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2019 (6) TMI 700

A) has rightly held that from the investment records it can be seen that all the investments mentioned in Schedule F do not yield exempt income. Thus, the CIT(A) properly held that disallowance u/s 14A r.w. Rule 8D(2)(iii) is restricted to only 5% of average investment income from which, is exempt irrespective of where the said exempt income was received during A.Y. 2011- 12 or not. There is no need to interfere with the finding of CIT(A). Ground No. 1 of the Revenue’s appeal is dismissed. Addition under clause (iii) of Rule 8D(2) - HELD THAT:- 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 [2015 (4) TMI 224 - DELHI HIGH COURT] - the amount of disallowance under clause (iii) should be restricted to 0.5% o .....

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DR ORDER PER SUCHITRA KAMBLE, JM These two appeals are filed by the assessee as well as by the Revenue against the order dated 01/03/2016 passed by CIT(A)-22, New Delhi for Assessment Year 2011-12. 2. The grounds of appeal are as under:- ITA No. 2368/DEL/2016 1. On the facts and in the circumstances of the case, the order passed by the Ld.CIT(A) is bad, both in the eyes of law and on facts. 2. (i) On the facts and in the circumstances of the case, the Ld.CIT(A) has erred, both the facts and in law, in confirming the disallowance of ₹ 2,51,04,875/- made by the A.O u/s 14A of the Act. (ii) That the Ld.CIT(A) has erred in confirming the said disallowance made as per 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 deposi .....

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schedules and the audit reports etc. A detailed case specific questionnaire dated 20.12.2013 u/s 142(1) was issued and served on the assessee. In response to the statutory notices, DGM Cash & Tax, Dy. Manager Tax from the assessee company and FCA-authorized representatives attended the assessment proceedings from time to time and furnished requisite details and explanations which was taken on record by the Assessing Officer. The Assessing Officer made disallowance under Section 14A read with Rule 8D amounting to ₹ 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, .....

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le 8D(2) has been rightly deleted by the CIT(A), and thus, the order of the CIT(A) be upheld. 7. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: 6.1. From the schedule of investments, it is noticed that the total investments of ₹ 4946.58 million INR include an investment of ₹ 2500/- million 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 .....

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the Assessing Officer at Page 5 of its order has computed the average investments by taking into account the total investments standing in the Balance Sheet of the assessee company. In this regard, it is pertinent to mention that a perusal of Schedule - O of Balance Sheet shows that the dividend income 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 al .....

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assessee s appeal on similar ground. Further, similar addition was also made by the 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 .....

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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 submitted that this amount .....

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ee 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 01.02.2016 iii) ITAT Ahmedabad in the case of Shah Alloys Ltd. v. JCIT in ITA No. 2315/Ahd/2010 dated 27.03.2015 Therefore, in view .....

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