ACIT, CIRCLE- 1, LTU, New Delhi V. Mahanagar Telephone Nigam Ltd., New Delhi

ITA 4443/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7381 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 04-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMITA M BISWAS
• Assessee Lawyers: VED JAIN SHRI AKSHIT GOEL
• Keywords: Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 14A; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCE) ITA NO.4443/DEL./2017 (ASSESSMENT YEAR : 2012-13) ACIT, CIRCLE 1, VS. M/S. MAHANAGAR TELEPHONE NIGA M LTD., NEW DELHI. 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI 110 003. (PAN : AAACM0828R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE SHRI AKSHIT GOEL, CA REVENUE BY : MS. PRAMITA M. BISWAS, CIT DR DATE OF HEARING : 15.12.2020 DATE OF ORDER : 22.01.2021 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CIRCLE 1, NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL S OUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 17.04.2017 PASSED BY THE C OMMISSIONER OF INCOME-TAX (APPEALS)-22, NEW DELHI QUA THE ASSES SMENT YEAR 2012-13 ON THE GROUNDS THAT :- ITA NO.4443/DEL./2017 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, LD. CIT (A) HAS ERRED IN RESTRICTING THE DISAL LOWANCE OF INTEREST ON CUSTOMER'S DEPOSIT ACCOUNT TO RS.4,52,6 59/- AS AGAINST DISALLOWANCE OF RS.41,11,348/- AND IN ARBIT RARILY RESTRICTING THE DISALLOWANCE OF INTEREST TO 11.01 % OF TOTAL INTEREST PAID WITHOUT ANY RATIONAL BASIS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) HAS ERRED IN RESTRICTING THE D ISALLOWANCE TO ONLY 0.5% OF AVERAGE INVESTMENT INCOME OF RS.1,7 9,15,000/- AS AGAINST RS.14,30,74,000/-. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE COMPANY IS A GOV ERNMENT OF INDIA PUBLIC SECTOR UNDERTAKING PROVIDING TELEPHON E SERVICES AND INTERNET SERVICE PROVIDER SERVICES, IN SERVICES, IN TEGRATED SERVICE DIGITAL NETWORK SERVICES, MULTIMEDIA SERVICES, PAGI NG SERVICES AND OTHER VALUE ADDED SERVICES AND TO CARRY ON THE BUSI NESS OF TELEPHONE, TELEGRAPH CABLE AND WIRELESS COMPANY ETC . IT IS ALSO INTO PROVIDING TELECOMMUNICATION SERVICES LIKE INTERNET, E-TENDERING, CYBER CAF SERVICES AND SALE OF ISP PACKS & ANMOL C ARDS. ASSESSING OFFICER (AO) AFTER REJECTING THE CONTENTI ONS RAISED BY THE ASSESSEE COMPANY MADE ADDITION OF RS.41,11,348/- ON ACCOUNT OF DISALLOWANCE OF INTEREST ON CUSTOMERS DEPOSIT ACCOU NT ON THE GROUND THAT THE WHOLE AMOUNT OF DEPOSIT WAS HELD TO BE ITS OWN FUNDS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. AO ALSO MADE DISALLOWANCE OF RS.14,30,74,000/- UNDER S ECTION 14 A OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) . ITA NO.4443/DEL./2017 3 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) BY WAY OF FILING THE APPEAL WHO HAS PARTLY ALLOWED THE APPEAL . FEELING AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT (A), T HE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PR ESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 5. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED RESTRICTION OF DISALLOWANCE OF INTEREST ON CUSTOMER S DEPOSIT ACCOUNT TO RS.4,52,659/- AS AGAINST DISALLOWANCE OF RS.41,1 1,348/- MADE BY THE AO CONTENDED THAT ANY INTEREST THAT ACCRUES ON THE CUSTOMERS DEPOSIT ACCOUNT IS ALSO ASSESSEES OWN INCOME AND I S LIABLE TO BE TAXED IN ITS OWN HANDS AND RELIED UPON THE ORDER PA SSED BY THE AO. 6. HOWEVER, ON THE OTHER HAND, TO REPEL THE ARGUMEN TS ADDRESSED BY THE LD. DR FOR THE REVENUE, THE LD. AR FOR THE ASSESSEE CONTENDED THAT THIS GROUND IS COVERED BY T HE REVENUES OWN DECISION PASSED IN AY 2011-12 DATED 01.03.2016 IN ASSESSEES OWN CASE AND HAS NOT BEEN CHALLENGED BEFORE THE HIGHER FORUM AND SUPPORTED THE IMPUGNED ORDER PASSED BY TH E LD. CIT (A). ITA NO.4443/DEL./2017 4 7. LD. CIT (A) DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING ITS OWN ORDER DATED 01.03.216 FOR AY 2011-12 BY RETURNING FOLLOWING FINDINGS :- 7. GROUND NO. 3 PERTAINS TO A DISALLOWANCE OF INT EREST ON CUSTOMER'S DEPOSIT ACCOUNT. IN THE A. Y. 06-07, THE ENTIRE AMOUNT OUTSTANDING UNDER THE HEAD 'CUSTOMER'S DEPOSITS' WA S HELD TO BE NON PAYABLE AND, THEREFORE, THE SAID AMOUNT WAS ADD ED TO THE INCOME OF THE APPELLANT AND THE CORRESPONDING INTER EST WAS ALSO DISALLOWED. HOWEVER, ON APPEAL, THE CIT(A) HELD THA T ONLY THE AMOUNT OF RS. 127,69,83,720/- WAS NOT PAYABLE OUT O F THE TOTAL DEPOSITS OF RS. 11,59,32,90,009/-. THE RATIO OF THE SE TWO FIGURES COMES TO 11.01%. THEREFORE, THE CIT(A) IN A. Y. 08- 09, 09-10 AND 10-11 RESTRICTED THE DISALLOWANCE OF INTEREST O N CUSTOMER'S DEPOSITS TO 11.01% OF THE TOTAL INTEREST PAID. THER E IS AN IMPLICIT PRESUMPTION IN THIS FINDING THAT THE PERCENTAGE OF NON PAYABLE DEPOSITS AS A PERCENTAGE OF TOTAL CUSTOMER'S DEPOSI TS DID NOT INCREASE OR DECREASE AFTER A. Y. 06-07. IN THE ABSE NCE OF ANY FACTUAL ANALYSIS OF THE CUSTOMER'S DEPOSITS IN A. Y . 11-12 BY THE AO OR BY THE APPELLANT, THE DECISION IN THE YEAR UN DER APPEAL IS BEING GIVEN ON THE BASIS OF THE SAME PRESUMPTION AN D THE DISALLOWANCE IS RESTRICTED TO 11.01% OF RS. 47,00,8 72/-. THEREFORE, THE ADDITION MADE IS REDUCED TO RS. 5,17 ,566/- AND GROUND NO. 3 OF THE APPEAL IS, THEREFORE, PARTLY AL LOWED.' 8. UNDISPUTEDLY, IN AY 2006-07 ALSO, THE ENTIRE OUT STANDING AMOUNT UNDER THE HEAD CUSTOMERS 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 O NLY THE AMOUNT OF RS.127,69,83,720/- WAS NOT PAYABLE OUT OF THE TO TAL DEPOSIT OF RS.11,59,32,90,000/- HAVING RATIO OF THESE TWO FIGU RES OF 11.01% AND THIS ORDER WAS ALSO FOLLOWED IN AYS 2008-09, 20 09-10 & 2010-11. ITA NO.4443/DEL./2017 5 9. WE ARE OF THE CONSIDERED VIEW THAT WHEN THE METH OD OF DETERMINING THE RATIO BETWEEN THE PAYABLE AMOUNT OU T OF TOTAL DEPOSITS HAS BEEN CONSISTENTLY FOLLOWED BY THE REVE NUE DEPARTMENT SINCE AY 2006-07 AND THE ORDER PASSED BY THE LD. CIT(A)S HAS NOT BEEN CHALLENGED NOR ANY DISTINGUIS HING FACTS AND CONTRARY PROVISIONS OF LAW HAVE BEEN BROUGHT ON REC ORD BY THE LD. DR FOR THE REVENUE, WE FIND NO SCOPE TO INTERFERE T HE FINDINGS RETURNED BY THE LD. CIT (A). SO, GROUND NO.1 IS DET ERMINED AGAINST THE REVENUE. GROUND NO.2 10. LD. CIT (A) REDUCED THE DISALLOWANCE UNDER SECT ION 14A TO 0.5% OF THE AVERAGE INVESTMENT INCOME OF RS.179,15, 000/- AS AGAINST RS.14,30,74,000/- MADE BY THE AO. UNDISPUT EDLY, DURING THE YEAR UNDER ASSESSMENT, ASSESSEE COMPANY HAD REC EIVED NIL DIVIDEND INCOME HAVING AN INVESTMENT OF RS.2213.73 MILLION AS ON 31.03.2012. LD. CIT (A) DELETED THE ADDITION U/S 1 4A READ WITH RULE 8D(2)(II) BY FOLLOWING ITS OWN DECISION PASSED IN ASSESSMENT YEAR 2011-12 WHICH HAS BEEN CONFIRMED BY THE TRIBUN AL AS WELL AS HONBLE DELHI HIGH COURT, BUT ADDITION UNDER SECTIO N 14A READ WITH RULE 8D(2)(III) IS CONFIRMED TO THE EXTENT OF 0.5% OF THE AVERAGE INVESTMENT, FROM WHICH EXEMPT INCOME IS EAR NED. SINCE ITA NO.4443/DEL./2017 6 THE ISSUE IS SETTLED IN ASSESSEES OWN CASE BY THE HONBLE DELHI HIGH COURT IN ITA 136/2020 ORDER DATED 17 TH NOVEMBER, 2020 (2020 (12) TMI 262 DELHI HIGH COURT) , THERE IS NO SCOPE TO INTERFERE INTO THE FINDINGS RETURNED BY THE LD. CIT (A). OPERATIVE PART OF THE FINDINGS RETURNED BY THE HONBLE DELHI HIGH COURT IS AS UNDER :- DISALLOWANCE U/S 14A R/W RULE 8D(2)(III) - EXPENDI TURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL I NCOME - CIT (A) RESTRICTED TO 0.5% OF THE AVERAGE INVESTMENT INCOME - HELD THAT:- CIT(A) DELETED THE DISALLOWANCE OF INTEREST UNDER SECTION 14 A R/W RULE 8D (2)(II), CONSIDERING THE F ACTUAL POSITION AND THE FACT THAT THE RESPONDENT-ASSESSEE HAD INTER EST-FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS . AS REGARDS THE DISALLOWANCE UNDER RULE 8D(2)(III), IT WAS OBSERVED THAT RESPONDENT-ASSESSEE'S CLAIM THAT NO E XPENDITURE WAS INCURRED IS NOT CORRECT - EXPENDITURE WAS TO BE ESTIMATED UNDER RULE 8D(2)(III) BEING 0.5% OF THE AVERAGE INV ESTMENT INCOME WHICH IS EXEMPT. IT WAS NOTICED THAT VALUE O F AVERAGE INVESTMENT HAD BEEN CALCULATED AS THE AVERAGE OF TO TAL INVESTMENTS, MENTIONED IN SCHEDULE F. CIT (A) NOTED THAT SINCE ALL THE INVESTMENTS MENTIONED IN SCHEDULE F DO NOT YIELD EXEMPT INCOME, DISALLOWANCE UNDER SECTION 14A READ WITH RU LE 8D(2)(III) HAS BEEN RESTRICTED ONLY TO 0.5% OF THE AVERAGE INVESTMENT INCOME WHICH IS EXEMPT, IRRESPECTIVE OF WHETHER SUCH EXEMPT INCOME WAS RECEIVED DURING AY 2011-12. THIS APPROACH HAS BEEN UPHELD BY THE LEARNED ITAT. WE DO NOT FIND ANY PERVERSITY IN THE SAME OR FIND ANY REASON TO ENTERT AIN THE PRESENT APPEAL TO INTERFERE WITH THIS FINDING THAT IS BASED ON FACTS. ADDITION WITH RESPECT TO THE PRIOR PERIOD INCOME - HELD THAT:- AS NOTICED THAT THE PROFIT AND LOSS ACCOUNT OF THE RESPONDENT- ASSESSEE SHOWS THAT IT 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 RESPONDENT-ASSESSEE ON BELOW THE LINE PROFIT. ON TH IS ISSUE, SINCE FACTUAL ASPECTS HAVE TO BE VERIFIED, THE LEARNED IT AT HAS REMANDED BACK THIS ISSUE WITH A DIRECTION TO THE AO TO NET OFF PRIOR PERIOD INCOME AND THE PRIOR PERIOD EXPENDITUR E AND TAX ONLY THE NET INCOME. THIS DIRECTION CALLS FOR NO IN TERFERENCE BY THIS COURT. NO SUBSTANTIAL QUESTION OF LAW. ITA NO.4443/DEL./2017 7 11. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT WHEN ALL THE INVESTMENT CONSID ERED 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 A VERAGE INVESTMENT HAS BEEN RIGHTLY MADE BY THE LD. CIT (A) . SO, FINDING NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNE D BY THE LD.CIT (A), GROUND NO.2 IS DETERMINED AGAINST THE REVENUE. 12. RESULTANTLY, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 22 ND DAY OF JANUARY , 2021. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 22 ND DAY OF JANUARY, 2021 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-22, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.