2016 (9) TMI 1336 - AT - Income Tax

Eligibility to deduction under section 80IA - Held that - The audit report submitted by the assessee during the assessment proceedings and not along with the return of income does not debar assessee from claiming the deduction u/s 80IA as held by Hon ble Delhi High court in CIT Vs. Centimeter Electricals Ltd. 2008 (12) TMI 4 - HIGH COURT DELHI that requirement of filing the audit report along with the return is not mandatory but directory and therefore if the audit report is filed at any time before passing of the assessment order it satisfied the requirement. Therefore on this ground deduction cannot be denied to the assessee. In view of the above facts and following the decision of the coordinate bench in assessee s own case for earlier years we set aside the issue back to the file of Assessing Officer to grant deduction to the assessee in similar manner. - Decided in favour of assessee for statistical purposes Addition of outstanding amount in subscriber deposit account - Held that - . We do not agree with the finding of the ld CIT(A) to the extent of confirmation of the addition partly merely because reconciliation in these accounts with respect to the live connections are pending. The observation of the ld CIT(A) is also not correct that assessee submitted that this amount is under reconciliation and to that extent such credits are not fully explained. Before him assessee submitted that it is under reconciliation. Further when the character of deposit is determined looking to the nature of operation geographically as well as large subscriber s base it is not correct to hold that pending reconciliation the deposit become income of the assessee. In view of this we set aside this issue back to the file of the Assessing Officer to give proper opportunity to the assessee to provide reconciliation of the same and then if the amounts are not at all identifiable with respect to the customers then to that extent addition may be restricted. However if this amount is identifiable with the subscriber and even if it is not claimed by the subscriber despite disconnection of the services assessee is under obligation to repay whenever demanded by the customer. Therefore ld Assessing Officer is directed to grant an opportunity to the assessee for reconciliation of the above deposit as held above and then decide the issue afresh. Also disallowance of interest accrued on outstanding subscriber deposit also set aside to the file of the Assessing Officer to determine amount of disallowance of interest after determining the amount of taxability of subscriber deposit.

Summary

Issues Involved:
1. Disallowance of deduction under Section 80IA of the Income Tax Act.
2. Addition of outstanding subscriber deposits as income.
3. Addition of accrued interest on outstanding subscriber deposits.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IA:
The assessee claimed a deduction under Section 80IA amounting to Rs. 480,078,205/- due to significant investments in technology and infrastructure, asserting eligibility for a 100% profit deduction. The Assessing Officer (AO) rejected this claim, citing the lack of separate books of accounts and the failure to get the accounts audited in the prescribed form within the due time. The AO also noted that the deduction was claimed on all income, not just on new exchanges established after 01.04.1995, as previously directed by the ITAT and the Hon'ble High Court of Delhi.

On appeal, the CIT(A) upheld the AO's decision, emphasizing that the appellant did not meet the criteria for eligibility under Section 80IA, particularly regarding the start date of providing telecommunication services and the requirement for maintaining separate books of accounts and furnishing audit reports. The CIT(A) further noted that the deduction should be specific to each eligible undertaking and business activity, computed as if such eligible business were the only source of income.

The ITAT, following its earlier decisions, directed the AO to attribute 75% of the income from various services to new exchanges established post-1995 and recompute the deduction accordingly. The ITAT also noted that the audit report submitted during assessment proceedings suffices, as per the Delhi High Court's ruling in CIT Vs Centimeters Electrical Pvt Ltd., which states that the requirement to file an audit report with the return is directory, not mandatory.

2. Addition of Outstanding Subscriber Deposits as Income:
The AO added Rs. 11,593,290,000/- to the assessee's income, treating outstanding subscriber deposits as unclaimed liabilities and thus taxable. The CIT(A) partially upheld this addition, confirming Rs. 1,276,983,720/- as unreconciled and deleting the rest.

The ITAT directed the AO to allow the assessee to reconcile the outstanding deposits and determine the taxability of any amounts that are not identifiable with specific subscribers. The ITAT emphasized that the deposits should not be considered income if they are identifiable and refundable upon service termination.

3. Addition of Accrued Interest on Outstanding Subscriber Deposits:
The AO added Rs. 47.99 million as contingent interest on outstanding deposits. The CIT(A) reduced this addition to Rs. 2,803,000/- corresponding to the unreconciled deposits.

The ITAT set aside this issue to the AO for redetermination, contingent on the reconciliation of the subscriber deposits, aligning the interest disallowance with the final determination of the deposit taxability.

Conclusion:
The ITAT allowed the assessee's appeal partially, directing the AO to recompute the deduction under Section 80IA based on 75% of income from new exchanges and to reassess the addition of subscriber deposits and interest after allowing for reconciliation. The revenue's appeal was dismissed, upholding the CIT(A)'s decision to delete the addition of reconciled subscriber deposits and related interest.