2010-VIL-420-ITAT-BLR

Income Tax Appellate Tribunal BANGALORE

ITA No. 623 and 847/Bang/2010

Date: 19.05.2010

DCIT

Vs

LG SOFT INDIA (P) LTD.

For the Appelant : Preethi Garg, CIT
For the Resondent : Sarangan, Sr Adv. IT

BENCH

O.K. Narayanan, Vice President and George George K, Judicial Member

JUDGMENT

O.K. Narayanan:

These two appeals are filed by the Revenue. The relevant assessment years are 2004-05 and 2005-06. These appeals are directed against the orders passed by the CIT(A) - I at Bangalore dated 11/06/2009 and 26/03/2009 respectively and arise out of the respective assessments completed u/s 143(3) of the Income-tax Act 1961.

2. The assessee company had claimed deduction u/s 10A for both the assessment years under appeal. But the claim of the assessee was negatived by the Assessing Officer on the ground that the new unit stated to be set up by the assessee was made on reconstructing/splitting up of the existing unit. Section 10A(2)(ii) provides that in such cases, the assessee would not be entitled for deduction u/s 10A. The Assessing Officer also held that the plant and machinery in the new unit have been installed by way of transfer.

3. In first appeal, the CIT(A) considered the grounds raised by the assessee in detail and held that the assessee is entitled for the benefit available under sec. 10A. The assessee's appeals have been allowed.

4. The Revenue is aggrieved and, therefore, these second appeals before the Tribunal.

5. The only issue raised for both the assessment years under appeal is the deduction u/s 10A. It is the case of the Revenue that the CIT(A) has erred in holding that there has been no re-organization of the business or alteration in the business without appreciating the fact that the assessee had hived off the eligible undertaking, which was in the form of branch office, into a subsidiary company, which tantamounts to splitting up. It is the case of the Revenue that the assessee was not a newly established one; but it was an integral part of the parent company and therefore, sec. 10A is not applicable to the assessee as that section is applicable only to a newly established undertaking.

6. We have heard Smt. Preethi Garg, the learned Commissioner of Income-tax appeared for the Revenue.

7. The learned DR explained that the Assessing Officer has discussed the facts of the case in a detailed manner for the respective assessment years and has come to the conclusion against the assessee for the purpose of sec. 10A on the basis of speaking materials available on record. The learned DR contended that the Assessing Officer has established that the conditions laid down u/s 10A(2)(ii) and 10A(2)(iii) were apparently violated by the assessee and, therefore, lost their locus standi to claim the deduction provided u/s 10A.

8. Shri Sarangan, the learned Sr. Advocate appeared for the assessee.

9. The learned counsel submitted that the entire issue has been discussed in threadbare in the orders passed by the CIT(A) and the CIT(A) has appreciated the facts of the case in a proper perspective and in such circumstances, there is no justification to interfere in the orders passed by the CIT(A).

10. We considered the rival contentions and the facts of the case reflected in the orders passed by the lower authorities. As rightly pointed out by the CIT(A), the assessee's undertaking existed in the same place, form and substance and did carry on the same business before and after the change in the legal character of the form of organization. Formerly, it was a branch establishment of non-resident company/foreign company but later on, it was converted into a subsidiary company. But for the above change of the organizational status, the same unit continued to function throughout the time. Therefore, it is quite fruitless to argue that the organizational change has caused conversion of the existing unit to a new unit. There is no such splitting up or reconstruction of an existing business in the case of a branch establishment becoming a subsidiary establishment. The assessee's unit satisfied all the conditions stipulated in the Act and was entitled for the benefit. Therefore, as rightly held by the CIT(A), a mere organizational change is not a ground to hold that the assessee has violated the conditions stated in 10A(2)(ii). It is a case of only change in the name and style. It is clearly possible to state that there was no violation of the conditions laid down in sec. 10A(2)(iii) as well.

11. Therefore, in the facts and circumstances of the case, we find that the orders passed by the CIT(A) are sustainable in law and do not call for any interference. His orders are upheld, accordingly.

12. In result, the appeals filed by the Revenue are dismissed.

Order pronounced on the 19.5.2010.

 

 

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