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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, ACIT, Circle 1, New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 17.04.2017 passed by the Commissioner of Income-tax (Appeals)-22, New Delhi qua the assessment year 2012-13 on the grounds that :-
“1. On the facts and in the circumstances of the case and in law, Ld. CIT (A) has erred in restricting the disallowance of interest on customer's deposit account to Rs.4,52,659/- as against disallowance of Rs.41,11,348/- and in arbitrarily restricting the disallowance of interest to 11.01 % of total interest paid without any rational basis.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance to only 0.5% of average investment income of Rs.1,79,15,000/- as against Rs.14,30,74,000/-.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company is a Government of India public sector undertaking providing telephone services and internet service provider services, IN 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 etc. It is also into providing telecommunication services like internet, e-tendering, cyber café services and sale of ISP packs & anmol cards.
Assessing Officer (AO) after rejecting the contentions raised by the assessee company made addition of Rs.41,11,348/- on account of disallowance of interest on customers deposit account on the ground that the whole amount of deposit was held to be its own funds and added the same to the total income of the assessee. AO also made disallowance of Rs.14,30,74,000/- under section 14 A of the Income-tax Act, 1961 (for short ‘the Act’) .
Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has partly allowed the appeal. Feeling aggrieved by the order passed by the ld. CIT (A), the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1 5. Ld. DR for the Revenue challenging the impugned restriction of disallowance of interest on customers deposit account to Rs.4,52,659/- as against disallowance of Rs.41,11,348/- made by the AO contended that any interest that accrues on the customers deposit account is also assessee’s own income and is liable to be taxed in its own hands and relied upon the order passed by the AO.
However, on the other hand, to repel the arguments addressed by the ld. DR for the Revenue, the ld. AR for the assessee contended that this ground is covered by the Revenue’s own decision passed in AY 2011-12 dated 01.03.2016 in assessee’s own case and has not been challenged before the higher forum and supported the impugned order passed by the ld. CIT (A).
Ld. CIT (A) decided this issue in favour of the assessee by following its own order dated 01.03.216 for AY 2011-12 by returning following findings :-
“7. Ground no. 3 pertains to a disallowance of interest on customer's deposit account. In the A. Y. 06-07, the entire amount outstanding under the head "customer's deposits" was held to be non payable and, therefore, the said amount was added to the income of the appellant and the corresponding interest was also disallowed. However, on appeal, the CIT(A) held that only the amount of Rs. 127,69,83,720/- was not payable out of the total deposits of Rs. 11,59,32,90,009/-. The ratio of these two figures comes to 11.01%. Therefore, the CIT(A) in A. Y. 08-09, 09-10 and 10-11 restricted the disallowance of interest on customer's deposits to 11.01% of the total interest paid. There is an implicit presumption in this finding that the percentage of non payable deposits as a percentage of total Customer's deposits did not increase or decrease after A. Y. 06-07. In the absence of any factual analysis of the customer's deposits in A. Y. 11-12 by the AO or by the appellant, the decision in the year under appeal is being given on the basis of the same presumption and the disallowance is restricted to 11.01% of Rs. 47,00,872/-. Therefore, the addition made is reduced to Rs. 5,17,566/- and Ground no. 3 of the appeal is, therefore, partly allowed."
Undisputedly, in AY 2006-07 also, the entire outstanding amount under the head “customer’s deposit” was held to be non-payable and consequently added to the income of the assessee and the corresponding interest was disallowed. It is also not in dispute that in AY 2006-07, ld. CIT (A) held that only the amount of Rs.127,69,83,720/- was not payable out of the total deposit of Rs.11,59,32,90,000/- having ratio of these two figures of 11.01% and this order was also followed in AYs 2008-09, 2009-10 & 2010-11.
We are of the considered view that when the method of determining the ratio between the payable amount out of total deposits has been consistently followed by the Revenue Department since AY 2006-07 and the order passed by the ld. CIT(A)’s has not been challenged nor any distinguishing facts and contrary provisions of law have been brought on record by the ld. DR for the Revenue, we find no scope to interfere the findings returned by the ld. CIT (A). So, ground no.1 is determined against the Revenue.
GROUND NO.2 10. Ld. CIT (A) reduced the disallowance under section 14A to 0.5% of the average investment income of Rs.179,15,000/- as against Rs.14,30,74,000/- made by the AO. Undisputedly, during the year under assessment, assessee company had received “NIL” dividend income having an investment of Rs.2213.73 million as on 31.03.2012. Ld. CIT (A) deleted the addition u/s 14A read with Rule 8D(2)(ii) by following its own decision passed in Assessment Year 2011-12 which has been confirmed by the Tribunal as well as Hon’ble Delhi High Court, but addition under section 14A read with Rule 8D(2)(iii) is confirmed to the extent of 0.5% of the average investment, from which exempt income is earned. Since the issue is settled in assessee’s own case by the Hon’ble Delhi High Court in ITA 136/2020 order dated 17th November, 2020 (2020 (12) TMI 262 – Delhi High Court), there is no scope to interfere into the findings returned by the ld. CIT (A). Operative part of the findings returned by the Hon’ble Delhi High Court is as under :-
“Disallowance u/s 14A r/w Rule 8D(2)(iii) - expenditure incurred in relation to income not includible in the total income - CIT (A) restricted to 0.5% of the average investment income - HELD THAT:- CIT(A) deleted the disallowance of interest under Section 14 A r/w Rule 8D (2)(ii), considering the factual position and the fact that the Respondent-Assessee had interest-free funds in the form of share capital and reserves & surplus. As regards the disallowance under Rule 8D(2)(iii), it was observed that Respondent-Assessee's claim that no expenditure was incurred is not correct - expenditure was to be estimated under Rule 8D(2)(iii) being 0.5% of the average investment income which is exempt. It was noticed that value of average investment had been calculated as the average of total investments, mentioned in Schedule F. CIT (A) noted that since all the investments mentioned in Schedule F do not yield exempt income, disallowance under Section 14A read with Rule 8D(2)(iii) has been restricted only to 0.5% of the average investment income which is exempt, irrespective of whether such exempt income was received during AY 2011-12. This approach has been upheld by the learned ITAT. We do not find any perversity in the same or find any reason to entertain the present appeal to interfere with this finding that is based on facts. Addition with respect to the prior period income - HELD THAT:- As noticed that the profit and loss account of the Respondent- Assessee shows that it 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 Respondent-Assessee on below the line profit. On this issue, since factual aspects have to be verified, the learned ITAT has remanded back this issue with a direction to the AO to net off prior period income and the prior period expenditure and tax only the net income. This direction calls for no interference by this Court. No substantial question of law.”
In view of what has been discussed above, we are of the considered view that when all the investment considered by the AO was not yielding any exempt income, disallowance u/s 14A read with Rule 8D(2)(iii) to the extent of 0.5% of the average investment has been rightly made by the ld. CIT (A). So, finding no illegality or perversity in the findings returned by the ld.CIT (A), ground no.2 is determined against the Revenue.
Resultantly, the appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 22nd day of January, 2021.