalsoft (India) P. Ltd(supra), is reproduced hereunder : Megasoft Ltd. : 24. This company was chosen as a comparable by the TPO. The objection of the assessee is that there are two segments in this company viz., (i) software development segment, and (ii) software product segment. The Assessee is a pure software ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 117.95% and in case of software service segment it is 23.11%. Both the segments are substantially different and therefore comparison at entity level is without basis and would vitiate the comparability (submissions on page 381 to 383 of the PB-I). It was further submitted that Megasoft Limited has provided segmental break-up between the software services segment and software product segment (page 68 of PB-II), which was also adopted by the TPO in his show cause notice (Page 84 of PB-I). The segmental results i.e., results pertaining to software services segment of this company was: Segmental Operating Revenues ₹ 63,71,32,544 Segmental Operating Expenses ₹ 51,75,13,211 Operating Profit ₹ 11,96,19,333 OP/TC (PLI) 23.11% 26. It was reiterated that in the given circumstances only PLI of software service segment viz., 23.11% ought to have been selected for comparison. 27. It was further submitted that the learned TPO in case of other comparable, similarly placed, had adopted the margins of only the software service segment for comparability purposes. Consistent with such stand, it was submitted that the margins of the software segment only should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim were as under : 20. It is to be noted that assessee was claiming exemption u/s.10A on Unit-2, Unit-3 and Unit-4 which were situated in Bengaluru, Gurgaon and Chandigarh respectively. As per AO, assessee was not eligible for such deduction in view of Section 80A(4). As per the AO assessee was hit by the limitation mentioned in Section 80A(4) . He rejected the claim of exemption of ₹ 9,26,66,731/-. When a proposal on the above lines was given, assessee chose to move the DRP. 21. Objections of the assessee before the DRP was that there was no scope for invoking sub-section 4 of section 80A. As per the assessee, the said sub-section restricted only a claim which was linked to profit. As per the assessee, deduction u/s.80JJAA was not linked to profit. In any case, as per the assessee, additional wages paid by it during the year consisted of a sum of ₹ 11,93,45,597/- to 383 new regular workman employed in Unit-1 which was not claiming deduction u/s.10A of the Act. Thus as per the assessee, prorata deduction u/s.80JJA on the above amount was unjustly rejected. Argument of the assessee before the DRP was that the conditions required to be fulfilled u/s.80JJA of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med have not been employed in a supervisory capacity even though they may be getting a salary of more than ₹ 1,600 per month. As the software engineers were not employed in supervisory capacity they cannot be excluded from the definition of workman. Further as per the notification of the Karnataka Government, the appellant company engaged in the development of software is covered by the Industrial Disputes Act. As such, I am of the considered opinion that the appellant has satisfied all the conditions for claiming relief under s. 80JJAA. However, I find that the appellant has claimed deduction of ₹ 2,55,81,220 with reference to the additional wages of ₹ 8,52,70,736 which included the wages of ₹ 4,87,64,029 in respect of the new workmen employed during the year ended 31st March, 2000 relevant to the asst. yr. 2000- 01. As there was no claim for relief under s. 80JJAA for the asst. yr. 2000-01, the relief in respect of the workers employed in asst. yr. 2000-01 cannot be considered for relief under s. 80JJAA in the asst. yr. 2001-02. As such the appellant will be entitled for relief under s. 80JJAA of ₹ 1,09,52,012 being 30 per cent of the additional wage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se facts were not properly considered by the AO. Further, from the order of the CIT(A), it is seen that he had taken note of the notification issued by the Government of Karnataka and concluded that as per the notification issued, the assessee company engaged in the development of software is covered by the Industrial Disputes Act, 1947. Further it is not the case of the Revenue that the assessee did not fulfil the conditions extracted elsewhere in this order. Considering all those factual matters we do not find any infirmity in the order of CIT(A) according relief to the assessee. In fact he had clarified the relevant portions related to Industrial Disputes Act, 1947 and IT Act while granting relief to the asssessee which are extracted at pp. 5 and 6 of this order. After carefully considering the same, we are inclined to accept the reasons shown by the learned CIT(A). The learned CIT-Departmental Representative could not assail the finding reached by the learned CIT(A) by bringing in any valid materials. The order of the CIT(A) is confirmed. It is ordered accordingly. There is no case for the Revenue that assessee had failed to file details of software engineers employed by it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the orders of authorities below for the limited purpose of quantifying the eligible deduction u/s.80JJA in respect of Unit-1. In the result, ground no.6 is treated as partly allowed for statistical purpose. 28. Vide its ground 7 grievance raised by the assessee is interest of ₹ 597,06,982/- which related to its non 10A unit was allocated to other software units, thereby depressing its claim of exempt income from 10A units and prorata increasing the income of the non-10A unit. 29. Facts apropos are that assessee had claimed deduction under section 10A of the Act, in respect of its Salarpuria, Gurgaon and Chandigarh units. The claims were for ₹ 12,96,59,506/-, ₹ 2,93,22,892/- and ₹ 8,39,936/- respectively. Profits of these units against which the above deductions were claimed as under : Bangalore Salarpuria Unit ₹ 13,05,55,108 Gurgaon Unit ₹ 3,19,13,546 Chandigarh Unit ₹ 8,39,906 30. AO noted that assessee had charged interest of ₹ 18,14,023/- on the above three units whereas on unit-1, where there was no claim u/s.10A of the Act, there was a charge of interest of ₹ 5,97,06,982/-. Assessee was queried as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended for the said unit. However the DRP was not impressed. DRP held that AO was justified in reallocating the cost. 33. Now before us, Ld. AR strongly assailing the orders of authorities below submitted that the loan was not at all utilised for unit-2. According to him, it was demonstrated that loan of ₹ 66 crores was utilised for rolling over the earlier loan taken for the purpose of financing the campus construction where unit-1 was housed. According to the Ld. AR, accounts of each unit were separately kept. Hence the reallocation attempted was incorrect and unjustified. 34. Per contra, Ld. DR supported the orders of lower authorities. 35. We have perused the orders and heard the rival contentions. Claim of the assessee is that unit-2 started production only in April, 2005 and the unit-1 and unit-2 were housed separately. As per the assessee Unit-2 was not utilising the campus facility, where unit-1 was situated. We find that both unit-1 and unit-2 were situated in Whitefield, Bangalore. It might be true that the loans were earlier taken for the purpose of construction of unit-1. However, it is an admitted position that unit-1 and corporate office of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Tata Elxsi Ltd v. CIT [349 ITR 98]. Accordingly, we direct the AO to rework the deduction u/s.10A of the Act, after reducing the amounts which are deducted from export turnover from total turnover also. Ground.8 of the assessee is dismissed whereas ground 9 is allowed. 38. Vide its ground 10, grievance raised by the assessee is that it was not allowed deduction of ₹ 8,39,905/- u/s.10A of the Act, in respect of its business undertaking located in Chandigarh, registered with STP authorities. 39. Facts apropos are that the Chandigarh unit in which assessee was claiming deduction u/s.10A of the Act was purchased on a slump sale basis from a company called M/s. Virsa Systems P. Ltd (in short Virsa ). As per the assessee deduction u/s.10A was specific to the undertaking. Just because the undertaking came under a new ownership, the deduction cpi;d not be denied. However, the AO was not impressed. According to him, one of the conditions for giving deduction u/s.10A was that the undertaking on which such deduction was claimed should not be formed by transfer of plant and machinery previously used. As per the AO, assessee s undertaking in Chandigarh was formed by transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars for such unit. Hon ble Bombay High Court in the case of Sonata Software Ltd, (supra) in a similar situation had held as under : 8. The issue before the court is whether the two requirements, cast in negative terms, have been fulfilled. Clause (ii) of sub-section (1) of section 10A stipulates that the industrial undertaking must not be formed by splitting up or reconstruction of a business already in existence. In other words, the test in law is as to whether the undertaking is formed by splitting up or reconstruction of a business already in existence. In CIT v. Gaekwar Foam and Rubber Co. Ltd. [1959] 35 ITR 662 (Bom) a Division Bench of this court construed the provisions of section 15C of the Indian Income-tax Act, 1922, section 15C(2)(i) contained a similar provision that the section would apply to an industrial undertaking which is not formed by the splitting up or the reconstruction of a business already in existence or by the transfer to a new business of building, machinery or plant used in a business which was being carried on before April 1, 1948. In that case, there was a partnership firm and its assets and goodwill were taken over by the assessee for a stated cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Division Bench held, means that substantially the same business is carried on and substantially the same persons carry it on (page 671) : The emphasis, it will be noticed, is on two things-when substantially the same business was carried on and substantially the same persons were carrying it on. It is also to be noticed that the learned judge draws a clear distinction between a reconstruction and a sale of an undertaking. In the case of a sale, there can be no ques tion of reconstruction. Now, in these matters, we have to look at the substance of the transaction and not the form. If looking at the substance of the transaction, it is a sale, then the concept of recon struction must be ruled out for in such a case there is no scope for speaking about any reconstruction of an existing business. 9. The judgment of the Division Bench of this court in Gaekwar Foam [1959] 35 ITR 662 (Bom) was approved by the Supreme Court in a judgment in Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC). The Supreme Court, in that case, dealt with the issue as to whether within the meaning of section 15C(2)(i) of the Indian Income-tax Act, 1922, the industrial undertakings wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee were to be effected after April 1, 2001, that would result in the undertaking being disentitled to the benefit under section 10A. This was a pointer to the fact that prior to the substitution a transfer of ownership or beneficial interest in the undertaking would not disentitle an assessee to the benefit of section 10A. (As a matter of fact it may also be noted that the provisions of section 10A(9) were omitted by the Finance Act, 2003, with effect from April 1, 2004). 43. Thus it has been held by the Hon ble Bombay High Court that slump sale could not be considered as a reconstruction of business. Similar view was also taken by the coordinate bench in the case of LG Soft India P. Ltd (supra). We are therefore of the opinion that assessee was eligible for claiming deduction u/s.10A of the Act, for its Chandigarh unit for the balance sheet for the period of availability of deduction u/s.10A of the Act. We therefore set aside the orders of lower authorities in this regard and remit the issue back to the AO for consideration afresh in accordance with law for verifying whether the claim for deduction u/s.10A of the Act, on Chandigarh unit is within the total period for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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