TMI Blog2017 (5) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... ese appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and confirmed the order of the CIT(A) modifying the order of the Assessing Officer. 2. This Court while admitting the appeal No.285/2011 on 31.03.2014 has framed the following substantial question of law: Whether the Tribunal as well as CIT(A) were justified in holding the assessee entitled for benefit u/s 10AA of the Act and thereby granting deduction of ₹ 7,38,85,415/- despite violation of mandatory conditions prescribed in section 10AA(4)(ii) of the Act. 2.1. This Court while admitting the appeal No.382/2011 on 31.03.2014 has framed the following substantial question of law: Whether the Tribunal as well as CIT(A) were justified in holding the assessee entitled for benefit u/s 10AA of the Act and thereby granting deduction of ₹ 2,32,67,650/- despite violation of mandatory conditions prescribed in section 10AA(4)(ii) of the Act. 2.2. This Court while admitting the appeal No.224/2012 on 31.03.2014 has framed the following substantial question of law: Whether the Tribunal as well as CIT(A) were justified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the Act and thereby granting deduction of ₹ 2,17,55,743/- despite violation of mandatory conditions prescribed under section 10AA(4)(ii) of the Act , which provides that the assessee should not be formed by construction of a business already in existence and the assessee was formed by reconstruction of another unit which was his proprietary concerned in the same trade of business? 3. Counsel for the appellant has taken us to the order of the Assessing Officer and contended that the Assessing Officer while concluding the issue has observed as under: Assessee had contended that just because the proprietor of M/s Green Fire is one of the partner should not be taken as reconstruction of old business as the assessee firm is a separate entity formed and carrying on business much before the AY 2007-08. The repeated concern of the assessee with respect to the assessee coming into existence is irrelevant and has already been addressed in above paragraphs. As discussed in detail in the show caused dated 16.12.2009, and at the cost of repetition, the main points are summarized once again as under:- i. The unit set up in SEZ is actually not an all the same a new and ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of M/s Green Fire Exports has not been formed out of new funds, but it merely reflects shift of money from the original business i.e. M/s Green Fire to the new one. The new undertaking must not be substantially the same old existing business. Even if a new business is carried on but by piercing the veil of the new business it is found that there is employment of the assets of the old business, the benefit will not be available. Same is the case as far as funds from unsecured loans is concerned, i.e. source of funds remains the same. iv. Further, the concept of reconstruction of business already in existence essentially rests on changes but the changes must be constructive and not destructive. There must be something positive about the whole matter as opposed to negative. The brought out by the section itself of a business already in existence . The changes that have taken place in non-SEZ unit has been anything but positive. Continuity and preservation of old unit has been completely lost. There couldn t be a clearer case of destruction of the old unit. v. Transfer of assets and the consequent reconstruction of existing business also finds reflection in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been purchased. The AO has considered transfer of capital of Smt. Kamlesh Dangayach and employees of the old concern to the new concern s shifting of assets. Smt. Kamlesh Dangayach has diverted her capital from M/s Green fire to the new unit but the amount so shifted was only ₹ 6737224/- whereas her investment in plant and machinery and land and building of new unit comes to ₹ 14626947/-. This clearly shows that substantial new capital was introduced in the new unit. Large number of employees of M/s Green Fire Exports did not shift enmass to the new unit but they left the job and joined the new unit for their better prospects from time to time. In any case the employees, though, important part of business undertakings, cannot be considered as an assets in its commercial sense. So long as the assets appearing in the balance sheet of old concern are not shofted to new unit but lying as it is, it cannot be a case of reconstruction of business. The purchasing or selling may be common but it cannot amount to reconstruction of old business. The Hon ble S.C. in the case of Textile Machinery Corp. Ltd. vs. CIT(relied upon by the AO) has held that reconstruction of business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinuation of the activities and business of the same industrial undertaking. The undertaking must continue to do same business though in some altered or varied form. In the instant case the earlier industrial undertaking was owned by Smt. Kamlesh Dangayach while the present undertaking is owned by the firm. The firm is separate entity under the income tax Act and the earlier industrial undertaking of the assessee must cease to the function. The deduction u/s 10 AA is undertaking specific. The Hon ble Allahabad High Court in the case of CIT V/s Modi Spinning and Manufacturing 125 ITR 361 had occasion to considere to the allowibility of deduction u/s 15C of I.T. Act 1922. The revenue argued that the assessee has expended the business and therefore the undertaking should be considered to have been formed as the result of reconstruction. The tribunal in this case observed that the unit was bigger then the unit which the assess has already there and there were new features in the new unit. The Hon ble Allahabad High Court observed that every new creation in business is some kind of expansion and advancement. If the undertaking is new and identitiable undertaking, separate and distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through imports from foreign countries. Purchase vouchers are available in the paperbook. We were informed that the proprietorship concern was not using the imported machinery. There is definitely advancement in the technique of making studded jewellery. Hence the unit even if relate to person having substantial interest in old unit, even then the new unit can not be considered a reconstruction of old business as new unit if independent is not to be considered as reconstruction of business. 8. We have heard counsel for both the sides. 9. Taking into consideration the conclusion reached by the Tribunal and CIT(A), we are of the opinion that the conclusion reached by the Tribunal after relying upon the decisions of Delhi High Court in the case of CIT vs. Mahaan foods Ltd. 216 CTR 148, the Madras High Court in the case of CIT vs. Premier Cotton Mills Ltd. 240 ITR 434 and the Allahabad High Court in the case of CIT vs. Quality Steel Tube Ltd. 280 ITR 254, is just and proper and no interference in the order of the Tribunal is called for. 10. In that view of the matter, the issue is answered in favour of the assessee and against the department. 11. The appeals stand dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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