9911796707
TMI Blog2017 (12) TMI 1668X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of appeal: - "1. The Ld. Commissioner of Income-Tax (Appeals) ought to have allowed the deduction of interest expenditure to the extent of Rs. 2,64,72,208/- as follows: Sr. No. Entities Outstanding amount payable Interest @ 12% p. a. payable 1. Ashwin S. Mehta 4,87,92,875 58,55,145 2. Jyoti H. Mehta 4,43,50,467 53,22,056 3. Harshad S. Mehta 13,03,84,858 1,56,46,183 Total 22,35,28,200 2,68,23,384 Less: Proportionate disallowance of interest u/s. 14 A of the Act 3,51,176 Total 2,64,72,208 2. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming the estimated addition on account of personal household expenses amounting to Rs. 6,00,000/-. 3. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A, 234B and 234C of the Act. 4. The Ld, Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234B and 234C of the Act." Subsequently th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through, we hold that to the extent the assessee has not incurred liability towards interest for earning of the income towards borrowing for the purpose of making investment in shares and securities. The interest to that extent shall form part of the cost of acquisition of shares and securities and has to be taken into account as part of cost of shares for determining the profit on sale of shares. To that extent we allow the additional ground in each of the case. 6. Ground No. 1 relates to the interest expenditure claimed by the assessee. The AO disallowed the same because the interest income on term deposits as claimed by the assessee, in the opinion of the AO, was not allowable due to the following reasons: - (a) The interest payable is tentative and provisional. (b) There is no basis as per which the assessee has a right to pay and the creditors has a right to receive. (c) There is no basis of computation of interest payable which has been provided by the assessee. (d) The provisions made on account of interest payable is a contingent liability and therefore cannot be allowed. (e) The broking firms have not charged any interest on the amount receivable from companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest @12% per annum on the credit balance. The family members are dealing with the above three brokerage firms within the family itself. There was no written agreement. Based on such understanding interest on credit balance was provided by the assessee as he followed mercantile system of accounting and therefore it is necessary for the assessee to reckon both income and expenditure. Our attention was drawn towards the assessment order in this regard that the assessee was following mercantile system of accounting. It was further submitted that the assessee has made such claims in the past which were duly allowed by the AO. In this regard attention was drawn towards computation of income for A.Y. 1990-91 as well as assessment order dated 26.03.1993 passed under Section 143(3). In that year assessee claimed interest on mercantile basis, which was allowed. The order for A.Y. 1990-91 was passed well after notification of the assessee on 08.06.1992 and even without any order being passed by the Hon'ble Special Court. The learned A.R. also referred to the order of the CIT(A) dated 26.06.2012 passed in the case of M/s. Grow More Leasing & Investment Ltd. for A.Y. 2007-08 and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled the agreement to pay interest between the assessee and his creditors. Our attention was also drawn to the evidence filed by the custodian in M.P. No. 41 of 1999 in which the custodian himself strongly advocated levy of interest and infact calculated interest on such credit balances @15% to 18% per annum to demonstrate that the liability of the family members including the assessee are more than the assets of the respective members. This proves that the funds borrowed by the assessee from the brokerage firms were subject to levy of interest as claimed, even as per the custodian. Thus it was contended that since the contract entered into by the assessee to avail interest bearing loans and advances has not affected by the notification and the assessee is liable to pay the interest. The said interest should be allowed as deduction. Reliance was placed in this regard on the decision of the Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd. vs. IFCI 154 taxman 512 (SC) and BOI Finance Ltd. vs. Custodian and Others 10 SEC 488. 9. With regard to the contention of the AO that the recipient has not offered interest income to tax in their return, the learned A.R. submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 and for this attention was drawn toward the ledger account of Late Shri Harshad Mehta in his books for A.Y. 2011-12. For the objection of the AO that no basis for calculation of interest has been submitted by the assessee, the learned A.R. contended that this allegation is totally incorrect. The details were duly filed along with revised ground of appeal and therefore the observations of the AO are not justified. With regard to allegation of the CIT(A) that the nexus of interest income with interest expenses is not established the learned D.R. contended that the monies were borrowed to meet the investment in shares and securities. Subsequently under the direction of the Hon'ble Special Court for other years part of these very investments were sold and the fund realised were invested in the fixed deposits with several banks. Thus the income generated has been brought to tax by the AO in the impugned assessment year. There was in fact a direct nexus between the money borrowed and the investment made in terms deposits. Reference was invited to the order of the CIT(A) dated 31.08.2010 passed in the case of Dr. Hitesh S. Mehta for A.Y. 2005-06 wherein this issue has been specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to the extent of Rs. 5,86,404/-. From page 75 of the paper book which contains the computation of income for A.Y. 1990-91, we noted that the assessee has disclosed the loan taken for the purchase of investment. The assessee is consistently following mercantile system of accounting which is apparent even from the assessment order of A.Y. 1990-91 as well as from the impugned assessment year. The order for A.Y. 1990-91 in fact has been passed by the AO after the date of notification and the enactment of the Special Court Act. We have gone through the order passed by the CIT(A) in the case of Shri Ashwin S. Mehta assessment years 2010-11 and 2011-12, where we noted that this issue of taxability of interest income of the assessee and other parties has specifically been dealt with by the CIT(A) and accordingly interest income of Rs. 10,68,83,732/- was brought to tax. In view of this fact it is apparent that the assessee is liable to pay interest on the amount outstanding. Therefore the liability towards interest got accrued. Under the mercantile system of accounting interest is deductible when it has accrued. This also proves that there was an agreement, may be oral, to pay th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he oral agreement coupled with action and intentions of the parties is sufficient to prove the existence of liability. This order of the CIT(A) was followed by him in the case of the assessee while adjudicating the ground relating to the interest expenses for A.Y. 2006-07 vide order dated 27.09.2013 under para 6 which has been reproduced under para 18 of the order of the assessee. These finding and observation in the above orders of the CIT(A) has not been disputed by the Revenue by filing an appeal. In view of this finding becoming final, in our view, the existence of liability for payment of interest cannot be disputed. 14. Coming to the objection of the Revenue that interest cannot be allowed as deduction has not been shown by recipients in their income. As has been discussed by us in the preceding paragraphs the interest has been shown as income by Mr. Ashwin S. Mehta in assessment years 2010- 11 and 2011-12. We also noted that Late Shri Harshad Mehta has been offering his income on cash basis and the method of accounting has been duly upheld by the Tribunal in his case for A.Y. 1989-90. Even otherwise disallowance of interest claimed by the assessee cannot be made merely beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est income, I find that the Balance Sheet of the appellant and the affidavit filed by the custodian before the Hon'ble Special Court supports the fact that the funds borrowed from Shri Harshad S. Mehta were deployed by the appellant in various assets like shares and securities, properties, etc. These funds generated income in the form of dividend and interest income. After being notified, such shares and securities got converted into Fixed Deposits with various banks. These fixed deposits generated interest income which is offered to tax. Hence, a reasonable nexus can be said to exist between the interest liability incurred by the appellant, and the interest income earned from these assets. However, this matter being sub-judice before the Hon'ble Special Court, no finding can be given on these matters." 15. Similar issue has arisen in the case of Shri Hitesh S. Mehta for A.Y. 2005-06 wherein the CIT(A) vide his order dated 31.08.2010 approved the nexus between borrowed funds and the investment in term deposit which has been followed by the CIT(A) even in the case of the assessee for A.Y. 2006-07 dated 27.09.2013. We do not agree with the submission of the learned D.R. that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take a different view of the matter and if there was not change it was in support of the assesses - we do not think the question should have been reopened and contrary to what had been decided by the Commission of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Sections 11 and 12 of the Income Tax Act of 1961." The aforesaid dictum of law was reiterated recently by the Supreme Court in CIT vs. Excel Industries Ltd. : 358 ITR 295. "It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the Assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather spend the tax payers money in pursui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred and added in the hands of the following members of the family, which are as under:- Sr. No. Name A.Y. 20O6-07 A.Y. 2007-O8 Additions by AO (Rs.) Confirmed by CIT(A) (Rs.) Additions by AO (Rs.) Confirmed by CIT(A) (Rs.) 1. Ashwin S. Mehta (Appellant) 12,00,0000 6,00,000 12,00,000 6,00,000 2. Jyoti H. Mehta 18,00,000 9,00,000 18,00,000 9,00,000 3. Rasila S. Mehta 6,00,000 3,00,000 6,00,000 3,00,000 4. Deepika A. Mehta 6,00,000 3,00,000 6,00,000 3,00,000 5. Sudhir S. Mehta - - 12,00,000 12,00,000 6. Smt. Rina S. Mehta - 6,00,000 6,00,000 TOTAL 42,00,000 21,00,000 60,00,000 39,00,000 20: On the other hand, Ld. Special Counsel submitted that the appellant is maintaining motor car and live in posh area of Mumbai, and no details of household expenses has been given by the appellant. In such a case, addition sustained by the CIT(A) appears to be far more reasonable. 21: After considering the rival submissions and on perusal of the relevant finding in the impugned order, we find that the addition made by the AO as well as sustained by the CIT(A) are though on ad-hoc basis, but same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 269 (Del.) (SB)], Sedco Fores Drilling Co. Ltd. [264 ITR 320], NGC Network Asia LLC [313 ITR 187], Summit Bhatacharya [ 300 ITR (AT) 347 (Bom)(SB)], Vijal Gopal Jindal [ITA No. 4333/Del/2009] & Emillo Ruiz Berdejo [320 ITR 190 (Bom)]. DR relied upon the cases of Devine Holdings Pvt. Ltd. 3.1.We have heard the rival submissions and perused the material before us. We find that in the case of Devine Holdings Pvt. Ltd. Hon'ble Bombay High Court has held that provisions of section 234A, 234B and 234C were applicable to the notified person also. Therefore, upholding the order of the FAA to that extent, we hold that provisions of section 234 of the Act are applicable. As far as calculation part is concerned, we find merits in the submission made by the assessee. Therefore, we are restoring back the issue to the file of the AO for fresh adjudication who would decide the issue after considering the amount taxed deductible at source on the income assessed and after affording a reasonable opportunity of hearing to the assessee. Ground no.5 is allowed in part in favour of the assessee." Respectfully following the said order of the Tribunal in the case of Eminent Holding P. Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph in ITA No. 5799/Mum/ 2015 dismiss ground No. 3 and direct the AO to recomputed the interest in accordance with our direction given in the case of Sudhir S. Mehta in ITA No. 5799/Mum/2015 while disposing off ground No. 4. Thus ground No. 4 is statistically allowed. 26. In the result, appeal filed by the assessee is partly allowed for statistical purposes. Smt. Rasila S. Mehta - ITA Nos. 5806/Mum/2015 & ITA 2378 & 2379/Mum/2017 27. In this case also the assessee has taken additional ground as has been taken in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015. In view of the discussion in the case of Shri Sudhir S. Mehta the additional ground taken by the assessee stands admitted. 28. In A.Y. 2011-12 assessee has taken identical grounds as taken in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015. In assessment years 2012-13 and 2013-14 the assessee has taken only ground Nos. 1 3 & 4 which were renumbered as ground Nos. 1, 2 & 3 except change in figure in ground No. 1. In ground No. 1 assessee has claimed deduction of interest at Rs. 1,29,51,465/- after proportionate disallowance of interest at Rs. 12,25,871/- for A.Y. 2012-13 and in A.Y. 2013- 14 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph in ITA No. 5799/Mum/ 2015 dismiss ground No. 3 in A.Y. 2011-12 and ground No. 2 in A.Y. 2012-13 and 2013-14 and direct the AO to recompute the interest in accordance with our direction given in the case of Sudhir S. Mehta in ITA No. 5799/Mum/2015 while disposing off ground No. 4. Thus ground No. 4 in A.Y. 2011-12 and ground No. 3 in A.Y. 2012-13 and 2013- 14 are statistically allowed. 31. In the result, appeals of the assessee are partly allowed for statistical purposes. Smt. Raina S. Mehta - ITA Nos. 5804 & 5805/Mum/2015 & ITA Nos. 2600, 2601, 4570 & 4571/Mum/2017 32. Both the parties agreed that the issue involved in all these appeals are common. In A.Y. 2004-05 and 2005-06 there are two more grounds relating to the income to be taxed in the hands of Late Shri Harshed Mehta and not granting of credit of TDS being ground Nos. 1 & 3. Since these grounds were not pressed through in both the appeals, they are dismissed as not pressed. 33. Now, therefore, in all the years expect change in figures in the ground relating to disallowance of interest expenditure there survive only three grounds as per the revised grounds of appeal for our adjudication. As agreed by both the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of interest after disallowance of proportionate interest in each of the assessment year after verifying the calculation of interest quantification. 34. The additional ground taken by the assessee relates to the disallowance of proportionate interest which has been claimed by the assessee to be capitalised towards the cost of shares and securities. As both the parties agreed that similar issue has arisen in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015 for A.Y. 2009-10 and whatever view this Tribunal may take in the case of Shri Sudhir S. Mehta the same view may be taken in the case of the assessee also. We therefore respectfully following the said decision of the Tribunal in the case of Shri Sudhir S. Mehta direct the AO to treat the proportionate interest disallowed in each assessment year to be part of cost of acquisition of shares and securities. Thus the additional ground in each of the assessment year stand allowed. 35. The rest of the two grounds in each of the assessment year relate to levy and calculation of interest under Section 234A, 234B and 234C. As agreed by both the parties that similar ground has arisen in the case of Shri Sudhir S. Mehta in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the facts relating to A.Y. 2011-12. In both the assessment years the assessee has also taken the additional ground relating to capitalization of interest. As the additional ground has been admitted in all the other cases, therefore the said ground stand admitted in both the years. 38. So far as the ground relating to the claim of interest after disallowing proportionate interest is concerned in both the assessment years, both the parties agreed that similar issue has arising in ground 1 in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta and whatever view this Tribunal may take in the case of Shri Sudhir S. Mehta same may be taken in the case of the assessee. While disposing of the appeal for A.Y. 2009-10 ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta relating to disallowance of interest we have deleted the said disallowance and directed the AO to allow the deduction of interest after reducing proportionate interest out of the interest earned on deposits. Respectfully following the said decision in the preceding paragraph we allow the ground on similar terms relating to the claim of interest taken by the assessee. 39. The assessee has taken additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,42,729/- Total 11,18,85,023 3. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming the estimated addition on account of personal household expenses amount to Rs. 3,00,000/-. 4. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A, 234B and 234C of the Act. 5. The Ld, Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234B and 234C of the Act." 43. In A.Y. 2011-12 the assessee has also taken similar grounds of appeal except change in the figure in ground No. 2. In ground No. 2 in A.Y. 2011-12 the claim of interest after disallowance of proportionate interest of Rs. 96,60,054/- is Rs. 3,24,62,732/- in place of Rs. 5,92,27,767/- after proportionate disallowance of interest of Rs. 17,51,42,792/- in A.Y. 2010-11. 44. In both the assessment years the assessee has taken the following additional grounds: - 1. Whether in facts and circumstances of the case, the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below. 48. After hearing and carefully considering the rival submissions, we are of the view that the correct interest income has to be assessed in the hand of the assessee. The assessee has given the calculation of interest income which has to be assessed in the hand of the assessee amounting to Rs. 24,18,43,334/-. We, therefore, set aside this issue and restore this issue to the file of the assessee and direct the AO to recalculate the interest income in the hands of the assessee and treat the correct income to be the income of the assessee from interest which has accrued to the assessee from various family members in whose hands the said income has been allowed as deduction. Thus, this ground is allowed for statistical purposes in both the years. 49. The additional ground No. 2 relates to capitalization of interest expenses. Similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10. We, respectfully following our decision in that case, direct the AO to treat the proportionate interest which stands disallowed while disposing of ground No. 1 as part of cost of shares and securities. Thus, this ground is statistically allowed. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years relate to sustenance of addition on account of personal household expenses. Similar issue, as agreed by both the parties, has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10. As in that case we have reduced the addition on account household expenses by 50%, we therefore respectfully following our order in ITA No. 5779/Mum/2015 for A.Y. 2009- 10 reduce the addition on account of household expenses to 50% and sustain the addition to the extent of Rs. 1,50,000/- in each of the assessment years. 54. The next two grounds in both the assessment years relate to levy and calculation of interest under Section 234A, 234B and 234C. As agreed by both the parties that similar ground has arisen in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015 for A.Y. 2009-10. Therefore the Tribunal may take the same view in the case of the assessee also. We, therefore, respectfully following our order in the preceding paragraph in ITA No. 5799/Mum/ 2015 dismiss ground No. 3 and direct the AO to recomputed the interest in accordance with our direction given in the case of Sudhir S. Mehta in ITA No. 5799/Mum/2015 while disposing off ground No. 4in both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l facts and circumstances the Coordinate Bench of this Tribunal in the case of Fortune Holding P. Ltd. ITA No. 939/Mum/2017 has condoned the delay for more than 749 days. Respectfully following the said decision of the Coordinate Bench, we condone the delay and admit the appeal filed by the assessee. 60. Ground No. 1 relates to the claim of interest by the assessee amounting to Rs. 1,43,721/- after disallowing proportionate interest amounting to Rs. 2,12,47,194/- out of interest earned by the assessee on term deposits. Both the parties agreed that similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 and whatever view the Tribunal may taken in that case the same view may be taken in the impugned case. After hearing the rival submissions and considering the same we noted that this Tribunal while disposing of the said ground allowed claim of the assessee in respect of interest expenditure after proportionate disallowance. We, therefore, respectfully following our finding given in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 allow the claim of interest of the assessee to the extent of Rs. 1,43,721/- after p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act 8,39,99,631 Total 2,42,19,378 4. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in confirming the disallowance of audit fees Rs. 40,000/-. 5. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A, 234B and 234C of the Act. 6. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234A, 234B and 234C of the Act." 64. Ground Nos. 1 and 4 since not pressed stand dismissed as not pressed. Ground No. 2 relates to sustenance of addition on account of unexplained entries in the bank account of the assessee. 65. We have heard the rival submissions and carefully considered the same along with the orders of the Tax Authorities below. The AO made the addition of Rs. 9,28,78,955/- in respect of the balance in the suspense account. When the matter went before the CIT(A), the CIT(A) after considering the remand report of the AO found that only a sum of Rs. 6,37,325/- remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her in facts and circumstances of the case, the Ld. Assessing officer and Ld. CIT(A) ought to have adjudicated the issue of interest income. The correct amount of interest income ought to have been determined to arrive at the correct taxable income as per law. 2. Whether in facts and circumstances of the case, the Ld. Assessing officer and Ld. CIT(A) ought to have granted capitalization of interest expenses attributable to shares and securities which is not allowable u/s 57(iii) of the Act." 70. After hearing the rival submissions we noted that the additional grounds taken by the assessee go to the root of the matter and no new facts has to be brought on record. We, therefore, in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. vs. DCIT 229 ITR 383 admit the additional grounds. 71. In respect of additional ground No. 1 and learned A.R. contended that the interest accrued to him on the advances to various notified entities have not been correctly assessed to tax due to the difficulty caused by notification of the assessee under the provisions of Special Court Act and levying tax on such assessee could not followed properly at the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction that the AO shall redecide this issue afresh after giving proper and sufficient opportunity to the assessee. In case the AO is satisfied with the explanation of the assessee to that extent the addition should be deleted. 76. So far as ground No. 3 is concerned similar ground has arisen in A.Y. 2002-03. We have allowed the claim of interest out of the interest income earned by the assessee on term deposit. Respectfully following our finding in A.Y. 2002-03 we give similar direction to the AO in respect of allowance of interest expenditure amounting to Rs. 5,40,27,927/-. Thus, this ground to that extent stands allowed. 77. Ground Nos. 5 & 6 relate to levy and calculation of interest under Section 234A, 234B and 234C. Similar issue has arisen in the case of assessee in A.Y. 2002-03. We, therefore respectfully following the order of this Tribunal in the preceding paragraph in the case of assessee confirm the levy of interest under Section 234A, 234B and 234C and dismiss ground No. 5 but direct the AO to recompute interest chargeable under Section 234A, 234B and 234C after excluding income which is subject to provisions of TDS. Thus ground No. 6 is statistically allowed. 78 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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