The ACIT, Circle-5,, Ahmedabad v. NetVision Web Technologies Pvt.Ltd.,, Ahmedabad

ITA 2120/AHD/2007 | 2004-2005
Pronouncement Date: 01-10-2010 | Result: Dismissed

Appeal Details

RSA Number 212020514 RSA 2007
Assessee PAN AABCN6146G
Bench Ahmedabad
Appeal Number ITA 2120/AHD/2007
Duration Of Justice 3 year(s) 4 month(s) 14 day(s)
Appellant The ACIT, Circle-5,, Ahmedabad
Respondent NetVision Web Technologies Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 01-10-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 01-10-2010
Date Of Final Hearing 09-09-2010
Next Hearing Date 09-09-2010
Assessment Year 2004-2005
Appeal Filed On 18-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABA D (BEFORE HON'BLE SHRI T.K. SHARMA J.M. & HONBLE S HRI A.N. PAHUJA A.M.) I.T.A. NO. 2120/AHD./2007 ASSESSMENT YEAR : 2004-2005 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- NET VISION WEB TECHNOLOGIES PVT. LTD. CIRCLE-5 AHMEDABAD AHMEDABAD )PAN : AABCN 614 6 G) (APPELLANT) (RESPONDENT) & I.T.A. NO. 212 & 1138/AHD/2008 ASSESSMENT YEAR : 2002-2003 & 2003-2004 DEPUTY COMMISSIONER OF INCOME TAX -VS.- NET VISION WEB TECHNOLOGIES LTD. CIRCLE-5 AHMEDABAD AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL KUMAR D.R. RESPONDENT BY : SHRI S.N. DIVETIA O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THESE THREE APPEALS FILED BY THE REVENUE ARE AGAIN ST THREE DIFFERENT ORDERS DATED 14.03.2007 22 11 2007 & 23.01.2008 OF LEARNED COMM ISSIONER OF INCOME TAX (APPEALS)-XI AHMEDABAD DELETING THE ADDITION OF RS.8 39 18 730/- RS.2 55 75 629/- AND RS.9 28 58 052/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLO WANCE OF EXEMPTION CLAIMED UNDER SECTION 10A OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2004-05 2002-03 & 2003-04 RESPECTIVELY. 2. ALL THESE APPEALS WERE HEARD ON THE SAME DATE I NVOLVED ONLY ONE COMMON ISSUE ARGUED BY COMMON LD. REPRESENTATIVE THEREFORE THESE ARE DECIDED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. FIRST WE TAKE UP THE ITA NO. 2120/AHD/2007 FOR THE ASSESSMENT YEAR 2004-05. BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY ENG AGED IN THE BUSINESS OF (I) IMPARTING COMPUTER EDUCATION (II) SOFTWARE DEVELOPMENT SALES & EXPORT THEREOF. FOR THIS ASSESSMENT YEAR THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER S ECTION 143(3) ON 28.12.2006 AT TOTAL INCOME OF RS.6 91 13 770/-. IN THIS ASSESSMENT ORDER THE ASSESSING OFFICER DISALLOWED THE DEDUCTION 2 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 UNDER SECTION 10A OF RS.8 39 18 730/- CLAIMED BY TH E ASSESSEE. ACCORDING TO ASSESSING OFFICER THE DEDUCTION UNDER SECTION 10A(1) IS ADMISSIBLE ON LY WHERE FOLLOWING CONDITIONS ARE SATISFIED :- (A) IT IS NOT FORMED BY SPLITTING UP OR THE RECONSTRUCT ION OF A BUSINESS ALREADY IN EXISTENCE. (B) IT IS NOT FORMED BY TRANSFER TO A NEW BUSINESS OF M ACHINERY OR PART PREVIOUSLY USED FOR ANY PURPOSE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HA S FAILED TO SATISFY THE ABOVE CONDITIONS DUE TO THE FOLLOWING REASONS :- (I) SINCE THE ASSESSEE-COMPANY WAS FORMED AS A RESULT O F RECONSTRUCTION OF TWO SEPARATE COMPANIES ALREADY IN EXISTENCE. (II) ALL ASSETS (INCLUDING COMPUTERS IN LARGE NUMBER) AN D LIABILITIES OF ERSTWHILE INFOETCH CAPITAL MARKET LTD. WERE TRANS FERRED TO THE NEWLY FORMED COMPANY. THEREAFTER AFTER DISCUSSING THE ISSUE ARE LENGTH IN THE ASSESSMENT ORDER THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM OF DEDUCTION/ EXEMPTI ON UNDER SECTION 10A OF THE INCOME TAX ACT 1961 AND ADDED THE SUM OF RS.8 39 18 730/- TO THE I NCOME DECLARED BY THE ASSESSEE. 4. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS) THE ASSESSEE FILED WRITTEN SUBMISSIONS AND CONTENDED AS UNDER :- 1.1. THE LD. AO HAS ISSUED NOTICE U/S 143(3) ON 22 FLD NOVEMBER 2005 FIXING THE DATE OF HEARING AS ON 29 TH NOVEMBER 2005 ON APPEARANCE THE ASSESSEE WAS SERVED WITH NOTICE U/S 142(1) OF THE ACT CALLING I NFORMATION REQUISITE TO ASSESS THE INCOME BY 6 TH DECEMBER 2006. THE APPELLANT ASSESSEE HAS SUBMIT TED ALL THE DETAILS REQUISITE FOR THE PURPOSE OF THE ASSESSMENT ON THE HEARING ADJOURNED TO 19 TH DECEMBER A COPY OF WHICH IS ENCLOSED HEREWITH AND MARKED AS EXHIBIT -1. ALL OTHER INFORMATION EMANATED FROM THE FIRST SUBM ISSIONS AS AFORESAID NAVE BEEN SUBMITTED INSTANTANEOUSLY ON SUBSEQUENT HEARINGS. HISTORY OF AMALGAMATION 2.1. THE ASSESSEE-COMPANY I E NETVISION WEB TE CHNOLOGIES LIMITED (NVWTL) IS A RESULTANT COMPANY OUT OF AMALGAMATION OF THE T WO COMPANIES NAMELY NETVISION WEBTECHNOLOGIES PRIVATE LIMITED (NVWTPL) AND INDOTECH CAPITAL MARKET LIMITED (ICML) WITH EFFECT FROM 1 ST APRIL 2000 BEING AN APPOINTED DATE AS PER THE SCHEME OF AMALGAMATION AS APPROVED BY TH E SHAREHOLDERS ETC. AND HON'BLE GUJARAT HIGH COURT WHICH IS ENCLOSED HERE WITH AND MARKED AS EXHIBIT- 2 HERETO. 2.2. THUS ALL THE BUSINESS DIVISIONS CAME INTO B EING ON OR AFTER 1 S ' DAY OF APRIL 2000 HAVE BEEN SET-UP BY INS RESULTANT COMPANY I.E. NVWTL ONLY. THE COMPANY'S BUSINESS UNITS: 3 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 3.1. THE COMPANY WAS FORMED BY WAY OF AMALGAMATIO N OF TWO COMPANIES NAMELY INDOTECH CAPITAL MARKET LTD ('ICML' 'FOR SH ORT) AND NETVISION WEB TECHNOLOGIES PRIVATE LTD. (NVWPL FOR SHORT). ICML W AS ENGAGED IN THE CAPITAL MARKET RELATED SERVICE BUSINESS WHICH WAS NEVER SE EN FURTHER CARRIED ON BY THE NETVISION WEB TECHNOLOGIES LTD ('NVWL' OR 'THE RESU LTANT COMPANY' FOR SHORT). 3.2. THE NVWPL WAS ENGAGED IN THE BUSINESS OF IMP ARTING THE COMPUTER EDUCATIONS THROUGH FRANCHISEES. THERE WAS NO ACTIVI TIES EVER CONDUCTED RELATING TO SOFTWARE DEVELOPMENT AND/OR SAFES BY THE NVWPL UNTI L IT GOT AMALGAMATED WITH THE ICML. THIS IS SEEN FROM THE PROFIT AND LOSS ACC OUNTS UP TO THE YEAR JUST PRIOR TO SAID AMALGAMATIONS THE P&L ACCOUNT SHOWS ENTIRE INCOME FROM (A) COURSE FEES RS. 12.13 LACS (B) FRANCHISEE FEES RS. 2500 (C ) RENT INCOME RS. 1500 AND (D) MISCELLANEOUS INCOME RS. 500/-. SO IT IS AMPLY DEAR OF THE NATURE OF BUSINESS WAS NET OF SOFTWARE DEVELOPMENT AND SALES. 3.3. THE SOFTWARE DEVELOPMENT AND SALES INCOME WA S STARTED BEING EARNED ONLY AFTER JANUARY 2007 OR SAY POST AMALGAMATION THE SAM E CAN BE OBSERVED FOR THE ANNUAL REPORT FOR FY 1999-2000 OF NVWPL WHICH IS EN CLOSED HEREWITH AND MARKED AS EXHIBIT - 3. ALSO THE FIXED ASSETS OF NVWPL FOR PY 1999-00 (PR IOR TO AMALGAMATION) WAS FOR RS. 30.52 LACS ONLY) AND FIXE D ASSETS OF ICML WAS FOR RS. 20.62 LACS INCLUDING GOODWILL OF RS. 13 LACS (SEE E XHIBIT -1 SUPRA). AS AGAINST THESE THE FIXED ASSETS FOR PY 2000-01 2001-02 200 2-03 AND 2003-04 WERE RESPECTIVELY STOOD AT RS.1785.64 LACS RS.1762.50 L ACS RS.1573.17 LACS RS.1343.71 LACS. ALL THE ANNUAL REPORTS ARE ANNEXED HERETO AND MARKED AS EXHIBIT 4 5 6 7. . 3 4 THUS IT WAS CLEAR (1) THAT PRIOR TO AMALGAMA TION THERE WERE TWO COLLECTIVE BUSINESS UNITS ONE FOR COMPUTER EDUCATION DIVISION BELONGS TO NVWPL AND ANOTHER OF CAPITAL MARKET RELATED SERVICES BELONGS TO ICML (2) BOTH THE BUSINESS UNITS HAVE CONTINUED HAVING SEPARATE EXISTENCE EVEN AFTER POST AMALGAMATION (3) SOFTWARE DEVELOPMENT UNIT CAME INTO EXISTENCE FROM THE DATE 1-1-2001 ONWARDS (4) THERE IS A RISE OF 2920% IN THE COLLECTIVE FIXE D ASSETS AS COMPARED TO COLLECTIVE ASSETS OF NVWPL AND ICML POST AMALGAMATION. THIS IT SELF SUGGEST AND PROVES THAT THE NEW ASSETS IN HUGE AMOUNT AND QUANTITY WER E PURCHASED AND USED TO SET- UP SOFTWARE DEVELOPMENT UNIT BEING 100% EOU. EVIDENCE FOR SOFTWARE DEVELOPMENT BUSINESS UNIT CAME INTO EXISTENCE POST AMALGAMATION 4.1. SOFTWARE DEVELOPMENT BUSINESS WAS ESTABLISHED AT NETVISION HOUSE B/H CORE HOUSE OPP. DOCTOR HOUSE NR PARIMAL RAILWAY CROSSI NG AHMEDABAD AND THIS PLACE WAS REGISTERED AS 100% EOU BY STP SCHEME ON 1 0-1-2001 VIDE REFERENCE NO. STPIG/ EXLM/ S/ NWTPL-SWED/339/71 WHICH IS ENC LOSED AND MARKED AS EXHIBIT_-8 HERETO .THE SAID LETTER READS AS 'WITH REFERENCE TO THE ABOVE MENTIONED SUB/SET AND REFERENCE GOVT. IS PLEASED TO EXTEND YOU AIL THE FACILITIES AND PRIVILEGES ADMISSIBLE UNDER THE STP SCHEME FOR THE ESTABLISHMENT OF NEW UNDERTAKING AT NETYISION HOUSE B/H CORE HOUSE OPP . DOCTOR HOUSE NR. PARIMAL RAILWAY CROSSING ELLISBRIDGE AHMEDABAD-38 0 006 IN THE STATE OF GUJARAT FOR THE DEVELOPMENT OF THE FOLLOWING ITEMS . COM PUTER SOFTWARE' HERE WE SUPPLY EMPHASIS TO THE WORDS 'FOR THE ESTABLISHMENT OF NEW UNDERTAKING'. THUS THE REGISTRATION UNDER STPI SCHEME HAS ENSURED THAT THE NEW UNDERTAKING WAS 4 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 ESTABLISHED AT THE SAID NETVISION HOUSE IN THE YEAR 2001 ITSELF AND NOT PRIOR TO ITS AMALGAMATION. 4 2 CENTRAL EXCISE LICENSE FOR SETTING UP BONDED WA RE HOUSE AT SAID NETVISION HOUSE WAS GRANTED ONLY EN 25-1-2001 VIDE THERE LET TER NO. V/MISG- 22/100%EOU/2000 BOND (ENCLOSED HERETO AND MARKED AS EXHIBIT 9) SO THERE CAN BE NO FUNCTIONING OF EOU PRIOR TO AMAL GAMATION. 4.3 PERMISSION FOR DUTY FREE IMPORT OF CAPITAL GO OD AGAINST THE SAID STPL LICENSE WAS GRANTED ON 10-1-2001 VIDE LETTER BEARING NO. ST PIG/EXIM/S/ NWTPL- SWED/339/IMP/74 (ENCLOSED AND MARKED AS EXHIBIT- 10 ) AND FOR INDIGENOUS GOODS WAS ISSUED ON 10-1-2001 VIDE THEIR LETTER BEA RING NO. STPIG/ EX/M/ S/ NWTPL-SWED/339/IND/75(ENCLOSED AND MARKED AS EXHIBI T-11). THE CAPITAL GOODS COVERED BY THESE PERMISSIONS WERE ACTUALLY P URCHASED FOR AGGREGATING TO RS.18.08 LACS COVERED BY FOUR INVOICES(ENCLOSED AND MARKED AS EXHIBIT- 12) WHICH WERE USED FOR THE PURPOSE OF SORTING UP SOFTW ARE DEVELOPMENT. UNIT BEING 100% EOU. 4.4 THE SITE AT WHICH THE SOFTWARE DEVELOPMENT UN IT IS LOCATED I.E. NETVISION HOUSE B/H CORE HOUSE NR. PARIMAL RAILWAY CROSSING ELLISBRIDGE ANMEDABAD - 380 006 WAS PUT TO USE ONLY AFTER JANUARY 2001. A C OPY OF CERTIFICATE OF AHMEDABAD MUNICIPAL CORPORATION THAT THE SAID NETVI SION HOUSE WAS VACANT FROM 1998 TILL THE YEAR EARLY 2001. THIS IS EVIDENC E OF UNIT HAVE SAME INTO BEING ONLY AFTER YEAR EARLY 2001.THE SAME IS ENCLOSED HER EWITH AND MARKED AS EXHIBIT- 13. 4.5 THE STPI UNIT SITUATED AT NETVISION HOUSE B/ H CORE HOUSE OPP. DOCTOR HOUSE NR. PARIMAL RAILWAY CROSSING ELLISBRIDGE A HMEDABAD - 380 006 WAS NOT HAVING ANY ELECTRICITY CONNECTION TILL 19'' JANUARY 2001 THE CONNECTION ESTIMATE CHARGES AND SECURITY DEPOSITS TO OBTAIN ALL THE NEW CONNECTIONS WERE MADE ON 19'' JANUARY. 2001 VIDE RECEIPT NO. 25768 (ENCLOSED AND MARKED AS EXHIBIT - 14) 2ND FEBRUARY 2001 V/DE RECEIPT NO. 56954 (ENCLOSED AND MARKED AS EXHIBIT - 15) 2'' FEBRUARY 2001 VIDE RECEIPT NO. 56965 (ENCL OSED AND MARKED AS EXHIBIT - 16) 2 ND FEBRUARY. 2001 VIDE RECEIPT NO 56966 (ENCLOSED AND MARKED AS EXHIBIT - 17) 2ND FEBRUARY 2001 VIDE RECEIPT NO. 56967 (ENC LOSED AND MARKED AS EXHIBIT - 18) AND RESTS ARE ON 9TH' MAY 2002 VIDE RECEIPTS NOS. 87918 TO 87921 (ENCLOSED AND MARKED AS EXHIBIT-19 TO 22) WHILE CL EARLY PROVES THAT NO BUSINESS ACTIVITIES WERE BEING DONE THERE AT TILL THE FIRST ELECTRICITY CONNECTIONS WERE BECOME FUNCTIONAL IN THE YEAR 2001 ONLY. 4.6. THE APPELLANT ALSO ADDUCE EVIDENCE OF ITS BE ING SET-UP NEW UNIT AT SAID NETVISION HOUSE IN FORM OF ITS REGISTRATION W ITH COMMISSIONERATE OF INFORMATION TECHNOLOGY GOVERNMENT OF GUJARAT VIDE REGISTRATION NO. 81 DATED 24'' MAY 2001 FOR HAVING REGJSTERED AS 'NEW UNIT' FOR IT SOFTWARE(ENCLOSED AND MARKED AS EXHIBIT - 23). 47 TO SUPPORT THE CLAIMS THAT THE NVWTPL WAS ENGA GED IN ONLY COMPUTER EDUCATION BUSINESSES AND THAT TOO AT PLACES OTHER T HAN PLACES AT SAID NETVISION . HOUSE THE APPELLANT ADDUCES PHOTOGRAPHS OF OPENING CEREMONIES OF VARIOUS FRANCHISEE CENTERS AND RELEVANT PRESS REPOR TS ETC. (ENCLOSED HERETO AND MARKED AS EXHIBIT - 24). 5 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 4.8 THE FIXED ASSETS (TANGIBLE) HELD AS AT 31-3- 2000 BY NVWPL AND ICML WAS WORTH RS. 46 14 LACS ONLY AND THE SAME HELD BY NVWL (POST AMALGAMATION AS AT 31-3-2001) WAS FOR RS. 645.15 LACS) I.E. AN INCREAS E IN TANGIBLE FIXED ASSETS BY RS. 599.01 LACS. THUS PROVE ADDITIONAL INVESTMENT OF SA ID AMOUNT TO SETTING UP SOFTWARE DEVELOPMENT UNIT BEING 100% EOU SEC EXHIBI T FROM 4 TO 7. 4.9. IN THE YEAR ENDED 31-3-2001 I.E. POST AMALGAMA TION THERE WAS EN INCOME FROM COURSE FEES COMPRISED OFF RS. 213.74 SACS ROYALTY INCOME WAS COMPRISED OF RS 97.95 LACS ON WHICH NO DEDUCTION WAS CLAIMED U/S 10 A(2) AND WHICH WAS COMPRISED OR CAME FROM COMPUTER EDUCATION UNIT CLEA RLY PROVES THAT THE ASSETS HELD BY NVWPL PRIOR SO AMALGAMATION WAS USED FOR IM PARTING COMPUTER EDUCATION UNIT ONLY AND CERTAINLY NOT TOR THE PURP OSE OF SETTING UP OF SOFTWARE DEVELOPMENT UNIT BEING 100%'EOU. SEE EXHIBIT FROM 4 TO 7. 4.10. THERE WAS NO COMPUTER SYSTEMS WERE RECEIVED BY THE RESULT ANT COMPANY I.E.'NVWL UNDER AMALGAMATION. THE BALANCE SHEET OF ICML AS ON 31.3.2000 (PRIOR TO AMALGAMATION) SHOWS COMPUTER SYSTEMS TO B E RS. NIL. SEE EXHIBIT-3. . 5.1. IN AS MUCH AS THE CONDITION STATED AT SECTIO N 10A(2) (IT) IS CONCERNED I E. IT IS NOT FORMED BY THE SPLITTING UP OR ME RE-CONSTRU CTION OF A BUSINESS ALREADY IN EXISTENCE IS CONCERNED THE APPELLANT WOULD RELY ON THE DEFINITION OF THE TERM SPLITTING UP AS DEFINED IN ADVANCE LAW LEXICON BY P . RAMANATH AIYAR 3 RD EDITION 2005 MEANS SPLITTING UP OF THE BUSINESS ALREADY IN EXISTENCE INDICATE A CASE WHERE THE INTEGRITY OF A BUSINESS IS BROKEN UP AND DIFFER ENT SECTION OF THE ACTIVITY PREVIOUSLY CONDUCTED ARE CARRIED ON INDEPENDENT LY. CIT V. HINDUSTAN GENERAL INDUSTRIES LTD. (1982) 137 ITR 851 (DEL). IN THE CA SE OF THE APPELLANT IT IS PROVED BEYOND DOUBT THAT THE SOFTWARE DEVELOPMENT UNIT UND ER STPI SCHEME FOR WHICH THE EXEMPTION U/S 10A IS CLAIMED WAS NOT FORMED OU T OF RE-CONSTRUCTION OF ANY EXISTING BUSINESS ALREADY IN EXISTENCE. 5.2. THE REFERENCE IS TO A 'RECONSTRUCTION OF A BUS INESS' ARID NOT 'RECONSTRUCTION OF A CORPORATE ENTITY' WHICH CARRIES THE BUSINESS. IN THAT CONTEXT IT HAS BEEN HELD THAT (I) IT IS NOT EVERY ALTERATION IN THE MODE METHOD OR SCOPE OF THE ACTIVITIES OF S BUSINESS END IT IS NOT EVERY TRANSFER OF ASSETS FRO M THE UNIT TO ANOTHER THAT WILL INVOLVE 'RECONSTRUCTION'. CIT V HINDUSTAN GENERAL INDUSTRIES LTD. (1982) 137 ITR 851 (DEI) (II) RECONSTRUCTION IS REJUVENATION OR R EHABILITATION OF AN EXISTING UNDERTAKING. THE ORIGINAL BUSINESS OR UNDERTAKING C ONTINUES TO EXIST WITHOUT ITS IDENTITY BEING LOST. KERALA STATE CASHEW DEVELOPMEN T CORPORATION VS.- CIT (1994) 205 ITR 19 (KER.) (III) IN THE RECONSTRUCTI ON OF A BUSINESS AS IN THE RECONSTRUCTION OF A COMPANY THERE IS NO ELEMENT OF TRANSFER OF ASSETS AND SOME CHANGE HOWEVER PARTIAL OR RESTRICTED IT MAY BE O F OWNERSHIP OF THE ASSETS. THE TRANSFER HOWEVER NEED NOT BE OF ALL THE ASSETS. IT IS NONETHELESS IM PERATIVE THAT THERE SHOULD BE CONTINUITY AND PRESERVATION OF THE OLD UNDERTAKING THOUGH IN AN ALTERED FORM. THE CONCEPT OF RECONSTRUCTION OF BUSI NESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHICH IS ALREADY RUNNING ARE INDUSTR IAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT. CIT V. GANGA SUGAR CORPORATION LTD . (1973) 92 ITR 173 (DEL). (IV) IN INTERPRETING THESE EXPRESSION 'NEW INDUSTRI AL UNDERTAKING AND 'SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENC E' THE PURPOSE OF THE PROVISION I.E TO ENCOURAGE THE SETTING UP OF NEW INDUSTRY M UST BE BORNE IN MIND. THOUGH EVERY CASE MUST DEPEND UPON ITS OWN PECULIAR FACTS A BROADLY CORRECT SOLUTION 6 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 CAN BE ARRIVED AT BY ASKING TO TWO QUESTION FIRST WHETHER THERE WAS ANY ACTIVITY IN THE EXISTING BUSINESS WHICH COULD HAVE BEEN RECONST RUCTED END COULD HAVE BEEN ASSUMED A NEW FORM ON SUCH RECONSTRUCTION: AND SECO ND WHETHER THE NATURE OF THE BUSINESS WHICH HAS ASSUMED A NEW FORM AS A RESU LT OF THE CHANGE WHICH IS INTRODUCED IS THE SAME AS THE NATURE OF THE BUSINES S WHICH WAS EXISTING BEFORE THE CHANGE WAS INTRODUCED. IF EITHER OF THESE TWO QUEST ION IS ANSWERED IN THE NEGATIVE IT WOULD MEAN PRIMA FACIE THERE IS NO RECONSTRUCT ION NAGARDAS BECHARDAS BROTHERS PVT. LTD. VS.- CIT (1976) 104 ITR 255 (GU J.). FROM THE ABOVE IT IS SEEN THE DIFFERENT MEANING OF THE TERM RECONSTRUCTION IN THE DIFFERENT CONTEXT. AS FAR AS SECTION 10A(2)(II) IS CONCERNED THE MEANING OF RECONSTRUCTION IS AS DISCUSSED HEREINABOVE. 5 3. BUSINESS ALREADY IN EXISTENCE DOES NEEDS ELA BORATE DISCUSSION. IF WOULD MEAN IN THE CONTEXT OF THE SECTION 10A(2)(II) THA T THERE MUST BE A BUSINESS ACTUALLY EARNED ON IN THE TIME FRAME PRIOR TO THE E XERCISE OF RESTRUCTURING THE VERY SAME BUSINESS I.E. THE ACT OF RESTRUCTURING OF A BU SINESS MAY BE INTO A DIFFERENT ENTITY MUST BE FOLLOWED BY ACTUAL RUNNING OR CARRY ING ON THE VERY SAME BUSINESS BY ANOTHER UNDERTAKING IN EXISTENCE. 6.1. YOUR APPELLANT CRAVES THE LEAVE OF YOUR HONO R TO ALLOW IT TO ADDUCE ANY FURTHER RELEVANT INFORMATION IN THIS REGARD TO PROV E ITS CASE AT FUTURE HEARING. 6.2 IN THE LIGHT OF ABOVE SUBMISSION IT IS ABUNDA NTLY DEAR THAT ALL THE CONDITIONS FOR AVAILING THE EXEMPTIONS U/S 10A(2) HAVE-BEEN CO MPLIED WITH AND THE ASSESSEE THUS HAVE DISCHARGED HIS PRIMARY ONUS TO PROVE ITS CASE. 5. AFTER CONSIDERING THE AFORESAID SUBMISSIONS MADE BY THE LD COUNSEL OF THE ASSESSEE IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT WHILE MAKING THE ADDITION AND REJECTING THE ASSESSEES CL AIM UNDER SECTION 10A OF THE ACT THE ASSESSING OFFICER HAS NOT APPRECIATED THE FACTS OF THE CASE THAT THE ASSESSEE COMPANY IS A RESULTANT COMPANY OUT OF AMALGAMATION OF THE TWO CO MPANIES NAMELY NETVISION WEB TECHNOLOGIES PVT. LTD. AND INFOTECH CAPITAL MARKET LTD. AFTER EXAMINING THE VARIOUS DOCUMENTS THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FUR THER OBSERVED THAT THE ASSESSEE-COMPANY HAS FOLLOWED THE DUE PROCEDURE WITH THE REGISTRAR O F COMPANIES WITH REGARD TO AMALGAMATION. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBS ERVED THAT THE SCHEME OF AMALGAMATION WAS APPROVED BY THE SHAREHOLDERS AND ALSO BY THE HO N'BLE GUJARAT HIGH COURT. HE FURTHER OBSERVED THAT THE ASSESSEE-COMPANY WAS REGISTERED W ITH SOFTWARE TECHNOLOGY PARKS OF INDIA (IN SHORT STPI) WHICH IS AN AUTONOMOUS SOCIETY UNDER M INISTRY OF INFORMATION TECHNOLOGY GOVERNMENT OF INDIA ON 10.01.2001. THE ASSESSEE-COM PANY HAS ALSO FULFILLED ALL THE CONDITIONS AS STIPULATED BY THE STPI. THEREFORE THE VARIOUS R EASONS GIVEN BY THE ASSESSING OFFICER COULD NOT JUSTIFY THE DENIAL OF THE EXEMPTION CLAIMED BY THE ASSESSEE. 7 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 6. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO RECORDED FINDING OF FACTS THAT ALL THE REQUISITE DETAILS WER E FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS DURING THE COURSE OF APPELLA TE PROCEEDING WITH REGARD TO CLAIM OF EXEMPTION/ DEDUCTION UNDER SECTION 10A OF THE INCOM E TAX ACT 1961. THE SOFTWARE DEVELOPMENT AND SALES INCOME WAS STARTED ONLY AFTER JANUARY 2001 WHICH IS AFTER AMALGAMATION WHICH CAN BE OBSERVED FROM THE ANNUAL REPORTS FILED. THE ASSESSEE HAS ALSO ADDUCED EVIDENCES OF ITS SET UP OF NEW UNIT IN FORM ITS REGISTRATION WITH COMMISSIONER OF INFORMATION TECHNOLOGY GOVERNMENT OF GUJARAT VIDE REGISTRATION NO. 81 DATED 24.05.2001 FOR HAVING REGISTERED AS NEW UNIT FOR I.T. SOFTWARE. IT IS ALSO SEEN THAT THE CENTRAL EXCISE LICENSE FOR 100% EOU WAS ALSO GRANTED BY THE CENTRAL EXCISE AUT HORITIES VIDE THEIR LETTER / CERTIFICATE NO. V/MISC.-22/100% EOU/2000 BOND DATED 25.01.2002 WHIC H SHOWS THAT NO FUNCTIONING OF EOU OR BUSINESS ACTIVITIES IN QUESTION WAS PRIOR TO A MALGAMATION. 6.1. FINALLY THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) ALSO OBSERVED THAT EXEMPTION UNDER SECTION 10A OF THE ACT HAS ALREADY BEEN GRANTED BY THE ASSESSING OFFICER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002-0 3 & 2003-04 WHILE FINALIZING THE ASSESSMENTS UNDER SECTION 143(3) OF THE ACT. THE ON LY VARIATION FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IS WITH REGARD TO AMALGAMATION WHICH HAS BEEN DONE BY THE ASSESSEE IN ACCORDANCE TO THE PROCEDURE LAID DOWN BY THE REGIST RAR OF COMPANIES. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED T HAT THE ASSESSING OFFICER HAS NOT ESTABLISHED THE FACT THAT INCOME FROM OTHER SOURCES HAVE BEEN BROUGHT TO ASSESSEES HANDS TO MAKE CLAIM UNDER SECTION 10A OF THE I.T. ACT. ON TH IS BASIS HE DIRECTED THE ASSESSING OFFICER TO ALLOW EXEMPTION UNDER SECTION 10A OF THE INCOME TAX ACT 1961 AS CLAIMED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE FACTS RELATING TO THE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 ARE AS UNDER :- (A) THE ASSESSMENT FOR THE ASSESSMENT YEAR 2002-0 3 WAS COMPLETED UNDER SECTION 143(3) ON 28.01.2005 DETERMINING TOTAL INCOME OF RS .27 66 090/- AS RETURNED BY THE ASSESSEE- 8 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 COMPANY. IN THE SAID ASSESSMENT THE DEDUCTION UNDE R SECTION 10A OF THE ACT AMOUNTING TO RS.2 55 75 629/- AS CLAIMED BY THE ASSESSEE WAS FUL LY ALLOWED. SUBSEQUENTLY THE ASSESSEE REOPENED THE ASSESSMENT BY ISSUING NOTICE UNDER SEC TION 148 ON THE GROUND THAT DEDUCTION UNDER SECTION 10A OF THE ACT WAS NOT ADMISSIBLE BECAUSE T HE ASSESSEE-COMPANY HAS NOT FULFILLED THE CONDITIONS LAID DOWN IN SECTION 10A(2) OF THE ACT. THEREAFTER HE FRAMED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 ON 27.09.2007 AT TOTAL INCOME OF RS.2 83 41 720/- WHEREIN HE DISALLOWED THE DEDUCTION UNDER SECTION 10A AMOUN TING TO RS.2 55 75 629/-. (B) NOW COMING TO THE FACTS RELATING TO THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2003- 04 ARE THAT THE ASSESSMENT WAS COMPLETED UNDER SECT ION 143(3) OF THE ACT ON 06.02.2006 DETERMINING TOTAL LOSS OF RS.2 58 72 003/- AS RETUR NED BY THE ASSESSEE-COMPANY. IN THE SAID ASSESSMENT DEDUCTION UNDER SECTION 10A OF THE ACT AMOUNTING TO RS.9 28 58 054/- CLAIMED BY THE ASSESSEE-COMPANY WAS FULLY ALLOWED. SUBSEQUENTL Y THE ASSESSING OFFICER NOTICED THAT THE DEDUCTION UNDER SECTION 10A WAS NOT ADMISSIBLE TO T HE ASSESSEE-COMPANY BECAUSE IT HAS NOT FULFILLED THE CONDITIONS LAID DOWN IN SECTION 10A(2 ) OF THE ACT 1961. CONSEQUENTLY THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 AND REFRAME D THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 ON 29.11.2007 AT TOTAL INCOME OF R S.6 69 86 050/-. IN THIS ASSESSMENT ORDER THE ASSESSING OFFICER DISALLOWED DEDUCTION UNDER SECTIO N 10A CLAIMED BY THE ASSESSEE AMOUNTING TO RS.9 28 58 054/-. (C) IN RE-ASSESSMENT ORDER FOR BOTH THE ASSESSMENT YEARS I.E. ASSESSMENT YEARS 2002-03 & 2003- 04 THE ONLY REASON GIVEN BY THE ASSESSING OFFICER FOR DISALLOWING THE DEDUCTION CLAIMED UNDER SECTION 10A IS THAT THE ASSESSEE-COMPANY WAS FORMED AS A RESULT OF RECONSTRUCTION OF A BUSINESS WHICH WAS ALREADY IN EXISTENCE AND THEREFORE IT CA NNOT BE TERMED AS NEW UNDERTAKING. IT WAS ALSO STATED THAT NET VISION WEB TECHNOLOGIES LTD. WAS EA RLIER REGISTERED AS A PRIVATE LIMITED COMPANY ON 26.10.1999. THE MAIN BUSINESS OF THE ASS ESSEE COMPANY WAS OF PROVING EDUCATION AND COACHING SOFTWARE DEVELOPMENT AND PLACEMENT OF SOFTWARE PERSONNEL. THUS THE CHARACTER OF BUSINESS DOES NOT CHANGE EVEN ON ACCOUNT OF AMALGAM ATION AND SOFTWARE DEVELOPMENT WAS ONE OF THE OBJECT BUSINESSES OF ONE OF THE COMPANY. THE ASSESSEE-COMPANY WAS FORMED AS A RESULT OF RECONSTRUCTION OF TWO SEPARATE COMPANIES ALREADY IN EXISTENCE AND ALL ASSETS (INCLUDING COMPUTERS IN LARGE NUMBER) AND LIABILITIES OF ERSTW HILE INFOTECH CAPITAL MARKET LTD. WAS TRANSFERRED TO THE NEWLY FORMED COMPANY. FOR BOTH T HE ASSESSMENT YEARS BEFORE THE ASSESSING 9 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 OFFICER THE ASSESSEE PLEADED THAT LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEAR 2004-05 ON SIMILAR POINTS DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION CLAIMED UNDER SECTION 10A AMOUNTING TO RS.83 91 870 /- THE ASSESSING OFFICER OBSERVED THAT THE DECISION OF LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) FOR THE ASSESSMENT YEAR 2004-05 HAS NOT BEEN ACCEPTED AND APPEAL IS FILED BEFORE THE IT AT WHICH IS PENDING. (D)FOR BOTH THE ASSESSMENT YEARS I.E. ASSESSMENT Y EAR 2002-03 ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE IMPUGNED ORDERS FOLLOWING HIS ORDER FOR THE ASSESSMENT YEAR 2004-05 DIRECTED THE ASSESSING OFFI CER TO ALLOW THE EXEMPTION UNDER SECTION 10A OF THE INCOME TAX ACT 1961 FOR BOTH THE ASSESS MENT YEARS AS CLAIMED BY THE ASSESSEE. 8. AGGRIEVED BY THE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DATED 22.11.2007 IN APPEAL NO. CIT(A.)-XI/342/07-08 FOR T HE ASSESSMENT YEAR 2002-03 AND ORDER DATED 23.01.2008 IN APPEAL NO. CIT(A.)-XI/398/07-08 FOR THE ASSESSMENT YEAR 2003-04 THE REVENUE IS IN APPEALS BEFORE THE TRIBUNAL. 9. AT THE TIME OF HEARING BEFORE US ON BEHALF OF R EVENUE SHRI ANIL KUMAR LD. D.R. APPEARED AND RELYING ON THE REASONING GIVEN BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05 CONTENDED AS UNDER :- (A) THE ASSESSEE-COMPANY WAS FORMED BY RECONSTRUCT ION OF BUSINESS WHICH WAS ALREADY IN EXISTENCE THEREFORE IT CANNOT BE TERMED AS A NEW UNDERTAKING. (B) THE MERGING OF TWO COMPANIES ALREADY DOING BUS INESS CANNOT BE TERMED AS NEW UNIT AS THE COMPANY HAS CONTINUED THE BUSINESS WHICH WAS ALREADY CARRIED ON BY IT. (C) NET VISION WEB TECHNOLOGIES LTD. WAS EARLIER R EGISTERED AS A PRIVATE LIMITED COMPANY ON 26.10.1999. THE MAIN BUSINESS OF THE COM PANY WAS OF PROVIDING EDUCATION AND COACHING SOFTWARE DEVELOPMENT AND PLACEMENT OF SOF TWARE PERSONNEL. (D) THE CHARACTER OF BUSINESS DOES NOT CHANGE EVEN ON ACCOUNT OF AMALGAMATION AND SOFTWARE DEVELOPMENT WAS ONE OF THE OBJECT BUSINESS OF ONE OF THE COMPANIES. (E) THE ASSESSEE-COMPANY WAS FORMED AS A RESULT OF RECONSTRUCTION OF TWO SEPARATE COMPANIES ALREADY IN EXISTENCE AND ALL ASSETS (INCL UDING COMPUTERS IN LARGE NUMBER) AND 10 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 LIABILITIES OF ERSTWHILE INFOTECH CAPITAL MARKET L TD. WAS TRANSFERRED TO THE NEWLY FORMED COMPANY. IN VIEW OF THE FOREGOING THE ASSESSEE-COMPANY DOES NOT SATISFY CONDITIONS PRESCRIBED UNDER SECTION 10A(2) OF THE INCOME TAX ACT FOR ENTI TLEMENT OF DEDUCTION UNDER SECTION 10A AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION CLAIMED BY THE ASSES SEE UNDER SECTION 10A FOR ALL THE THREE ASSESSMENT YEARS UNDER APPEALS. 10. ON THE OTHER HAND SHRI S.N. DIVETIA LD. COUNS EL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION TO THE S UBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHICH INTER ALIA INCLUDE DETAILED HISTORY AND FACTS OF THE CASE AS WELL AS EVIDENCE OF SOFTWARE DEVELOPMEN T BUSINESS UNIT WHICH CAME INTO EXISTENCE POST AMALGAMATION. HE SUBMITTED THAT AFTER APPRECIA TION OF ALL THE FACTS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DIR ECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION AS CLAIMED UNDER SECTION 10A FOR ALL THE THREE ASSESSMENT YEARS THEREFORE THE VIEW TAKEN BY THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) FOR ALL THE THREE ASSESSMENT YEARS BE UPHELD. 11. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT B EFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE MADE THE FOLLOWING SUBMIS SIONS :- 1.1. THE LD. AO HAS ISSUED NOTICE U/S 143(3) ON 22 ND NOVEMBER 2006 FIXING THE DATE OF HEARING AS ON 23'' NOVEMBER 2005 ON APPEARANCE THE ASSES SEE WAS SERVED WITH NOTICE U/S 142(1) OF THE ACT CALLING INFORMATION REQUISITE TO ASSESS THE IN COME BY 6 TH DECEMBER 2006. THE APPELLANT ASSESSEE HAS SUBMITTED ALL THE DETAILS REQUISITE FO R THE PURPOSE OF THE ASSESSMENT ON THE HEARING ADJOURNED TO 19 TH DECEMBER A COPY OF WHICH IS ENCLOSED HEREWITH AND MARKED_ AS EXHIBIT 1.- ALL OTHER INFORMATION EMANATED FROM THE FIRST SUBM ISSIONS AS AFORESAID HAVE BEEN SUBMITTED INSTANTANEOUSLY ON SUBSEQUENT HEARINGS. HISTORY OF AMALGAMATION 2.1. THE ASSESSES COMPANY I E. NETVISION WEB TEC HNOLOGIES LIMITED (NVWTL) IS A RESULTANT COMPANY OUT OF AMALGAMATION OF THE TWO COMPANIES N AMELY WEB WEBNOLOGIES PRIVATE LIMITED (NVWTPL) AND INDOTECH CAPITAL MARKET LIMITED (ICML) WITH EFFECT FROM 1 ST APRIL 2000 BEING AN APPOINTED DATE AS PER THE SCHEME OF AMALGAMATION A S APPROVED BY THE SHAREHOLDERS ETC AND HON'BLE GUJARAT HIGH COURT WHICH IS ENCLOSED HER EWITH END EXHIBIT - 2 HERETO. 11 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 THUS ALL THE BUSINESS DIVISIONS CAME INTO BEING ON OR AFTER 1ST DAY OF APRIL 2000 HAVE BEEN SET- UP BY THE RESULTANT COMPANY I.E. NVWTL ONLY. THE COMPANY'S BUSINESS UNITS . 3.1. THE COMPANY WAS FORMED BY WAY OF AMALGAMATIO N OF TWO COMPANIES NAMELY INDOTECH CAPITAL MARKET LTD (ICML' FOR SHORT) AND NETVISION WEB TECHNOLOGIES PRIVATE LTD. ('NVWPL' FOR SHORT. ICML WAS ENGAGED IN THE CAPITAL MARKET RELAT ED SERVICE BUSINESS WHICH WAS NEVER BEEN EARNED ON BY THE NETVISION WEB TECHNOLOGIES LTD. (' NVWL' OR 'THE RESULTANT COMPANY' FOR SHORT). 3.2 THE NVWPL WAS ENGAGED IN THE BUSINESS OF IMPA RTING THE COMPUTER EDUCATIONS THROUGH FRANCHISEES THERE WAS NO ACTIVITIES EVER CONDUCTED RELATING TO SOFTWARE DEVELOPMENT AND/OR SATES BY THE NVWPL UNTIL IT GOT AMALGAMATED WITH THE ICML . THIS IS SEEN FROM THE PROFIT AND LOSS ACCOUNTS UP TO THE YEAR JUST PRIOR TO SAID AMALGAMA TIONS. THE P&L ACCOUNT SHOWS ENTIRE INCOME FROM (A) COURSE FEES RS. 12.13 LACS (B) FRANCHISEE FEES RS. 2500 (C) RENT INCOME RS. 1500 AND (D) MISCELLANEOUS INCOME RS. 500/-. SO IT IS AMPLY CLE AR OF THE NATURE OF BUSINESS WAS NOT OF SOFTWARE DEVELOPMENT AND SALES. 3.3. THE SOFTWARE DEVELOPMENT AND INCOME WAS STAR TED BEING EARNED ONLY AFTER JANUARY 2001 OR SAY POST AMALGAMATION. THE SAME CAN BE OBSERVED FOR THE ANNUAL REPORT FOR PY 1999-2000 OF NVWPL WHICH IS ENCLOSED HEREWITH AND MARKED AS EXHJ BIT_- 3. ALSO THE FIXED ASSETS OF NVWPL FOR PY 1999-00 (PRIOR TO AMALGAMATION) WAS FOR RS 3 0.52 LACS ONLY) AND FIXED ASSETS OF ICML WAS FOR RS 28.62 LACS INCLUDING GOODWILL OF RS. 13 LACS. (SEC EXHIBIT -1 SUPRA). AS AGAINST THESE THE FIXED ASSETS FOR PY 2000-01 2001 -02 2002-03 AND 2003-04 WERE RESPECTIVELY STOOD AT RS. 1785. 64 LACS RS. 1762.50 LACS RS.1573.17 LACS RS.1343 71 LACS. ALL THE ANNUAL REPORTS ARE ANNEXED HERETO AND MARKED AS EXHIBIT-4 5 6 7. 3.4. THUS IT WAS CLEAR (1) THAT PRIOR TO AMALGAMA TION THERE WERE TWO COLLECTIVE BUSINESS UNITS ONE FOR COMPUTER EDUCATION DIVISION BELONGS TO NVWP L AND ANOTHER OF CAPITAL MARKET RELATED SERVICES BELONGS TO ICML (2) BOTH THE BUSINESS UNIT S HAVE CONTINUED HAVING SEPARATE EXISTENCE EVEN AFTER POST AMALGAMATION (3) SOFTWARE DEVELOPME NT UNIT CAME INTO EXISTENCE FROM THE DATE 1- 1-2001 ONWARDS (4) THERE IS A RISE OF 2920% IN THE COLLECTIVE FIXED ASSETS AS COMPARED TO COLLECTIVE ASSETS OF NVWPL AND ICML POST AMALGAMATI ON. THIS ITSELF SUGGEST AND PROVES MAT THE NEW ASSETS IN HUGE AMOUNT AND QUANTITY WERE PURCHAS ED AND USED TO SET-UP SOFTWARE DEVELOPMENT UNIT BEING 100% EOU. EVIDENCE FOR ..SOFTWARE DEVELOPMENT BUSINESS UNIT CAME INTO EXISTENCE POST 4.1. SOFTWARE DEVELOPMENT BUSINESS WAS ESTABLISHED AT NETVISION HOUSE B/H CORE HOUSE OPP. DOCTOR HOUSE NR. PARIMAL RAILWAY CROSSING AHMEDABAD AND THIS PL ACE WAS REGISTERED AS 100% EOU BY STP SCHEME ON 10-1-2001 VIDE REFERENCE NO. STPIG/ EXIM/S NWTPL- SWED/339/71 WHICH IS ENCLOSED AND MARKED AS EXHIBI T-8 HERETO. THE SAID LETTER READS AS 'WITH REFERENCE TO THE ABOVE MENTIONED SUBJECT AND REFERE NCE GOVT. JS PLEASED TO EXTEND YOU ALL THE FACILITIES AND PRIVILEGES ADMISSIBLE UNDER THE STP SCHEME FOR THE ESTABLISHMENT OF NEW UNDERTAKING OR NETWSION HOUSE B/H CORE HOUSE _OPP. _ DOCTOR HOUSE NR. PARIMAL RAILWAY CROSSING ELLISBRIDGE AHMEDABAD 380 006 IN THE STATE OF GUZARAT FOR DEVELOPMENT OF THE FOLLOWING ITEMS ... COMPUTER SOFTWARE' HERE WE SUPP LY EMPHASIS TO THE WORDS 'FOR THE ESTABLISHMENT OF NEW UNDERTAKING' THUS THE REGIST RATION UNDER STPI SCHEME HAS ENSURED THAT THE NEW UNDERTAKING WAS ESTABLISHED AT THE SAID NET VISION HOUSE IN THE YEAR 2001 ITSELF AND NOT PRIOR TO ITS AMALGAMATION. 12 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 4.2. CENTRAL EXCISE LICENSE FOR SETTING UP BONDED WAREHOUSE AT SAID NETVISION HOUSE WAS GRANTED ONLY ON 25.1.2001 VIDE THERE LETTER NO. V/M ISC-22/100%- EOU/2000-BOND. (ENCLOSED HERETO AND MARKED AS EXHIBIT- 9). SO THERE CAN BE N O FUNCTIONING OF EOU PRIOR TO AMALGAMATION. 4.3. PERMISSION FOR DUTY FREE IMPORT OF CAPITAL GOO D AGAINST THE SAID STPI LICENSE WAS GRANTED ON 10-1-2001 VIDE LETTER BEARING NO. STPG/EXIM/S/NWTPL -SWED/339/IMP./74 (ENCLOSED AND MARKED AS EXHIBIT -10) AND FOR INDIGENOUS GOODS WAS ISSUED ON 10.1.2001 VIDE THEIR LETTER BEARING NO STPIG/ EXIM/ S/ NWTPL-SWED/339/IND/75 (E NCLOSED AND MARKED AS EXHIBIT-11). THE CAPITAL GOODS COVERED BY THESE PERMISSIONS WERE ACTUALLY PURCHASED FOR AGGREGATING TO RS.18.08 LACS COVERED BY FOUR INVOICES (ENCLOSED AN D MARKED AS EXHIBIT- 12) WHICH WERE USED FOR THE PURPOSE OF SETTING UP SOFTWARE DEVELOPMENT UNIT BEING 100% EOU. 4.4 THE SITE AT WHICH THE SOFTWARE DEVELOPMENT UN IT IS LOCATED I.E. NETVISION HOUSE B/H CORE HOUSE NR. PARIMAL RAILWAY CROSSING ELLISBRIDGE A HMEDABAD - 380 006 WAS PUT TO USE ONLY AFTER JANUARY 2001. A COPY OF CERTIFICATE OF AHMEDA BAD MUNICIPAL CORPORATION THAT THE SAID NETVISION HOUSE WAS VACANT FROM L996 TILL THE YEAR EARLY 2001. THIS IS EVIDENCE OF UNIT HAVE CAME INTO BEING ONLY AFTER YEAR EARLY 2001 THE SAME IS E NCLOSED AND MARKED AS EXHIBIT- 13. 4.5. THE STPI UNIT SITUATED AT NETVISION HOUSE B/H CORE HOUSE OPP. DOCTOR HOUSE NR. PARIMAL RAILWAY CROSSING ELLISBRIDGE AHMEDABAD- 380 006 W AS NOT HAVING ANY ELECTRICITY CONNECTION TILL 19 TH JANUARY 2001 THE CONNECTION ESTIMATE CHARGES AND SECURITY DEPOSES TO OBTAIN ALL THE NEW CONNECTIONS WERE MADE ON 19 TH JANUARY 2001 VIDE RECEIPT NO. 25768 (ENCLOSED AND MARKED AS EXHIBIT - 14) 2 ND FEBRUARY 2001 VIDE RECEIPT NO. 56964 (ENCLOSED AN D MARKED AS EXHIBIT - 15) 2 ND FEBRUARY 2001 VIDE RECEIPT NO. 56964 (ENCLOSED AND MARKED AS EXHIBIT - 15) 2 ND FEBRUARY 2001 VIDE RECEIPT NO 56965 (ENCLOSED AND MARKED AS EXHIBIT - 16) 2ND FEBRUARY 2001 VIDE RECEIPT NO. 56966 (ENCLOSED AND MARKED AS EXHIBIT 17) 2 ND FEBRUARY 2001 VIDE RECEIPT NO. 56967 (ENCLOSED AND MARKED AS EXHIBIT 1 8) AND RESTS ARE ON 9 TH MAY 2002 VIDE RECEIPTS NOS. 87918 TO 87921 (ENCLOSED AND MARKED A S EXHIBITS 19 TO 22) WHICH CLEARLY PROVES THAT NO BUSINESS ACTIVITIES WERE BEING DONE THERE A T TILL THE FIRST CONNECTIONS WERE BECOME FUNCTIONAL IN THE YEAR 2001 ONLY. 4.6. THE APPELLANT ALSO ADDUCE EVIDENCE OF ITS BEIN G SET-UP NEW UNIT AT SAID NETVISION HOUSE IN FORM OF ITS REGISTRATION WITH COMMISSIONERATE OF IN FORMATION TECHNOLOGY GOVERNMENT OF GUJARAT VIDE REGISTRATION NO. 81 DATED 24 TH MAY 2001 FOR HAVING REGISTERED AS 'NEW UNIT' FOR IT SOFTWARE. (ENCLOSED AND MARKED AS EXHIBIT - 23) 4.7. TO SUPPORT THE C/A/MS THAT THE NVWTPL WAS EN GAGED IN ONLY COMPUTER EDUCATION BUSINESSES AND THAT TOO AT PLACES OTHER THAN PLACES AT SAID NETVISION HOUSE THE APPELLANT ADDUCES PHOTOGRAPHS OF OPENING CEREMONIES OF VARIOU S FRANCHISES CENTERS AND RELEVANT PRESS REPORTS ETC. ENCLOSED HERETO AND MARKED AS EXHIBIT - 24). 4.8 THE FIXED ASSETS (TANGIBLE) HELD AS AT 31-3-2 000 BY NVWPL AND ICML WAS WORTH RS. 46.14 LACS ONLY AND THE SAME HELD BY NVWL (POST AMA LGAMATION AS AT 31-3-2001) WAS FOR RS. 645. 15 LACS) I.E. INCREASE IN TANGIBLE FIXED ASSET S BY RS. 599.01 LACS. THUS PROVE ADDITIONAL INVESTMENT OF SAID AMOUNT TO SETTING UP SOFTWARE DE VELOPMENT UNIT BEING 100%EOU. SEE EXHIBIT FROM 4 TO 7 4.9. IN THE YEAR ENDED 31-3-2001 I E POST AMALGAMAT ION THERE WAS AN INCOME FROM COURSE FEES COMPRISED OFF RS 213.74 LACS ROYALTY INCOME WAS CO MPRISED OF RS 97.95 LACS ON WHICH NO DEDUCTION WAS CLAIMED U/S 10A(2) AND WHICH WAS COMP RISED OR CAME FROM COMPUTER EDUCATION 13 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 UNIT CLEARLY PROVES THAT THE ASSETS HELD BY NVWPL P RIOR TO AMALGAMATION WAS USED FOR IMPARTING COMPUTER EDUCATION UNIT ONLY AND CERTAINLY NOT FOR THE PURPOSE OF SETTING UP OF SOFTWARE DEVELOPMENT UNIT BEING 100%' EOU. SEE EXHIBIT FROM 4 TO 7. 4.10. THERE WAS NO COMPUTER SYSTEMS WERE RECEIVED BY THE RESULTANT COMPANY I.E.' NVWL UNDER AMALGAMATION THE BALANCE SHEET OF ICML AS EN 31-3-2 000 (PRIOR TO AMALGAMATION) SHOWS COMPUTER SYSTEMS TO BE RS NIL. SEE EXHIBIT-3. 5.1. IN AS MUCH AS THE CONDITION STATED AT SECTI ON 10A(2)(II) IS CONCERNED I.E. IT IS NOT FORMED B Y THE SPLITTING UP OR THE RE-CONSTRUCTION OF A BUSIN ESS ALREADY IN EXISTENCE IS CONCERNED THE APPELLANT WOULD RELY ON THE DEFINITION OF THE TERM 'SPLITTING-UP' AS DEFINED IN ADVANCED LAW LEXICON BY P RAMANATH AIYAR 3 RD EDITION 2005 MEANS SPLITTING UP OF THE BUSINESS A LREADY IN EXISTENCE INDICATE A CASE WHERE THE INTEGRITY OF A BUSINESS IS BROKEN UP AND DIFFERENT SECTION OF THE ACTIVITY PREVIOUSLY CONDUCTED ARE CARRIED ON INDEPENDENTLY CIT VS.- HINDUSTAN GENERAL INDUSTRIES LTD. (1982) 137 ITR 851 (DEL.). IN THE CASE OF THE APPELLANT IT IS PROVED BEYOND DOUBT THAT THE SOFTWARE DEVELOPMENT UNIT UNDER STPL SCHEM E FOR WHICH THE EXEMPTION U/S 10A IS CLAIMED WAS NOT FORMED OUT OF RECONSTRUCTION OF AN Y EXISTING BUSINESS ALREADY IN EXISTENCE. 5.2 THE REFERENCE IS TO A 'RECONSTRUCTION OF A BU SINESS 1 AND NOT 'RECONSTRUCTION OF A CORPORATE ENTITY' WHICH CARRIES THE BUSINESS. IN THAT CONTEXT IT HAS BEEN HELD THAT (I) IT IS NOT EVERY ALTERATI ON IN THE MODE METHOD OR SCOPE OF THE ACTIVITIES OF A BUSINESS AND IT IS NOT EVERY TRANSFER OF ASSETS FROM ONE UNIT TO ANOTHER THAT WILL INVOLVE 'RECONST RUCTION'. C/T V. HINDUSTAN GENERAL INDUSTRIES LTD. (1982) 137 ITR 851 (DEL.) (II) RECONSTRUCTION IS REJUVENATION OR REHABILITATION OF AN EXISTING UNDERTAKING. THE ORIGINAL BUSINESS OR UNDERT AKING CONTINUES TO EXIST4 WITHOUT ITS IDENTITY BEING LOST. KERALA STATE CASHEW DEVELOPMENT CORPORA TION VS.- CIT (1994) 205 ITR 19 (KER.) (III) IN THE CONSTRUCTION OF A BUSINESS AS IN THE RECONSTRUCTION OF A COMPANY THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND SOME CHANGE HOWEVER PAR TIAL OR RESTRICTED IT MAY BE OF OWNERSHIP OF THE ASSETS. THE TRANSFER HOWEVER NEED NOT BE OF A LL 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 ARE INDUSTRIAL UNIT SETS UP ANOTHER INDUSTR IAL UNIT CIT V. GANGA SUGAR CORPORATION LTD. (1973) 92 ITR 173 (DEI.) (IV) IN INTERPRETING THESE EXPRESS/ON 'NEW INDUSTRIAL UNDERTAKING' AND 'SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALRE ADY IN EXISTENCE' THE PURPOSE OF THE PROVISION I.E. TO ENCOURAGE THE SETTING UP OF NEW INDUSTRY M UST BE BORNE IN MIND. THOUGH EVERY CASE MUST DEPEND UPON ITS OWN PECULIAR FACTS A BROADLY CORRE CT SOLUTION CAN BE ARRIVED AT BY ASKING TO TWO QUESTION' FIRST WHETHER THERE WAS ANY ACTIVITY IN THE EXISTING BUSINESS WHICH COULD HAVE BEEN RECONSTRUCTED AND COULD HAVE ASSUMED A NEW FORM ON SUCH RECONSTRUCTION; AND SECOND WHETHER THE NATURE OF THE BUSINESS WHICH HAS ASSUMED A NEW FORM AS A RESULT OF THE CHANGE WHICH IS INTRODUCED IS THE SAME AS THE NATURE OF THE BUSINES S WHICH WAS EXISTING BEFORE THE CHANGE WAS INTRODUCED IF EITHER OF THESE TWO QUESTION IS ANSW ERED IN THE NEGATIVE IT WOULD MEAN PRIME FACIE THERE IS NO 'RECONSTRUCTION' NAGARDAS BECHARDAS BRO THERS PVT. LTD V. CIT (1976) 104 ITR 255 (GUJ.). FROM THE ABOVE IT IS SEEN THE DIFFERENT MEA NING OF THE TERM 'RECONSTRUCTION' IN THE DIFFERENT CONTEXT. AS FAR AS SECTION 10A(2)(II) IS CONCERNED THE MEANING OF 'RECONSTRUCTION' IS AS DISCUSSED HEREINABOVE. 5.3. BUSINESS ALREADY IN EXISTENCE ACES NEEDS ELABO RATE DISCUSSION. IT WOULD MEAN IN THE CONTEXT OF THE SECTION 10A(2)(II) THAT THERE MUST BE A BUSI NESS ACTUALLY CARRIED ON IN THE TIME FRAME PRIOR TO THE EXERCISE OF RESTRUCTURING THE VERY SAME BUSI NESS I.E. THE ACT OF RESTRUCTURING OF A BUSINESS MAY BE INTO A DIFFERENT ENTITY MUST BE FOLLOWED BY ACTUAL RUNNING OR CARRYING ON THE VERY SAME BUSINESS BY ANOTHER UNDERTAKING IN EXISTENCE. 14 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 6.1 YOUR APPELLANT CRAVES THE LEAVE OF YOUR HONOR TO ALLOW IT TO ADDUCE ANY FURTHER RELEVANT INFORMATION IN THIS REGARD TO PROVE ITS CASE AT FUT URE HEARING. 6.2. IN THE LIGHT OF ABOVE SUBMISSION IT IS ABUNDAN TLY CLEAR THAT ALL THE CONDITIONS FOR AVAILING THE EXEMPTIONS U/S 10A(2) HAVE BEEN COMPLIED WITH AND T HE ASSESSEE THUS HAVE DISCHARGED HIS PRIMARY ONUS TO PROVE ITS CASE. 10.1. AFTER CAREFULLY GOING THROUGH THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND EVIDENCES FURNISHED WE ARE CONVINCED THAT THE ASSESSEE-COMPANY IS A RESULTANT COMPANY OUT OF AMALGAMATION OF THE TWO CO MPANIES NAMELY NETVISION WEB TECHNOLOGIES PRIVATE LIMITED AND INDOTECH CAPITAL M ARKET LTD. AND THE ASSESSEE-COMPANY HAS FOLLOWED THE DUE PROCEDURE WITH THE REGISTRAR OF CO MPANIES WITH REGARD TO AMALGAMATION. THE SCHEME OF AMALGAMATION IS PROVED BY THE SHAREHOLDER S AND ALSO BY THE HON'BLE GUJARAT HIGH COURT. THE ASSESSEE-COMPANY IS ALSO REGISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDIA (IN SHORT STPI) WHICH IS AN AUTONOMOUS SOCIETY UNDER MINISTRY OF INFORMATION TECHNOLOGY GOVERNMENT OF INDIA ON 10.01.2001. IT HAS FULFILLED ALL THE CONDITIONS AS STIPULATED BY THE STPI. THEREFORE IN OUR OPINION THE ASSESSING OFFICER IS NOT JUSTIFIED IN DENYING EXEMPTION CLAIMED BY THE ASSESSEE FOR ALL THE THREE ASSESSMENT YEARS UND ER APPEALS. 10.2. IT IS ALSO PERTINENT TO NOTE THAT ALL THE REQ UISITE DETAILS WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS BEFORE THE LEARNE D COMMISSIONER OF INCOME TAX(APPEALS) WITH REGARD TO DEDUCTION/ EXEMPTION CLAIMED UNDER S ECTION 10A OF THE INCOME TAX ACT 1961. THE SOFTWARE DEVELOPMENT AND SALES INCOME WAS START ED ONLY AFTER JANUARY 2001 WHICH IS AFTER AMALGAMATION. THIS CANNOT BE OBSERVED FROM THE ANNU AL REPORTS FILED BY THE ASSESSEE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AS WELL AS BEFORE US. THE ASSESSEE COMPANY ALSO ADDUCED EVIDENCES OF ITS SET UP OF NEW UNIT IN FORM OF ITS REGISTRATION WITH COMMISSIONER OF INFORMATION TECHNOLOGY GOVERNMENT OF GUJARAT VIDE REGISTRATION NO. 81 DATED 24.05.2001 FOR HAVING REGISTERED AS NEW UNIT FOR I.T. SOFTWARE. TH E CENTRAL EXCISE LICENSE FOR 100% EOU WAS ALSO GRANTED BY THE CENTRAL EXCISE AUTHORITIES VIDE THEIR LETTER/ CERTIFICATE NO.V/MISC- 22/100%EOU/2000 BOND DATED 25.01.2002 WHICH SHOWED THAT NO FUNCTIONING OF EOU OR BUSINESS ACTIVITIES IN QUESTION WAS PRIOR TO AMALGA MATION. 15 ITA NOS. 2120/AHD/2007 212/AHD/2008 & 1138/AHD/2008 11. IN VIEW OF THE ABOVE WE ARE CONVINCED THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AFTER APPRECIATING THE CORRECT FACT HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT FOR ALL THE THREE ASSESSMENT YEARS UNDER APPEALS. WE THEREFORE INCLINE TO UPHOLD THE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 12. IN THE RESULT ALL THE APPEALS FILED BY THE REV ENUE IN RESPECT OF THREE ASSESSMENT YEARS ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 01.10.201 0 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 01/ 10 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIS TRAR ITAT AHMEDABAD LAHA/SR.P.S.