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TMI Blog2025 (3) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... vidend and Rs. 25,31,015/- on account of gross interest, thus aggregating to Rs. 41,13,200/-. 3. The Ld. CIT(A) has erred in law and in facts in confirming the addition of Rs. 1,16,640/- out of the aggregate addition of Rs. 4,45,170/- made by the Ld. A.O. on account of unexplained investment in shares. 4. The Ld. CIT(A) has erred in law and in facts in confirming the addition to the tune of Rs. 55,220/- on account of alleged profit on sale of shares on estimated basis. 5. The Ld. CIT(A) has erred in law and in facts in confirming the addition of Rs. 6,19,229/- on account of alleged interest income without considering and appreciating the submissions of the appellant. 6. The Ld. CIT(A) has erred in law and in facts in disallowing the various expenses claimed by the appellant in connection with the various income offered and assessed by the Ld. A.O. a. The Ld. CIT(A) ought to have allowed deduction of interest on shares/debenture call money payable by the appellant of Rs. 16,16,148/- b. The Ld. CIT(A) ought to have allowed trading loss on sale of shares of 1,79,28,290/-. c. The Ld. CIT(A) ought to have allowed other expenses to the tune of Rs. 1,01,589/-. 7. The Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Custodian and came to the conclusion as under:- (a) Accrued Gross Dividend for F.Y. 1992-93 - Rs.15,82,185/- (b) Accrued Interest - Rs.20,24,812/- (c) Gross Interest for F.Y. 1992-93 [2024812 _0.80] - Rs.25,31,015/- Total Rs. 41,13,200/- 5.1. For the above calculation, the AO took TDS rate of 20% and made additions accordingly. 6. The assessee challenged the additions before the ld. CIT(A). It was strongly contended that the shares purchased were not registered, therefore, the assessee did not receive any dividend as the same is paid only to the registered shareholders. The ld. CIT(A) compared the dividend accounted for by the group entities of the assessee and found that the assessee has not accounted for the dividend and observed that the computation made by the AO and the income being offered by the assessee is to be decided whether the same is reasonable and judicious. The ld. CIT(A) was of the opinion that the dividend yield of the Indian stock market is around 1 to 2% while the return of securities by way of compounded capital appreciation (capital gains) is far in excess of 15% and in the case of assessee, the dividend yield offered is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled to the dividend declared by a company, though the assessee-company might be de facto owner of shares but had no right to receive the dividend from the company unless it is the registered shareholder of the company?. (ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the dividend of Rs. 16,84,150 has not accrued to the assessee and thereby holding that such dividend income could not form part of the total income of the assessee? (iii) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law, in accepting the assessee's submission, that even though the amounts were paid for acquiring the shares, shares have not been delivered to the assessee-company and the change in ownership of the shares have not been registered and notified and, therefore, the assessee's name did not appear in the share registers of the respective companies on the record date and, therefore, it could not have received the dividend at all?" 9.1. And, the Hon'ble Court, interalia held as under:- "Nothing has been brought to our attention to show that under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome has not been received by the custodian in respect of the shares referred to above. The dividend also has been received by some other person. There is also nothing brought on record to indicate that the assessee in terms of section 27(1) of the Securities Contracts (Regulation) Act has lodged the shares for transfer. Considering these circumstances, in our opinion, we find no reason to interfere with the findings recorded by the Commissioner (Appeals) and as confirmed by the Appellate Tribunal. The questions of law therefore, as raised would not arise and consequently, the appeal dismissed." 10. Finding parity of facts, we direct the AO to delete the additions on account of dividend and interest. In fact, most of the debentures were convertible debentures and have been converted into shares, therefore, there is no question of estimating any interest on the same. Accordingly, Ground No. 2 is allowed. 11. Ground No. 3 relates to the addition of Rs. 1,16,640/- out of the aggregate addition of Rs. 4,45,170/-. While scrutinising the return of income, the AO observed that the assessee has purchased five shares of ACC and 1172 shares of Ranbaxy. The assessee was asked to explain th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... todian and Income Tax department, the assessee could gather the information as mentioned hereinabove. It was further explained that the balance amount is the difference of refund of the debentures application money paid by the assessee. After considering the facts and the submissions, the ld. CIT(A) observed that the addition of Rs. 64,49,923/- is based on the submissions of the assessee before the AO. The ld. CIT(A) further observed that the assessee has made an application before the Special Court seeking permission to subscribe to the right debentures of Reliance Industries Ltd. and after seeking permission, the assessee applied for debentures and invested an amount of Rs. 74,05,950/- from which it got refund of Rs. 61,97,475/-, along with the interest on debentures application amounting to Rs. 2,52,449/-, the assessee received Rs. 64,49,924/- which has been erroneously considered as debentures interest. After finding the truthness in the facts submitted by the assessee, the ld. CIT(A) restricted the addition to Rs. 6,19,226/-. 15.2. Before us, the ld. Counsel for the assessee accepted the addition of Rs. 3,27,856/- and has disputed only Rs. 2,33,096/- which is nothing but an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s due to the conversion of debentures into shares. Therefore, the basis on which the interest has been disallowed itself is faulty. Therefore, the addition to the extent of Rs. 16,16,148/- cannot be sustained. Insofar as share trading loss is concerned, the assessee has furnished copies of the contract notes of purchase of shares which are placed on record. Considering the same, the share trading loss cannot be disallowed and insofar as the other expenses are concerned, which are mainly related to the accounting and auditing expenses, were incurred for the purpose of business and the same deserve to be allowed. Considering the totality of facts we do not find any merit in the addition and the same is directed to be deleted. 19. Ground No. 7 relates to the disallowance of interest expenditure of Rs. 10,44,95,850/-. On identical set of facts, the Co-ordinate Bench in ITA No. 417/Mum/2023 in the case of Sudhir S. Mehta, vide order dated 06/02/2025, has considered the issue and decided as under:- "27. Ground No. 4, relates to the claim of interest expenditure Rs. 2.04 Crores out of which the ld. CIT(A) allowed only Rs. 12,93,360/-. 27.1. Similar issue came up for consideration bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come is incidental and not a major factor, and it is thus clear that the sole purpose of borrowing by the assessee @12% per annum cannot be for the purpose of earning dividend income. Accordingly, the interest expenditure was held to be not allowable against dividend income. The learned CIT(A), however, allowed the interest expenditure only to the tune of Rs. 15,73,548 which is the share trading profit. Being aggrieved, both assessee and Revenue are in appeal before us. 30. We have considered the submissions of both sides and perused the material available on record. From the perusal of the computation of total income, forming part of the paper book on pages 464-466, we find that the assessee claimed interest on bank loans of Rs. 2,46,33,261 against the income under the head "income from other sources". It is evident from the record that the learned CIT(A) placed reliance upon the decision of the Hon'ble jurisdictional High Court in CIT v/s Jagmohandas J. Kapadia, [1966] 61 ITR 663 (Bom.), in order to support the conclusion that unless the interest expenditure was incurred solely for the purposes of making or earning dividend income, no deduction as possible under section 57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income even though not direct. Accordingly, the AO is directed to allow the interest expenditure claimed by the assessee under section 57 of the Act. As a result, ground No. 3 raised in assessee's appeal is allowed, while ground No. 2 and 3 raised in Revenue's appeal is dismissed." 27.2. Similarly in the case of Jyoti H. Mehta vs. ACIT in ITA No. 436/Mum/2023 and ITA No. 1186/Mum/2023, the Tribunal has considered similar grievance, which reads as under:- "41. Ground no 6 pertains to sustaining the addition on account of interest disallowed. The Ld. CIT (A) has granted partial relief, by allowing on proportionate basis, the interest expenditure only to the extent of Rs. 11, 49,540/- as against the total claim of Rs. 1, 02, 00,000/- made by the assessee." 27.2.1. And the Co-ordinate Bench following the order of the case of Pratima H. Mehta (supra), held as under:- "44. It is apparent that the reasons given for not allowing the interest expenditure claimed by the assessee u/s 57 of the Act are not tenable in view of the decision of the Apex Court in the case of Seth R. Dalmia (supra) which is duly followed by the co-ordinate bench of the Tribunal in the case of Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of capital against assessed by the Ld. A.O. at Rs. 6,65,25,291/- without appreciating that the said income was computed incorrectly and also that the same was added in the hands of the appellant by way of enhancement while disposing of the appeal against the assessment order u/s. 144 of the Act dated 19.03.1996. 7. The Ld. CIT(A) has erred in law and in facts in confirming the addition on account of investments of Rs. 4,45,170/- without appreciating that the said addition was incorrectly made by the Ld. A.O. and that the same was also added by way of enhancement in the appeal against the order u/s. 144 of the dated 19.03.1996. 8. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal." 25. At the very outset, the ld. Counsel for the assessee stated that he is not pressing Ground Nos. 1, 4 & 6. These grounds are dismissed as not pressed. 26. The grievance raised vide other grounds of appeal are identical to those considered by us while adjudicating ITA No. 452/Mum/2023 (supra). For our detailed discussion therein, these grounds are allowed. 27. In the result, both the appeals of the assessee are allowed. Order pronoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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