By TIOL News Service

MUMBAI, APRIL 23, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether transfer of a going concern with mere change of ownership cannot be construed as 'reconstruction' of business and hence, will not disturb continued benefit u/s 10A. YES IS THE VERDICT.

Facts of the case:

The assessee company filed its return for the relevant A.Y claiming deduction u/s 10A. During the course of assessment, the AO denied such claim on the ground that the undertaking was formed by the transfer to a new business of machinery & plant previously used for any purpose. On appeal, the CIT(A) gave a finding of fact that the transfer of the undertaking was as a going concern at its book value and same business which was already in existence continued even after change of ownership from Private Limited Company to Partnership Firm.

The matter ultimately reached Tribunal, wherein it was noted that that the AO had denied the exemption on the ground that undertaking had been formed by transfer of 'undertaking' from M/s Cream Jewellery Pvt Ltd to the assessee firm, vide, 'Deed of Transfer', and therefore, a new undertaking with new business had come into existence and therefore, assessee was not eligible for claim of deduction u/s 10A. However, as per the FAA, there was continuation of same business activities with some undertaking. The Tribunal therefore, allowed deduction u/s 10A.

High Court held:

++ from the record, it is seen that the Revenue's objection emerges from the fact that the unit in question was transferred as going concern, entire business was transferred to the new owner who claimed continued benefit u/s 10A. This issue is squarely covered by the decision of Division Bench of this Court in the case of CIT Vs. Sonata Software Ltd - 2012-TIOL-205-HC-MUM-IT, wherein it was held that sale of business was not a reconstruction within the meaning of Section 10A. No question of law therefore arises for consideration.

(See 2019-TIOL-880-HC-MUM-IT)