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Divine Holdings Pvt. Ltd Versus Dy. CIT, Central Circle 31, Mumbai

Rectification of mistake - Relief of liability towards interest expenditure claimed by the appellant - deductibility of interest u/s. 57(iii) - Held that:- We have given our careful consideration to the matter. In our view, no claim for interest survives. This is not for the reason that no interest was contemplated or agreed upon at the time the debt came into existence or during the relevant years, as noted by the tribunal earlier. This is also not for the reason that no interest was agreed upo .....

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other words, A is equally liable for the liability of B, and so on. The liabilities, accordingly, only represent inter se balances held in account, not leading to any substantive right or liability per se. Where, we wonder, then, is the question of interest arising on such inter-personal balances? We have in fact already observed, and which is in keeping with the observations made in the impugned order, of there being nothing on record to show of accrual of any liability qua interest, which we .....

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esh Shah For The Respondent : Dr. P. Daniel ORDER Per Sanjay Arora, A. M.: This is a Miscellaneous Petition by the Assessee against the Order u/s. 254(1) of the Income Tax Act, 1961 ( the Act hereinafter) by the Tribunal dated 10.03.2014 in its case for assessment year (A.Y.) 2007-08, deciding the captioned appeal. 2. Vide its instant application, the assessee-applicant impugns the appellate order u/s. 254(1) supra for the various observations made therein by the Tribunal while deciding the asse .....

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The ld. CIT(A) disallowed interest on the ground that the matter being subjudice, the liability qua the same cannot be said to be an ascertained liability. The deductibility of interest was, accordingly, linked by him to the decision of the Special Court hearing the matter, i.e., to the outcome of the decision in the case before it (in MP No. 41 of 1999). The tribunal s discussion in the matter is at para 3.1 to para 3.3 of its order; it deciding the same thus (para 3.3, page 5): 3.3 In the fac .....

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me from other sources, cannot exceed the rate at which the interest on deposit/s stands earned by the assessee, on an average, for the relevant period. We state so as only the expense incurred for the purpose of earning the interest income is to be allowed u/s. 57 of the Act. Payment of interest at a higher rate implies a gross loss, with no contractual obligation to pay interest having been established, so that the payment of interest at a higher rate cannot either conceivably, i.e., under the .....

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of the interest (rate) fetched on the term deposit wherein the borrowed funds stand invested. In other words, the impugned observations by the tribunal do not, in any manner, disturb or percolates its finding or decision, which is in conformity with the Revenue s stand of the liability being unascertained, so that no right has arisen in favour of the creditor. This is also precisely the Revenue s case as projected during hearing as well, with the tribunal describing the liability as inchoate (r .....

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ord are 6 in number (at pgs. 30 - 35 of the paper-book), which do not bear any mention of or any stipulation as to interest, much less interest being paid or allowed to the notified party. Clearly, in its view, the pages relating to the claim of interest have not been adduced before it by the assessee. If, as being stated (at para 7 of the application), that the same was only an alternate claim, and that both the assessee borrower and the custodian (representing the lenders), have been regarded .....

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specify the material or the basis for the said observation by the ld. CIT(A). Rather, the ld. CIT(A) himself - at para 7.7 of his order, states that regardless of the intention, the decision of the Hon ble Special Court would be the relevant factor in determining the liability to interest. That is, he himself chooses to ignore the same, and proceeds to hold the issue of accrual of interest as disputed and, therefore, uncertain. The matter being subjudice, he, however, considers it fit and approp .....

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by his later observation, and is thus rendered of no moment. The said observation by the ld. CIT(A), which did not survive his order, or in fact even his decision, is even otherwise not binding on the tribunal. To therefore contend, on its basis, of the impugned order as mistaken , is itself grossly mistaken; the assessee being unable to even show of the same being erroneous, much less mistaken. 3.2 At this stage, the Bench making its view known, the ld. AR would submit that inas- much as the ju .....

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ny stage plead of the decision by the Special Court as not bearing any decision qua interest, i.e., except for the first time in the rectification proceedings. We agree. This is even otherwise apparent from the order of the ld. CIT(A), which itself is of later date (10.09.2010), and stood subsequently confirmed by the tribunal. Had the assessee clarified this fact , there was no question of the first appellate authority aligning his decision to that by the Special Court, which also found favour .....

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ant time. However, we consider the tribunal to be equal, if not more, responsible for the same. It, instead of assuming that the unfurnished part of the order by the Special Court would contain its decision qua interest, ought to have clarified that aspect through enquiry during hearing, being the final fact finding authority. Its order rests on an assumption that the issue qua interest is subjudice, and stands to be decided either way, while in fact it survives no longer, and was thus not decid .....

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ause prejudice to any party before it. 3.3 The impugned order would, thus, require being modified in-as-much as, in light of the facts that have now come to notice, the earlier decision by the tribunal becomes inoperable. We have given our careful consideration to the matter. In our view, no claim for interest survives. This is not for the reason that no interest was contemplated or agreed upon at the time the debt came into existence or during the relevant years, as noted by the tribunal earlie .....

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