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TMI Blog2016 (6) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee debited the account of the VCIL for the services rendered for ₹ 1,14,24898.42 as evidenced from the ledger placed on page 32 of the Paper book. These bills were raised with the service tax to VCIL by the assessee and VCIL has deducted the TDS from the bills. Accordingly the debit balance appearing in the ledger of the VCIL in the books of the assessee cannot be regarded as money advanced out of the borrowed fund. From the facts we also find that the debit balance was not there in the accounts of VCIL throughout the year. As per the submission of the assessee there was own interest free fund for ₹ 1,53,56,168.00 and the ld. DR failed to bring anything contrary to the findings of the ld. CIT(A) in deleting the addition - Decided in favour of assessee - ITA No. 1639/Kol /2012 - - - Dated:- 11-5-2016 - Shri Waseem Ahmed, Accountant Member And Shri S. S. Viswanethra Ravi, Judicial Member For the Appellant : Shri Snehotpal Dutta, JCIT, DR For the Respondent : Shri Subash Agarwal, Advocate Ms Varsha Jalan, Advocate ORDER Per Waseem Ahmed, Accountant Member This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing should not be formed by splitting up or reconstruction of a business which is already in existence. Accordingly the AO sought the clarification from the assessee who submitted that the nature of business of the assessee and VCIL is akin but their business is totally distinct from each other as detailed under: 1. The place of business for both companies is different. 2. The assessee company has its own Plant Machinery, staff etc. amounting to ₹ 2,88,46,000/- 3. The Board of Directors of both the companies are different. 4. The assessee company has its own separate STP license. However the AO was not satisfied with the explanation given by the assessee and disallowed the exemption availed by the assessee u/s 10A of the Act. 3. Aggrieved assessee preferred an appeal before CIT(A) where it was submitted by the AR that merely transfer of some employees from old unit to new unit does not results into reconstruction of the company. As there is no condition for personnel employment laid down u/s 10A of the Act for claiming the exemption. Further the Ld. AR reiterated the facts that the assessee a separate from VCIL in terms of entity, Board of Directors and pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been transferred to AxsysTecnologies Pvt. Ltd. and financial statements show the turnover of VCIL in all the following assessment years and he relied on the order of Ld. CIT(A). 4.1 We have heard the rival contentions of both the parties and perused the material available on records. The issue before us is that whether the Axsys Technologies Pvt. Ltd has been formed by reconstruction or not. This is because some employees were transferred from VCIL to the assessee along with some liability which was shared by the assessee company together. The AO accordingly treated that the assessee company was reconstructed after splitting the VCIL. However in many cases the courts have held the transfer of employees and sharing the liability of one company does not amount to reconstruction. Here we are reproducing the citation of some case laws dealing with similar issues as under:- i) Textile Machinery Corp. Ltd. Vs. CIT (1977)107 ITR 173 (SC) it was held that new undertaking may manufacture the same articles as manufactured by the existing unit. So contention of DR that both the companies having same nature of business and so the assessee company has been formed by reconstruction does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free loan amounting to ₹ 1,73,00,808/- to VCIL. Whereas the total own fund of the assessee was ₹ 2,40,48,038/- which was invested in the fixed assets of the company. As such there was no surplus fund available to the assessee out of its owned fund. As per the return filed, the assessee has bought asset worth ₹ 2,88,46,000/-. Assessee was also having loan fund. During the year under consideration AO observed that the loan fund was used for giving interest free loan to VCIL. Since this loan amount was not utilized for the business of the assessee the AO disallowed a sum of ₹ 17,30,808/- as interest expense u/s 36(1)(iii) by taking interest rate @ 10% per annum of ₹ 1,73,00,808.00. The calculation for the loan given to VCIL as per AO was made as under: Opening Balance (Cr) 1,04,81,769.00 Amount received during the year 1,74,38,446.00 Total Amount 2,79,20,215.00 Amount repaid (4,45,21,023.00) Balance amount outstanding at year end (1,73,00,808.00) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IL. During the year the there were lot debits in the accounts of VCIL on account of several expenses which were incurred by the assessee on its behalf. The assessee also received lot of payments from VCIL during the year. At the end of the year there was debit balance of VCIL in the books of the assessee for ₹ 58,85,910.310 as per the ledger placed on page 31 of the PB. The fund of the assessee was sufficient enough to cover the money advanced to VCIL. So the money advanced to VCIL was not out of the borrowed fund. Besides the above the assessee debited the account of the VCIL for the services rendered for ₹ 1,14,24898.42 as evidenced from the ledger placed on page 32 of the Paper book. These bills were raised with the service tax to VCIL by the assessee and VCIL has deducted the TDS from the bills. Accordingly the debit balance appearing in the ledger of the VCIL in the books of the assessee cannot be regarded as money advanced out of the borrowed fund. From the facts we also find that the debit balance was not there in the accounts of VCIL throughout the year. As per the submission of the assessee there was own interest free fund for ₹ 1,53,56,168.00 and the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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