TMI Blog2019 (6) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... in exempt dividend income, rather than 0.5% of the average of total investments. This issue is squarely covered by the judgment of Hon ble Jurisdictional High Court in the case of ACB India Ltd. v. ACIT [ 2015 (4) TMI 224 - DELHI HIGH COURT] - the amount of disallowance under clause (iii) should be restricted to 0.5% of Avg. Investments. Addition on account of interest paid on customer s deposits - HELD THAT:- Since this issue is already decided in favour of the assessee for A.Y. 2006-07 and facts in the present Assessment Year is identical as held 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 assesse. In view of this we set aside this issue back to the file of the AO 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 8D(2)(iii), despite the fact that no administrative expenses were incurred in connection with the investments made. 3. (i) On the facts and in the circumstances of the case, the Ld.CIT(A) has erred, both on facts and in law, in confirming the proportionate disallowance of interest of ₹ 5,17,566/- in respect of security deposit of ₹ 47,00,872/-. (ii) That the Ld.CIT(A) as erred, both the facts and in law, in ignoring the fact that the assessee being a Public Sector Company, the entire security deposit held by it is of the customers, and the interest thereon cannot be disallowed merely on the surmise that the security deposit is an unexplained deposit. 4. (i) On the facts and in the circumstances of the case, the Ld.CIT(A) has erred, both on facts and in law in confirming the addition of ₹ 3,36,80,000/- made by the A.O on account of prior period income. (ii) That the Ld.CIT(A) has erred in confirming the addition despite the fact that ]the said amount pertains to income or expenditure of earlier years which has been crystallized during the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 9,69,57,875/- and made addition accordingly. Besides this, the Assessing Officer also made addition of ₹ 47,00,872/- regarding interest on customer s deposit accounts, addition in regard to prior period income amounting to ₹ 3,36,80,000/-, short deduction and payment of tax amounting to 15,12,06,000/-. Thereby making total loss assessed at Rs. (1448,28,78,030/-) by the Assessing Officer. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A)partly allowed the appeal of the assessee. 5. As regards Ground No. 1 of Department s appeal, relating to addition u/s 14A read with Rule 8D amounting to ₹ 9,69,57,875/- made by the Assessing Officer, the Ld. DR submitted that the CIT(A) erred in restricting the disallowance to only 0.5% of average investment income of ₹ 1,33,74,000/- as against ₹ 9,69,57,875/-. 6. The Ld. AR submitted that during the year under consideration, assessee company has earned dividend income of ₹ 3,41,50,000/- on its investment made in LIC Mutual Funds. This fact is evident from Schedule - O in respect of Other Income mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion INR in bonds besides an investment of ₹ 1446.58 million INR in subsidiaries and an investment of ₹ 1000/- million INR in the preference shares of ITI limited. The above figures are the figures of closing balance of the investments. The opening balances of these investments are same except the investments in subsidiary companies which were ₹ 1245.77 million INR. As regards LIC Mutual fund, the opening investment was ₹ 349.6 million INR which reduced to nil at the end of the year. The Total investments (closing balance) of ₹ 4946.58 million INR constitute 3.5% of the closing balance of share capital, reserves surplus and loans totaling ₹ 1,41,021.56 million INR. In view of this factual position and also considering the fact that the assessee has interest free funds in the form of share capital and reserves surplus of ₹ 66,464.81 million INR (being the closing balance), there is no reason why the appellant s claim that the interest bearing funds have not been used for making investment should not be accepted. Therefore, the disallowance of interest under rule 14 A r.w. rule 8D (2)(ii) of ₹ 71.853 million INR is deleted. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed exempt by the assessee company has been earned by the only on the investments made by the assessee company in the mutual funds. The provisions of section 14A read with Rule 8D provide for disallowance of expenses which are incurred only in relation to the exempt income earned. It is a settled law that while computing the disallowance under Rule 8D(iii), the rate of 0.5% has to be applied to only those investments which actually have resulted in exempt dividend income, rather than 0.5% of the average of total investments. This issue is squarely covered by the judgment of Hon ble Jurisdictional High Court in the case of ACB India Ltd. v. ACIT in ITA No. 615/2014 dated 24.03.2015. Further reliance in this regard is placed on the judgment of this Hon ble Tribunal in the case of SIL Investments Ltd. v. DCIT in ITA No. 5656/Del/2013 and 6046/Del/2013 dated 05.09.2016. The Ld. AR also relied upon the following judgments:- (a) ITAT Hyderabad in the case of Transport Corporation of India Ltd. v. ACIT in ITA No. 117/Hyd/2016 dated 21.09.2016 (b) ITAT Kolkata in the case of DCIT v. The Diamond Co. Ltd. in ITA No. 326/Kol/2014 dated 24.08.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer in the case of assessee company for A.Y. 2008-09 and 2009-10, which has also been deleted by the Tribunal vide order dated 31.07.2017, wherein the findings of the Tribunal are in Para 7 therein. 14. We have heard both the parties and perused the material available on record. As regards Revenue s appeal is concerned, Tribunal while deciding assessee s appeal on similar ground has held as under: 21. Ground No. 1 to 4 of the appeal are against deletion of addition on account of subscriber deposit and interest thereon. These grounds of appeal are inter linked to the ground No. 6 and 7 of the appeal of the assessee. While deciding the ground Nos. 6 and 7 of the appeal of the assessee we have held that that there is no infirmity in the order of the Id CIT(A) with respect to subscriber s deposit held to be payable by the assessee to the subscriber on termination of services to the extent of reconciled amount and therefore, it cannot be added to the income of the assessee specially in view of the assessee furnishing substantial details and reconciliation of the amount outstanding. Further the amount of interest related to that deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned by the Id CIT(A) in para 5.2.4 to 5.2.6 in his order. On submission of this information the Id CIT(A) obtained the remand report from Assessing Officer and after obtaining rejoinder has held that the deposits held by the assessee are in the character of custodial as it has to refund it as soon as services are terminated. He further observed that the deposit outstanding is decreasing gradually and therefore held that it does not partake the character of trading liability as there is obligation to repay the same. He further held that the appellant does not enjoy complete dominion over this deposit as it does not own it. However, he confirmed the addition to the extent of ₹ 127.69 crores and deleted the addition of ₹ 1031.62 crores. The reason given by him for confirming the amount is that these could not be reconciled with the respect to the live connection as per statement in annexure 3 submitted. We do not agree with the finding of the Id 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 Id CIT(A) is also not correct that assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Schedule - S of the Balance Sheet. A perusal of the Profit and Loss account of the assessee company shows that the company has neither taken the prior-period income in its taxable profit, nor has considered the prior period expenses, i.e. the prior period adjustments have been made by the assessee company on below the line profit. The Assessing Officer has made the impugned addition of ₹ 3,36,80,000/- to the returned income of the assessee alleging that the same was to be added to the income of the assessee. The Assessing Officer, however, has not allowed the assessee the prior period expenses. The Ld. AR submitted that it is a settled law that the disallowance of prior period expense has to be computed by netting off the prior period income against the prior period expenditure. The Ld. AR relied upon the judgment of Hon ble Jurisdictional High Court in the case of CIT v. Exxon Mobil Lubricants P. Ltd. [2010] 328 ITR 17. Further, the Ld. AR also relied upon the following judgments: i) ITAT Delhi in the case of MTNL v. DCIT in ITA No. 3404/Del/2013 ii) ITAT Mumbai in the case of Mazagaon Dock Ltd. v. ITO in ITA No. 5034/Mum/2011 dated 01.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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