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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI G.S. PANNU, & SHRI SANDEEP SINGH KARHAIL
The present cross–appeals have been filed challenging the impugned order dated 09/01/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–52, Mumbai, [“learned CIT(A)”], for the assessment year 1992–93.
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
In the larger interest of justice, the slight delay of 2 days in filing the appeal by the Revenue is condoned.
The brief facts of the case, as emanating from the record, are: The assessee is a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, and all her assets including bank accounts were attached, and vested in the hands of the Custodian appointed under the said Act. Pursuant to the order dated 30/06/2014, passed by the coordinate bench of the Tribunal in ITA No.2694/Mum./2012, the Assessing Officer (“AO”) issued a notice under section 142(1) of the Act asking the assessee to furnish various details in support of the entries in her books of accounts. Since the assessee filed a general reply and did not produce the details called for, the AO again issued notice requesting the assessee to cooperate in the assessment proceedings. During the assessment proceedings, the assessee requested the AO to provide certain documents on the basis of which the addition was made. In response thereto, some company letters, etc. were provided to the assessee. The assessee in respect of directions of the Tribunal regarding verification of books of account submitted that the same were already available on record and the books are correct and complete. The AO vide order dated 30/03/2016, passed under section 144 read with section 254 of the Act did not agree with the submissions of the assessee and held that the books of accounts produced by the assessee cannot be accepted as regular books of accounts since the same has not been maintained during the day to day conduct of business but admittedly several years after the close of the relevant previous year a number of entries in the said books appear to be Page | 2
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made as an afterthought. The AO further held that the majority of entries in the books of accounts, specifically those pertaining to trading and investment, are in the form of journal entries in the name of closely related persons. Accordingly, the AO rejected the books of accounts under the provisions of section 145(2) of the Act and proceeded to compute the income in the manner provided under section 144 of the Act. The AO on the basis of information received from the Custodian, company letters in response to the notice issued under section 133(6) of the Act, dividend details, and investment in shares, inter-alia, made an addition of Rs.10,87,14,014, as unexplained investment in shares.
The learned CIT(A), vide impugned order, granted partial relief to the assessee and deleted the addition to an extent of Rs.9,39,76,663, by considering the submissions of the assessee and the information available on record. The learned CIT(A) upheld the addition of Rs.1,47,77,303, as an unexplained investment in shares. The learned CIT(A) also directed the AO to restrict the deduction of interest expenditure to Rs.15,73,548, in respect of share trading profit, while interest expenditure from capital gains and dividends was held to be not allowable. Being aggrieved, both the assessee and Revenue are in appeal before us.
In its appeal, the assessee has raised the following grounds:–
“1. The Ld. CIT(A) erred in law and in facts in rejecting books of accounts of the appellant thereby that the books submitted by the appellant do not stand admitted. 2. The Ld. CIT(A) has erred in law and in facts in confirming the addition on account of unexplained investments to the tune of Rs.1,47.77,303/- made by the Ld. A.O. Page | 3
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The Ld. CIT(A) has erred in law and in facts in not allowing the deduction of interest expenditure claimed by the appellant amounting to Rs.2,46,33,261/- and restricting the deduction only to the tune of Rs.15,73.548/-. 4. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.”
While the Revenue has raised the following grounds in its appeal:–
“1. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of Rs.9,39,76,663/-, made on account of unexplained investment and trading in shares, wherein the assessee has failed to explain the source of acquiring the shares satisfactorily. 2. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee failed to show that the respective entities have charged interest on the amounts paid by the respective parties? 3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A) was justified in directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee has claimed the deduction u/s 57 of the Income Tax Act, 1961 and in that case, the assessee must prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning of interest income. 4. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be.”
Ground No. 1 raised in assessee’s appeal was not pressed during the hearing, according the same is dismissed as not pressed.
Since the issue arising in ground no.2, raised in assessee’s appeal, and ground no.1, raised in Revenue’s appeal, pertains to the addition on account of unexplained investment in shares, therefore the aforesaid grounds are dealt with together.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The present appeal is pursuant to the third round of Page | 4
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assessment proceedings under the Act. It is undisputed that the assessee belongs to Harshad Mehta group and is a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, and all her assets, including bank accounts, were attached and vested in the hands of Custodian appointed under the aforesaid Act. The assessee is an individual whose main business is trading and investment in shares. Since for the year under consideration, the assessee did not file her return of income within the due date, accordingly notice under section 142(1) of the Act was issued calling upon the assessee to file her return of income. As no return was filed by the assessee, the AO computed the original assessment proceedings under section 144 of the Act vide order dated 28/02/1995, inter-alia, after making an addition of Rs.33,86,87,172, as unexplained investment. In further appeal, no relief was granted to the assessee on this issue by the learned CIT(A). The coordinate bench of the Tribunal vide order dated 23/02/2005, remanded the matter back to the file of the AO to pass a fresh order, after affording adequate and proper opportunity to the assessee.
In the second round of proceedings, the AO, vide order dated 22/12/2006, passed under section 144 read with section 254 of the Act, inter- alia, again made an addition of Rs.33,86,87,172, as an unexplained investment. The learned CIT(A) granted partial relief to the assessee on this issue and restricted the addition on account of unexplained investment in shares to Rs.12,19,62,849. The coordinate bench of the Tribunal vide order dated 30/06/2014 passed in ITA No.2694/Mum./2012, restored this issue to the file of AO for de novo assessment. The coordinate bench directed the AO to
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bring on record specific evidence/defect to prove the falsity of books of accounts and further directed the Revenue to provide all the details and materials on the basis of which additions have been made in assessee’s hand.
It is only pursuant to the aforesaid directions of the coordinate bench of the Tribunal that the AO passed the assessment order dated 30/03/2016, under section 144 read with section 254 of the Act, in the third round of proceedings making an addition of Rs.10,87,49,014, on account of unexplained investment in shares, which resulted in the present appeal. The learned CIT(A), vide impugned order, inter-alia upheld the addition to an extent of Rs.1,47,77,303, on account of unexplained investment in shares and granted partial relief to an extent of Rs.9,29,76,663, by considering the submissions of the assessee and the information available on record. The relevant findings of the learned CIT(A), vide impugned order, are reproduced as under:-
“6.5. In the light of the above a detailed exercise has again been conducted during this appellate proceedings and the claims of the appellant have been examined. Out of the addition of Rs.10,87,49,014/- made by the AO, after taking into consideration books of account wherever necessary, arguments of the appellant and other factual evidences the following finding is given:- Unexplained Value of Quantity as per Unexplained Addition Addition Scrip Remarks of CIT(A) A.O. order dated Quantity as per Deleted Sustained 30.03.2016 A.O. Vide letter dated 12.12.2022, the appellant has stated that the difference is on account of calculation error. The appellant has ACC LTD. – 3,15,05,691 3,15,05,891 – been able to explain the differential quantity but had applied incorrect rate. Hence, entire addition stands deleted.
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As per the appellant, he has holding of 7924 shares which is ASHOK LEYLAND 3,000 8,19,375 8,19,375 – more than 3000 shares as per AO; Hence, addition stands deleted No reconciliation ASIAN HOTELS 1,400 1,94,600 – given; addition is 1,94,600 confirmed As per the appellant, he has holding of 21,406 BHARATI shares which is 2,028 1,11,540 1,11,540 – TELECOM more than 20,028 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 400 shares which is BIHAR ALLOYS 100 4,175 4,175 – more than 100 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 200 shares whereas it BROOK POND 266 65,170 49,000 16,170 is 266 shares as per AO; Addition stands partly confirmed As per the appellant, he has holding of 5,000 shares which is BSES LTD. 500 1,15,625 1,15,628 – more than 500 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 3,400 shares which is EICHER MOTORS 2,400 1,44,000 1,44,000 – equalt to 3400 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 14,500 EXCEL shares which is 2,020 14,39,250 14,39,250 – INDUSTRIES more than 14,420 shares as per AO; Hence, addition stands deleted
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As per the appellant, he has holding of 100 shares which is FINLOEX CABLES 20 10,000 10,000 – more than 20 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 1000 FINOLEX PIPES shares whereas it 1,000 82,250 61,688 20,563 LTD. is 1250 shares as per AO; Addition stands partly confirmed As per the appellant, he has holding of 2,100 shares which is FORBES GOKAK 1,950 78,000 78,000 – more than 1,950 shares as per AO; Hence, addition stands deleted The company letter shows holding of GUJARAT 1,45,450 shares AMBUJA 26,350 – – as on 31/3/92 as 93,54,250 CEMENTS per letter dated 19.06.1992; The difference has not been reconciled As per the appellant, he has holding of 4,100 GUJARAT HEAVY shares which is 100 4,575 4,575 – CHEMICALS more than 200 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 6050 HINDUSTAN shares which is 6,012 19,53,916 19,53,916 – LEVER LTD. more than 6012 shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 38600 INDO GULF shares which is 27,200 18,97,200 18,97,200 – FERTILISERS more than 37700 shares as per AO; Hence, addition stands deleted
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As per the appellant, he has holding of 36200 shares whereas it JCT LTD. 34,977 22,04,320 22,04,320 33,92,000 is 49977 shares as per AO; Addition stands partly confirmed No reconciliation KILBURN 3,800 – – given; addition is 99,750 REPROGRAPHICS confirmed As per the appellant, he has holding of 1350 LAXMI shares which is 100 22,800 22,800 – PRECISION more than 30 shares as per AO; Hence, addition stands deleted per the appellant, he has holding of 200 shares which LARSEN & 30 1,78,500 1,78,500 is more than 100 – TOUBRO–DEB shares as per AO; Hence, addition stands deleted As per the appellant, he has holding of 9350 LORCOM shares which is 7,300 11,36,063 11,36,063 – PROTECTI more than 7300 shares as per AO; Hence, addition stands deleted Vide letter dt. 30.12.2022 the appellant has submitted that it has never purchased shares of Madras Cement. It has pointed out that no dividend income in respect of Madras Cement was offered for MADRAS 7,600 3,82,85,000 3,82,85,000 – the years AY CEMENT 1991-92 92-93 and 93-94. Pursuant to the inspection obtained in group entities, a letter dt. 06.07.1992 of Mysore Cements Ltd to the AO is found. As per it the appellant has holding in two folios of 5850 and Page | 9
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7600 shares. It is the contention of the appellant that this 7600 was erroneously considered by the AO as that of Madras Cements. The appellant has also pointed out that in Annexure 1 to the original assessment order, the holding as per dividend warrant has been ascertained as 7600 for Madras Cement and 5850 for Mysore cement, whereas the entire holding was of Mysore Cement only. The appellant has also pointed out that the custodian letter doesn't show any holding of Madras Cement. Hence, the addition stands deleted. No reconciliation MODI ALKALI 50 3,769 – given; addition is 2,769 confirmed No reconciliation MRF 100 1,08,250 – given; addition is 1,08,250 confirmed No reconciliation NICHOLAS 850 2,76,250 – given; addition is 2,76,250 LABORATORY confirmed As per the appellant, he has holding of 21040 PARASRAM shares which is 7,790 9,38,748 9,36,748 – SYNTHETICS more than 20740 shares as per AO; Hence, addition stands deleted No reconciliation PREMIER AUTO 50 3,325 – given; addition is 3,325 confirmed As per the appellant, he has holding of 21040 shares which RAJASTHAN 100 11,813 – 11,813 is more than 20740 PETRO shares as per AO; Hence, addition stands deleted REVATHI CP 300 71,625 – 71,625 No reconciliation Page | 10
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EQUIPMENT LTD. given; addition is confirmed No reconciliation STEEL TUBES OF 1,000 46,000 – given; addition is 46,000 INDIA LTD. confirmed TATA METALS No reconciliation AND STRIPS 200 78,750 – given; addition is 78,750 LTD. confirmed No reconciliation TATA POWER 490 8,95,475 – given; addition is 8,65,475 confirmed The appellant has extracted various letters addressed by the company to AO in response to S.133(6) TISCO 34,245 1,29,91,697 1,29,91,697 notices and – pointed out that Mrs. Pratima Mehta is only second holder. Addition stands deleted. No reconciliation TRANS FRIGHT 100 1,61,500 – given; addition is 1,61,500 confirmed As per the appellant, he has holding of 70 TRANSPEK shares whereas it 50 27,500 27,500 – INDUSTRIES is 100 shares as per AO; Addition stands partly confirmed UNITED No reconciliation PHOSPHORUS 150 8,588 – given; addition is 8,588 LTD. confirmed No reconciliation WARREN TEA 150 35,625 – given; addition is 35,625 LTD. confirmed 1,73,678 10,87,53,965 9,39,76,663 1,47,77,303
In view of the above addition to the extent of Rs.9,39,76,663/- stands deleted, while the sum of Rs. 1,47,77,303/- which continues to remain unexplained stands confirmed.”
Being aggrieved, both assessee and Revenue are in appeal before us.
We have considered the submissions of both sides and perused the
material available on record. It is undisputed that the entire addition of Page | 11
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Rs.10,87,49,014, as made by the AO is on the basis of shareholding determined in various scrips from the following sources:-
Addition Balance addition Sr Particulars/Source of Amount of total deleted by the confirmed by the No. addition addition (Rs.) learned CIT(A) learned CIT(A) (Rs.) (Rs.) 1. Custodian letter dated 4,70,49,835 4,24,93,665 45,56,170 29/10/1993 2. Companies letter received under section 3,17,388 4,175 3,13,213 133(6) 3. Dividend 6,13,86,742 5,14,78,822 99,07,920 details/Warrants Total 10,87,53,965 9,29,76,662 1,47,77,303
During the assessment proceedings, inquiries were made with the Custodian seeking details of the shareholding of the assessee and other family members. Vide letter dated 27/10/1993, forming part of the paper book from pages 167-185, the Custodian shared the details of the investment/holdings held by the Harshad Mehta group, which the Custodian received from various companies. The information shared by the Custodian was adopted by the AO to determine the shareholding of the assessee in some of the scrips. By referring to the aforesaid letter, the learned Authorised Representative (“learned AR”) submitted that the figures of holding as provided by the Custodian are subject to change and these holdings cannot be treated as final figures. Accordingly, it was submitted that the holding of shares by the assessee as provided by the Custodian is not reliable and thus, such information cannot be treated as a valid source of information with respect to shareholding of the assessee.
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The learned AR by referring to the information received from some of the companies regarding the shareholding of the assessee vis-à-vis the details of shareholding as appearing in the Custodian letter dated 29/10/1993 submitted that the shareholding of the assessee as determined by the Custodian in its letter was different than the shareholding confirmed by the respective companies. The details of variation in shareholding of the assessee as per the information received from various companies and Custodian letter is as under:-
Shareholding as per Shareholding as per Sl. custodian letter (on Company’s letter (on Name of the company No. page 180 of the page 186-203 of the paper book) paper book) 1. ACC Ltd 47,858 32,132 2. Colgate-Palmolive (India) Ltd 140 100 3. Gujarat Ambuja Cements Ltd 76,150 1,48,150 4. Mysore Cements Ltd 16,950 13,450
Therefore on the basis of the aforesaid variation, it was submitted that the figures of shareholding of the assessee provided by the Custodian are not reliable. In support of this submission, reference was also made to the letter of the Custodian dated 28/11/2017, wherein the Custodian clarified that column no.6, of its statement vide letter dated 29/10/1993, is meant for the owner of the shares, which was shown as owner 2 and column no.7, is meant for the second holder of the shares, who was shown as the holder of the shares. The relevant reply of the Custodian vide aforesaid letter dated 28/11/2017, is reproduced as under:-
“Sub.: Information u/s 133(6) of the IT Act, 1961 in the case of Shri. Sudhir S. Mehta for the Assessment Year 1992-93 Page | 13
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Sir. With reference to your office letter no. DCIT-CC-4(1) clarification/2017- 18 dated 20.11.2017 received in this on 24.11.2017 calling for the information u/s 133(6) of the IT Act, 1961 in the case of Shri. Sudhir S. Mehta for the Assessment Year 1992-93, it is states that as per your statement. your department had Assessed the Income of Shri. Sudhir S. Mehta, Smt. Deepika A. Mehta and other notified parties on the basis of information given by this office vide letter no. 2561/CUS/ATT/IT/92(118) dated 29.10.1993 in a flopy. In this connection, It is clarified that the col. No. 6 of the statement meant for owner of the shares, was shown as owner 2 and the col. No. 7, meant for 2nd holder of the shares, was shown as Holder of the shares. As such shares actually held and owned by Ms. Rina and Rasila Mehta were shown as those of Shri. Sudhir Mehta, who was the second holder. In support of this please find enclosed letters of the following Companies showing holding of the each notified parties including Smt. Deepika Mehta and Sudhir Mehta, as on the date of notification. I hope this will help you in re-assessing the Income of Shri. Sudhir Mehta, Smt. Deepika Mehta and other notified parties for the Assessment Year 1992–93, if required. In case of any clarification required you may approach the concerned Company for the same.”
From the perusal of the aforesaid letter dated 28/11/2017, issued by the Custodian, in reply to the clarification sought by the Revenue in the case of one of the assessee of Harshad Mehta Group, we find that the Custodian clarified that the actual owner of the shares is the person/entity whose name is shown as owner 2 and the second holder of the shares were shown as holder. Upon careful examination of the details submitted by the Custodian, vide letter dated 29/10/1993, in light of the aforesaid clarification issued vide letter dated 28/11/2011, we find that shareholding of the assessee, which is claimed to be, inter-alia, the basis for addition in her hands as unexplained investment in shares, was held by the assessee as the second holder and she was not the owner of the shares as has been considered till date for determining the shareholding in the hands of the assessee.
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During the hearing, the learned AR placed reliance upon the decisions of the coordinate bench of the Tribunal in Growmore Leasing and Investment Ltd v/s DCIT, in ITA No. 2192/Mum/2015, dated 17/11/2017 and in Hitesh S. Mehta v/s ACIT, in ITA No. 5190/Mum./2017, dated 31/08/2020, wherein the addition made on the basis of Custodian Letter was directed to be deleted. We are of the view that even if addition made on the basis of Custodian Letter, in the present case, is deleted following the aforesaid decisions of the coordinate bench of the Tribunal, the actual shareholding of the assessee still has to be determined. We further find that the aforesaid clarification dated 28/11/2017, issued by the Custodian was not brought to the notice of the coordinate bench in the decisions relied upon by the learned AR in the Harshad Mehta group cases. It is also undisputed that the said clarification dated 28/11/2017, as was sought in the case of one of the assessee of the Harshad Mehta Group, was neither considered by any of the lower authorities nor similar clarification was sought in the case of the assessee while determining the shareholding in the hands of the assessee on the basis of information received from the Custodian. Therefore, in view of the above, the total addition of Rs.4,70,49,835, on the basis of the Custodian letter is not sustainable and thus is directed to be deleted, since the information received from the Custodian was not correctly appreciated. Further, we deem it appropriate to remand the determination of shareholding in the hands of the assessee on the basis of information received from the Custodian to the file of the AO for de novo adjudication. We further direct the AO to also consider the information received from various companies while determining the shareholding in the hands of the assessee. We further direct the AO to consider any other Page | 15
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information as may be furnished by the assessee in support of her submission regarding the actual shareholding in various companies. The AO shall be at liberty to seek any clarification from the Custodian in this regard. Accordingly, the AO is directed to re-adjudicate this aspect of the addition as per our aforesaid directions. As a result, the cross-appeals limited to this issue are allowed for statistical purposes.
As regards the addition made on the basis of company letters, the learned AR submitted that the enquiries were made by the AO during the course of original assessment proceedings with various companies seeking information in respect of the shareholding of the assessee. It was further submitted that although the said information so received was used to determine the shareholding in the various scrips and treated the same as unexplained, however, copies of these evidences were never provided to the assessee. In this regard, the learned AR referred to details of various letters requesting the AO/learned CIT(A) to provide the information received from the company on the basis of which addition was made. The learned AR further submitted that to the extent company letters were provided by the AO, in the third round of proceedings, assessee’s explanation was accepted by the AO and the addition to an extent of Rs.1,32,13,835, was deleted. It was further submitted that during the course of proceedings before the learned CIT(A), even though several letters were provided to the assessee, the copies of letters based on which the addition of Rs.3,13,213, was sustained, were not provided to the assessee.
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We find that the coordinate bench of the Tribunal vide its order, in the second round of proceedings, in ITA No.2694/Mum./2012, vide order dated 30/06/2014, specifically directed the AO to provide copies of all information 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 is evident from para 9.20 as well as para 10.1 of the impugned order. We further note that the facts in the case of the assessee as well as in the case of Shri Hitesh S. Mehta, are identical and the matter arising from the same search and seizure action u/s 132 of the Act. The co–ordinate bench of the Tribunal, while deciding the identical matter in the case of Shri Hitesh S. Mehta, has disposed off the same in Para–4 & 5 as under:– 4. We have heard rival submissions and consider them carefully. We have also perused the copies of the order of the tribunal in case of Smt. Pratima Mehta and the assessee passed in first round. 5. After considering all the relevant material, we found that the matter should go back to the file of the Assessing Officer to pass a fresh order, It is seen that for rejecting the books of account, the AO has not given any valid reasons as no specific defect has been pointed out in. the books of account, therefore in our view the Assessing Officer should go through the books for determining the income on the basis of books accounts" The Assessing Officer has to bring on record specific evidence or defect to prove falsity of books of account as no falsity has been proved in the assessment order passed by the AO. Besides this the department has to provide all the details and material on which basis the addition have been made earlier. If such material is disputed by the assessee then in our view correctness of such material has to be examined as per provision of law, we are not conveniened with the argument of Id. DR that assessee can collect information from parties from where Assessing Officer has obtained the copies on which basis the addition have been made, Therefore, Assessing Officer is directed to provide the copies of all Page | 17
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information on which basis, the AO wanted to made additions in the hands of the assessee. If the AO does not provide the material then in our view addition cannot be made, In view of above facts and circumstances, we set aside order of the authorities below and restore the issues to the file of the Assessing Officer to pass assess– ment de novo after affording reasonable opportunity of being heard to the assessee and as per observations of ours made in the order as above. We order accordingly. 4 Since the facts and circumstances are identical and the nature of issue raised in the case of the assessee as well 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.”
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 second round of proceedings, we find no basis in sustaining such an addition. Accordingly, the addition of Rs.3,13,213, made on the basis of company letters, which were not provided to the assessee is deleted. Further, the learned DR could not bring any material on record to controvert the partial relief granted by the learned CIT(A), accordingly, the relief so granted is upheld. Therefore, the appeal by the assessee in respect of the aforesaid addition is allowed, while the appeal by the Revenue is dismissed.
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
As regards the addition on the basis of holding as per dividend income account, the assessee has only challenged the addition in respect of the scrip of Brooke Bond Lipton India Ltd, Gujrat Ambuja Cements Ltd, Kilburn Reprographics, Nicholas Laboratories, and Trans Freight India Ltd.
As regards the addition in respect of shareholding in Brooke Bond Lipton India Ltd, the learned AR submitted that the AO determined the holding of the assessee at 266 shares as on 31/03/1992, on the basis of dividend received by the assessee. On the contrary, it is the claim of the assessee that the assessee was holding 200 shares of Brooke Bond Lipton India Ltd. The learned CIT(A) accepted the explanation of the assessee to the extent of 200 shares, however, the balance holding of 66 shares was valued at Rs. 16,170, and the same was confirmed by the learned CIT(A) vide impugned order. As per the assessee, 66 shares were received on account of bonus declared by Brooke Bond Lipton India Ltd. on 30/09/1991 in the ratio of 1:3 whereby every shareholder was entitled to one share for every 3 shares held by it. From the perusal of the extracts of the website showing the history of bonus declared by Brooke Bond Lipton India Ltd, forming part of the paper book on page 330, we find that the bonus ratio as on 30/09/1991 was 1:3. Thus, 66 shares appears to be issued to the assessee as bonus on holding 200 shares in the company in the ratio of 1:3 and the dividend was received by the assessee on 266 shares (inclusive of bonus shares of 66 shares). Accordingly, we find no merits in the addition on the basis of the difference in shareholding in Brooke Bond Lipton India Ltd as per the dividend income account. Therefore, the same is directed to be deleted.
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
As regards the addition in respect of shareholding in Gujarat Ambuja Cements Ltd, as per the assessee, the dividend was received on 04/10/1991 and 10/10/1991 on 1,42,500 and 2950 shares respectively (aggregating to 1,45,500 shares). As per the assessee on the date of declaration of dividend, it had aggregate holding to the tune of 1,53,200 shares, and out of same the assessee sold a total of 42,500 shares during the year on 20/11/1991 and 29/03/1992 and offered to tax the capital gains. We find that the aforesaid submission is duly corroborated by the ledger account of dividend and share holing in Gujarat Ambuja Cements Ltd. in the books of the assessee, forming part of the paper book on pages 526, and 541- 543. We find that the opening balance in the shares of Gujarat Ambuja Cements Ltd. is Rs. 72,76,550, which as per the assessee is a value of 74,800 shares held in the previous financial year. We further find that in the year under consideration, the assessee purchased 78,400 shares prior to selling 32,500 shares on 20/11/1991 and 10000 shares on 29/03/1992, thus aggregating to 42,500 shares. It is pertinent to note that the assessee received a dividend of Rs. 4,42,320 on 1,42,500 shares of Gujarat Ambuja Cements Ltd. on 04/10/1991 and Rs. 9,157 on 2,950 shares of Gujarat Ambuja Cements Ltd. on 10/10/1991. Therefore, from the record, it is firstly discernible that the dividend was declared, i.e. on 04/10/1991 and 10/10/1991, prior to the sale of 42,500 shares on 20/11/1991 and 29/03/1992, and secondly, on the dates of declaration of dividend, the assessee had a shareholding of 1,53,200 (i.e. 74,800 shares purchased in the assessment year 1991-12 plus 78,400 shares purchased in the assessment year 1992-93). Thus, we find no basis in the
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
conclusion of the AO, which was upheld by the learned CIT(A) that the assessee held 1,45,450 shares as per dividend income account, since the assessee’s shareholding was much more than the same. Accordingly, the addition due to the difference in shareholding in Gujarat Ambuja Cements Ltd., as per the dividend income account, is deleted.
As regards the addition in respect of shareholding in Kilburn Reprographics, the assessee received the dividend on 27/08/1991, and 03/09/1991, on 4000 and 5000 shares respectively, which aggregated to 9000 shares of Kilburn Reprographics. It is evident from the record that the learned CIT(A) confirmed the addition on account of 3800 shares valued at Rs. 99,750, As per the assessee, the balance shareholding of 5,200 shares in Kilburn Reprographics was accepted by the Revenue. From the perusal of the ledger account of the said company in the books of the assessee, forming part of the paper book, we find that the assessee sold 4000 shares on 09/07/1991. It is pertinent to note that the said sale transaction was much prior to the declaration of the aforesaid dividend, however even then the assessee received dividend on the entire shareholding. Further, as per the assessee, all the shares were purchased in the assessment year 1991-92 and there was no purchase transaction in this year. From the aforesaid facts, it is clearly discernible that the assessee held 9000 shares in Kilburn Reprographics during part of the year under consideration, which is much more than the shareholding accepted by the Revenue. Further, the fact that the assessee received Rs. 4,656 as a dividend on 4000 shares in Kilburn Reprographics on 27/08/1991 and Rs. 1,689 as a dividend on 5000 shares in Kilburn
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
Reprographics on 03/09/1991 also substantiates this claim. It is pertinent to note that the aforesaid sales transaction took place within a few months prior to the declaration of the dividend. Further, in the year under consideration, i.e. 1992-93, the share certificate and the share transaction used to be in physical/paper mode and the transfer of shares in the name of the purchaser in the record of the company used to take sufficient time, unlike the present digital mode. Further, the fact that the assessee received dividend on 9000 shares from Kilburn Reprographics also goes on to prove that the said company recognised the assessee as a shareholder in respect of the aforesaid shareholding on the date of declaration of dividend. Therefore, all the aforesaid facts lead to the conclusion in favour of the assessee that she had a shareholding of 9000 shares in Kilburn Reprographics and the same is much more than as accepted by the Revenue. Accordingly, the addition due to the difference in shareholding in Kilburn Reprographics, as per the dividend income account, is deleted.
As regards the addition of Rs. 2,76,250, and Rs. 1,51,500, in respect of shareholding in Nicholas Laboratories and Trans Freight India Ltd, it is the submission of the assessee that no such investments were made by the assessee during the year. It was further submitted that it may be possible that the holding belonging to other family members may have been mistakenly registered in the name of the assessee and the assessee has received the dividend inadvertently from the company. It was also submitted that in spite of inquiries by the AO with the companies under section 133(6) of the Act, no such holding is reflected in information obtained from the Custodian vide letter
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
dated 29/10/1993. In this regard, it is pertinent to note that even in respect of Kilburn Reprographics, no shareholding is reflected in information obtained from the Custodian, and the entire addition was based on the dividend income account. Thus, the absence of such information cannot lead to the conclusion that the assessee did not have any shareholding in Nicholas Laboratories and Trans Freight India Ltd. It is pertinent to note that a company can grant a dividend in favour of a person only when that person is its shareholder. Further, no material has been brought on record by the assessee to support the submission that the investment in the aforesaid companies was made by any other family member, despite the fact that there have been multiple rounds of litigation in cases of all the family members of the Harshad Mehta group. Accordingly, in the absence of any material in support of assessee’s submission, the plea of the assessee is rejected and the addition sustained by the learned CIT(A), in respect of shareholding in Nicholas Laboratories and Trans Freight India Ltd, is upheld.
Further, the learned DR could not bring any material on record to controvert the partial relief granted by the learned CIT(A) in respect of addition on the basis of the dividend income account. Accordingly, the relief so granted is upheld. As a result, ground no.2, raised in assessee’s appeal, and ground no.1, raised in Revenue’s appeal are partly allowed for statistical purposes.
Since the issue arising in ground no.3, raised in assessee’s appeal, and grounds no.2 and 3, raised in Revenue’s appeal, pertains to the deduction of interest expenditure, therefore the aforesaid grounds are dealt with together. Page | 23
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, the assessee submitted that the transactions in the capital market have been made through three broking firms belonging to the family members of the assessee. As per the details submitted by the assessee, it was submitted that the amount of interest of Rs. 2,46,33,261 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.
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), vide
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
impugned order, partly allowed the ground raised by the assessee on this issue and held that the main purpose of incurring the interest expenditure was not earning income from dividends and unless the interest expenditure was incurred solely for the purposes of making or earning dividend income, no deduction is possible under section 57 of the Act. The learned CIT(A) further held that in the acquisition of shares for capital gains, the dividend income 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.
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 of the Act. The relevant
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
findings of the Hon’ble jurisdictional High Court in the aforesaid decision, as relied upon in the impugned order, are as under:-
“It would be noticed that what is allowable as expenditure under the said sub- section is only the expenditure incurred solely for the purpose of making or earning dividend income. Emphasis thus appears to be on the object or purpose of incurring of the expenditure. The exclusive object of incurring the expenditure has to be the making or earning of the dividend income. The mere fact that income by way of dividend has accrued and that the expenditure incurred is in some manner or other related to the accrual of the dividend income is not sufficient.”
We find that the 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 sources by the taxpayer. Therefore, respectfully following the aforesaid decision of the Hon’ble Supreme Court in Seth R. Dalmia (supra), we are of the Page | 26
Pratima Hitesh Mehta ITA no.416/Mum./2023 ITA no.1180/Mum./2023
considered view that the assessee is entitled to claim a deduction of interest expenditure under section 57 of the Act since receipt of dividend is merely due to the shareholding of the assessee and the interest expenditure has nexus with the income under the head “income from other sources” including dividend 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.
In the result, the present cross-appeals are partly allowed for statistical purposes. Order pronounced in the open Court on 26/10/2023
Sd/– Sd/– SANDEEP SINGH KARHAIL G.S. PANNU VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DATED: 26/10/2023 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai