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TMI Blog2025 (2) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the facts of the case are that this is the third round of litigation. The original assessment order was framed u/s 144 of the Act on 20/03/1995. The assessee is a member of Harshad Mehta Group, in which a search and seizure operation was carried out on 27/09/1990. The second search and seizure operation was carried out on 28/02/1992 and thereafter there was also a search on various premises of this group by C.B.I. on 04/06/1992. The assessment was framed at Rs. 54,75,47,566/ -. The quarrel travelled up to the Tribunal and the Tribunal vide order dated 28/04/2006, set aside the matter for fresh decision on merits after considering the books of accounts. 5.1. The matter came up for fresh adjudication and the AO vide order dated 17/12/2007, assessed the total income at Rs. 56,59,80,814/- by repeating the unexplained investment of Rs. 51,95,38,091/ -. The ld. CIT(A) vide order dated 11/03/2014, gave part relief to the assessee but at the same time enhanced the income of the assessee by Rs. 33,61,390/- on account of unreconciled balances with the books of Shri Harshad Mehta. Thereafter, vide order dated 17/04/2015, the AO framed the following order giving effect to the ld. CIT(A)& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate notice u/s. 271(1)(c) for enhanced amount of Rs. 33,61,390/- as per direction of the CIT(A). Issue DN/challan, as applicable. R [RAMANAND K. NAIR] Assistant Commissioner of Income-Tax Central Circle -4(1), Mumbai. Copy to: The assessee ACIT, Central Circle - 4(1), MUMBAI. 6. It is very pertinent to mention that against the aforementioned order of the ld. CIT(A), the revenue did not prefer any appeal. Therefore, to the extent of relief given by the ld. CIT(A), the issue has attained finality. 7. Our view is fortified by the decision of the Co-ordinate Bench in the case of Sheraton International Inc. vs. Deputy Director of Income-tax [2007] 293 ITR (AT) 68 (Delhi). The relevant facts and findings read as under :- "In the assessments originally completed for the assessment years 1996-97 and 1997- 98 in the assessee's case, the entire amounts received by it from the Indian hotels under the agreements at 3 per cent. on room sales were held to be taxable in India by the Assessing Officer. The assessee-company challenged these assessments by preferring appeals before the Commissioner (Appeals) who held that 75 per cent. of the amounts was taxable in India. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (Appeals) was not justified in confirming the same. These additions for the assessment years 1997-98 and 1998-99 were therefore to be deleted." 8. In the present appeal, the assessee has raised the following grounds of appeal :- "1. The Ld. CIT(A) has erred in law and in facts in rejecting the books of accounts and holding that the same do not stand admitted. 2. The Ld. CIT(A) has erred in law and in facts in partly confirming the addition on account of unexplained investments without appreciating that- a. In the case of the Appellant and taking into account the provisions of Sec.69 of the Income Tax Act, no addition is liable to be made under the head of 'Unexplained Investments'. b. The addition has been made without providing the copies of the evidences used by him against the appellant, as directed by the Hon'ble Tribunal. c. The addition has been made without considering the aggregate purchases made by the appellant and only considering the closing investments as on 31.03.1992 while allowing credit of the purchases reflected in the books of accounts. d. The addition has been made without appreciating that the holding determined on the basis of the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under question, the AO has not given any reasoning as to why, these relief need to be withdrawn from the appellant. While deciding ground No. 3, I have held that even while the books of accounts rejected the same could be used wherever relevant, being an important source of information in the context of section 144 proceedings. Hence, this addition of Rs. 25,46,98,471/- and Rs. 52,08,375/- cannot be sustained without valid reasons. These additions aggregating Rs. 25,99,66,848/- stands deleted." 10. Thus, it can be seen from the above that the relief given by the ld. CIT(A) in the second round of litigation has been repeated by the ld. CIT(A) as the AO has not given any reason as to why this relief needs to be withdrawn. We have already mentioned that to this extent, the order of the ld. CIT(A) has attained finality as mentioned hereinabove. 11. While giving effect to the ld. CIT(A)'s order, the AO computed the total income as under :- * This space has been left blank intentionally, P.T.O .* * Particulars Amount in Rs. Amount in Rs. 1. Unexplained investments 51,95,38,091 Less: As directed by Id.CIT(A) vide_order dated 09.01.2023 on Unexplained inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- S. No. Basis of addition Amount of addition sustained (Rs.) 1 Company letters received u/s. 133(6) 27,91,101 2 Custodian letter dated 29.10.1993 3,89,77,270 3 Dividend details/Warrants 51,67,438 Total ... 4,69,35,809 12. The unexplained investment is divided into three parts :- (I) - The addition based upon Company letters received u/s 133(6) - Rs. 27,91,101/ -. The details of the investments on such information are as under :- S. No. Scrip Name Holding as per A.O. Credit Given by A.O. in original order (Qty) Balance Quantity in dispute Further credit given pursuant to order of the CIT(A) Balance Quantity Value (Rs.) 1 ABB 70 70 70 31,238 2 Ambuja Foods 10,250 4,000 6,250 - 6,250 2,96,875 3 BARODA RAYOND 8,181 2,450 5,731 5,727 4 3,700 4 CLASSIC DIAMONDS (I) 500 300 200 - 200 20,000 5 GUJRAT HEAVY CHEM 500 500 - 500 22,875 6 HARIG CRANKSHAFTS 100 100 - 100 4,700 7 J K SYNTH 1,328 1,328 - 1,328 1,07,568 8 JINDAL IRON & STEEL 3,375 1 3,375 3,375 17,00,156 9 OSWAL AGRO MILLS LTD 210 23 187 - 187 14,399 10 PREMIER INDUSTRIES LTD 100 - 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Custodian 18.01.1995 to the Income tax Department, Investigation Wing. 8 31.07.1996 CIT & ACIT Request to grant inspection of the materials relied upon by the Assessing officer in making of my assessment and to furnish copies of the material so relied upon by the Assessing officer. 9 22.11.2006 DCIT Request to provide provide the information received from companies and the Custodian relating to Appelant's shareholding in those companies. 10 22.10.2007 DCIT Request to grant inspection and furnish the third party evidences like letters from Custodian, Companies ect. . 11 27.12.2012 CIT Request to obtain the materials from the Custodian, Banks and Companies etc. and also to issue summons u/s 131 and make the inquiries. 12 01.08.2017 DCIT Informed A.O. regarding request made to the Custodian to provide Appellant's holding in the shares of various companies. 13 08.11.2017 DCIT Informed A.O. regarding efforts made by the Appellant to obtain correct holding as per the Custodian's records and also to obtain copies of letters obtained by Custodian from the companies. 14 26.11.2018 CIT Requested for the letters and details obtained by the A.O.from C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. If the AO does not provide the material then in our view addition can not be made." This specific direction has been upheld by the Hon'ble High Court of Bombay in ITA No. 2490 of 2013, vide order dated 07/06/2016, wherein the Hon'ble High court, held as under :- "(d) We find that the impugned order of the Tribunal on the above issue is unimpeachable The basic principles of natural justice require that before any addition is made by the Assessing Officer on information obtained from third parties/own source, he must confront the assessee with the material so obtained. This above would enable the assessee to explain the correctness/incorrectness or unreliability of the evidence so obtained. In the absence of the necessary evidence sought to be used being given by the Assessing Officer to the Assessee, it would amount to condemning a person without a proper hearing." 16.1. Similar view was taken by the Co-ordinate Bench in ITA No. 6026/Mum/2017 and ITA No. 5190/Mum/2017. The relevant findings read as under :- "So far as, the second amount of 7,28,925/- representing the addition made on the basis of letters filed by four companies as mentioned at serial no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation on the basis of which additions were made in the hands of the assessee. The coordinate bench further held that if the AO does not provide the material then the addition cannot be made. The relevant findings of the coordinate bench in the aforesaid decision, are reproduced as under :- "5. After considering the impugned order, various Tribunal orders in the group cases of the assessee and also the grounds raised before us, we find that in the case of Smt. Rasila S. Mehta (supra) and in other cases also, similar grounds were raised. In these cases, the Tribunal has set aside the entire matter to the file of the Assessing Officer for making fresh assessment denovo. Since the facts of the assessee's case are similar to other cases viz. Hitesh S. Mehta, Rasila S. Mehta, Jyoti H. Mehta and Pratima H. Mehta, cited above, therefore, for the sake of ready reference, the relevant findings, as given in the decision of Rasila S. Mehta, is reproduced herein below:- "3.2 Having considered the rival submissions and careful perusal of the relevant material on record, we note that the CIT(A) while deciding the matter has relied upon the order in the case of Shri Hitesh 5 Mehta, as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as in the case of Shri Hitesh S Mehta (supra) are also similar; therefore, to maintain the rule of consistency, we set aside the matter to the record of the Assessing Officer with the similar directions and terms as in the case of Shri Hitesh S Mehta (above)." 6. Thus, consistent with the view taken by the Tribunal in all these cases, wherein identical facts and issues are involved, therefore, we also set aside the impugned order passed by the learned Commissioner (Appeals) and restore back the entire issue to the file of the Assessing Officer for denovo assessment with similar directions. The Assessing Officer shall provide due and effective opportunity of hearing to the assessee. We order accordingly." 20. We further find that the Revenue's appeal against the aforesaid decision was dismissed by the Hon'ble jurisdictional High Court in CIT v/s Smt. Pratima H. Mehta, ITA No.258 of 2015, vide order dated 26/09/2017. Therefore, from the above, it is evident that the addition of Rs. 3,13,213, is based on the evidence which was not furnished to the assessee. In view of the specific directions of the coordinate bench of the Tribunal in assessee's own case, in the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered shareholders. Mr. Rasilal Shantilal Mehta, holding 11900 shares which had been added by the AO in the hands of the assessee. Thus, an example of wrong information and in some cases, the request for allotment of shares have been returned. One such company is TISCO, whose letter is place at page 403 in Paper Book volume-II. 21. On identical situation and facts, the Co-ordinate Bench in the case of CIT vs. Hitesh S. Mehta ITA No. 6026/Mum/2017 and ITA No. 5190/Mum/2017, had the occasion to consider a similar issue and held as under :- "13. The second amount of addition of Rs. 24,24,385/- as stated in para 8 above represented the addition made on the basis of Custodian letter. We observed that Rs. 24,24,385/- was made on the basis of Custodian letter dated 29.10.1993. The information provided in the said letter were incomplete. For example the date of determination of the share holdings was not mentioned, constant change of the figure of holding due to reasons like non-consideration of sale of shares by notified parties, and the holding provided by the Custodian not matching with the companies letters. Therefore, the addition made by relying on the Custodian letter can not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance of Gujarat Ambuja Proteins. The complete details of short-term capital gains and long-term capital gains on sale of shares during the impugned financial year have been given at pages 247 to 249 of the paper book with complete details of dividends received from shares during the financial year at pages 258 to 263 the paper book. It would be pertinent to mention here that the entire additions have been based on dividends declared by the companies of which the assessee may or may not have held the shares during the year under consideration as the same is not based on physical holding of shares and merely on the basis of information collected behind the back of the assessee for which we have already expressed our view elsewhere. Therefore, this addition also cannot be sustained. Accordingly, Ground No. 2 with all its sub- grounds is allowed. 25. Ground No. 3 relates to the addition on account of unexplained receipts of Rs. 2,95,427/ -. Particulars of such unexplained receipts as per the AO is as under :- Date Amount Remark 02-05-1991 42,151.00 NO SUCH ENTRY IN THE BANK STATEMENT. BANK A/C OPENED ON 18-11-1991 06-07-1991 1,280.80 SAVING BANK INTEREST 08-08-1991 10,057. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 261 are shown as payable to family run broking firms such as M/s HSM, M/s ASM and M/s JHM. The AO vide order passed under section 144 read with section 254 of the Act did not agree with the submissions of the assessee and disallowed the deduction of interest claimed for the following reasons :- (i) The liabilities were not crystallise during the year. (ii) The interest payable is tentative and provisional. (iii) There is no basis as per which the assessee has a right to pay and the creditors has are right to receive. (iv) There is no basis of computation of interest payable which has been provided by the assessee. (v) The provisions made on account of interest payable is a contingent liability and therefore, cannot be allowed as a business expenditure. (vi) It is also seen that these broking firms have not charged any interest on the amount receivable from the companies of this group with the books of accounts have been produced before the Assessing Officer. 29. The AO following the approach adopted in earlier round of litigation rejected the assessee's claim of deduction on account of interest and disallowed interest payment of Rs. 2,46,33,261. The learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in Seth R. Dalmia v/s CIT, [1977] 110 ITR 644 (SC) agreed with the view taken by the Hon'ble jurisdictional High Court in CIT v/s H.H. Maharani Vijaykuverba Saheb of Morvi [1975] 100 ITR 67 (Bom), wherein it was held that the connection between the expenditure and the earning of income need not be direct, and even an indirect connection could prove the nexus between the expenditure incurred and the income. We further find that in CIT v/s Smt. Sushila Devi Khadaria, [2009] 319 ITR 413 (Bom.), in a similar factual matrix, i.e. wherein the AO denied the deduction claimed under section 57(iii) of the Act on the basis that the expenditure was not incurred wholly for the purpose of earning income as the taxpayer was engaged in selling shares in the stock market and the dividend income had accrued as a by-product, the Hon'ble jurisdictional High Court by placing reliance upon the aforesaid decision of the Hon'ble Supreme Court in Seth R. Dalmia (supra), upheld the allowance of finance expenditure as deduction under section 57(iii) of the Act against the income by way of dividends, finance charges and interest which were shown as income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f difference in the balance sheet in the books of account of Late Harshad Mehta. The cause for enhancement is the following observations of the ld. CIT(A) :- "52. The Hon'ble Special Court had appointed three firms of Chartered Accountants, viz. M/s. Kapadia Damani & Co., M/s. Natwarlal Vepari & Co. and M/s. Kalyaniwalla & Mistry, to prepare and audit the accounts of notified parties in Harshad Mehta group cases. These Auditors audited the accounts of the assessee and submitted their Audit Report to the AO. On perusal of the Audit Report submitted by these Auditors in the case of the appellant as also the Audit Report submitted by M/s. Vyas & Vyas, CAs, in the case of Shri Harshad S. Mehta, certain differences were found in the balances of accounts of the group entities, as under :- ..................................... ..................................... During the course of audit, M/s. Vyas & Vyas, Auditors, had given a categorical finding on the issue of differences in the balances as per the books of accounts of Shri Harshad Mehta and other group assessees. These findings were given after collectina information from various assessees. banks and financial instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings u/s.271 (1)(c) of the I.T. Act, 1961 are initiated on this issue." 30. The assessee has furnished the following re-conciliation of balance :- * This space has been left blank intentionally, P.T.O.' *** Reconciliation of balances between Sudhir S. Mehta and Harshad S. Mehta Balance as per the books of M/s. Harshad S. Mehta (i) Balance in the ledger account of Sudhi S. Mehta (share market) Rs. 11,92,15,390 (Dr.) (ii) Balance in the ledger account of Sudhir S. Mehta (money market) Rs. 16,63,610 (Cr.) (iii) Balance in the ledger account of Sudhir S. Mehta (personal) Rs. 50,25,000 (Dr.) Total (A) Rs. 12,25,76,780 (Dr.) Balance as per the books of Mr. Harshad S. Mehta (i) Balance in the ledger account of Sudhi S. Mehta (Ledger A/c No. 1111) Rs. 60,00,000 (Dr.) (ii) Balance in the ledger account of Sudhir S. Mehta (Ledger A/c No. 2010) Rs. 10,00,000 (Cr.) Total (B) Rs. 50,00,000 (Dr.) Grand Total (A+B) Rs.12,75,76,780 (Dr.) Balance as per the books of Mr. Sudhir S. Mehta (i) Balance in the ledger account of M/s. Harshad S. Mehta Rs. 11,75,03,983 (Cr.) (ii) Balance in the ledger account of Mr. Harshad S. Mehta Rs. 1,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o processing of return u/s 143(1) of the Act. Our view is fortified by the decision of the Hon'ble Bombay High Court in the case of Delta Airlines Inc - BOM HC - 358 ITR 367. We accordingly direct the AO to not charge interest u/s 234D of the Act. 33. The additional ground raised by the assessee relates to the levy of interest u/s 234A and 234B of the Act. In our considered view, such levies are mandatory but only up to the date of original assessment order which is dated 20/03/1995. The AO is directed to charging interest u/s 234A and 234B of the Act up to the date of original assessment order. 34. Accordingly, the appeal of the assessee in I.T.A. No. 417/Mum/2023 is allowed. 35. Coming to the revenue's appeal, as we have already explained in assessee's appeal that the additions deleted by the ld. CIT(A) in the second round of litigation, were not agitated by the revenue before the Tribunal, therefore, the same has attained finality. Therefore, in view of detailed discussion given elsewhere, the additions deleted by the ld. CIT(A) in the second round cannot be agitated in this appeal. To this extent, the grievance of the revenue is dismissed. 36. The other issues r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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