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2016 (9) TMI 916 - ITAT KOLKATA

2016 (9) TMI 916 - ITAT KOLKATA - TMI - Addition u/s 68 - Held that:- 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 a .....

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rrowed funds. Hence we find that the ld CITA had rightly deleted the disallowance made by invoking Rule 8D(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 de .....

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count 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 ORDER Per Shri M. Balaganesh, AM: This appeal by revenue is arising out of order of CIT(A)-I, Kolkata vide Appeal No. 321/CIT(A)/C-3/12-13 dated 01.05.2013. Assessment was framed by Addl.CIT, Range-3, Kolkata .....

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II , Barjoria IV (Heavy Rolling Mill) at Meghalaya, and at Durgapur. The ld AO observed that the assessee had shown share application money pending allotment as on 31.3.2010 to the extent of ₹ 12.05 crores. The ld AO called for the following details from the assessee in this regard :- Details of share application money and details and documents relating to fresh share capital received during the year, along with copy of acknowledgement of filing return of income, profit & loss account, .....

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3736 863738 863739 863742 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 31.03.2010 20000000 10000000 10000000 14000000 10000000 5000000 15000000 8,40,00,000 2 White Stone Consultants Pvt. Ltd. 1/1, Camac Street, Kolkata-700 016 860918 860919 860921 860922 31.03.2010 31.03.2010 31.03.2010 31.03.2010 6000000 7500000 13000000 10000000 3,65,00,000 12,05,00,000 The assessee furnished the following details of the share applicants viz Tulsiyan & Sons Pvt Ltd and White Stone Cons .....

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ails 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 Ad .....

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certain investments held by them in May 2010 and accordingly concluded that the share applicants did not creditworthiness on the date of issuance of cheque to the assessee. He held that even though the identity of the share applicants and genuineness of the transactions were proved by the assessee, the creditworthiness of the share applicants were not proved by the assessee in view of the fact that the source for honouring the cheque issued to assessee was obtained by them only in the month of .....

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hment. He observed that investment was made by both the share applicant companies out of their existing own funds. The immediate source of funds for making payments of application money was realization made from sale of their existing investments. The explanation offered by the applicants about immediate source of making payments has neither been disputed by the AO not by their respective jurisdictional Assessing Officers. He concluded that the documents and facts placed on record therefore esta .....

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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 .....

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g others vide pages 1 to 270 of the Paper Book. We find that the ld AO wanted the assessee to furnish the complete details of the share applicants along with their names, addresses, PAN, bank statements, income tax assessment particulars, balance sheet, income tax return acknowledgements, source of source of share application money received and it is not disputed by the ld AO that all these details were duly filed by the assessee before him. Certain details were also obtained directly by the ld .....

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ective share applicants pursuant to the verification of these transactions. 3.1. It is pertinent to note that the two share applicants were already holding shares in the assessee company and the details of shares held by them as on 31.3.2009 are as below:- Tulsyan & Sons Pvt Ltd 1894000 Shares Whitestone Consultants Pvt Ltd 1527000 Shares The existence of these shareholding in the assessee company by the respective share applicants was not disputed by the ld AO. 3.2. It is not in dispute tha .....

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mpanies. Hence the ld AO concluded that the creditworthiness of the share applicants was not proved by the assessee in the instant case. In this regard, we find that the creditworthiness of the share applicants to honour the cheques given by them towards share application money should be viewed only on the date of encashment in May 2010 and not on the date of issuance of the cheques on 31.3.2010 . Even otherwise, it is not that the share applicants were not having any assets in their Balance She .....

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isputed, 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 unde .....

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espective share applicants with some connivance to improve the debt equity ratios. Even this connivance could be possible only with the group concerns and could not be carried out with strangers. In any case, there is no loss of revenue to the income tax department on these transactions and we fail to understand as to how the same is of any relevance to justify the addition u/s 68 of the Act. The ld CITA had observed that the ld AO alleged that the share application money was received to inflate .....

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are applicants to the assessee. These details are available in pages 98 to 209 in the case of M/s Tulsyan & Sons Pvt Ltd and in pages 210 to 255 in the case of M/s White Stone Consultants Pvt Ltd which contains the queries raised by the ld AO and the various replies given by the share applicants together with all the supporting evidences including the sources for making investments in the assessee company. After duly appreciating those evidences by examining the sources and on arriving at a .....

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for the Asst 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 .....

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hares 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 decision was rendered in the context of validity of revision proceedings initiated u/s 263 of the Act and hence the said decision is not relevant for the facts of the instant case. In any event, if at all, there is any allegation that the shares sold by the share applicants are mere paper compa .....

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ions of section 68 of the Act at all could be invoked in the year under appeal. He argued that section 68 of the Act uses the expression where any sum is found credited in the books of an assessee………… . In the instant case, the assessee had not received any physical sum during the year under appeal and had admittedly received only in the next financial year. He placed reliance on the decision of the Hon ble Supreme Court in the case of H.H.Sri Rama Verma vs CIT report .....

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case, the assessee on one hand had credited the share application money pending allotment and on the other hand had shown cheques on hand in the asset side of the balance sheet. This goes to prove that the assessee had not received the sum of money towards share application money in the year under appeal and hence the provisions of section 68 of the Act cannot be made applicable in the year under appeal. It is well settled that merely on an entry passed in the books, the provisions of section 68 .....

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plication 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 .....

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out by the ld AO and no adverse inferences were drawn by him. Accordingly, the ground nos. 1 & 2 raised by the revenue are dismissed. 4. The next ground to be decided in this appeal is as to whether the disallowance u/s 14A of the Act could be made in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee held only single investment in its wholly owned subsidiary M/s Parth Ispat India Pvt Ltd for ₹ 597 lacs which was acquired by the assessee in .....

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(Cal) and the decision of Special Bench of Delhi Tribunal in the case of Cheminvest Ltd vs ITO reported in (2009) 121 ITD 318 (Del) (SB) held that even if no dividend income was derived , disallowance u/s 14A of the Act could be made by invoking Rule 8D. The ld AO accordingly made disallowance by invoking Rule 8D(2)(ii) in the sum of ₹ 25,36,401/- and Rule 8D(2)(iii) in the sum of ₹ 2,98,500/-. 4.2. Before the ld CITA , the assessee objected to the non-recording of primary satisfact .....

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essment proceedings u/s 143(3) of the Act for the Asst Year 2009-10 that the investments in M/s Parth Ispat India Pvt Ltd to the tune of ₹ 597 lacs was made out of own funds of the assessee and not out of borrowed 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 20 .....

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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 submissions made before the ld CITA and further argued that the investment made in subsidiary company .....

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Year 2009-10 dated 9.5.2011 (enclosed in pages 260 to 263 of the Paper Book) that the investments in M/s Parth Ispat India Pvt Ltd to the tune of ₹ 597 lacs were made out of own funds of the assessee and not out of borrowed funds of the assessee. We find that the decision of the Hon ble Calcutta High Court in the case of Dhanuka & Sons relied upon by the ld AO is actually in favour of the assessee in the instant case as the assessee had duly proved that the investments in the earlier y .....

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wholly owned subsidiary company should be construed only as strategic investments and hence no disallowance u/s 14A of the Act should be made on the same. However, we find that the assessee had not preferred any appeal before us for the disallowance sustained by the ld CITA under Rule 8D(2)(iii) of the Rules. Accordingly, the Ground No. 3 raised by the revenue is dismissed. 5. The next ground to be decided in this appeal is as to whether the disallowance made u/s 14A of the Act could also be imp .....

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der 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 o .....

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1) J.K.Paper Ltd (ITA Nos. 979 (Ahd) of 2006 & 4027 & 4080 (Ahd.) of 2008) National Commodity Derivatives Exchange Ltd (ITA No. 2923 (Mum) of 2010 dated 26.8.2011) Quippo Telecom Infrastructure Ltd (ITA No. 4931 (Delhi) of 2010 dated 18.2.2011) Respectfully following the same, we dismiss the ground no. 4 raised by the revenue . 6. The next ground to be decided in this appeal is as to whether the disallowance of interest u/s 36(1)(iii) of the Act could be made in the sum of ₹ 44.29 .....

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ecord. The interest of ₹ 10,35,472/- paid on loans obtained for new Ferro Division under construction was capitalized to the cost of Work-in-Progress. It was submitted that such interest cost was not claimed as deduction from the profits of the business. Complete details of interest capitalized to Ferro Division were also placed on record. The ld AO however ignoring the submissions and statements placed on record, mechanically computed disallowance of ₹ 44,29,172/- of the Income-tax .....

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ion at Barjora. Before the AO I note that the assessee had filed unit-wise breakup of the loans obtained by each of the five units from various financial institutions / banks and which were exclusively utilized by the said Units. The assessee also submitted separate statement showing calculation of the interest paid on the loans obtained for the Ferro Division which to ₹ 10,35,742/-. Similar statements showing the interest costs incurred the other four operating Units were also placed on r .....

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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 qual .....

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the assessee had obtained in connection with funding of each of the Four operating units as well as the Unit which was in the process of being set-up. The loans which were specifically obtained in connection with four operating units were taken and utilized by the assessee even prior to date on which the Ferro Unit was being setup. In the impugned order the AO has not pointed out any infirmity or falsity in the assessee's working of interest paid on loans taken and which were utilized by di .....

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Ferro Unit and interest paid on the loans utilized in meeting the cost of Capital W/I/P was capitalized in the books. The AO did not bring on material any specific material which in any manner proved that in addition to the borrowed funds identified by the assessee any additional borrowed funds were utilized in meeting cost of Capital W/I/P. In absence of any material brought on record by the AO which conclusively established that borrowed funds were additionally invested to meet cost of Capita .....

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red 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 u .....

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ext ground to be decided in this appeal is as to whether the ld CITA is justified in deleting the disallowance of ₹ 5.65 lacs made u/s 43B of the Act in the facts and circumstances of the case. 7.1. The ld AO observed that as per clause 21B(b) of the Tax Audit Report , an amount of ₹ 5,65,847/- was stated as Leave not paid, which was not added back in the computation of income by the assessee and accordingly the same was added by the ld AO. The assessee explained that the provision o .....

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did not arise. The assessee had also filed detailed submission before the ld AO explaining the treatment meted out to provision for leave encashment in its letter dated 07.01.2013. The assessee submitted that the provision brought forward from the earlier years totaled to ₹ 13.02 lacs and out of the said provision ₹ 5.66 lacs was paid and the remaining balance of ₹ 5.66 lacs was carried forward to the next year. He also found that the factual position is evident from Schedule .....

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n the submissions of the appellant and note that the provision of ₹ 5,64,847/- formed part of the opening provision of ₹ 13.02 lacs brought forward from earlier years and was never debited to the Profit & Loss Account for the year ended 31.03.2010. In the year under consideration the appellant paid ₹ 5.66 lacs and the remaining provision of ₹ 5,64,847/- was carried forward to the subsequent year. I note that the AO mistook the outstanding provision of ₹ 5,64,847 .....

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d 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 .....

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ismissed. 8. The last ground to be decided in this appeal is as to whether the addition u/s 2(24(x) r.w.s. 36(1)(va) of the Act could be made in the sum of ₹ 1,49,497/- in the facts and circumstances of the case. 8.1. The ld AO made disallowance of delayed deposit of employees contribution to PF amounting to ₹ 1,49,497/- based on the disclosure made in the Tax Audit Report. The ld CITA by placing reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs .....

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