D.C.I.T CIR - 3,KOLATA, KOLKATA vs. M/S SURYA ALLOYS INDUSTRIES LTD., KOLKATA

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 u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2010-11 vide his order dated 22.01.2013.

2.1. The brief facts of this issue is that the assessee is a public limited company engaged in manufacturing of railway track material, re-rollable products and steel ingots. The assessee has 4 units at Barjoria I & 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 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:

Surya Alloys Industries Ltd., AY 2010-11 Sl. No. Name & Address of the Cheque Date Amount (Rs.) Total Amount party No. (Rs.) 1 Tulsiyan & Sons Pvt. Ltd. 863711 31.03.2010 20000000 1/1 Camac Street, 863734 31.03.2010 10000000 Kolkata-700 016 863735 31.03.2010 10000000 863736 31.03.2010 14000000 863738 31.03.2010 10000000 863739 31.03.2010 5000000 863742 31.03.2010 15000000 8,40,00,000 2 31.03.2010 6000000 White Stone Consultants 860918 31.03.2010 7500000 Pvt. Ltd. 1/1, Camac 860919 Street, Kolkata-700 016 860921 31.03.2010 13000000 31.03.2010 10000000 3,65,00,000 860922 12,05,00,000 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’ with their respective amounts. The ld AO observed that the respective share applicants were group concerns of the assessee as reflected in their Notes on Accounts attached to the Balance Sheet under the head ‘Related Party Disclosure’. The ld AO observed that the respective share applicants had given the cheque to the assessee on 31.3.2010 towards share application money , but the source for the same has been obtained by the share applicants out of sale proceeds of certain investments held by them in May 2010 and accordingly

Surya Alloys Industries Ltd., AY 2010-11 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 May 2010. Accordingly he invoked the provisions of section 68 of the Act and brought the share application money of Rs. 12.05 crores as income of the assessee.

2.2. On appeal, 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 thereafter the shares were allotted to the share 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 Rs. 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 Rs. 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.”

Surya Alloys Industries Ltd., AY 2010-11 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 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 AO by issuing notices u/s 133(6) of the Act which were also duly complied with by the share applicants. This fact is also mentioned by the ld AO in his order. Infact the details filed by the assessee and / or obtained by the ld AO u/s 133(6) of the Act were forwarded to the assessing officers of the respective share applicants by the ld AO for cross verification and necessary action in their hands. Admittedly, no adverse comments were received by the ld AO from the assessing officers of the respective 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 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 having any assets in their Balance Sheet so as to say that they are not Surya Alloys Industries Ltd., AY 2010-11 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 Rs. 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 without actual flow of funds. But that does not mean that the entire understanding / arrangement is a sham warranting to lift the corporate veil. There is nothing to lift the veil in order to identify any real beneficiary who is behind the scene. We find that the entire arrangement has been done only for the limited purpose of window dressing the balance sheets of the assessee as well as the respective 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 capital base so as to reduce interest burden. The ld CITA had observed that this act would only result in higher reportable profits by reduced interest costs and it cannot be construed as a tax avoidance arrangement. We find from the paper book that the ld AO had made extensive verification of the share applicants in the immediately succeeding assessment year i.e Asst Year 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

Surya Alloys Industries Ltd., AY 2010-11 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 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 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 companies, then it is for the assessing officer of the share applicants to carry out necessary enquires in their hands to verify the veracity of the realization of share proceeds. The assessee in the instant case had duly explained the source of source. Nothing better could be expected from the side of the assessee and we hold that the assessee had duly discharged its entire onus on the subject mentioned transactions.

3.4. We find that the ld AR raised a preliminary objection as to whether the provisions 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 Surya Alloys Industries Ltd., AY 2010-11 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 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 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-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

Surya Alloys Industries Ltd., AY 2010-11 verifications were duly carried 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.

4.1. 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 Rs. 597 lacs which was acquired by the assessee in Financial year 2008-09. No dividend was earned from the said investment during the relevant year under appeal. The ld AO sought to make disallowance u/s 14A of the Act by invoking Rule 8D. The assessee claimed that no expenditure was incurred by the assessee towards making investments and the investments were made only out of own funds of the assessee. The ld AO by applying the decision of the Hon’ble Calcutta High Court in the case of Dhanuka & Sons vs CIT reported in (2011) 201 Taxman 105 (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 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)(ii) of the Rules in the sum of Rs. 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

Surya Alloys Industries Ltd., AY 2010-11 by invoking Rule 8D(2)(iii) in the sum of Rs. 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 Rs. 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 should be considered as strategic investments and in any case no disallowance u/s 14A of the Act at all should be invoked in the facts and circumstances of the case.

4.4. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated herein for the sake of brevity. We find 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 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 Rs. 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 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. We find that the decision of Special Bench of 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.

Surya Alloys Industries Ltd., AY 2010-11 Accordingly, the Ground No. 3 raised by the revenue is dismissed.

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 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 dated 29.7.2011) 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 .

Surya Alloys Industries Ltd., AY 2010-11 6.1. During the year under consideration the assessee had incurred interest expenditure of Rs.11,05,27,000/-. The said interest pertains to the loan funds obtained from various banks/financial institutions for the purposes of the business. The statement giving division wise break-up of the loans obtained from various financial institutions / banks vis-a-vis the loans reflected in the Balance Sheet as on 31.03.2010 were placed on ld AO's record. The interest of Rs.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 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 break- up 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 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 asset, had duly capitalized the interest cost of these loans which were specifically obtained and utilised for the Ferro Unit and added to its cost of the project. Accordingly he concluded that the assessee had rightly allocated interest amounting to Rs. 10,35,742/- to the Ferro Unit by not charging the same to profit and loss account.

Surya Alloys Industries Ltd., AY 2010-11 Before the AO as well as before me the A/R of the assessee furnished the details of loans which 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 different operational Units of the appellant. Each of the Unit maintained its separate books of accounts in which the interest allocated amongst these Units was accounted for. The AO has not pointed out any inaccuracy or infirmity in the Unit- wise accounts maintained by the assessee or the allocation of interest cost as made by the assessee inter-se amongst the Units. On the contrary the assessee had identified the specific sources 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 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.

Surya Alloys Industries Ltd., AY 2010-11 7.1. The ld AO observed that as per clause 21B(b) of the Tax Audit Report , an amount of Rs. 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 of Rs.5,64,847/-, inter alia, formed part of the outstanding provisions brought forward from the immediate preceding financial year. It was explained that the aforesaid amount was simply brought forward from the earlier year and carried forward to the next year. The sum of Rs.5,64,847/- in question was debited to the Profit & Loss Account for FY 2009-10 nor claimed as deduction from the profits of the business. Accordingly the question of disallowance under Section 43B in AY 2010-11 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 Rs.13.02 lacs and out of the said provision Rs.5.66 lacs was paid and the remaining balance of Rs.5.66 lacs was carried forward to the next year. He also found that the factual position is evident from Schedule 14B to the Balance Sheet for the FY 2009-10 and Clause 21 of the 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 Income- tax 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 Rs.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 Rs.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.”

Surya Alloys Industries Ltd., AY 2010-11 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 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. 6 raised by the revenue is dismissed.

8.1. The ld AO made disallowance of delayed deposit of employees contribution to PF amounting to Rs. 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 Vijay Shree Limited in of 2011 dated 6.9.2011 and also by verification found that the employees contribution to PF were remitted within the due date for filing the return of income by the assessee and hence the assessee is eligible for deduction u/s 36(1)(va) of the Act.

8.2. Aggrieved, the revenue had preferred an appeal before us on the following ground:- “vii) that on the facts and circumstances of the case, Ld. CIT(A) erred in deleting disallowance of Rs.1,49,497/- u/s. 2(24)(x) r.w.s. 36(1)(va).”

8.3. 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. The ld AR also placed on record a recent decision of the Hon’ble Calcutta High Court in the case of Akzo Nobel India Ltd vs CIT in 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 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)

Surya Alloys Industries Ltd., AY 2010-11 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.

Order pronounced in the open court on 10.08.2016.