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TMI Blog2017 (7) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... liation 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. - Decided in favour of assessee for statistical purposes. Disallowance u/s 14A - HELD THAT:- The factual finding of the ld. CIT(A) that the assessee has not borrowed any loans and therefore no interest has been paid on account of such borrowings could be controverted by the ld. DR. We find the interest expenditure incurred by the assessee company is on account of interest paid on security deposits received from the customers, interest on GPF and interest paid to the Municipal Authorities, Mumbai. We further find from the various details furnished by the assessee in the paper book that sufficient funds are available with the assessee which are much more than the investments made during the year. Therefore in view of the decision of Hon ble Mumbai High Court in the case of CIT vs. HDFC Bank Ltd. [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] order of Ld. CIT(A) in our opinion is fully justified. Since the Ld. CIT(A) has given justifiable reasons as to why provisions of Rule 8D and 14A are not applicable to the facts of the present case, and si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were heard together and are being disposed of by this common order for the sake of convenience. ITA No.6786/Del/2013 (By assessee) : 2. The grounds raised by the assessee are as follows : "1. On the facts and circumstances of the case, the Ld. CIT(A) has erred, both on facts and in law, in confirming proportionate disallowance of interest in respect of security deposit of ₹ 127,69,83,720/-. 2. On the facts and circumstances of the case, the Ld. 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. 3. The appellant craves leave to add, amend or alter any of the grounds of appeal." 3. Facts of the case, in brief, are that the assessee is a Public Sector Undertaking and is engaged in the business of providing telephone and mobile services in New Delhi and Mumbai. It field its return of income on 29th September, 2008 declaring taxable income of ₹ 9,12,10,67,240/-. During the course of assessment proceedings the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses in the ratio of ₹ 1,27,69,83,720 (held as unexplained) to ₹ 11,59,32,90,000/- (which represents total amount of security deposit) amounting to ₹ 17,42,542/- may alone need to be disallowed. The Ld. AO is directed to recompute the disallowance accordingly. The appellant gets relief in respect of the balance amount." 4.1. Aggrieved with such order of the Ld. CIT(A) the assessee is in appeal before the Tribunal. 5. The Ld.Counsel for the assessee referring to the decision of the Tribunal in assessee's own case for the A.Y. 2006-07 in ITA No.4587/Del/2013 order dated 5th September, 2016 submitted that the Tribunal had restored the matter to the file of the A.O. with a direction to give an opportunity to the assessee for reconciliation of the deposits of ₹ 127,69,83,720/- and decide the issue afresh. He submitted that following the direction of the Tribunal for the A.Y. 2006-07 this issue may also be restored to the file of A.O. for fresh adjudication. 6. The Ld. DR, on the other hand, while supporting the order of CIT(A) fairly submitted that he has no objection for restoring the matter to the file of AO for deciding the issue afresh in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability 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 ld 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 ld CIT(A) is also not correct that assessee submitted that this amount is under reconciliation and to that extent such credits are not fully explained. Before him 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 Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) deleted the addition made by the AO by observing as under : "6.2 Regarding the Ground No.2 of the appeal relating to disallowance u/s 14A, which was made by the d. AO by resorting to the provisions of Rule 8D, I find that the appellant had earned dividend income of ₹ 1.71 crores during the year. During the year, the total revenue of the appellant company was to the tune of ₹ 5329.93 crores from its telecom operation. I find that the Ld. AO was of the view that the appellant company ought to have maintained separate accounts for its tax exempt income and taxable income, which it failed to do. The specific, ground on which the Ld. AO was not satisfied with the claim of the appellant of not attributing any expenditure to earning of the dividend income, was in respect of claim of interest expenses of ₹ 27.82 million, which in the view' of the Ld. AO, were towards the borrowed funds used for making investment for earning tax-exempt dividend income. On careful consideration of the submission of the appellant in the light of the relevant schedule of account, it is evidently clear that the appellant had not borrowed any loans and hence no interest expenses on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 6th September, 2016 and the decision of the Delhi Bench of the Tribunal in the case of Gagan Goyal vs. JCIT in ITA No.1514/Del/15 order dt. 2nd August, 2016, the order of Ld. CIT(A) in our opinion is fully justified. Ld. D.R. could not distinguish the decision of Hon'ble Delhi High Court in the case of Maxopp Investments (supra) which has been relied upon by the Ld. CIT(A). Since the Ld. CIT(A) has given justifiable reasons as to why provisions of Rule 8D and 14A are not applicable to the facts of the present case, and since the Ld.DR could not point out any infirmity in the order of the Ld. CIT(A), therefore, we do not find any infirmity in the order of the same. Accordingly, the order of ld. CIT(A) on this issue is upheld and the ground raised by the revenue is dismissed. 10. Ground of appeal No.2 by Revenue reads as under : 2. On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in restricting the disallowance to ₹ 17,42,542/-, out of total disallowance of interest of ₹ 2,94,80,000/- on customers deposit accounts and in allowing relief in respect of the balance amount of ₹ 2,77,37,458." 11. After hearing both the sides, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accounts attached with the audit report, the auditor has reported that the assessee has changed its accounting policy for allocation of overheads and for the intangible assets which had resulted in understatement of profits by ₹ 1.11 and ₹ 2.62 million, respectively. The reply of the assessee that such changes were carried out in line with the accounting policy was not accepted by the A.O. on the ground that the assessee could not show the immediate need to change the accounting system. He accordingly made addition of ₹ 37,30,000/- to the total income. 12.2. In appeal the Ld. CIT(A) deleted the addition made by the A.O. by observing as under : "6.4 Regarding the Ground No.4 of the appeal, whereby the appellant challenged the action of the Ld.AO in disregarding the change in accounting policy and thereby making addition of ₹ 37,30,000-, I find that the Ld. AO has selectively chosen change in accounting policy and wherever the effect of such change was over-statement of profit, such changes were disregarded. However, wherever, there was an under-statement of profit resulting from accounting change, the Ld. AO has disallowed the same. Keeping in view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, 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. 3. The appellant craves leave to add, amend or alter any of the grounds of appeal." 15. After hearing both sides, we find the above Grounds are identical to the grounds of appeal no.1 and 2 in ITA No.6786/Del/2013 filed by the assessee for the A.Y. 2008-09. We have already decided the issue and the matter has been restored to the file of the A.O. with certain directions. Following the same reasoning the above grounds are also restored to the file of the A.O. The Grounds raised by the assessee are accordingly allowed for statistical purposes. ITA No.148/Del/2014: (By Revenue) for A.Y. 2009-10: 16. Ground no.1 by the revenue reads as under : "1. On the facts and circumstances of the case and in law the Ld. CIT(A) has erred in deleting the disallowance of ₹ 1,31,92,000/- made u/s 14A holding the same is not sustainable." 17. After hearing both the sides, we find the above ground is identical to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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