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TMI Blog2020 (11) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... dice to each other: 1. The Ld. Commissioner of Income-tax (Appeals) ought to have allowed the deduction of interest expenditure of Rs. 2,33,38,930/- as follows: Sr. No. Entities Interest @ 12% per annum payable 1. M/s. Jyoti H. Mehta 4,37,06,074 Total 4,37,06,074 Less: Proportionate disallowance of interest u/s. 14A of the Act (-) 2,03,67,144 Total 2,33,38,930 The Ld. Commissioner of Income-Tax (Appeals) ought to have held that the appellant was eligible for deduction at least to the extent of Rs. 4,07,230/-, being the income earned during the year . 2. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A, 2348 and 234C of the Act. 3. 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, 2348 and 234C of the Act. 2. The revenue in its cross appeal has raised the following grounds of appeal: 1. "Whether on the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Court Act which has been referred to before us during the course of hearing. This is an undisputed fact which we noted that the assessee is a notified person from 08.06.1992 under Section 3(2) of the Special Court Act. As per the provisions of the Special Court Act contract entered into by a notified person prior to notification made under Section 3(2) are not affected by the notification. Section 4(1) of the Special Court Act empowers the custodian to cancel any contract or agreement entered into between 01.04.1991 to 06.06.1992 if the custodian finds that these contracts have been entered into fraudulently or to defeat the provisions of the Special Court Act. In A.Y. 1990-91, the AO in the assessment order passed under Section 143(3) dated 26.03.1993 allowed the interest expenses to the 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intentions of the parties were always so, this is evident from the fact that identical claim was also made during A.Y. 1990-91 and the same was allowed to the appellant and other concerns. The claim made in the affidavit of Custodian in MP No. 41 of 1999 also supports this claim. I also agree with the appellant that there need not be any written agreement and that the oral agreement coupled with the actions and intentions of the parties is sufficient to prove the existence of the liability." 13. Similar issue was involved in the case of other family member, i.e. Shri Hitesh S. Mehta for A.Y. 2005-06 where also the AO has disputed the very existence of liability towards interest to creditors. The CIT(A) vide his order dated 31.08.2010 confirmed and approved the claim of the assessee that there was no need for any written agreement and that the 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 Growmore Leasing & Investment Ltd. & Others interest expenses for A.Y. 2006-07 vide order dated 27.09.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale proceeds so received were invested in term deposits with the banks and accordingly the assessee has claimed interest expenditure against the interest earned on term deposits. No contrary evidences or material were brought to our knowledge to contradict this fact. In view of this fact we find that there is a nexus between borrowed funds and investments in term deposits. Therefore, the interest paid on the borrowed funds has to be allowed out of the interest earned by the assessee on term deposits. We noted that identical issue was raised in the case of M/s. Growmore Leasing & Investment Ltd. in A.Y. 2007-08. The CIT(A) in his order dated 26.02.2012 considered the issue of nexus of interest expenditure with interest income, following his own finding in the case of another notified entity, i.e. Eminent Holding Pvt. Ltd. for A.Y. 2007-08 which are reproduced as under: - "As regards the nexus of the interest expenditure with the interest 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the case where a point, fundamental to the decision, taken or assumed by the Plaintiff and traversable by the Defendant, has not been traversed. In that case also a Defendant is bound by the judgement, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." At pg 329 of the judgement, Their Lordships observed as under: "We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating though the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging Growmore Leasing & Investment Ltd. & Others the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 19. On these reasonings in the absence of any material change justifying the Revenue 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proportionately disallowing a sum of Rs. 2,12,47,194/- and give similar direction to the AO as given in ITA No. 5799/Mum/2015. Thus, ground No. 1 is allowed." 10. The aforesaid order dated 27.12.2019 was followed in Ashwin S. Mehta in ITA No. 2474/M/2015. Further, in case of Pratima H. Mehta v/s DCIT in ITA No. 5839/M/2018 dated 27.11.2019, the co-ordinate bench allowed similar relief by passing the following order: "7. We have heard rival submissions and perused the materials available on record. We find that the assessee had filed its return of income in the A.Y.2014- 15 on 28/07/2015 declaring total loss of Rs. 2,01,67,672/-. The ld. AO observed that the assessee had shown interest receipts of Rs. 18,01,778/- on term deposits of Rs. 332.11 lakhs kept with Andhra Bank, Bank of Baroda, Indian Bank, State Bank of Bikaner & Jaipur and UCO Bank. We find that these interest receipts were offered to tax by the assessee under the head 'income from other sources'. We find that against these interest receipts, the assessee had claimed ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/- 3. Loan to M/s. Harshad S Mehta - Rs. 47,37,93,346/- 7.2. From the details provided in the balance sheet as on 31.3.2013 and 31.3.2014, we find that the own funds of the assessee in the form of capital account balance was Rs. 70,22,40,565/- as on 31/03/2014 and Rs. 70,03,89,126/- as on 31/03/2013. The ld. AR pleaded that the amounts were paid to Shri Harshad S Mehta in the sum of Rs. 47,37,93,346/- out of withdrawal of fixed deposits kept with various banks and as per the directions of Hon'ble Special Court. Hence, there cannot be any charging of interest on the said loans paid to Shri Harshad S Mehta by the assessee. We find lot of force in the said argument of the ld. AR that when the amounts were advanced to certain notified persons in order to comply with the directions of the Hon'ble Special Court with specific directions for utilisation of those funds subsequently also, the assessee cannot be fastened with a notional interest liability while complying with the said directions of the Hon'ble Special Court. Moreover, we also find that the prepaid taxes paid by the assessee in the form of TDS, wealth tax, income tax and advance tax has got no relevance with the borrowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er annum and whatever the interest income earned by the assessee are out of the surplus of the liquidation of certain investment. The investment as well as the fund management are under the supervision of the Hon'ble Spl. Court, assessee has no role to play. From the facts on record, prima facie, it appears that there is a nexus between the borrowed funds on which assessee has paid interest and the investment on which it has earned interest income. Therefore, the assessee should get deduction of interest expenditure to the extent of interest income earned of Rs. 3,52,622/-. It is relevant to observe, in assessee's own case in AY 2017-18, the AO himself has allowed claim of deduction of interest expenditure to the extent of interest income earned during that year, In view of the aforesaid, the ground is allowed as indicated above. 13. Considering the consistent decision of the Tribunal in assessee's group case on identical grounds of appeal, the Ground No.1 of the assessee is allowed. No contrary facts or law is brought to our notice to take other view. 14. Ground No.2 & 3 relates to levy of interest under section 234A, 234B & 234C. The ld. AR of the assessee submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses disallowed to the part of cost of acquisition of share and securities. 21. On the other hand, the ld. Special Counsel for the revenue relied upon the order of Assessing Officer. 22. We have considered the rival submission of the parties and have gone through the orders of lower authorities. We have noted that on identical grounds of appeal in assessee's group case in Cascade Holdings Pvt. Ltd. (supra), the Tribunal passed the following order: 14. We have heard counsels for both the parties and we have also perused the material placed on record as well as the orders passed by revenue authorities. We find that the identical ground raised in the present appeal has already been decided by the Coordinate Bench of IT A T in ITA No. 5799/Murnl20 15 for AY 2009-10 in Shri Sudhir S. Mehta case, wherein the Hon'ble ITAT has allowed the ground on merit in favour of assessee. For the sake of clarity, which is reproduced below:- 17. Now coming to the additional ground raised with respect to capitalization of interest we are of the view that to the extent the interest relate to the investment, i.e. being disallowable under Section 57 will become part of cost of acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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