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Shri Biren Shah Versus DCIT 16 (3) , Mumbai

2016 (9) TMI 708 - ITAT MUMBAI

Disallowance of Interest - Accrual of interest liability - year of assessment - Held that:- Any liability for expenses can be claimed in the year of crystallization. In the instant case assessee had had not claimed interest expenditure in earlier years, however to settle the matter he entered into MOU with creditors to pay the same. The liability to pay interest for earlier year was crystallized during this year only. In view of all the contradictions pointed out by CIT(A), we restore the matter .....

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liberty to disallow the same. We directed accordingly. - Penalty u/s.271(1)(c) - Held that:- The assessee claimed the interest to the tune of ₹ 53,76,200/- which was disallowed on the ground of that earlier to the relevant assessment year no provision of interest was retained in the account books and when the assessee claimed in the relevant assessment year then the same includes the interest payable to M/s. Sangam India Ltd. for the earlier year also i.e. 2000-01 to onwards. The MOU .....

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culars just to evade the tax liability, therefore, in the said circumstances the law relied by the representative of the assessee has to no use. - I.T.A. No.7462/Mum/2011 & I.T.A.757/Mum/2010 - Dated:- 5-8-2016 - SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM For The Assessee : Shri Pramod Kumar Parida and Ms. Sanjukta Chowdhury For The Department : Shri Sumit Kumar ORDER PER AMARJIT SINGH, JM: The above mentioned appeals have been filed by the assessee against the different orders passed by the .....

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the tune of ₹ 58,15,725/-. The return of income was accompanied by the Statement of total income, balance sheet, Trading, Profit and Loss Account, Proprietor s Capital Account along with its Schedules. The case was selected for scrutiny, therefore, notices u/s.143(2) and 142(1) of the Income Tax Act, 1961 ( in short the Act ) were issued and served upon the assessee. The Assessing Officer disallowed the interest claimed to the tune of ₹ 53,76,200/- but as the same was not paid to th .....

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m without appreciating that the liability to pay interest got crystallized by virtue of MOU with the two creditors which was overdue since long and could not be paid on account of mounting losses in the business and initiation of legal actions by the creditors; therefore, as per the mercantile method of accounting followed, the claim of the Appellant ought to have been allowed. b) The ld. CIT(A) failed to appreciate that the interest liability is arising on account of failure to meet trading lia .....

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ior period expenses are not allowable. d) Without prejudice to above, the alleged miscalculation of interest cannot override the chargeability; therefore, the ld. CIT(A) erred in not appreciating to the bonafides of genuine claim. 2. Levy of Penal Interests: The appellant, on merits, denies his liability to penal interest. ISSUE NO.1:- 4. Under issue no.1, the assessee has challenged the addition of interest to the tune of ₹ 53,76,200/- in the income of the assessee. The representative of .....

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authority has wrongly disallowed the interest to the tune of ₹ 53,76,200/- and wrongly added to the income of the assessee, therefore, the order passed by the CIT(A) dated 04.07.2011 is wrong against law and fact and is liable to be set aside. It is also argued that the interest is liable to be allowable being liability of the assessee in his account books in accordance with law. 5. On the other hand the learned representative of the department has strongly relied by the order passed by th .....

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a Ltd. and in reply M/s. Sangam India Ltd. said that he did not receive any interest from the assessee. The assessee has recorded the said entry in his account books whereas no entry has been recorded in the account book of M/s. Sangam India Ltd. The Assessing Officer took the view that the assessee did not incur any interest expenses for business purpose. He was also of the view that the amount to the tune of ₹ 53,76,200/- was not paid to the M/s. Sangam India Ltd. and this fact was confi .....

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It is incumbent upon the assessee to prove this fact the amount as well as the interest payable to the M/s. Sangam India Ltd. is in connection with the business purpose. The silent feature is necessary to describe on record to know about the nature of the transaction which is reproduced as under:- 5.1. The salient features of the MOU are as under: i. Appellant is co-owner of the property at Prithvi Apartment alongwith his brother having 50% share therein. The property was agreed to be sold for a .....

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agreed to be adjusted from the amount payable to the appellant towards sale of the property. After such adjustment, the balance amount payable as on 15.11.2003 was worked at ₹ 70,08,307/- which was inclusive of interest upto 15.11.2003. iv. The said amount of ₹ 70,08,307/- was agreed to be paid by the appellant, by way of 30 monthly post dated cheques starting from 15th Nov. 2003 alongwith the interest calculated thereon as per annexure 2 to the MOU. v. The outstanding calculation g .....

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installments Starting from 15.11.2003 Rs.67,19,639/- Add: Interest on above till 15.11.2003 ₹ 2,88,668/- Grand Total Rs.70,08,307/- 6. We have considered the rival contention and found that assessee is liable to pay out standing purchases amount to its creditor. For this purpose assessee had entered into MOU with the creditors. However, at the very same time we found that MOU so entered for payment of principle as well as interest was not acted upon, it means there is no material on recor .....

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claimed interest expenditure in earlier years, however to settle the matter he entered into MOU with creditors to pay the same. The liability to pay interest for earlier year was crystallized during this year only. In view of all the contradictions pointed out by CIT(A), we restore the matter back to the file of Assessing Officer to examine the correctness of the interest so claimed with reference to actual amount due to earlier year. Assessing Officer is also directed to verify if assessee had .....

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h after deciding the quantum as directed by the Tribunal. 7. After the execution of the MOU the appellant and his brother fail to honour the MOU and did not pay the amount to the assessee nor interest paid. In brief the actual amount if any payable to M/s. Sangam India Ltd. and SPBL Ltd. was not paid. Therefore, M/s. Sangam India Ltd. and SPBL Ltd. filed the suit no.985 of 2006 before the Hon ble Bombay High Court. The contention of the assessee in connection with the calculation of the interest .....

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nt. Appellant also provided details of the calculation of interest. But on comparison the revenue authority fail to match figure of ₹ 53,76,200/- with the interest which has been shown in the MOU. The CIT(A) desired the working of interest from the assessee who submitted his letter dated 30.06.2011 furnishing the details which is reproduced as under:- As required by you the details of break up interest of ₹ 53,76,200/- debited to profit and loss account for A.Y.2004- 05 based on MOU .....

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/- Balance on 31.3.2002 Rs.89,05,781/- Add Interest @ 16% for the year 2002-03 Rs.14,24,925/- Balance on 31.3.2003 Rs.1,03,30,706/- Add Interest @ 14% for the year 2003-04 Rs.14,46,297/- Balance as on 31.3.2004 Rs.1,17,77,005/- When the said figure was compared by the CIT(A) the same was not found in accordance with the figure mentioned in the books of account. The said letter also speaks that the interest if any was also belonging to the financial year 2000-2001 to onwards but no provision of i .....

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iciously which does not require to be interfere with at this stage. Accordingly appeal filed by the assessee is dismissed. ITA NO.7462/Mum/2011:- 8. The assessee has raised the following grounds:- 1) The learned CIT(A) has erred in law and in facts in upholding order of AO in levying penalty u/s.271(1)(c) of ₹ 17,45,546/-. 2) The learned CIT(A) has erred in law and in facts that no appeal was filed against the assessment order disallowing interest claimed of ₹ 53,76,200/- when actual .....

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