TMI Blog2016 (9) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(ii) of the Rules. MAT computation - Whether the disallowance made u/s 14A of the Act could also be imputed in the computation of book profits u/s 115JB? - Held that:- Unless an item is debited in the profit and loss account, the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. Section 115JB of the Act is a deeming provision and its provisions are to be strictly construed. The scope of clause (f) cannot be enlarged to bring within its ambit the provisions of section 14A(2) and 14A(3) of the Act thereby also encompassing the provisions of Rule 8D by which disallowance is made on subjective application of a mathematical formula contained in the Rule. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB of the Act. - I.T.A No. 2253/Kol/2013 - - - Dated:- 10-8-2016 - Shri M. Balaganesh, AM and Shri K. Narasimha Chary, JM For the Appellant: Shri Niraj Kumar, CIT, DR For the Respondent: Shri D. S. Damle, FCA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 The assessee furnished the following details of the share applicants viz Tulsiyan Sons Pvt Ltd and White Stone Consultants Pvt Ltd :- Name and their address PAN Income tax assessment particulars Balance Sheet as on 31.3.2010 Bank Statements of share applicants Return of income of share applicants Source for making investments in the assessee company The ld AO forwarded the aforesaid details to the AO of the share applicants for cross verification from their records and for necessary action. The ld AO also obtained the information from the share applicants by issuing notices u/s 133(6) of the Act. All the details called for by the ld AO u/s 133(6) were filed by the respective share applicants vide their letter dated 4.1.2013 submitted before the ld AO on 7.1.2013. The ld AO also observed from the balance sheet of the respective share applicants that their principal activity is Investment which is duly reflected in the Balance Sheet in Part IV of Schedule VI of Companies Act, 1956. It was also observed that in the said balance sheet, the amounts paid to assessee were duly reflected under Loans and Advances Share Application Paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicants. Based on due appreciation of evidences filed on record, the ld CITA deleted the addition made u/s 68 of the Act. Aggrieved, the revenue is in appeal before us on the following grounds:- (i) That on the facts and circumstances of the case, Ld. CIT (A) erred in deleting the addition of ₹ 12.05 crores made u/s. 68 of the I. T. Act, 1961 without appreciating the fact that the creditworthiness of the share applicants was not proved. (ii) That on the facts and circumstances of the case, Ld. CIT (A) erred in deleting the addition of ₹ 12.05 crores made u/s. 68 of the I. T. Act, 1961 without appreciating the fact that as on 31-03-2010 the share applicants did not have the money to subscribe the shares of assessee company and thus the transactions were mere paper transaction and creditworthiness of the parties did not exist. 3. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee annexing the various documents relied upon by the ld AO in his assessment order , among others vide pages 1 to 270 of the Paper Book. We find that the ld AO wanted the assessee to furnish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise, it is not that the share applicants were not having any assets in their Balance Sheet so as to say that they are not creditworthy. They had sufficient investments in their balance sheet which were liquidated in May 2010 and monies realized thereon were utilized for honouring the cheques given on 31.3.2010. The ld CITA observed that the Net worth of Tulsyan Sons Pvt Ltd as on 31.3.2010 was ₹ 29.81 crores and that of M/s White Stone Consultants Pvt Ltd as on 31.3.2010 was Rs, 11.33 crores. Since the assessee and the share applicants are group companies which is not disputed, it cannot be ruled out that the share applicants had requested the assessee not to deposit the share application money cheques on 31.3.2010. The ld DR vehemently argued that the registered office of the share applicants was located at the same place where the assessee s registered office was situated and they were having common directors and hence the corporate veil had to be lifted. We find that the transactions carried out by the assessee could at best be construed as a bona fide understanding between the parties in Asst Year 2010-11 probably to strengthen the respective balance sheets withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2011-12, the ld AR stated that no such proceeding was initiated on the assessee. This fact was also not disputed by the ld DR before us. It is not in dispute that these share applicants were already holding certain shares in the assessee company and no adverse inferences were drawn in respect of their transactions with the assessee by the ld AO in the scrutiny assessment proceedings of the earlier years in the hands of the assessee as could be evident from the assessment order u/s 143(3) dated 9.5.2011 framed for the Asst Year 2009- 10 (pages 260 to 263 of the paper book). 3.3. It is not the case of the ld AO that though the cheques for share application monies were given by the share applicants to the assessee on 31.3.2010 and the same were encashed out of undisclosed sources of the assessee routed through these share applicants. It is not in dispute that those cheques were encashed only in May 2010 out of sale proceeds of certain shares. The ld DR argued that the shares sold by the share applicants were merely paper companies and relied on the decision of this tribunal in the group of cases in ITA No. 1702/Kol/2013 for AY 2008-09 dated 30.10.2015. We find that this decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be accepted that the book entry passed in the books of the assessee is bogus and sham, then also the provisions of section 68 of the Act could not be invoked. We also find that the ld AO had not brought any cogent material on record to prove that the transactions were bogus and sham. The ld AO had duly controverted his own statement by saying on one hand that the share application was mere a book entry but on the other hand admits that the share application cheques were actually encashed by the assessee in the subsequent financial year. 3.5. We find that the various decisions relied upon by the ld AO are not at all applicable to the facts of the instant case in as much as the entire details of the share applicants were duly produced by the assessee and were also confirmed by them before the ld AO in response to notices issued u/s 133(6) of the Act and extensive verification of those details were also carried out by the ld AO during the course of scrutiny assessment proceedings completed for Asst Year 2011-12. We find that none of the documentary evidences filed by the assessee or by the share applicants were treated by the ld AO as ingenuine or the applicants were non-creditwort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and accordingly deleted the disallowance made u/s 14A of the Act under Rule 8D(2)(ii) of the Rules in the sum of ₹ 25,36,401/-. In respect of disallowance by invoking Rule 8D(2)(iii) of the Rules, the ld CITA observed that similar disallowance was made in Asst Year 2009-10 which were not contested by the assessee and since the very same investment is continued by the assessee during the year under appeal also, the disallowance by invoking Rule 8D(2)(iii) in the sum of ₹ 2,98,500/- was upheld. No appeal was preferred by the assessee before us against this confirmation of disallowance. However, the revenue had preferred an appeal before us against the relief granted by the ld CITA on the following ground:- iii) That on the facts and circumstances of the case, Ld. CIT (A) erred in deleting the addition of ₹ 25.36 lacs made u/s. 14A r.w. rule 8D without appreciating the fact that the assessee failed to discharge the burden of proof that no amount of interest bearing funds were utilized for making the investments fetching exempt income. 4.3. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR reiterated the submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal provisions of the Act and not for book profits u/s 115JB of the Act. Unless an item is debited in the profit and loss account, the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. Section 115JB of the Act is a deeming provision and its provisions are to be strictly construed. The scope of clause (f) cannot be enlarged to bring within its ambit the provisions of section 14A(2) and 14A(3) of the Act thereby also encompassing the provisions of Rule 8D by which disallowance is made on subjective application of a mathematical formula contained in the Rule. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB of the Act. We place reliance on the following decisions in support of our proposition:- Cadila Healthcare Ltd vs Addl CIT (2012) 21 taxmann.com 483 (URO) (Ahd- Trib) Reliance Industrial Infrastructure Ltd (ITA Nos. 69 70 (Mum) of 2009 dated 5.4.2013) Essar Teleholdings Ltd (ITA No. 3850 (Mum) of 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 10,35,742/-. Similar statements showing the interest costs incurred the other four operating Units were also placed on record. The fact that all the units were independent of each other has not been disputed by the AO. No falsity or infirmity has been pointed out by the AO in the Unit-wise accounts and statements furnished by the appellant. The appellant submitted that the respective finance, accounts, production, sales etc are maintained and managed at the respective units and the Head Office at Kolkata acts as a controlling and overseeing authority. The loans obtained by the Ferro Division were solely utilized to meet its cost of construction and the balance amount was funded out of internal accruals of the company. It was therefore contended that the source of funds for Capital Work- in-progress was fully explained. The ld CITA also observed that the assessee in compliance with Accounting Standard 16 Borrowing Costs issued by the Institute of Chartered Accountants of India which provides that the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case, Ld. CIT (A) erred in deleting the addition of ₹ 44.29 lacs made u/s. 36( l)(iii) of the I. T. Act, 1961 without appreciating the fact that assessee company apparently failed to adduce material on records to prove that no loan funds were deployed for meeting the cost of capital work in progress. 6.4. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR reiterated the submissions made before the lower authorities and vehemently relied on the order of the ld CITA and took us to the relevant pages of the paper book containing the details of loans borrowed for various projects. 6.5. We have heard the rival submissions and perused the materials available on record including the paper book filed in this regard. From the categorical findings given by the ld CITA in his order which had not been controverted by the revenue before us, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the ground no. 5 raised by the revenue is dismissed. 7. The next ground to be decided in this appeal is as to whether the ld CITA is justified in deleting the disallowance of ₹ 5.65 lacs mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year which had remained outstanding and accordingly disallowed the same under Section 43B of the Incometax Act, 1961. The fact, however, was that such provision was brought forward from earlier year and was not claimed as deduction in AY 2010-11. I therefore hold that the addition of R 5,65,847/- made by the AO was unjustified as it resulted in double disallowance because the brought forward provision was already disallowed in the earlier years. On the facts and circumstances, I therefore direct the AO to delete the disallowance of ₹ 5,64,847/- . This ground of appeal is accordingly allowed. 7.3. Aggrieved, the revenue had preferred an appeal before us on the following ground:- vi) that on the facts and circumstances of the case, Ld. CIT(A) erred in deleting the addition of ₹ 5.65 lacs made u/s. 43B of the I. T. act, 1961 in respect of provision for leave encashment without remanding the matter to the A.O. for verification. 7.4. The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA. 7.5. We have heard the rival submissions and perused the materials available on record including ..... X X X X Extracts X X X X X X X X Extracts X X X X
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