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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This is an appeal filed by the assessee Mahanagar Telephone Nigam Ltd against the order passed by the Commissioner of income tax (A) – 22, New Delhi (the learned CIT – A) dated 17 April 2017 for assessment year 2012 – 13. By this order the learned CIT – A partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the income tax act (the act) on 3/3/2015 determining the total income of the assessee at a loss of ₹ 26,797,483,181/– against the loss is per return of income filed by the assessee of ₹ 26,470,268,833/–.
As the assessee is aggrieved by the above order of the learned CIT – A has raised the following grounds of appeal in Assessment Year 2012-13:- “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [(CIT(A)] is bad both in the eye of law and on facts.
2. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred, both on Page | 1 facts and in law, in confirming the proportionate disallowance of interest in respect of security deposit of Rs.41,11,348/-.
3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred, both on 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 security deposit is an unexplained deposit. 4. (i) On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred, both on facts and in law, in confirming the disallowance u/s 14A, to the extent of Rs. 1,79,15,000/- under Rule 8D(2)(iii). (ii) That the disallowance has been confirmed rejecting the contention of the assessee that in view of no administrative expenses having been incurred in relation to except income no disallowance is called for. 5. (i) On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred, both on facts and in law, in confirming the disallowance to the extent of Rs.70,02,000/- made by A.O. invoking the provision of section 40(a)(ia) of the Act. (ii) That the disallowance has been confirmed deposit the fact that provision of section- 40(a)(ia) are applicable only for non deduction of tax and not for short deduction.
6. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) [CIT(A)] has erred, both on facts and in law, in directing the AO to verify payment of TDS in respect of amount of Rs.12,80,400/-.”
Facts of the case are that assessee is engaged in the business of providing basic telephone and mobile services in the city of Delhi and Mumbai. It is a government of India public sector undertaking and major player in the country in Telephone services. It has also hostel of other services like Internet service provider services, integrated service digital network services, multimedia services, paging services and other value added services and to carry on the business of telephone, telegraph cable and wireless company. It is also engaged in providing telecommunication services like Internet; eat entering, cyber cover services and sale of Internet service provider tax et cetera.
It filed its return of income on 28/9/2012 declaring total loss of ₹ 26,470,268,833/–. Notice u/s 143 (2) of the act was issued on 8/8/2013. The learned assessing officer made an addition of ₹ 4,111,348/– being Page | 2 interest on customers deposit account, short deduction and payment of tax on account of expenditure the disallowance resulted of ₹ 1,8,00,29,000/– and further disallowance u/s 14 A was made of ₹ 143,074,000. Thus in assessment order was passed on 3 March 2015 u/s 143 (3) of the act determining the total loss of the assessee at ₹ 26,797,483,181.
The assessee preferred an appeal before the learned CIT – A confirmed the proportionate disallowance of interest in respect of security deposit of ₹ 4,111,348/–. He also confirmed the disallowance u/s 14 A to the extent of Rs. 117,15,000/– on the rule 8D (2) (iii) of the act. Out of the total disallowance of ₹ 180,029,000 u/s 40 (a) (ia) on account of shorter deduction and payment of taxes he confirmed the disallowance to the expense of ₹ 7,002,000/–. Accordingly, he passed an order on 17 April 2017 by which the assessee is aggrieved and has preferred this appeal.
The first ground of appeal
challenging that the order of the CIT – A is bad both in the eye of law and on facts was not agitated before us and therefore it is dismissed.
7. The ground number 2 relates to the confirmation of proportionate disallowance of interest in respect of security deposit of ₹ 4,111,348/–. For the assessment year 2006 – 07 the amount outstanding Under the head customers deposit were held to be not payable by the assessee and were entirely taxed in that year. The interest on such deposit was also taxed in the hence of the assessee. Therefore the AO asked that why an amount of interest of 4.11 million should not be taxed in the hence of the assessee under the head customers deposit which was taxed as in the hence of the assessee for assessment year 2006 –
07. The assessee submitted that in the earlier years the CIT – A has given a relief in proportion of the security deposits. The assessee submitted that the order of the learned CIT – A4 earlier years has been challenged before the ITAT and it is pending for the decision. On the merits, it was stated that interest on customer deposit is the interest on the balance of security deposit subject to the telephone connection installed and as per the different policies of the deposits. The liability of interest arises at various Page | 3 stages and the same has to be accounted for as per the accounting field principles. Thus, it is in respect of a liability, which is definite, and hence the same is entitled for deduction as an expenditure u/s 37 of the act. The learned AO considered the explanation of the assessee and held that the deposit amount has been held as not payable in the assessment order for assessment year 2006 – 07 as in that year the world amount of deposit was held to be the owner fund of the assessee and added to the total income of the assessee. Hence, any interest that accrues on the said amount is assessee’s own income and liable to taxed in his hands. He further held that as the learned CIT – A in the assessment year 2006 – 07 has deleted the entire amount so added except to the extent of ₹ 1,276,983,720/– which also is disputed by it before the ITAT and revenue has also filed an appeal before the tribunal. Even otherwise the learned AO held that even if the deposit is held to be customers deposit and not of the assessee is fund the income there from would still be liable to be taxed in the hence of the assessee. Thus he made an addition of ₹ 4,111,348/–. The learned CIT – A As per ground number 2 decided this issue following his own order for assessment year 2011 – 12 and he reduced the addition 211.01% of ₹ 4,111,348/–.
The learned authorized representative submitted that identical issue has been decided by the coordinate bench in case of the assessee for assessment year 2008 – 09, 2009 – 10 by order dated 31st of July 2017 wherein the coordinate bench wide paragraph number 7.1 has set aside this issue the file of the learned assessing officer.
The learned departmental representative also submitted that this issue is already been decided in assessment year 2006 – 07 in assessee’s own case and therefore the issue needs to be decided on that basis.
We have carefully considered the rival contentions and find that this issue has been considered by the coordinate bench in assessee’s own case for assessment year 2008 – 09 and 2009 – 10 wherein in Para number seven the coordinate bench followed its own decision in the case of the assessee for assessment year 2006 – 07 and set aside the issue back to the file of the assessing officer with a direction to decide the issue afresh in the light Page | 4 of the direction of tribunal and in accordance with the law. We also decided this ground accordingly and set aside the issue to the file of AO with the same direction the ground number 2 and 3 raised by the assessee is accordingly allowed.
Ground number 4 is with respect to confirmation of the disallowance u/s 14 A to the extent of Rs 179,15,000 under rule 8D (2) (iii) of the act the assessee contest this ground that disallowance has been confirmed rejecting the contention of the assessee that in view of low administrative expenses having been incurred in relation to the exempt income no disallowance is called for. During the year, assessee has received nil dividend income. The AO invoke the provisions of rule 8D and computed the disallowance of ₹ 143,074,000/–. On appeal before the learned CIT – A following the order of the predecessor for assessment year 11 – 12 dated 1/3/2016 he deleted the other disallowances but retain the addition/disallowance to the extent of 0.5% of the average investment in terms of rule 8D (2) (iii) of the act.
The learned authorized representative submitted that as assessee has not received any exempt income during the year there cannot be any disallowance. The learned departmental representative supported the order of the learned CIT – A.
We have carefully considered the rival contentions and perused the orders of the lower authorities. It has been categorically mentioned by the learned assessing officer that there is no exempt income and by the assessee during the year. In absence of any exempt income the disallowance u/s 14 A of the act cannot be made as has been held by the honorable Delhi High Court income in Cheminvest Ltd versus Commissioner of income tax 378 ITR 33. Therefore, we direct the learned assessing officer to delete the disallowance of Rs 1 79,15,000 u/s 14A of the act. Accordingly, ground number 4 of the appeal is allowed.
Ground number 5 is with respect to confirmation of the disallowance of ₹ 7,002,000 by the learned CIT – A invoking the provisions of Section 40 (a) (ia) of the act. The learned assessing officer during the course of assessment proceedings found from the verification of the individual Page | 5 transaction statement for the assessment year 2012 – 13 that there was a shorter deduction and payment of tax deduction at source amounting to ₹ 4,994,060/–. The assessee explained that tax deduction at source short deductions are majorly due to clerical/typographical errors for mentioning of the wrong the permanent account number is in TDS returns filed by the assessee, which leads to the same reflected shortfall of TDS. Assessee submitted that it has already filed a rectification for mismatch of permanent account number. The learned assessing officer considered the explanation of the assessee and carried out verification from the office of income tax officer (TDS) LTU New Delhi. He further noted that assessee has not been able to show with evidence that the default was on account of the incorrect permanent account number. He noted that as per the system the total short deduction and payment of TDS in the first quarter, second quarter, third quarter and fourth quarter other than payment of salary is of ₹ 1,800,290/– therefore he assumed in absence of any details that the payment was to the contractors covered u/s 194C of the act in respect of which TDS is deductible at the rate of 1 percent or 2%. Therefore he assumed that the shorter deduction of ₹ 1,800,290 represents 1% of the amount on which tax should have been deducted and therefore he disallowed ₹ 180,029,000 by applying the provisions of Section 40 (a) (ia) of the act. On appeal before the learned CIT – A the matter was remanded to the assessing officer and issue was re-examined with response of the assessee. The learned CIT – A and the certificate issued to the assessee for lower deduction of tax with respect to certain payee. Before him, the assessee explained that rectification has been done with respect to the tax-deductor at source returns and no demand is outstanding except the disputed amount of ₹ 70,020. He therefore confirmed the addition of ₹ 7,002,000/–. With respect to the addition of ₹ 2,080,400/– he directed the learned assessing officer to verify whether the corresponding tax deduction at source payment was made after the due date on before that. He directed the learned assessing officer that if it was paid after due date the addition of Rs 12,80,400/– stands confirmed or if it is not so it stands deleted. Therefore the assessee is aggrieved Page | 6