TMI Blog2017 (5) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd [1988 (12) TMI 52 - CALCUTTA High Court] held that all the receipts of retention and security deposit are contingent and happening of future event. The retention and security deposit deducted by various parties cannot be said to have been accrued to the assessee during the year under consideration in which year the bills are raised.- Decided against revenue Addition on account of interest earned on fixed deposits - AO added the same by treating as income from other sources - Held that:- The assessee filed necessary evidences that the assessee has earned interest from UCO Bank, Indian Overseas Bank and SBI Bank. The assessee got refund from ICICI Bank on account of excess amount paid, details of which are available at pages 80 to 86 of the paper book. It is also observed that the assessee has made fixed deposits for obtaining bank guarantee towards earnest money in terms of contract and rebate received from the ICICI Bank towards excess EMI paid by the assessee. We find that the assessee being a contractor and in order to secure the contract work bank guarantee is required for smooth functioning of his contract business. Therefore, the interest as earned and refund by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same for making investment and in turn earned such exempt income. The AO proceeded to propose disallowance u/s. 14A r.w.r 8D of the IT Rules and assessee was asked by the AO why the expenses incurred and claimed towards exempt income should not be disallowed u/s. 14 r.w.r 8D. The assessee vide his letter dt. 11-11-2011 and 25-11-2011 stated that out of his own funds made investments and urged not to disallow any expenditure. The AO, however, computed the disallowance of expenditure under Rule 8D(i), (ii) and (iii) of the IT Rules as ₹ 9,55,719/- and added the same to the total income of the assessee. 5. Aggrieved, the assessee preferred an appeal before the CIT-A. The CIT-A after considering the balance sheet as on 31-03-2009 deleted the said disallowance by observing that the assessee had enough funds in his hand to support the investments. Relevant portion of which is reproduced herein below:- The appellant has submitted before me that the interest paid by the appellant's proprietorship concern has no relation with the investments made by, the appellant. Investments have been made by the appellant in his individual Balance Sheet wherein no interest has been pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceeding to show that the assessee has sufficient funds to make the investment. The AO without considering the same arbitrarily made the disallowance under Rule 8D(ii) of the IT Rules and urged to dismiss the ground raised by the revenue. 8. Heard rival submissions and perused the material available on record. We find that the investment made by the assessee in his individual capacity and the same has been reflected in the balance sheet, which has been rightly observed by the CIT-A. It is also noticed that the CIT-A found that the assessee claimed no expenses towards earning of dividend income. We find that the disallowance cannot go beyond the exempt income earned. Accordingly, the order of the CIT-A is justified and needs no interference. Accordingly, the ground no.1 raised by the revenue is dismissed. 9. Ground no.2 is relating to disallowance of ₹ 1,61,75,533/-made on account of retention of money and security deposit. 10. During the course of scrutiny proceedings the AO found that the assessee claimed deduction on account of retention of money and security deposits. Under notice, the AO required the assessee to explain how the amount of security deposit is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional High Court in the case of CIT vs. Simplex Concrete Piles (India) Pvt. Ltd. reported in 179 ITR 008 which is directly on the said issue. In the said decision, the Hon'ble High Court at 'Calcutta held that security deposit deducted by the various authorities cannot be said to have accrued to an assessee during the year in which the bills are raised since the receipt of the security deposit is contingent upon happening of a future event. The said case law directly applies in the case of the appellant. The facts of the appellant clearly show that the security, deposit deducted by the various parties are also receivable in subsequent years by the appellant' on satisfactory completion of the project or on other various terms and conditions to be fulfilled by the appellant. Therefore, in view of the Calcutta High Court's decision, it is clear that no income on account of security deposit of ₹ 1,61,75,533/- has accrued to the appellant during the present assessment year. In view of the same, I delete the addition of ₹ 1,61,75,533/- made by the A.O. 12. The ld.DR submits that the assessee did not claim the deduction in the earlier years and as such a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar the bills are raised. 15. Respectfully following the above, we find no infirmity in the impugned order of the CIT-A and it is justified. We uphold the same. Ground no. 2 of revenue s appeal is dismissed. 16. Ground no. 3 is relating to an addition of ₹ 14,57,425/- made on account of interest earned on fixed deposits. The AO added the same by treating as income from other sources. 17. The AO found that the assessee earned an amount of ₹ 14,57,425/- as interest income and the same has been set off against the interest expenditure and disclosed net interest expenditure in the account. In explanation, the assessee submitted that an amount of ₹ 1,60,174/- received as rebate on loan from ICICI Bank. An amount of ₹ 12,96,711/- received on account of Fixed Deposits made for the purpose of bank guarantee towards award of contract and security deposit for the contracts. The AO opined that the assessee is not in the business of earning of interest and therefore, treating the same as income from other sources added to the total income of the assessee. 18. The CIT-A in the first appellate proceeding found that the interest income received by the assessee h ..... 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