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2016 (6) TMI 425 - ITAT KOLKATA

2016 (6) TMI 425 - ITAT KOLKATA - TMI - Disallowance of exemption u/s 10A on account of income from Export of software and It enabled services - whether the Axsys Technologies Pvt. Ltd has been formed by reconstruction or not? - employees transferred from VCIL to the assessee along with some liability which was shared by the assessee company together - Held that:- Even though employees were transferred from VCIL to assessee were sharing some common liabilities and the shareholders of both the co .....

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as 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 .....

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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)-I, Kolkata dated 09.08.2012. Assessment was framed by ITO Ward-1(1), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 28.1 .....

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ng of ₹ 74,16,576/- u/s 10A of the Act. Facts in brief are that assessee in the present case is a Private Limited Company and incorporated on 03.08.2007. The assessee is engaged in the business of sale & export of software as well as IT enabled services and trading of hardware and computer accessories. The assessee-company is a registered unit under the Software Technology Park under the Scheme of Government of India and certificate of STP registration was issued on 05.12.2007 and star .....

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el has been transferred from VCIL to the assessee. Further, the assessee company has been incorporated on 03/08/2007 and in its first year of return it has debited its profit and loss account with the payment of gratuity and leave encashment paid to the employees. The payment of these expenses is not possible in the first year of commencement of business. So it was a clear cut case of shifting of business from VCIL to the assessee to avail the benefit of exemption under section 10A of the Act. 2 .....

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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) whe .....

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d the addition by observing as under:- After careful consideration of the assessment order and the written submission filed by the assessee, it is noticed that the Assessing Officer disallowed the claim of assessee company amounting to ₹ 74,16,576/- u/s 10A of the Act, since the appellant company was formed by splitting up or by reconstruction of business already in existence in the name Vision Comptech Integrators Ltd. (VCIL) and some software personnel were shifted from VCIL to assessee .....

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f software and IT enabled services in the year were ₹ 11.56 crores and it claimed deduction u/s 10A as per Audit Report in Form No.56. Assessing Officer did not dispute with the fact that no Plant & Machinery was transferred to the assessee company from VCIL and the physical place of business and the Board of Directors in the two companies are different. These two companies were completely separate and distinct. There is no restriction on sec 10A(2)(ii) regarding use of human resources .....

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L are same. The Ld. DR vehemently relied on the order of AO. On the contrary, Ld.AR has submitted before us the financial statements of VCIL for the assessment years 2009-10, 2010-11 and 2011-12 to contradict the allegation of the AO that major part of business of VCIL has 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 .....

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e 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 not hold good. ii) CIT Vs.Modi Spi .....

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ing existing infrastructure-Tribunal has found that the assessee has set up a new project for manufacturing 4 inch diameter black pipe which is different from 2 inch diameter pipe which was already being manufactured by it-Merely because some of the manufacturing facilities are common, it does not mean that the new project is set up by reconstruction or splitting up of the existing business-Deduction under ss. 80HH and 80J admissible in respect of the new project-Textile Machinery Corporation Lt .....

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on record. We are relying on the above judgments of Hon'ble Supreme Court and Hon'ble Allahabad High Court and accordingly conclude that even though employees were transferred from VCIL to assessee were sharing some common liabilities and the shareholders of both the companies are same, it cannot be taken as a ground for denying the benefit u/s 10A of the Act by holding the assessee as reconstruction company. The assessee i.e. Asxys Tecnologies Pvt. Ltd. is a separate legal entity which .....

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sted 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 .....

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erred an appeal before CIT(A) where Ld.CIT(A) has deleted the addition made by AO as under: Assessing officer made addition of ₹ 17,30,808/- u/s 36(1)(iii) of the I.T Act for interest free loan given to VCIL for an amount of ₹ 1,73,00,808/- as on 31.03.2009. Assessee had produced the copy of ledger a/c before Assessing Officer and transactions have been taken note of as per 3CD Tax Audit Report. As on 1st April, 2008 there was opening credit balance of ₹ 1,04,81,769/- and durin .....

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ee had sufficient interest free funds including share capital and reserve & surpluses to cover for loan and advance of ₹ 58,75,910/-. As per schedule 20 of the Profit & Loss a/c, assessee had debited interest of ₹ 33,32,790/- on account of export packing credit and interest on term loan. As per schedule 13 assessee had received interest of ₹ 5,91,434/-. Keeping in view these facts and circumstances, addition of ₹ 17,30,808/- made by Assessing Officer is deleted. B .....

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