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

ITA 4082/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3491 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 11-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 21-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDURY
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.4082/DEL/2014 ASSESSMENT YEARS 2010-11 MAHANAGAR TELEPHONE NIGAM LTD., 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI. PAN: AAACM 0828R VS. DEPUTY COMMISSIONER OF INCOME TAX, LTU, NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.4200/DEL/2014 ASSESSMENT YEARS 2010-11 DEPUTY COMMISSIONER OF INCOME TAX, LTU, NEW DELHI. VS. MAHANAGAR TELEPHONE NIGAM LTD., 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI. PAN: AAACM 0828R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI H.K. CHAUDURY, CIT- D.R ASSESSEE(S) BY : SHRI VED JAIN, ADV. / DATE OF HEARING : 11/04/2017 / DATE OF PRONOUNCEMENT: 17/04/2017 ORDER PER B.P. JAIN, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AS WE LL AS THE REVENUE AGAINST THE ORDER DATED 30.05 . 2014 PASSED BY THE LD. CIT ( A) , WHEREBY THE LD . CIT ( A) HAS DELETED THE ADDITION OF RS . 1 , 19 , 63 ,000/ - MADE BY THE AO U/S.14A OF THE INCOME TAX ACT , 1961 , AND HAS RESTRICTED ITAS NO.4082 & 4200/DEL/2014 2 THE ADDITION OF RS.65,90 ,000/ - MADE BY THE AO ON ACCOUNT OF INTEREST ON CUSTOMER DEPOSITS TO RS . 7 , 25 , 880/-. THE ASSESSEE COMPANY , A PUBLIC SECTOR UNDERTAKING , IS ENGAGED IN THE BUSINESS OF PROVIDING BASIC TELEP HONE AND MOBI L E SERVICES IN DELHI AND MUMBAI. ASSESSEE COMPANY FI LED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30 . 09 . 2010 , DECLARING A LOSS OF RS . 13 , 44 , 08 ,00, 730/- . THEREAFTER , THE CASE OF ASSESSEE COMPANY WAS SELECTED FOR SCRUTINY AND THE INCOME WAS ASSESSED B Y THE AO BY MAKING THE FOLLOWING ADDIT I ONS , WHICH ARE IN DISPUTE : DISALLOWANCE U/S 14A RS . 1 , 19 , 63 ,000/ - DISALLOWANCE OF INTEREST ON CUSTOMER ' S DEPOSIT RS . 65 , 90 ,000/ - 2. AS REGARDS GROUND NO.1 OF ITA NO.4200/DEL/2014 ( DEPARTMENT APPEAL), THIS GROUND DEALS WITH THE ACTION OF THE L D . CIT(A) IN DELETING THE ADDIT I ON OF RS . 1 , 19 , 63 , 000/- M ADE BY THE AO U/S. 14A OF THE ACT . THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY RECEIVED AN AMOUNT OF RS.1 , 27 , 70 ,000/ - AS DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION , WHICH WAS CLAIMED AS EXEMPT U / S.10 OF THE ACT . THE AO HAS MADE THE IMPUGNED DISALLOWANCE U/S.14A OF THE ACT ALLEGING THAT THE ASSESSEE COMPA NY MADE INVESTMENTS FROM THE BORROWINGS , ON WHICH INTEREST OF RS . 1 , 26 , 10 ,000/ - WAS PAID. THEREFORE , THE AO , BY APPLYING THE PROVISIONS OF RULE 8D , WORKED OUT THE D I SALLOWANCE OF RS . 1 , 19 , 63 , 000/ -. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 2 - 4 IN PARA 4 - 4.3 OF THE ASSESSMENT ORDER . 3. THE LD . CIT(A) , HOWEVER , HAS DELETED THE DISALLOWANCE MADE BY THE AO , AFTER DULY CONSIDERING THE FACTS PREVAILING IN ASSE SSEE ' S CASE. THE LD. CIT(A) DULY APPRECIATED THE FACT THAT THE ASSESSEE HAD NOT BORROWED ANY LOANS DURING THE YEAR UNDER CONSIDERATION , AND THEREFORE , NO INTEREST EXPENSE COULD HAVE BEEN INCURRED BY THE ASSESSEE ON THIS AC COUNT . THE LD. CIT(A) FURTHER APPRECIATED THE FACT THAT THE AO HAD NOT RE CORDED ANY PROPER ITAS NO.4082 & 4200/DEL/2014 3 SATISFACTION WHILE ALLEGING THE CLAIM OF ASSESSEE A S FAULTY . THE FINDINGS OF THE LD. CIT(A) IN THIS REGARD ARE AT PAGE 6-7 IN PA RA 6.2 OF ITS ORDER. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IN THIS REGARD , IT WAS SUBMITTED BY LD. AR, MR. VED JAIN, ADVOCATE THAT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENDITURE D URING THE YEAR FOR EARNING THE EXEMPT INCOME. THE AO , HOWEVER , HAS TRIED TO RELATE THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE WITH THE DIVID END INCOME EARNED , BY STATING THAT THE INTEREST EXPENDITURE INCURRED ON T HE BORROWING, USED FOR MAKING INVESTMENTS , HAS TO BE DISALLOWED. IN THIS REGARD , IT WAS PERTINENT TO MENTION HERE THAT THE ASSESSEE COMPANY HAS NOT MADE ANY BORROWINGS DURING THE YEAR UNDER CONSIDERATION . THIS FACT IS CLEARLY EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY (ENCLOSED AT PB 1) . FURTHER , THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IS ON ACCOUNT OF THE CUSTOMER ' S DEPOSITS RECEIVED AND ON ACCOUNT OF THE GPF , AND NOT IN RESPECT OF ANY BORROWINGS MADE BY THE ASSESSEE COMPANY , AS IS EVIDENT FROM SCHEDULE R OF THE BALANCE SHEET (ENCLOSED AT PB 14) . THEREFORE , IT IS CLEAR THAT THE INVESTMENTS MADE BY THE ASSESSEE COMPANY A RE NOT FROM ANY BORROWINGS , BUT FROM ITS OWN SOURCES , AND THEREFORE , THE ACTION OF THE AO IN MAKING THE IMPUGNED DISALLOWANCE ON ACCOUNT OF INTE REST PAYMENT INDIRECTLY RELATED TO THE FUNDS BEING USED FOR MAKING INVESTME NTS , HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A). FURTHER , A PERUSAL OF THE BALANCE SHEET OF ASSESSEE COMPANY (ENCLOSED AT PB 1) , SHOWS THAT THE INVESTMENTS MADE BY THE ASSESSEE COMPANY AS ON 31 . 03 . 2010 ARE FOR RS . 5 , 095 . 37 MILLION , AND THE RESERVES AND SURPLUS AVAILABLE WITH THE ASSESSEE CO MPANY ON THE SAME DATE ARE FOR RS.1 , 11 , 714 . 10 MILLION . THEREFORE, IT IS CLEARLY EVIDENT THAT THE INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE OUT OF I TS OWN RESERVES AND NOT FROM ANY BORROWINGS . IT IS A SETTLED LAW THAT IF AN ASSESSEE IS HAVING OWN ITAS NO.4082 & 4200/DEL/2014 4 FUNDS MORE THAN THE INVESTMENTS MADE , NO DISALLOWANCE IS CALLED FOR . RELIANCE IN THIS REGARD IS PLACED ON THE JUDGMENT O F JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. TAIKISHA ENGINEERING IN DIA LTD. [2015] 370 ITR 338 , WHEREIN THE HON ' BLE COURT HAS HELD AS UNDER : 'IN THIS CONTEXT THE FINDINGS RECORDED BY THE COMMI SSIONER (APPEALS) AND THE TRIBUNAL ARE APPROPRIATE AND RELEVANT . THE CLEAR FINDINGS ARE THAT THE ASSESS . EE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENTS IN SHAR ES AND MUTUAL FUNDS . THE SAID FINDINGS COUPLED WITH THE FAILURE OF THE A SSESSING OFFICER TO HOLD AND RECORD HIS SATISFACTION CLINCHE S THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE . ' 4.1 RELIANCE IS ALSO PLACED ON THE RECENT JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. MAX INDIA LTD. IN ITA NO.186 OF 2013 DATED 06.09.2016, WHEREIN THE HON'BLE COURT HA S HELD AS UNDER: 'DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 36(1)(III) - HELD THAT : - ADMITTEDLY , THE ASSESSEE COMPANY HAD GIVEN INTEREST FREE LOANS AND ADVANCES AMOUNTING TO 2297 . 83 LACS UPTO THE END OF THE RELEVANT YEAR INCLUDING 704 LACS DURING THE RELEVANT YEAR TO ITS THREE SUBSIDIARY COMPANIES . THE ASSESSING OFFICER DID NOT MAKE ANY DISALLOWANCE IN RESPECT OF EXPENDITURE INCURRED ON BORROWED FUNDS U NDER SECTION 36(1)(III) OF THE ACT IN RELATION TO INTEREST FREE LOANS AND A DVANCES GIVEN TO THE SAID THREE SUBSIDIARY COMPANIES IN THE EARLIER YEARS. AF TER PERUSING THE CASH FLOW STATEMENT OF THE ASSESSEE COMPANY FOR THE ASSE SSMENT YEAR IN QUESTION , THE TRIBUNAL OBSERVED THAT THE ASSESSEE COMPANY HAD RECEIVED SUBSTANTIAL PROCEEDS FROM PREFERENTIAL ISSUE OF SHA RES CAPITAL AMOUNTING TO 99999 . 98 LACS . IT HAD ALSO RECEIVED DIVIDEND INCOME OF 166 . 13 CRORES FROM VARIOUS INVESTMENTS . AFTER GIVING INTEREST FREE LOANS OF 7 . 04 CRORES TO ITS SUBSIDIARY COMPANIES , THE ASSESSEE WAS LEFT WITH SURPLUS INTEREST FREE FUNDS OF 53 . 86 CRORES WHICH WERE UTILIZED FOR GIVING INTEREST F REE ADVANCES . THUS , THERE WAS NO NEXUS OF INTEREST EXPENDITURE INCURRED DURING THE YEAR WITH THE AFORESAID LOANS/ADVANCES G IVEN TO THE SUBSIDIARY COMPANIES , WARRANTING DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT . AFTER CONSIDERING THE RELEVANT PROVISIONS AND THE C ASE LAW ON THE POINT , THE TRIBUNAL CORRECTLY DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE MADE UNDER SECTION 36(1))(III) OF THE ACT . - DECIDED IN FAVOUR OF ASSESSEE ' 4.2 RELIANCE IN THIS REGARD IS ALSO PLACED ON THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK L TD. IN ITA NO.330 OF 2012 DATED 23.07.2014, WHEREIN THE HON'BLE COURT HAS HELD AS UNDER : ' SHARE CAPITAL AND RESERVES - INVESTMENT IN TAX FREE SECURITIES/ ITAS NO.4082 & 4200/DEL/2014 5 INVESTMENTS REPRESENTED IN ASSESSEE ' S OWN FUNDS OR NOT - HELD THAT : - FOLLOWING THE DECISION IN THE COMMISSIONER OF INCOME TAX VERSUS RELIANCE UTILITIES & POWER LTD . [2009 (1) TMI 4 - HIGH COURT BOMBAY] - THE ASSESSEE'S OWN FUNDS AND OTHER NON-INTEREST B EARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES - THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOU NT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX-FREE SECURITI ES - THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST- FREE FUNDS AVAILABLE WITH THE ASSESSEE - THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL - DECIDED AGAINST REVENUE. ' 4.3 FURTHER RELIANCE IN THIS REGARD IS PLACED ON TH E FOLLOWING JUDGMENTS: ITAT DELHI IN THE CASE OF SH. GAGAN GOYAL V. JCIT I N ITA NO. 1514/DELL2015 DATED 02.08.2016 DISALLOWANCE U/S 14A - HELD THAT:- AS ASSESSEE WAS HAVING OWN FUNDS WHICH WERE MORE THAN THE INVESTMENT MADE AND THEREF ORE , NO DISALLOWANCE UNDER SECTION 14A IS SUSTAINABLE IN TH E EYES OF LAW - DECIDED IN FAVOUR OF ASSESSEE . ITAT DELHI IN THE CASE OF OVERSEAS CARPETS LTD. V. CIT IN ITA NO. 5062/DELL2011 DATED 22.03.2016 DISALLOWANCE U/S 14A - HELD THAT:- THE INVESTMENT AS ON 31 ST MARCH 2008 WAS 3 , 65 , 32 , 450/- WHEREAS THE RESERVE AND SURPLUS OF THE COMPANY AS ON 31ST MARCH 2008 WAS OF 18 , 60 , 41 , 748/- WHICH IS MUCH HIGHER THAN THE INVESTMENT IN EXEMPT INCOME EARNING ASSETS. THE ASS ESSEE DEMONSTRATED THE SIMILAR SITUATION IN THE EARLIER YEARS WHEN THE INVESTMENT WAS MADE. THUS THE FACTS OF THE CASE OF THE ASSESSEE ARE IDENTICAL TO THE FACTS OF THE CASE OF HDFC BANK LTD (2014 (B) TMI119 - BOMBAY HIGH COURT) TO HOLD THAT NO ADDITION CAN BE MADE FOR INTEREST OF 12 , 27 , 050/- APPORTIONED TOWARDS EXEMPT INCOME , OUT OF THE INTEREST PAID , UNDER RULE 8D(2)(II) OF THE RULES . HOWEVER , SO FAR AS THE AO ' S COMPUTATION OF EXPENDITURE TO BE DISALLOWED UNDER RULE 8D(2)(III) IS CONCERNED , THE SAME IN OUR VIEW IS IN CONFORMITY WITH THE RULES , HENCE , THE SAME DO NOT CALL FOR ANY INTERFERENCE . ACCORDINGLY , THE GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 4.4 FURTHER THE AO HAS NOT RECORDED ANY PROPER SATI SFACTION WHILE INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT . THE AO HAS MADE THE IMPUGNED DISALLOWANCE BY MERELY STATING THAT THE PR OVISIONS OF THE SAID SECTION ARE APPLICABLE TO THE ASSESSEE COMPANY AS T HE ASSESSEE HAS RECEIVED DIVIDEND INCOME DURING THE YEAR AND HAS NOT MADE AN Y DISALLOWANCE U/S. 14A OF THE ACT . ITAS NO.4082 & 4200/DEL/2014 6 4.5 ALSO, THE INVOCATION OF RULE 8D IS NOT AUTOMATI C AND THE AO HAS TO RECORD A PROPER SATISFACTION BEFORE APPLY ING THE PROVISIONS OF SAID RULE . IT IS A SETTLED LAW THAT THE AO HAS TO FIRST VERIFY THE CORRECTNESS OF THE ASSESSEE ' S C L AIM , WHICH HAS NOT BEEN DONE IN THE PRESENT CASE. THE AO HAS TO ANALYZE THE ACCOUNT AND GIVE COGENT REASONS, IF HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. HERE IS A CASE WHERE NO LOGI CAL REASON HAS BEEN GIVEN BY THE AO WHILE INVOKING THE PROVISIONS OF SECTION 14A . THIS ISSUE IS COVERED WITH THE JUDGMENT OF JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT V. TAIKISHA ENGINEERING INDIA LTD. (2015) 370 ITR 338 (DEL), WHEREIN IT WAS HELD AS UNDER: 'SECTION 14A OF THE ACT POSTULATES AND STATES THAT NO DEDUCTION SHA LL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT . UNDER SUB SECTION (2) TO SECTION 14A OF THE ACT , THE ASSESSING OFFICER IS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE AND ONLY WHEN HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH SUCH METHOD AS PRESCRIBED, I.E. RULE 8D OF THE RULES (QUOTED AND ELUCIDATED BELOW). THEREFORE, THE ASSESSING OFFICER AT THE FIRST INSTANCE MUST EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE OR THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN THE EXEMPT INCOME . IF AND ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED ON THIS C OUNT AFTER MAKING REFERENCE TO THE ACCOUNTS, THAT HE IS ENTITLED TO ADOPT THE METHOD AS PRESCRIBED I.E. RULE 8D OF THE RULES. THUS , RULE 80 IS NOT ATTRACTED AND APPLICABLE TO ALL ASSESSEE WHO HAVE EXEMPT INCOME A ND IT IS NOT COMPULSORY AND NECESSARY THAT AN ASSESSEE MUST VOLU NTARILY COMPUTE DISALLOWANCE AS PER RULE 80 OF THE RULES. WHERE THE DISALLOWANCE OR ' NIL ' DISALLOWANCE MADE BY THE ASSESSEE IS FOUND TO BE UN SATISFACTORY ON EXAMINATION OF ACCOUNTS , THE ASSESSING OFFICER IS ENTITLED AND AUTHORISED TO COMPUTE THE DEDUCTION UNDER RULE 80 OF THE RULES.' 4.6 FURTHER RELIANCE IN THIS REGARD IS PLACED ON TH E RECENT JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR O CIT V. U . K. PAINTS (INDIA) PVT . LTD. IN ITA NO.781/2016 DATED 06.12.2016 , WHEREIN THE HON ' BLE COURT HAS HELD AS UNDER: ITAS NO.4082 & 4200/DEL/2014 7 ' IN THAT SENSE , THE RULES ARE NOT MERELY PROCEDURAL BUT ARE SUBSTAN TIVE AND CAN BE SAID TO BE ENGRAFTED IN THE STATUTE , AS IS EVIDENT FROM THE MANDATE OF THE FIRST PART OF SECTION 14A(2). THAT APART , SIGNIFICANTLY , THE QUESTION OF APPLYING THE STATUTORILY PRESCRIBED METHOD WOULD ARISE ONLY AND ONLY IF THE AO EXPRESSES AN OPINION REJECTING THE ASSESSEE ' S METHODOLOGY AND THE FIGURE OFFERED AT THE TIME OF ASSESSMENT . THIS IS MATERIAL BECAUSE THE JURISDICTION TO GO INTO THE METHOD PRESCRIBED IN TH E RULES ARISE ONLY IF THE AMOUNTS THE ASSESSEE OFFERS DOES NOT HAVE ANY REALI STIC CORRELATION WITH THE TAX EXEMPT INCOME . FOR INSTANCE , IN A GIVEN CASE , IF A TAX EXEMPT INCOME IS TO THE TUNE OF 5 CRORES AND THE ASSESSEE IS ABLE TO SATISFY THAT EXPENDITURE RELATABLE TO THAT INCOME OR THE REASONA BLE NEXUS TO SUCH INCOME IS 25 LAKHS , THERE HAS TO BE STRONG REASONS WHY THE SAID AMOUNT OF 25 LAKHS ARE TO BE REJECTED . IN OTHER WORDS , THE OPINION OF THE ASSESSING OFFICER IN THE LATTER PART [OF SECTION 14 A(2)] IS TO BE BASED UPON AN APPRAISAL OF OBJECTIVE MATERIAL RELATING TO THE ASSESSEE ' S VOLUNTARY DISALLOWANCE OF AMOUNT/AMOUNTS . ' 5. AS REGARDS, GROUND NO.2 OF ITA NO. 4200/DEL/2014 IN DEPARTMENT APPEAL AND GROUND NO.1 AND 2 OF ITA NO. 4082/DEL/2014 IN ASSESSEES APPEAL WHICH DEALS WITH THE ACTION OF THE LD . CIT(A) IN RESTRICTING THE ADDITION OF RS.65,90,000/- MADE BY THE AO ON ACCOUNT OF INTEREST ON CUSTOMER ' S DEPOSITS TO RS.7,25,880/-. THE FACTS IN BRIEF ARE THAT D URING THE YEAR UNDER CONSIDERATION , THE ASSESSEE COMPANY HAS CLAIMED INTEREST AMOUNTING TO RS.65,90,000/- IN ITS PROFIT AND LOSS ACCOUNT , WHICH IS PERTAINING TO THE CUSTOMER ' S DEPOSITS RECEIVED BY THE COMPANY. THE ENTIRE AMOUNT OF THESE DEPOSITS WERE HELD AS TAXABLE BY TH E AO IN THE AY . 2006-07 (COPY OF ASSESSMENT ORDER ENCLOSED AT PB 50 - 97), AND THEREFORE , THE AO HAS DISALLOWED THE AMOUNT OF INTEREST ON THESE DEPOSITS , ALLEGING THAT NO INTEREST COULD BE SAID TO HAVE BEEN PAYABLE BY THE ASSESSEE ON THE AMOUNT WHICH BELONGS TO THE ASSESSEE AND IS NOT PAYABLE TO ANYBO DY. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 4 AND 5 IN PARA 5 - 5.2 OF THE A SSESSMENT ORDER . 6. THE LD . CIT(A) HAS , HOWEVER , PARTLY ALLOWED THE APPEAL OF THE ASSESSEE COMPANY , BY RELYING UPON THE ORDER OF LD . CIT(A) IN ASSESSEE ' S CASE FOR A .Y. 2006-07 (COPY OF ORDER ENCLOSED AT PB 98 - 154). TH E LD. ITAS NO.4082 & 4200/DEL/2014 8 CIT(A) , WHILE DECIDING THE APPEAL FOR A . Y. 2006-07 HELD THAT OUT OF THE TOTAL DEPOSITS OF RS.11 , 59 , 32 , 90 , 000/- , THE DEPOSITS AMOUNTING TO RS.1,27,69,83,720/ - WERE UNEXPLAINED , AND THE BALANCE ADDITION MADE BY THE AO ON THIS ACCOUNT WAS DELETED. THEREFORE , IN THE YEAR UNDER CONSIDERATION , THE LD. CIT ( A) HAS SUSTAINED THE ADD I TION MADE BY THE AO TO THE EXTENT OF PROPORTIONATE INTEREST PERTAINING TO THE DEPOSITS OF RS . 1,27,69,83,720/ -, AND THE BALANCE ADD I TION HAS BEEN DE L ETED . THE LD . CIT(A) H A S GIVEN HIS F I NDINGS IN TH I S REGARD AT PAGE 5 - 6 I N PARA 5 . 4 O F THE ORDER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. A T THE VERY OUTSET THAT THE I SSUE UNDER CONSIDERAT I ON I S S QU A REL Y COVERED BY THE JUDGMENT OF TH I S HON'BLE TRIBUNAL IN ASSESSEE'S OWN CASE FOR A . Y . 2006- 07 I N IT A NO . 4587 / DEL/ 2013 DA T E D 0 5 .09.2016 , W HER E BY TH E TRIBUNAL WHILE D E CI D ING ASSESSEE ' S APPE A L ON SIMILAR GROUN D H AS H EL D A S U NDE R ( PB 171 - 1 72 ) : ' 17 . WE HAVE CAREFULLY CONSIDERED THE R I VAL CONTENTIONS . THE BRIEF NATURE OF THE SECURITY DEPOSIT IS THAT WHEN CUSTOMER DEMAN DS FOR A CONNECTION SAME IS COLLECTED AND WHEN IT I S DISCONNECTED THE AMOUNT OF DEPOS I T BECOMES REFUNDABLE TO THE CUSTOMER ON PRODUC TI ON OF DEPOS I T RECEIP T A N D MAKING CLAIM THEREOF. AS IT IS APPARENT THAT ASSESS EE IS A PUBL I C SECTOR UNDERTAKING AND OPERATES THE TELEPHONY SERV I CES I N SELECT C I T I ES . IT ALSO USES CSMS SYSTEM W H I CH IS A PROGRAMME R EGARD I NG NE W CONNECTION REFUND ADJUSTMENT AND D I SCONNECTIONS. THE R EFORE , AS ON 31.03 . 2006 AN AMOUNT OF RS . 11593290000/- WAS OUT S TANDING AS NET BALANCE OF SECURITY DEPOSIT . THER E FORE , SUCH AMOUNT OF DEPOSI T ARE ACCEPTED W I TH AN OBLIGATION OF REPAYMENT AT THE TIME OF DISCONNECT I ONS OF SERV I CES . APPARENTLY THIS MONEY DO E S NO T BE L O NG TO THE ASSESS E E COMPANY BUT I S REQUIRED TO BE RE F UNDED T O T H E C U ST O MERS AS AND WHEN CLAIMED . BEFO R E THE ID CIT(A) TH E A S S E SSEE HAS SUBMITTED THE DETAILS OF THIS ACCOUNT WITH RESPECT TO OUT S TANDING BALANCES , INTEREST ACCRUED THEREON , TELEPHONE CONNECTION DISCONNECTED DURING THE YEAR, THE AMOUNT OF SECURITY DEPOSIT RECEIVED DURING THE YEAR AND SE CURITY DEPOSIT REFUNDED DURING THE YEAR FOR YEAR ENDED MARCH 2003 TO MARCH 2009 . REGARDING THE L I VE CONNECTIONS ASSESSEE SUBM I TTED DETAILS WITH CUSTOMER CODE AND FOR SECURITY DEPOSIT REFUND THE SUBSCRIBER DETAILS. IT ALSO SUBMITTED AS PER ITAS NO.4082 & 4200/DEL/2014 9 ANNE X URE 3 DETAILS WITH REGARD TO CURRENT STATUS OF LIVE CONNE CT I ONS AND AMOUNT OF OUTSTAY I NG SECURITY DEPOSIT. BEFORE H I M THE ASSESSEE ALSO SUBMITTED THAT TRIAL BALANCE , NATURE OF DEPOS I TS , DEPOSIT REFUND ACCOUNT AND DETAILS OF DEPOSIT ADJUSTMENTS . SUCH FURN I SHING OF DETAILS HAVE BEEN MENTIONED BY THE LD. CIT ( A ) I N PARA 5 . 2 . 4 TO 5 . 2 . 6 IN H I S O R DE R . ON SUBMISS I ON OF THIS INFORMAT I ON THE ID CIT ( A ) OBTAINED THE REMAND REPORT FROM ASSESSING OFFICER AND AFTER OBTA I N I NG REJO I NDER HA S HELD THA T THE DEPOSITS HELD BY THE ASSESSEE ARE IN THE CHARACTER OF CUSTODIAL AS IT HAS TO REFUND IT AS SOON AS SERVICES ARE TERMINATED. HE FURTHER OBSERVED THAT T HE DEPOSIT OUTSTANDING IS DECREASING GRADUALLY AND THE REFORE HELD THAT IT DOES NOT PARTAKE THE CHARACTER OF TRADING LIABILITY AS THERE IS OBLIGATION TO REPAY THE SAME. HE FURTHER HELD THAT THE APPELLA NT 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 THESE COULD NOT BE RE CONCILED WITH THE RESPECT TO THE LIVE CONNECTION AS PER STATEMENT IN ANNEXURE 3 SUBMITTED . WE DO NOT AGREE WITH THE FINDING OF THE ID CIT(A) TO THE EXTENT OF CONFIRMATION OF THE ADDITION PARTLY MERELY BECAUSE RECONCILIATION I N THESE ACCOUNTS WITH RESPECT TO THE LIVE CONNECTIONS ARE PENDING. THE OBSERVATION OF THE ID CIT(A) IS ALSO NOT CORRECT THAT ASSESSEE SUB MITTED THAT THIS AMOUNT IS UNDER RECONCILIATION AND TO THA T 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 P ENDING RECONCILIATION THE DEPOSIT BECOME INCOME OF THE ASSESSE. IN VIEW OF THIS WE SET ASIDE THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PROVIDE RECONCILIATI ON 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 RESTR ICTED. 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 DEMA NDED BY THE CUSTOMER. THEREFORE , ID. ASSESSING OFFICER IS DIRECTED TO GRANT AN OPPORTUNITY TO THE ASSESSEE FOR RECONCILIATION OF THE ABOVE DEPOSIT AS HELD ABOVE AND THEN DECIDE THE ISSUE AFRESH . IN VIEW OF THIS GROUND NO. 6 OF THE ASSESSEE'S APPEAL IS ALLOWED ACCORDINGLY . ' 7.1 ALSO THE APPEAL OF THE REVENUE ON SIMILAR GROUN D WAS ALSO DECIDED BY THIS TRIBUNAL IN THE APPEAL FOR A . Y. 2006-07 IN ASSESSEES OWN CASE WHEREIN THE APPEAL OF THE REVENUE HAS BEEN DISMISSED, STATI NG AS UNDER (PB 172 - 173): ' 21 . GROUND NO. 1 TO 4 OF THE APPEAL ARE AGAINST DELETION OF ADDITION ON ACCOUNT OF SUBSCRIBER DEPOSIT AND INTEREST THEREON . THESE GROUNDS OF ITAS NO.4082 & 4200/DEL/2014 10 APPEAL ARE INTER LINKED TO THE GROUND NO. 6 AND 7 OF THE APPEAL OF THE ASSESSEE . WHILE DECIDING ' THE GROUND NOS. 6 AND 7 OF THE APPEAL OF THE ASSESSEE WE HAVE HELD THAT THAT THERE IS NO INFIRMI TY IN THE ORDER OF THE ID CIT(A) WITH RESPECT TO SUBSCRIBER'S DEPOSIT HELD TO BE PAYABLE BY THE ASSESSEE 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 SPECIALLY IN VIEW OF THE ASSESSEE FURNISHING SUBSTANTIAL DETAILS AND RECONCILIATION 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 PAYABLE WITH RESPECT TO SUBSCRIBER DEPOSIT WHICH IS COMPLETELY RECONCILED. IN VIEW OF TH I S WE DISMISS GROUND NO . 1 TO 4 OF THE APPEAL OF THE REVENUE .' 7.2 THEREFORE , SINCE THE ISSUE UNDER CONSIDERATION IN THESE GROUND S IS SIMILAR TO THE ISSUE ALREADY DECIDED BY THIS TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y.2006-07, THE ORDER PASSED BY THIS TRIB UNAL FOR A.Y.2006-07 HAS TO BE FOLLOWED. ACCORDINGLY THIS APPEAL OF THE REVENUE IS DISMISSED AND APPEAL OF THE ASSESSEE IS SET ASIDE TO THE FILE OF THE AO TO GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PROVIDE RECON CILIATION AND THE AO WILL DECIDE THE ISSUE ON SIMILAR LINES AS IN ASSESS MENT YEAR 2006-07. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.4200/DEL/2014 IS DISMISSED AND THE APPEAL OF THE ASSESSEE IN ITA NO.4082/DEL/2014 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 17 TH APRIL, 2017 SD/- SD/- (I.C. SUDHIR) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17/04/2017 PRABHAT KUMAR KESARWANI, SR.P.S. COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT