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2016 (9) TMI 916 - AT - Income TaxAddition 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 applicants were treated by the ld AO as ingenuine or the applicants were non-creditworthy. We do not deem it fit and appropriate to get into any case laws on the impugned subject as the facts are staring on us wherein the extensive verifications were duly carried out by the ld AO and no adverse inferences were drawn by him. Disallowance u/s 14A - Held that - The instant case as the assessee had duly proved that the investments in the earlier year were made out of own funds and not out of borrowed 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 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.
Issues Involved:
1. Addition under Section 68 of the Income Tax Act. 2. Disallowance under Section 14A of the Income Tax Act. 3. Disallowance under Section 14A in computation of book profits under Section 115JB. 4. Disallowance of interest under Section 36(1)(iii). 5. Disallowance under Section 43B. 6. Addition under Section 2(24)(x) read with Section 36(1)(va). Detailed Analysis: 1. Addition under Section 68 of the Income Tax Act: The primary issue was whether the addition of ?12.05 crores under Section 68 was justified. The assessee, a public limited company, had shown 'share application money pending allotment' from two entities. The Assessing Officer (AO) questioned the creditworthiness of these entities, despite their identity and genuineness being established. The CIT(A) observed that the share application money was duly reflected in the balance sheets, and the funds were sourced from the sale of investments. The CIT(A) concluded that the creditworthiness was established, and the addition was deleted. The Tribunal upheld this decision, noting that the AO had not received any adverse comments from the assessing officers of the share applicants and that the transactions were genuine. 2. Disallowance under Section 14A of the Income Tax Act: The AO made a disallowance under Section 14A by invoking Rule 8D, despite the assessee claiming no expenditure was incurred for investments. The CIT(A) observed that the investments were made from the assessee's own funds and not borrowed funds, and deleted the disallowance under Rule 8D(2)(ii). The Tribunal upheld this, noting that the AO in the previous assessment year had accepted that the investments were made from own funds. The Tribunal also noted that strategic investments in a wholly-owned subsidiary should not attract disallowance under Section 14A. 3. Disallowance under Section 14A in computation of book profits under Section 115JB: The AO included the disallowance under Section 14A in the computation of book profits under Section 115JB. The Tribunal disagreed, stating that unless an item is debited in the profit and loss account, it cannot be added to book profits under clause (f) of Explanation to Section 115JB. The Tribunal relied on multiple judicial precedents to support this view and dismissed the revenue's ground. 4. Disallowance of interest under Section 36(1)(iii): The AO disallowed ?44.29 lacs of interest, assuming it was used for capital work in progress. The CIT(A) found that the interest related to loans for operational units, not the new Ferro Division under construction, and the assessee had correctly capitalized interest for the Ferro Division. The Tribunal upheld the CIT(A)'s decision, noting no infirmity in the unit-wise accounts and the proper allocation of interest costs. 5. Disallowance under Section 43B: The AO disallowed ?5.65 lacs related to leave encashment, assuming it was a current year provision. The CIT(A) found it was a brought-forward provision from previous years, already disallowed under Section 43B, and not claimed in the current year. The Tribunal upheld the CIT(A)'s decision, noting the AO's mistake in treating it as a current year provision. 6. Addition under Section 2(24)(x) read with Section 36(1)(va): The AO disallowed ?1,49,497 for delayed deposit of employees' PF contributions. The CIT(A) deleted the disallowance, relying on the jurisdictional High Court's decision that contributions paid before the due date for filing the return are deductible. The Tribunal upheld this, citing multiple judicial precedents supporting the CIT(A)'s view. Conclusion: The Tribunal dismissed the revenue's appeal on all grounds, upholding the CIT(A)'s decisions on each issue. The Tribunal's detailed analysis emphasized the importance of proper verification, adherence to judicial precedents, and the correct application of legal provisions.
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