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2019 (6) TMI 700 - ITAT DELHIAddition u/s 14A r.w.r. 8D - sufficient funds were available with the assessee, which were much more than the investments made during the year - addition deleted by the CIT(A) - HELD THAT:- CIT(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% 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 is not claimed by the subscriber despite disconnection of the services assessee is under obligation to repay whenever demanded by the customer. Therefore, Id Assessing Officer is directed to grant an opportunity to the assessee for reconciliation of the above deposit Addition account of prior period income - net off prior period income and prior period expenditure - HELD THAT:- 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 disallowance of prior period expense has to be computed by netting off the prior period income against the prior period expenditure. Thus, the case laws referred by the Ld. AR are apt in the present case. The Assessing Officer as well as the CIT(A) ignored these factual and legal aspects and were not correct in making the entire addition without netting off. We, therefore, remand back this issue with the direction to the Assessing Officer to net off prior period income and prior period expenditure and only tax the net income accordingly - Assessee’s appeal is partly allowed for statistical purpose.
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