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TMI Blog2016 (9) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... e had shown 'share application money pending allotment' as on 31.3.2010 to the extent of Rs. 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, balance sheet of the shareholders and confirmation of share application money of the shareholders." The ld AO observed at para 8.2 of his order that the assessee had replied as follows:- "8.2. The details of share application money filed by the assessee during the course of assessment proceeding on 12.10.2012 is as under: Sl. No. Name & Address of the party Cheque No. Date Amount (Rs.) Total Amount (Rs.) 1 Tulsiyan & Sons Pvt. Ltd. 1/1 Camac Street, Kolkata-700 016 863711 863734 863735 863736 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, the ld CITA observed that the assessee had disclosed the sum of Rs. 12.05 crores as 'share application money pending allotment' in its balance sheet and correspondingly had shown under 'Cash and Bank Balances' as 'Cheques on Hand' for Rs. 12.05 crores being the cheques received from the share applicants pending encashment. 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 established the creditworthiness of the share applicants. The ld CITA duly appreciated the fact that the assessee had duly complied with all the statutory formalities by filing Form No.2 evidencing the allotment of shares with Registrar of Companies, among others and the funds had actually flown into the kitty of the assessee in the next financial year (i.e FY 2010-11) and therea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that the ld AO had not doubted the identity of the share applicants and the genuineness of the entire transactions. The only ground on which the addition u/s 68 of the Act was made is that according to ld AO, the share applicants did not possess sufficient cash and bank balances on the date of issuing the cheques towards share application money on 31.3.2010 and those cheques were ultimately cleared only in the month of May 2010 out of monies available in the bank due to sale of shares of certain companies. 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 havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2011-12 during the scrutiny assessment proceedings of the assessee, wherein the entire funds had actually flown from the share 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 conscious conclusion that the three ingredients of section 68 of the Act viz., identity of the parties, genuineness of transactions and creditworthiness of the parties , were duly satisfied by the assessee, the ld AO chose not to make any addition towards the same in the scrutiny assessment proceedings completed in the hands of the assessee u/s 143(3) on 5.3.2014 for the Asst Year 2011-12. On a specific query from the bench with regard to initiation of any revision proceedings u/s 263 of the Act for the Asst Year 2011-12, the ld AR stated that no such proceeding was initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in (1991) 187 ITR 308 (SC) wherein in the context of provisions of section 80G of the Act, the Hon'ble Apex Court had held that the expression 'any sums paid' contemplates payment of an amount of money. One of the dictionary meanings of the expression 'sum' means any indefinite amount of money. Accordingly it held that in order to claim deduction u/s 80G of the Act, there must be a clear payment of money and hence the said deduction is not applicable for donations in kind. We find in the instant 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 of the Act cannot be invoked. We also find lot of force in the argument of the ld AR that if the argument of the ld AO is to be accepted that the book entry passed in the books of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 25,36,401/- and Rule 8D(2)(iii) in the sum of Rs. 2,98,500/-. 4.2. Before the ld CITA , the assessee objected to the non-recording of primary satisfaction by the ld AO in terms of section 14A(2) of the Act and Rule 8D(1) of the Rules by stating that the claim made by the assessee that no expenditure was incurred by the assessee is incorrect having regard to the accounts of the assessee. It was argued that it was only when the ld AO records an objective satisfaction as to why the claim of the assessee is incorrect only then he could proceed to apply Rule 8D. The ld CITA observed that the ld AO had given a categorical finding in the scrutiny assessment 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 Rs. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Delhi Tribunal in the case of Cheminvest Ltd vs ITO supra had been reversed by the decision of the Hon'ble Delhi High Court in the same case and hence the ratio laid down by the special bench is not applicable as on date. We hold that the investment made by the assessee in its 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 imputed in the computation of book profits u/s 115JB of the Act in the facts and circumstances of the case. 5.1. We have heard the rival submissions. We find lot of force in the argument of the Learned AR that computation of disallowance under Rule 8D can be used only for computation of income under normal provisions of the Act and not for book profits u/s 115JB of the Act. Unless an item is debited in the profit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also placed on record. The ld AO however ignoring the submissions and statements placed on record, mechanically computed disallowance of Rs. 44,29,172/- of the Income-tax Act, 1961 without assigning any cogent reasons whatsoever. 6.2. The ld CITA in his order at para 5.3 observed as under:- "I have gone through the submissions of the appellant and the findings of the AO in the assessment order. On careful scrutiny of details placed on record, I find that the appellant has four fully operational Units namely, Barjora I & 11, Durgapur, Meghalaya & Phase IV. The appellant was in the process of commissioning of new ferro ingot plant under the name, Ferro Division 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 Rs. 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of funds used for meeting the cost of Capital W/I/P in respect of 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 Capital W/I/P, the AO was not justified in allocating additional interest cost of Rs. 44,29,172/- towards Capital W/I/P and thereby disallowing the same in AY 2010-11 simply on some theoretical presumptions. The AO is accordingly directed to delete the interest disallowance of Rs. 44,29,172/-. These Grounds of appeal are accordingly allowed." 6.3. Aggrieved, the revenue had preferred an appeal before us on the following ground:- "v) That on the facts and circumstances of the case, Ld. CIT (A) erred in deleting the addition of Rs. 44.29 lacs made u/s. 36( l)(iii) of the I. T. Act, 1961 without appreciating the fact that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Audit Report for the year ended 31st March 2010. The assessee submitted that the provision of Rs. 13.02 lacs brought forward had been already disallowed in the earlier years under Section 43B and, therefore, the disallowance of the outstanding balance as on 31.03.2010 of Rs. 5.66 lacs was unjustified and tantamount to double disallowance. 7.2. The ld CITA vide para 7.2 of his order has observed as under:- "I find force in the submissions of the appellant and note that the provision of Rs. 5,64,847/- formed part of the opening provision of Rs. 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 Rs. 5.66 lacs and the remaining provision of Rs. 5,64,847/- was carried forward to the subsequent year. I note that the AO mistook the outstanding provision of Rs. 5,64,847/- as provision created during the 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 therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent decision of the Hon'ble Calcutta High Court in the case of Akzo Nobel India Ltd vs CIT in ITA NO. 110 of 2011 dated 14.6.2016 on the impugned issue.
8.4. We have heard the rival submissions and perused the materials available on record. We find that the issue is squarely covered in favour of the assessee by the following decisions:-
Akzo Nobel India Ltd vs CIT in ITA NO. 110 of 2011 dated 14.6.2016 (Cal HC)
CIT vs Vijay Shree Limited in ITA No. 245 of 2011 dated 6.9.2011 (Cal HC)
CIT vs P.M.Electronics Ltd reported in (2008) 220 CTR 635 (Del)
CIT vs Sabari Enterprises reported in (2008) 298 ITR 141 (Kar)
CIT vs Alom Extrusions Ltd reported in (2009) 319 ITR 306 (SC)
CIT vs Nexus Computer P Ltd reported in (2008) 219 CTR 54 (Mad)
CIT vs Vinay Cement Ltd reported in (2007) 213 CTR 268 (SC)
CIT vs AIMIL Ltd reported in 2010-TIOL-125-HC-DEL-IT
CIT vs Dharmendra Sharma reported in 297 ITR 320 (Del)
Respectfully following the aforesaid judicial precedents, we dismiss the ground no. 7 raised by the revenue.
9. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 10.08.2016. X X X X Extracts X X X X X X X X Extracts X X X X
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