TMI Blog2018 (9) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... er the assessee’s claim for grant of TDS credit after due verification as per provisions of law. Therefore, we are of the opinion that the directions of the CIT(A) are acceptable and we uphold the same and dismiss this ground of appeal of the assessee. Addition on account of penalty paid to Department of Telecommunication(DoT) - Held that:- As decided in in the case of Vodafone Essar Digilink Ltd.[2018 (6) TMI 1029 - ITAT DELHI] gone through the relevant provisions of the Indian Telegraphs Act, 1885 and find that anomalies and irregularities in CIF and CAF are not covered under any of the specific provisions of the Indian Telegraphs Act. Rather, such penalties were imposed for noncompliance with the contractual obligations under the Licence agreement. As the payment by the assessee is not for an offence, nor is it prohibited by law, the same being failure to comply with the contractual obligations, cannot fall within the domain of Explanation 1 to section 37(1) of the Act. Similar issue came up for consideration before the Kolkata Bench of the Tribunal in the case of Vodafone East Ltd. [2015 (9) TMI 1358 - ITAT KOLKATA] Disallowance of proportionate interest debited to P &L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned AO in the impugned assessment order), the learned ClT(A)/AO has erred in not holding that deduction for the above amount should be allowed in the subsequent year. 2 Ground No. 2 - Non-grant of credit in respect of Tax Deducted at Source ('TDS') and advance tax paid. 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not issuing a specific direction to the learned AO to allow TDS and advance tax credit of INR 15,70,35,470 and 1NR 36,83,800, respectively claimed by the Appellant, instead he has directed the learned AO to conduct a verification to allow such credit. The Appellant has filed an appeal effect application before the learned AO requesting him to verify and grant TDS and advance tax credits pursuant to the directions of the learned CIT(A) and the aforesaid ground shall not be pressed where the claim is allowed by the learned AO. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal. 3. Brief facts of the case are that the assessee is engaged in providing Cellular Mobile Telephony services in Orissa, Assam, Nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Long Term Incentive Plan (LTIP) payments and submitted that the CIT(A) has erred in confirming the disallowance of payments made to employees under the LTIP scheme by holding that provision created purely on an estimate basis which is not allowable under the Act. Ld. AR in the course of hearing proceedings further submitted that provision which was created w.e.f. 01.07.2007 and based on the management estimate and the company has provided ₹ 44.3 million towards this plan as on 31st March, 2010 and the incentives paid by the assessee company in the month of July, 2010 being ₹ 51,661,497/- more than the provision made in the assessment year 2010-2011. Ld. AR submitted copy of the ledger account evidence and the details of provisions and payment to employees and prayed for allowing the appeal of the assessee. 7. Contra, ld. DR objected to the submissions that these facts were never brought to the knowledge of the AO in the course of assessment proceedings and now the assessee for the first time filed before the Tribunal the copy of ledger account including bank statements and also reversal of payments made in July, 2010 along with employees details which were not furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing grounds of appeal :- 1 On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of ₹ 46,00,025/- made by the AO on account of penalty paid to Department of Telecommunication(DoT). 2 On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of ₹ 15,07,01,823/- made by the AO on account of interest debited to the P L Account on a proportionate basis. 3 On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in not accepting the examination of findings made by the AO on the issues. 4. The appellant craves to alter, amend or add any other ground that may be considered necessary in course of the appeal proceeding. 12. Ld. DR on the ground No.1 argued that the CIT(A) has erred in deleting the addition made by the AO, where the assessee has paid penalty to the Department of Telecommunications. Ld. DR further emphasised that this penalty cannot be claimed as deductable expense and prayed for allowing the appeal. 13. On the other hand, ld. AR relied on the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and hence, should be regarded as an expenditure laid out wholly and exclusively for the purpose of business of the assessee. We find lot of force in the arguments of the Learned AR that merely the fact that penalty has been paid as a result of breach of a contract with the Government or any of its department should not change the character of such payments from contractual liability to a statutory liability. The penalty is not stipulated under any of the statutory Acts and accordingly the same cannot be construed as a statutory liability. At best it could only be construed as a contractual liability. 10.6. We find that the penalty paid to DOT is only for noncompliance of terms and conditions of the license agreement and not paid for infraction of any other law so as to warrant the Explanation to section 37(1) of the Act.' I also find that the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Syndicate Bank relied on by the AO to make the disallowance is not at all applicable to the case of the assessee. In that case, penalty was levied u/s.24 of Banking Regulation Act, 1949 which is a statute/law passed by the Parliament of India, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the domain of Explanation 1 to section 37(1) of the Act. Similar issue came up for consideration before the Kolkata Bench of the Tribunal in the case of Vodafone East Ltd. (supra). The Tribunal has held in para 10.5 of its order that the amount paid under similar circumstances cannot be disallowed under Explanation 1 to section 37(1) of the Act. No contrary decision has been brought to our notice by the ld. DR. Respectfully following the precedent, we hold that the addition of ₹ 63.83 lac has been wrongly made and the same is directed to be deleted. 16. Ld.DR could not bring any new cogent material facts to controvert the findings of the CIT(A) and we find the issue is squarely covered in favour of the assessee as per the above judicial decisions. Accordingly, we follow the judicial precedence and uphold the findings of the CIT(A) and dismiss this ground of appeal of Revenue. 17. In regard to ground No.2, ld. DR submitted that the CIT(A) is not justified in deleting the addition of ₹ 15,07,01,823/- made by the AO in the respect of interest debited to the profit and loss account on a proportionate basis. Ld.DR relied on the order of AO at page 3 in para 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epaid expenses of ₹ 125,00,00,000/-. The reason given by him, as it appears from the assessment order though not expressed in so many words, is that, had the assessee shown promptness in recovering the trade receivables and not incurred prepaid expenses, it would have taken less loan and would have incurred less interest of ₹ 15,07,01,823/-. The very basis of I disallowance is misplaced and questionable. It is not that the AO has found any diversion of borrowed funds for which proportionate interest can be valid disallowed. It is also not the case of the AO that either the loan was not genuine or that the interest expenditure was not actually incurred. In my opinion, the AO cannot legally disallow proportionate interest calculated on the trade receivables and prepaid expenses for the reasons mentioned in the assessment order. Accordingly, the disallowance of ₹ 15,07,01,823/- which appears to have been made entirely on misconception of the AO and according to his whims and caprices cannot be sustained in the eye of law. Hence, the disallowance of Rs,15,07,01,823/- is deleted. 19. Ld. DR submitted that the above observations of the CIT(A) cannot be accepted a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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