2021 (2) TMI 1070 - AT - Income Tax

Disallowance of interest on customers deposit account - 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 - HELD THAT - Undisputedly, in AY 2006-07 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 ₹ 127,69,83,720/- was not payable out of the total deposit of ₹ 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. Disallowance u/s 14A to 0.5% of the average investment income - HELD THAT - 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.

Summary

Issues:
1. Disallowance of interest on customer's deposit account.
2. Disallowance under section 14A of the Income-tax Act, 1961.

Issue 1: Disallowance of interest on customer's deposit account:
The Appellate Tribunal ITAT DELHI addressed the challenge by the Revenue against the restriction of disallowance of interest on the customer's deposit account. The Revenue contended that any interest accruing on the customer's deposit account is the assessee's income and should be taxed accordingly. On the contrary, the assessee argued that the issue was already decided in their favor in a previous year's case, which had not been challenged further. The Tribunal noted that the method of determining the ratio of payable amount out of total deposits had been consistently followed by the Revenue since AY 2006-07. As the Revenue failed to present any new facts or legal provisions to challenge the decision, the Tribunal upheld the findings of the ld. CIT (A) in favor of the assessee.

Issue 2: Disallowance under section 14A of the Income-tax Act, 1961:
Regarding the disallowance under section 14A, the ld. CIT (A) reduced the disallowance to 0.5% of the average investment income as opposed to the higher amount made by the AO. The Tribunal noted that the issue had been settled in the assessee's own case by the Hon'ble Delhi High Court in a previous order. The High Court had confirmed the deletion of the disallowance under one section but upheld it under another section to the extent of 0.5% of the average investment income from which exempt income was earned. Since the findings were based on factual analysis and previous legal decisions, the Tribunal found no reason to interfere and upheld the decision of the ld. CIT (A) against the Revenue's appeal.

In conclusion, the appeal filed by the Revenue challenging the judgments on both issues was dismissed by the Appellate Tribunal ITAT DELHI. The Tribunal upheld the decisions of the ld. CIT (A) in favor of the assessee, citing consistent application of legal principles and lack of new evidence or legal arguments presented by the Revenue.