- (1.) This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short "the Act") against the order dated 31.5.2010 passed by the Income Tax Appellate Tribunal, Chandigarh, Bench "A" (hereinafter referred to as "the Tribunal") in ITA No. 1136/CHD/2009, relating to the assessment year 2006-07, claiming the following substantial question of law:- Whether on the facts and circumstances of the case, the Ld. ITAT was right in law in confirming the order of the CIT(A) who had deleted the addition made by the Assessing Officer on account of disallowance of the deduction claimed by the assessee firm u/s 80-IC, as the assessee firm has taken over the on going proprietary concern and as per Section 80-IA (12), the deduction is available only when an Indian Company is taken over by another Indian Company in a scheme of amalgamation or demerger? Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee is a partnership firm having two partners, namely, Karanjit Singh Bajwa as confirming partner and Inder Raj Singh Grewal as the incoming partner with 50% share each. It was also agreed upon between the parties that the name and style of the partnership would continue to be Mega Packages. The auditors in the audit report in Form No. 3CD had reported that the proprietorship concern of Karanjit Singh Bajwa was converted into a partnership firm w.e.f. 1.4.2005. The assessee firm during the year under consideration claimed deduction under Section 80-IC of the Act. The computation of the deduction under Section 80-IC was annexed in Annexure A to the Tax Audit Report in Form Nos. 3CB and 3CD attached with the return. The Assessing Officer held that in the assessment years 2004-05 and 2005-06, the return of income of Mega Packages was filed as a proprietary concern of Karanjit Singh Bajwa. The date of commencement of the activity was 22.11.2003 and the initial assessment year from which deduction under Section 80-IC of the Act was claimed was assessment year 2004-05. The Assessing Officer issued a show cause notice to the assessee to explain as to why the deduction under Section 80-IC should be allowed when the partnership firm had been formed during the year whereas earlier deduction was claimed as a proprietary concern by invoking the provisions of Section 80-IA(12), and without prejudice to the provisions of Section 80-IA(12) also under Section 80-IC(4)(i) of the Act. The assessee submitted its reply pleading that it was a proprietorship and during the relevant previous year, the same was converted from proprietorship to partnership firm. The Assessing Officer vide order dated 29.12.2008 held that a new person came into existence this year and invoking the provisions of Sections 80-IC(7) and 80-A(12) of the Act disallowed the deduction of Rs. 23,68,113/- on the ground that such benefit was admissible for the remaining period in case of companies only. The benefit of Section 80-IC of the Act was also denied on the basis of provisions of Section 80-IC(4)(i) of the Act. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short "the CIT(A)"]. The CIT(A) vide order dated 25.9.2009 allowed the claim of the assessee under Section 80-IC of the Act on both the grounds. Against the order of the CIT(A), the department filed an appeal before the Tribunal. The Tribunal vide order dated 31.5.2010 upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal by the revenue.
(2.) We have heard learned counsel for the revenue.
(3.) Learned counsel for the revenue raised two fold submission in support of the appeal. According to the learned counsel, the provisions of Section 80-IA(12) of the Act were applicable in view of Section 80IC(7) of the Act. Under Section 80-IA(12) of the Act, the assessee is entitled to benefit of deduction under Section 80IC of the Act for the remaining unexpired period where there is amalgamation or demerger of an Indian Company. Therefore, this benefit could not be extended in cases where proprietorship concern was converted into partnership concern. Elaborating further, learned counsel urged that under Section 80-IC(4)(i) of the Act, any undertaking which is not formed by splitting up or by reconstruction of a business already in existence alone can derive benefit thereunder.;