DCIT (LTU), New Delhi V. M/s. Mahanagar Telephone Nigam Ltd., New Delhi

ITA 3299/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2745 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 03-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY GOYAL
• Keywords: Principle of natural justice; Earning of tax free income; Rule 8D; Set aside
• Section: 142(1); 14A; 143(1)

Judgement Text

1 ITA NO. 2368 & 3299/DEL/2016 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 2368/DEL/2016 ( A .Y 2011-12) MAHANAGAR TELEPHONE NIGAM LTD. 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI AAACM0828R ( (APPELLANT) VS DCIT LARGE TAXPAYER UNIT NEW DELHI (RESPONDENT) ITA NO. 3299/DEL/2016 ( A.Y 2011-12) DCIT LARGE TAXPAYER UNIT CIRCLE-1, NBCC PLAZA PUSHP VIHAR NEW DELHI ( (APPELLANT) VS MAHANAGAR TELEPHONE NIGAM LTD. 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI AAACM0828R (RESPONDENT) APPELLANT BY SH. VED JAIN, ADV RESPONDENT BY SH. SANJAY GOYAL, CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE ORDER DATED 01/03/2016 PASSED BY CIT(A) -22, NEW DELHI FOR ASSESSMENT YEAR 2011-12. DATE OF HEARING 20.03.2019 DATE OF PRONOUNCEMENT 12.06.2019 2 ITA NO. 2368 & 3299/DEL/2016 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 2368/DEL/2016 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD.CIT(A) IS BAD, BOTH IN THE EYES OF LAW A ND ON FACTS. 2. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED, BOTH THE FACTS AND IN LAW, IN CONFIRMING THE DISALLOWANCE OF RS. 2,51,04,875/- MADE BY THE A.O U/S 14A OF THE ACT. (II) THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE SAID DISALLOWANCE MADE AS PER RULE 8D(2)(III), DESPITE THE FACT THAT NO ADMIN ISTRATIVE EXPENSES WERE INCURRED IN CONNECTION WITH THE INVESTMENTS MADE. 3. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING THE PROPORTIONATE DISALLOWANCE OF INTEREST OF RS.5,17,566/- IN RESPECT OF SECURITY DEPOSIT OF RS. 47,00,872/-. (II) THAT THE LD.CIT(A) AS ERRED, BOTH THE FACTS A ND IN LAW, IN IGNORING THE FACT THAT THE ASSESSEE BEING A PUBLIC SECTOR COMPANY, TH E ENTIRE SECURITY DEPOSIT HELD BY IT IS OF THE CUSTOMERS, AND THE INTEREST TH EREON CANNOT BE DISALLOWED MERELY ON THE SURMISE THAT THE SECURITY DEPOSIT IS AN UNEXPLAINED DEPOSIT. 4. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED, BOTH ON FACTS AND IN LAW IN CONFIRMING THE A DDITION OF RS. 3,36,80,000/- MADE BY THE A.O ON ACCOUNT OF PRIOR PERIOD INCOME. (II) THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION DESPITE THE FACT THAT ]THE SAID AMOUNT PERTAINS TO INCOME OR EXPENDI TURE OF EARLIER YEARS WHICH HAS BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDE RATION. ITA NO. 3299/DEL/2016 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO ONLY 0.5% OF AVERAGE INVESTMENT INCOME OF RS 1,33,74,000/- AS AGAINST RS 9,69,57,875/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF INTEREST ON CUSTOMERS 3 ITA NO. 2368 & 3299/DEL/2016 DEPOSIT ACCOUNT TO RS. 5,17,566/-, AS AGAINST DISAL LOWANCE OF RS.47,00,872/-, AND IN ALLOWING RELIEF IN RESPECT OF THE BALANCE AM OUNT OF RS. 41,83,306/-. 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF PROVIDING BASIC TELEPHONE AND MOBILE SE RVICES IN THE CITY OF DELHI AND MUMBAI, AS IN THE EARLIER YEARS. THE ASSESSEE C OMPANY IS GOVERNMENT OF INDIA PSU AND A MAJOR PLAYER IN THE COUNTRY IN TELE PHONE SERVICES. FURTHER IT HAS ALSO HOST OF SERVICES LIKE INTERNET SERVICE PRO VIDER SERVICES, IN SERVICES, INTEGRATED SERVICE DIGITAL NETWORK SERVICES, MULTIM EDIA SERVICES, PAGING SERVICES AND OTHER VALUE ADDED SERVICES, AND TO CAR RY ON THE BUSINESS OF TELEPHONE, TELEGRAPH CABLE AND WIRELESS COMPANY ETC . MTNL IS ALSO ENGAGED IN PROVIDING TELECOMMUNICATION SERVICES LIKE INTERNET, E-TENDERING, CYBER CAF SERVICES AND SALE OF ISP PACKS & ANMOL CARDS. THERE HAS BEEN NO CHANGE IN THE BUSINESS ACTIVITIES OF THE ASSESSEE FROM THE PR ECEDING YEAR. THE ASSESSEE HAD FILED E-RETURN DECLARING TOTAL LOSS OF RS. 14,7 6,94,22,781/- ON 29.09.2011. THE CASE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 AND SUBSEQUENTLY SELECTED FOR SCRUTINY. NOTICE U/S 143( 2) DATED 07.08.2012 WAS ISSUED AND SERVED ON THE ASSESSEE. THE ASSESSEE VID E LETTER DATED 14.11.2013 WAS ASKED TO FILE THE HARD COPY OF E-FILED RETURN, PROFIT & LOSS ACCOUNT, BALANCE SHEET WITH SCHEDULES AND THE AUDIT REPORTS ETC. A D ETAILED CASE SPECIFIC QUESTIONNAIRE DATED 20.12.2013 U/S 142(1) WAS ISSUE D AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE STATUTORY NOTICES, DGM CASH & TAX, DY. MANAGER TAX FROM THE ASSESSEE COMPANY AND FCA-AUTHORIZED RE PRESENTATIVES ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TIME AND FU RNISHED REQUISITE DETAILS AND EXPLANATIONS WHICH WAS TAKEN ON RECORD BY THE A SSESSING OFFICER. THE ASSESSING OFFICER MADE DISALLOWANCE UNDER SECTION 1 4A READ WITH RULE 8D AMOUNTING TO RS. 9,69,57,875/- AND MADE ADDITION AC CORDINGLY. BESIDES THIS, THE ASSESSING OFFICER ALSO MADE ADDITION OF RS. 47, 00,872/- REGARDING INTEREST ON CUSTOMERS DEPOSIT ACCOUNTS, ADDITION IN REGARD TO PRIOR PERIOD INCOME AMOUNTING TO RS. 3,36,80,000/-, SHORT DEDUCTION AND PAYMENT OF TAX 4 ITA NO. 2368 & 3299/DEL/2016 AMOUNTING TO 15,12,06,000/-. THEREBY MAKING TOTAL L OSS ASSESSED AT RS. (1448,28,78,030/-) BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A)PARTLY ALLOWED THE APP EAL OF THE ASSESSEE. 5. AS REGARDS GROUND NO. 1 OF DEPARTMENTS APPEAL, RELATING TO ADDITION U/S 14A READ WITH RULE 8D AMOUNTING TO RS.9,69,57,875/- MADE BY THE ASSESSING OFFICER, THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE TO ONLY 0.5% OF AVERAGE INVESTMENT INC OME OF RS. 1,33,74,000/- AS AGAINST RS.9,69,57,875/-. 6. THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME OF RS.3,41,50,00 0/- ON ITS INVESTMENT MADE IN LIC MUTUAL FUNDS. THIS FACT IS EVIDENT FROM SCHEDULE - O IN RESPECT OF OTHER INCOME MENTIONED IN THE BALANCE SHEET. THE DE TAILS OF INVESTMENTS HELD BY THE ASSESSEE COMPANY ARE IN SCHEDULE - F OF THE BALANCE SHEET. THE LD. AR SUBMITTED THAT THE OWN FUNDS AVAILABLE WITH THE ASS ESSEE ARE MUCH MORE THAN THE INVESTMENTS MADE DURING THE YEAR. THIS FACT WAS BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A). THE DETAILS O F OWN FUNDS AVAILABLE WITH THE ASSESSEE COMPANY WERE ALSO PRODUCED AT THE TIME OF HEARING BY THE LD. AR. THE LD. AR SUBMITTED THAT THE FACT THAT THE OWN FUNDS A VAILABLE WITH THE ASSESSEE COMPANY WERE SUFFICIENT FOR THE ASSESSEE TO MAKE TH E INVESTMENT HAS ALSO BEEN APPRECIATED BY THE CIT(A) IN PARA 6.1 AT PAGE 4 OF ITS ORDER. THEREFORE, THE CIT(A) HAS DELETED THE IMPUGNED ADDITION OF RS.7,18 ,53,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST. IN THIS R EGARD, THE LD. AR SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN THE CASE OF ASSESSEE COMPANY FOR A.Y. 2008-09 AND 2009-10, WHIC H HAS BEEN DELETED BY THIS TRIBUNAL VIDE ITS ORDER DATED 31.07.2017 IN IT A NOS. 147, 148/DEL/2014, WHEREBY IT HAS BEEN CATEGORICALLY HELD THAT SUFFICI ENT FUNDS WERE AVAILABLE WITH THE ASSESSEE, WHICH WERE MUCH MORE THAN THE INVESTM ENTS MADE DURING THE YEAR, AND THEREFORE, NO DISALLOWANCE U/S 14A WAS CA LLED FOR. THE LD. AR FURTHER 5 ITA NO. 2368 & 3299/DEL/2016 SUBMITTED THAT IT IS A SETTLED LAW THAT WHEN SUFFIC IENT OWN FUNDS ARE AVAILABLE WITH THE ASSESSEE, NO DISALLOWANCE U/S 14A CAN BE M ADE IN VIEW OF FOLLOWING DECISIONS: (A) HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF CIT V. MAX INDIA LTD. IN ITA NO. 186 OF 2013 DATED 06.09.2016 (B) ITAT DELHI IN THE CASE OF SH. GAGAN GOYAL V. JC IT IN ITA NO. 1514/DEL/2015 DATED 02.08.2016 (C) BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK L TD. IN ITA NO. 330 OF 2012 DATED 23.07.2014. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CONSIDERI NG THE JUDICIAL PRONOUNCEMENTS IN THIS REGARD, THE ADDITION MADE BY THE ASSESSING OFFICER UNDER CLAUSE (II) OF RULE 8D(2) HAS BEEN RIGHTLY DE LETED BY THE CIT(A), AND THUS, THE ORDER OF THE CIT(A) BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER: 6.1. FROM THE SCHEDULE OF INVESTMENTS, IT IS NOTIC ED THAT THE TOTAL INVESTMENTS OF RS. 4946.58 MILLION INR INCLUDE AN I NVESTMENT OF RS. 2500/- MILLION INR IN BONDS BESIDES AN INVESTMENT OF RS.14 46.58 MILLION INR IN SUBSIDIARIES AND AN INVESTMENT OF RS. 1000/- MILLIO N INR IN THE PREFERENCE SHARES OF ITI LIMITED. THE ABOVE FIGURES ARE THE FI GURES OF CLOSING BALANCE OF THE INVESTMENTS. THE OPENING BALANCES OF THESE INVE STMENTS ARE SAME EXCEPT THE INVESTMENTS IN SUBSIDIARY COMPANIES WHICH WERE RS. 1245.77 MILLION INR. AS REGARDS LIC MUTUAL FUND, THE OPENING INVEST MENT WAS RS. 349.6 MILLION INR WHICH REDUCED TO NIL AT THE END OF THE YEAR. THE TOTAL INVESTMENTS (CLOSING BALANCE) OF RS. 4946.58 MILLIO N INR CONSTITUTE 3.5% OF THE CLOSING BALANCE OF SHARE CAPITAL, RESERVES & SU RPLUS AND LOANS TOTALING RS. 1,41,021.56 MILLION INR. IN VIEW OF THIS FACTUA L POSITION AND ALSO 6 ITA NO. 2368 & 3299/DEL/2016 CONSIDERING THE FACT THAT THE ASSESSEE HAS INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS OF RS. 66,464. 81 MILLION INR (BEING THE CLOSING BALANCE), THERE IS NO REASON WHY THE APPELL ANTS CLAIM THAT THE INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR MAKIN G INVESTMENT SHOULD NOT BE ACCEPTED. THEREFORE, THE DISALLOWANCE OF INTERES T UNDER RULE 14 A R.W. RULE 8D (2)(II) OF RS. 71.853 MILLION INR IS DELETED. HO WEVER, AS REGARDS THE DISALLOWANCE UNDER RULE 8D(2)(III), BEING 0.5% OF T HE AVERAGE INVESTMENTS (INCOME FROM WHICH IS EXEMPT), THE UNDERSIGNED DOES NOT AGREE WITH THE ORDER OF MY PREDECESSOR THAT NO ADMINISTRATIVE EXPE NSES WERE INCURRED IN CONNECTION WITH SUCH INVESTMENTS. IN A LARGE ORGANI SATION LIKE APPELLANT, THE INVESTMENTS NEEDS TO BE REGULARLY MONITORED AND MAN HOURS OF STAFF ARE USED APART FROM OTHER ADMINISTRATIVE EXPENSES. THER EFORE, THE APPELLANTS CLAIM THAT NO SUCH EXPENDITURE WAS INCURRED IS NOT CORRECT. ONCE IT IS HELD THAT THE CLAIM OF THE APPELLANT IS NOT CORRECT, THE ONLY WAY TO ESTIMATE THE SAME, IS UNDER RULE 8D (2)(III) BEING 0.5% OF THE A VERAGE INVESTMENTS INCOME FROM WHICH, IS EXEMPT. THE AO HAS WORKED OUT, THIS DISALLOWANCE AT RS. 2,51,04,875/-. THE VALUE OF AVERAGE INVESTMENTS HAS BEEN TAKEN AS THE AVERAGE OF TOTAL INVESTMENTS MENTIONED IN SCHEDULE F OF THE BALANCE SHEET. HOWEVER, AS DISCUSSED ALL THE INVESTMENTS MADE, MEN TIONED IN SCHEDULE F DO NOT YIELD EXEMPT INCOME. THEREFORE, THE DISALLOW ANCE U/S 14A R.W. RULE 8D(2)(III) IS RESTRICTED TO ONLY 0.5% OF AVERAGE IN VESTMENT INCOME FROM WHICH, IS EXEMPT IRRESPECTIVE OF WHERE THE SAID EXEMPT INC OME HAS BEEN RECEIVED DURING THE A.Y. 11-12 OR NOT. CONSEQUENTLY, GROUND NO. 2 OF THE APPEAL IS PARTLY ALLOWED. THE CIT(A) HAS RIGHTLY HELD THAT FROM THE INVESTMEN T 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 RE CEIVED DURING A.Y. 2011- 12 OR NOT. THERE IS NO NEED TO INTERFERE WITH THE F INDING OF CIT(A). GROUND NO. 7 ITA NO. 2368 & 3299/DEL/2016 1 OF THE REVENUES APPEAL IS DISMISSED. 8. AS REGARDS TO GROUND NO. 2 OF ASSESSEES APPEAL RELATING TO THE ADDITION OF RS.2,51,04,875/- MADE BY THE ASSESSING OFFICER U NDER CLAUSE (III) OF RULE 8D(2), THE LD. AR SUBMITTED THAT WHILE MAKING THE I MPUGNED ADDITION, THE ASSESSING OFFICER AT PAGE 5 OF ITS ORDER HAS COMPUTED THE AVERAGE INVESTMENTS BY TAKING INTO ACCOUNT THE TOTAL INVESTMENTS STANDI NG IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. IN THIS REGARD, IT IS PERTINE NT TO MENTION THAT A PERUSAL OF SCHEDULE - O OF BALANCE SHEET SHOWS THAT THE DIV IDEND INCOME CLAIMED EXEMPT BY THE ASSESSEE COMPANY HAS BEEN EARNED BY T HE ONLY ON THE INVESTMENTS MADE BY THE ASSESSEE COMPANY IN THE MUT UAL FUNDS. 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 DISALLOWA NCE UNDER RULE 8D(III), THE RATE OF 0.5% HAS TO BE APPLIED TO ONLY THOSE INVEST MENTS 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 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACB INDIA LTD. V. ACIT IN ITA NO. 615/2014 DATED 24.03.2015. FURTHER RELIANCE IN THIS REGARD IS PLACED ON THE JUDGMENT OF THIS HONBLE TRIBUNAL IN THE CASE OF SI L INVESTMENTS LTD. V. DCIT IN ITA NO. 5656/DEL/2013 AND 6046/DEL/2013 DATED 05 .09.2016. THE LD. AR ALSO RELIED UPON THE FOLLOWING JUDGMENTS:- (A) ITAT HYDERABAD IN THE CASE OF TRANSPORT CORPORA TION OF INDIA LTD. V. ACIT IN ITA NO. 117/HYD/2016 DATED 21.09.2016 (B) ITAT KOLKATA IN THE CASE OF DCIT V. THE DIAMOND CO. LTD. IN ITA NO. 326/KOL/2014 DATED 24.08.2016 (C) ITAT MUMBAI IN THE CASE OF AMRIT DIAMOND TRADE CENTRE PVT. LTD. V. ACIT IN ITA NO. 2642/MUM/2013 DATED 15.01.2016 A PERUSAL OF SCHEDULE - F OF THE BALANCE SHEET SHOWS THAT THE OPENING AMOUNT 8 ITA NO. 2368 & 3299/DEL/2016 OF INVESTMENT IN LIC MUTUAL FUNDS WAS RS.34,96,00,0 00/-, WHILE THE CLOSING AMOUNT OF INVESTMENT WAS NIL, AS THE SAID MUTUAL FU NDS WERE SOLD OFF BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATIO N. THEREFORE, THE AVERAGE INVESTMENTS FROM WHICH THE ASSESSEE HAD EARNED THE DIVIDEND INCOME WORKS OUT AS UNDER: (A) OP. INVESTMENT - RS.34,96,00,000/- (B) CL. INVESTMENT - NIL AVG. INVESTMENTS - RS.17,48,00,000/- THUS, THE AMOUNT OF DISALLOWANCE UNDER CLAUSE (III) SHOULD BE RESTRICTED TO 0.5% OF RS.17,48,00,000/-, I.E. RS.8,74,000/.- 9. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS WE HAVE DECIDED THIS ISSUE IN THE EARLIE R PARA WHILE DECIDING REVENUES APPEAL. GROUND NO. 1 OF THE ASSESSEES AP PEAL IS DISMISSED. 11. AS REGARDS GROUND NO. 2 OF DEPARTMENTS APPEAL AND 3 OF ASSESSEES APPEAL RELATING TO ADDITION OF RS. 47,00,872/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAID ON CUSTOMERS DEPOSITS, TH E LD. DR RELIED UPON THE ASSESSMENT ORDER. 12. THE LD. AR SUBMITTED THAT AS RELATES TO DEPARTM ENTS GROUND OF APPEAL, THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED B Y THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO. 4587/DEL/2013 DATED 05.09.2016, WHEREBY THE TRIBUNAL WHILE DECIDING ASSESSEES APPE AL ON SIMILAR GROUND. FURTHER, SIMILAR ADDITION WAS ALSO MADE BY THE ASSESSING OFFICER IN THE CASE OF ASSESSEE COMPANY FOR A Y. 2008-09 AND 2009- 10, WHICH HAS ALSO BEEN DELETED BY THE TRIBUNAL VIDE ORDER DATED 31.07.2017 , WHEREIN THE FINDINGS OF THE TRIBUNAL ARE IN PARA 11. 9 ITA NO. 2368 & 3299/DEL/2016 13. AS REGARDS TO ASSESSEES GROUND OF APPEAL, THE LD. AR SUBMITTED THAT AT THE VERY OUTSET THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2006-07 IN ITA NO. 4587/DEL/2013 DATED 05.09.2016, WHEREBY THE HONBLE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL ON SIMILAR GROUND. FURTH ER, SIMILAR ADDITION WAS ALSO MADE BY THE ASSESSING OFFICER IN THE CASE OF A SSESSEE COMPANY FOR A.Y. 2008-09 AND 2009-10, WHICH HAS ALSO BEEN DELETED BY THE TRIBUNAL VIDE ORDER DATED 31.07.2017, WHEREIN THE FINDINGS OF THE TRIBU NAL ARE IN PARA 7 THEREIN. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS REVENUES APPEAL IS CONCERNED, T RIBUNAL WHILE DECIDING ASSESSEES APPEAL ON SIMILAR GROUND HAS HELD AS UND ER: 21. GROUND NO. 1 TO 4 OF THE APPEAL ARE AGAINST DE LETION OF ADDITION ON ACCOUNT OF SUBSCRIBER DEPOSIT AND INTEREST THEREON. THESE GROUNDS OF APPEAL ARE INTER LINKED TO THE GROUND NO. 6 AND 7 OF THE A PPEAL OF THE ASSESSEE. WHILE DECIDING THE GROUND NOS. 6 AND 7 OF THE APPEAL OF T HE ASSESSEE WE HAVE HELD THAT THAT THERE IS NO INFIRMITY IN THE ORDER OF THE ID CIT(A) WITH RESPECT TO SUBSCRIBERS DEPOSIT HELD TO BE PAYABLE BY THE ASSE SSEE TO THE SUBSCRIBER ON TERMINATION OF SERVICES TO THE EXTENT OF RECONCILED AMOUNT AND THEREFORE, IT CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE SPECI ALLY IN VIEW OF THE ASSESSEE FURNISHING SUBSTANTIAL DETAILS AND RECONCI LIATION OF THE AMOUNT OUTSTANDING. FURTHER THE AMOUNT OF INTEREST RELATED TO THAT DEPOSIT IS ALSO DELETED BY THE ID CIT(A) AS THE INTEREST WAS PAYABL E WITH RESPECT TO SUBSCRIBER DEPOSIT WHICH IS COMPLETELY RECONCILED. IN VIEW OF THIS WE DISMISS GROUND NO. 1 TO 4 OF THE APPEAL OF THE REVENUE.' SINCE THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF TH E ASSESSEE FOR A.Y. 2006-07 AND FACTS IN THE PRESENT ASSESSMENT YEAR IS IDENTIC AL, HENCE GROUND NO. 2 OF REVENUES APPEAL IS DISMISSED. AS REGARDS GROUND NO . 3 OF ASSESSEES APPEAL IS CONCERNED, TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO. 4587/DEL/2013 DATED 05.09.2016, WHEREBY THE HONBLE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL ON SIMILAR GROUND HAS HE LD AS UNDER : 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. THE BRIEF NATURE OF 10 ITA NO. 2368 & 3299/DEL/2016 THE SECURITY DEPOSIT IS THAT WHEN CUSTOMER DEMANDS FOR A CONNECTION SAME IS COLLECTED AND WHEN IT IS DISCONNECTED THE AMOUNT OF DEPOSIT BECOMES REFUNDABLE TO THE CUSTOMER ON PRODUCTION OF DEPOSIT RECEIPT AND MAKING CLAIM THEREOF. AS IT IS APPARENT THAT ASSESSEE IS A PUBLI C SECTOR UNDERTAKING AND OPERATES THE TELEPHONY SERVICES IN SELECT CITIES. I T ALSO USES CSMS SYSTEM WHICH IS A PROGRAMME REGARDING NEW CONNECTION REFUN D ADJUSTMENT AND DISCONNECTIONS. THEREFORE, AS ON 31.03.2006 AN AMOU NT OF RS. 11593290000/- WAS OUTSTANDING AS NET BALANCE OF SEC URITY DEPOSIT. THEREFORE, SUCH AMOUNT OF DEPOSIT ARE ACCEPTED WITH AN OBLIGATION OF REPAYMENT AT THE TIME OF DISCONNECTIONS OF SERVICES . APPARENTLY THIS MONEY DOES NOT BELONG TO THE ASSESSEE COMPANY BUT IS REQU IRED TO BE REFUNDED TO THE CUSTOMERS AS AND WHEN CLAIMED. BEFORE THE ID CIT(A) THE ASSESSEE HAS SUBMITTED THE DETAILS OF THIS ACCOUNT WITH RESPECT TO OUTSTANDING BALANCES, INTEREST ACCRUED THEREON, TELEPHONE CONNECTION DISC ONNECTED DURING THE YEAR, THE AMOUNT OF SECURITY DEPOSIT RECEIVED DURING THE YEAR AND SECURITY DEPOSIT REFUNDED DURING THE YEAR FOR YEAR ENDED MARCH 2003 TO MARCH 2009. REGARDING THE LIVE CONNECTIONS ASSESSEE SUBMITTED D ETAILS WITH CUSTOMER CODE AND FOR SECURITY DEPOSIT REFUND THE SUBSCRIBER DETA ILS. IT ALSO SUBMITTED AS PER ANNEXURE 3 DETAILS WITH REGARD TO CURRENT STATUS OF LIVE CONNECTIONS AND AMOUNT OF OUTSTAYING SECURITY DEPOSIT. BEFORE HIM T HE ASSESSEE ALSO SUBMITTED THAT TRIAL BALANCE, NATURE OF DEPOSITS, D EPOSIT REFUND ACCOUNT AND DETAILS OF DEPOSIT ADJUSTMENTS. SUCH FURNISHING OF DETAILS HAVE BEEN MENTIONED BY THE ID CIT(A) IN PARA 5.2.4 TO 5.2.6 I N HIS ORDER. ON SUBMISSION OF THIS INFORMATION THE ID CIT(A) OBTAINED THE REMA ND REPORT FROM ASSESSING OFFICER AND AFTER OBTAINING REJOINDER HAS HELD THAT THE DEPOSITS HELD BY THE ASSESSEE ARE IN THE CHARACTER OF CUSTODIAL AS IT HA S TO REFUND IT AS SOON AS SERVICES ARE TERMINATED. HE FURTHER OBSERVED THAT T HE DEPOSIT OUTSTANDING IS DECREASING GRADUALLY AND THEREFORE HELD THAT IT DOE S NOT PARTAKE THE CHARACTER OF TRADING LIABILITY AS THERE IS OBLIGATION TO REPA Y 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 RS. 127.69 CRORES AND DELETED THE ADDITION OF RS. 1031. 62 CRORES. THE REASON GIVEN BY HIM FOR CONFIRMING THE AMOUNT IS THAT THES E COULD NOT BE RECONCILED WITH THE RESPECT TO THE LIVE CONNECTION AS PER STAT EMENT IN ANNEXURE 3 SUBMITTED . WE DO NOT AGREE WITH THE FINDING OF THE ID CIT(A) T O THE EXTENT OF CONFIRMATION OF THE ADDITION PARTLY MERELY BECAUSE RECONCILIATION IN THESE ACCOUNTS WITH RESPECT TO THE LIVE CONNECTIONS ARE P ENDING. THE OBSERVATION OF THE ID CIT(A) IS ALSO NOT CORRECT THAT ASSESSEE SUB MITTED THAT THIS AMOUNT IS UNDER RECONCILIATION AND TO THAT EXTENT SUCH CREDIT S ARE NOT FULLY EXPLAINED. BEFORE HIM ASSESSEE SUBMITTED THAT IT IS UNDER RECO NCILIATION. FURTHER WHEN 11 ITA NO. 2368 & 3299/DEL/2016 THE CHARACTER OF DEPOSIT IS DETERMINED, LOOKING TO THE NATURE OF OPERATION GEOGRAPHICALLY AS WELL AS LARGE SUBSCRIBERS 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 TH E ASSESSING OFFICER TO GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PROVIDE RECON CILIATION OF THE SAME AND THEN IF THE AMOUNTS ARE NOT AT ALL IDENTIFIABLE WIT H RESPECT TO THE CUSTOMERS THEN TO THAT EXTENT ADDITION MAY BE RESTRICTED. HOW EVER, 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 U NDER OBLIGATION TO REPAY WHENEVER DEMANDED BY THE CUSTOMER. THEREFORE, ID AS SESSING OFFICER IS DIRECTED TO GRANT AN OPPORTUNITY TO THE ASSESSEE FO R RECONCILIATION OF THE ABOVE DEPOSIT AS HELD ABOVE AND THEN DECIDE THE ISSUE AFR ESH. IN VIEW OF THIS GROUND NO. 6 OF THE ASSESSEES APPEAL IS ALLOWED ACCORDING LY. 18. GROUND NO. 7 OF THE APPEAL OF THE ASSESSEE IS A GAINST CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.2803000/- ON ACCOUN T OF INTEREST ACCRUED ON OUTSTANDING SUBSCRIBER DEPOSIT. THIS GROUND IS RELA TED TO GROUND NO. 6 OF THE APPEAL OF THE ASSESSEE. THEREFORE, AS WE HAVE ALREA DY SET ASIDE GROUND NO. 6 OF THE ASSESSEES APPEAL TO THE FILE OF THE ASSESSI NG OFFICER, WE ALSO SET ASIDE GROUND NO. 7 TO THE FILE OF THE ASSESSING OFFICER T O DETERMINE AMOUNT OF DISALLOWANCE OF INTEREST AFTER DETERMINING THE AMOU NT OF TAXABILITY OF SUBSCRIBER DEPOSIT. THIS GROUND OF APPEAL IS ALLOWE D FOR STATISTICAL PURPOSES.' THE ISSUE CONTESTED IN THE PRESENT ASSESSMENT YEAR IS IDENTICAL THEREFORE, GROUND NO. 3 OF ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 15. AS REGARDS GROUND NO. 4 OF ASSESSEES APPEAL RE LATING TO ADDITION OF RS. 3,36,80,000/- MADE BY THE ASSESSING OFFICER ON ACCO UNT OF PRIOR PERIOD INCOME, THE LD. AR SUBMITTED THAT DURING THE YEAR U NDER CONSIDERATION, ASSESSEE HAS SHOWN PRIOR PERIOD INCOME OF RS.3,36,8 0,000/- AND HAS FURTHER SHOWN PRIOR PERIOD EXPENSES AMOUNTING TO RS. 1,80,1 0,000/-. THE DETAILS OF THE SAME ARE IN SCHEDULE - S OF THE BALANCE SHEET. 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 ASSE SSING OFFICER HAS MADE THE IMPUGNED ADDITION OF RS.3,36,80,000/- TO THE RETURN ED INCOME OF THE ASSESSEE 12 ITA NO. 2368 & 3299/DEL/2016 ALLEGING THAT THE SAME WAS TO BE ADDED TO THE INCOM E OF THE ASSESSEE. THE ASSESSING OFFICER, HOWEVER, HAS NOT ALLOWED THE ASS ESSEE THE PRIOR PERIOD EXPENSES. THE LD. AR SUBMITTED THAT IT IS A SETTLED LAW THAT THE DISALLO WANCE OF PRIOR PERIOD EXPENSE HAS TO BE COMPUTED BY NETTING OFF THE PRIOR PERIOD INCOME AGAINST THE PRIOR PERIOD EXPENDITURE. THE LD. AR RE LIED UPON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. EXXON MOBIL LUBRICANTS P. LTD. [2010] 328 ITR 17. FURTHER, THE LD. AR ALSO RELIED UPON THE FOLLOWING JUDGMENTS: I) ITAT DELHI IN THE CASE OF MTNL V. DCIT IN ITA NO . 3404/DEL/2013 II) ITAT MUMBAI IN THE CASE OF MAZAGAON DOCK LTD. V. IT O IN ITA NO. 5034/MUM/2011 DATED 01.02.2016 III) ITAT AHMEDABAD IN THE CASE OF SHAH ALLOYS LTD. V. J CIT IN ITA NO. 2315/AHD/2010 DATED 27.03.2015 THEREFORE, IN VIEW OF ABOVE JUDICIAL PRONOUNCEMENTS , THE ADDITION MADE BY THE ASSESSING OFFICER AND FURTHER SUSTAINED BY T HE CIT(A) MAY BE RESTRICTED TO RS. 1,56,70,000/-, I.E. AFTER ALLOWING THE ASSES SEE THE ADJUSTMENT OF PRIOR PERIOD EXPENDITURE INCURRED. 16. THE LD. DR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A) 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, ASSESS EE HAS SHOWN PRIOR PERIOD INCOME OF RS.3,36,80,000/- AND HAS FURTHER S HOWN PRIOR PERIOD EXPENSES AMOUNTING TO RS. 1,80,10,000/-. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY SHOWS THAT THE COMP ANY 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 DISA LLOWANCE OF PRIOR PERIOD EXPENSE HAS TO BE COMPUTED BY NETTING OFF THE PRIOR PERIOD INCOME AGAINST THE PRIOR PERIOD EXPENDITURE. THUS, THE CASE LAWS REFE RRED BY THE LD. AR ARE APT IN THE PRESENT CASE. THE ASSESSING OFFICER AS WELL AS THE CIT(A) IGNORED THESE 13 ITA NO. 2368 & 3299/DEL/2016 FACTUAL AND LEGAL ASPECTS AND WERE NOT CORRECT IN M AKING THE ENTIRE ADDITION WITHOUT NETTING OFF. WE, THEREFORE, REMAND BACK THI S ISSUE WITH THE DIRECTION TO THE ASSESSING OFFICER TO NET OFF PRIOR PERIOD INCOM E AND PRIOR PERIOD EXPENDITURE AND ONLY TAX THE NET INCOME ACCORDINGLY . NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. THEREFORE, GROUND NO. 4 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 18. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JUNE, 2019 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12/06/2019 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 14 ITA NO. 2368 & 3299/DEL/2016 DATE OF DICTATION 20.03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20.03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 1 2 . 6 . 1 9 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 1 2 . 6 . 1 9 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 1 2 . 6 . 1 9 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 1 2 . 6 . 1 9 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 2 . 6 . 1 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER