PRATIMA HITESH MEHTA ,MUMBAI vs. DCIT, CC -4(1), MUMBAI

The Ld. CIT(A) has erred in law and in fact in partly confirming the assessment order passed u/s. 144 r.w.s. 254 of the Act dated 19.07.2024. 2. The Ld. CIT(A) has erred in law and in fact in not quashing the assessment order which is time barred and hence void.

The Ld. CIT(A) has erred in law and in fact in confirming the addition made on account of unexplained investment amounting to Rs. 4,70,49,835/--

The Ld. CIT(A) ought to have eld that the deduction of interest expenditure of Rs. 2,46,33,261/- was allowable to the appellant as directed by Hon'ble Tribunal instead of setting aside to the Ld. A.O. for verification.

The Ld. CIT(A) ought to have deleted the addition on account of unexplained investments to the extent relief granted by the Hon'ble Tribunal instead of setting aside to the Id. A.O. for verification.

The Ld. CIT(A) has erred in law and in fact in not appreciating that no interest u/s. 234D of the Act ought to be levied under the hands of the appellant.

The Ld. CIT(A) has erred in law and in fact in not appreciating that the interest u/s. 220 of the Act were incorrectly computed by the Ld. A.O.”

We take up the grounds raised by the assessee seriatim. Ground no. 1 and 2 are not pressed by the assessee, in the course of hearing before us and are therefore, disposed of as not pressed. Before we adjudicate ground no. 3, it is imperative to take note of the facts as emanating from the records, since, it is the fourth round of appeal before the Coordinate Bench.

Assessee is a notified person under the Special Court (Trial of Offenses 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. A search and seizure action u/s. 132 was carried out in the years 1990 and 1992 in the case of the assessee along with other family members of Shri Harshad Mehta. Original assessment was completed on 28.02.1995, determining the total income of the assessee at Rs. 36,75,72,411/-, details of which are tabulated below:

1. Addition made on account of unexplained investments of Rs.33,86,87,172/- was on the basis of enquiries made by the ld. Assessing Officer with various parties and shareholding of the assessee was determined on the basis of the following: a. Information received from the custodian vide letter dated 29.10.1993, reflecting shareholding of the assessee. b. Information received from the companies, reflecting shareholding of the assessee. c. Dividend income accounted in the books of the assessee, reflecting shareholding as per books. d. Shares seized at the time of search.

2. Original assessment completed u/s. 144 dated 28.02.1995 went before the Coordinate Bench in appeal after substantial additions confirmed by ld. CIT(A), whereby the Coordinate Bench had set aside the issues back to the file of ld. AO for de novo adjudication in ITA No. 4117 and 4671/Mum/2003 dated 23.02.2005. With the completion of second round of litigation before the Coordinate Bench, the total income of the assessee was determined at Rs. 13,06,78,068/-, by the order giving effect to the appellate order which again was set aside back to the file of ld. AO for de novo adjudication vide order in ITA

Custodian letter dated 29.10.1993

3. Coordinate Bench deleted substantial additions from the table above in ITA No.416/Mum/2023 and ITA No. 1180/Mum/2023, vide order, dated 26.10.2023. Out of the above table, addition of Rs. 4,70,49,835/- in respect of custodian letter dated 29.10.1993 has come up before us, vide ground No. 3 raised by the assessee in the present appeal. For this, it is important to take note of the findings arrived at by Coordinate Bench in the aforesaid order so as to understand the findings and the direction given by the Coordinate Bench for its adjudication, giving rise to the present appeal before us. In respect of the custodian letter dated 29.10.1993 which formed the basis for the impugned addition of Rs.4,70,49,835/-, Coordinate Bench observed

4. With these observations, the addition of Rs. 4,70,49,835/- made on the basis of custodian letter was held to be not sustainable and was thus, directed to be deleted as the information received from the Custodian was not correctly appreciated. Despite the addition having been deleted, Coordinate Bench found it appropriate to remand the determination of shareholding in the hands of the assessee on the basis of information received from the Custodian. It therefore, remanded the matter to the file of ld. AO to consider the information received from various companies while determining the shareholding in the hands of the assessee as well as to consider any other information as may be furnished by the assessee in support of her submission regarding the actual shareholding in various companies. Ld. AO was given liberty to 6 Pratima Hitesh Mehta AY 1992-93

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 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

5. while giving effect to these aforesaid directions, ld. AO passed the impugned assessment order dated 19.07.2024 whereby he reiterated the addition of Rs. 4,70,49,835/-, determining total income at Rs.10,25,26,065/- for which the assessee is in appeal vide ground No. 3 before us. This being fourth round of litigation before the Tribunal, the issue before us has to be adjudicated based on the directions given by the Coordinate Bench in the preceding round and therefore, the scope for our adjudication is limited and restricted by the directions given in the preceding round by the Coordinate Bench. For this, we carefully take note of the findings and directions given by the Coordinate Bench in para 17 for which the basis is noted in para 15 and 16, having reference to the custodian letter dated 29.10.1993 for which a clarification was obtained vide letter dated 28.11.2011 issued by the custodian. After having taken into account the clarificatory letter dated 28.11.2011, the Coordinate Bench deleted the addition of Rs. 4,70,49,835/- by holding it as not sustainable.

6. However, another aspect in relation to the said addition was remanded back to the file of ld. AO which was limited to determination of shareholding in the hands of the assessee. Thus, the remand was made by the Coordinate Bench only for the purpose of determination of shareholding in the hands of the assessee on the basis of information received from the custodian. Ld. AO had a very limited role to play to comply with the said direction of the Coordinate Bench to call for information and consider other information received from various companies while determining the said shareholding of the assessee. While completing the assessment, to give effect to the said direction, ld.

7. Contrary to the above, ld. AO once again made the addition on account of unexplained investments amounting to Rs 4,70,49,835/- by holding that the assessee did not furnish the evidence in the form of contract notes in support of shareholding in various companies. The Coordinate Bench in the aforesaid order in ITA No. 416/Mum/2023 and ITA No.1180/Mum/2023 had deleted the addition holding it as unsustainable in law and therefore does not need any further adjudication even though ld. AO has reiterated the same addition while giving effect to the direction of the Coordinate Bench and passing the assessment order u/s. 144 r.w.s.244 which has brought the assessee before us to contest the said addition in ground no. 3. The facts of the issue have already been considered by the Coordinate Bench while deleting the said addition. What remained was the determination of shareholding in the hands of the assessee by taking into account the letter from the custodian including its clarification and letters from 9 Pratima Hitesh Mehta AY 1992-93

8. In this respect, ld. AO enquired from the custodian, who, vide its letter dated 21.05.2024 replied to the ld. AO giving details of the letters from various companies reflecting shareholding of the assessee, perpetually relied upon by them for determining the shareholding while submitting said details to the ld. AO in the course of original assessment proceedings. Copy of the said letter is placed in the paper book at page 204-205, which is extracted below which is material to decide on the issue before us:

9. From the aforesaid letter, it was pointed out that custodian had provided 22 letters of companies reflecting the shareholding of the assessee. Out of these, only 7 letters were relevant, as shareholding in other companies was not subject matter of adjudication before the ld. AO. Claim of the assessee is that these details provided by the custodian

10. Upon referring to the contents of these letters, it was submitted that they do not provide any details of shares acquired during assessment year 1992-93 or the details of shares held as on 31.03.1992 and hence, are not relevant for the purpose of making addition in the hands of the assessee to treat the investments as unexplained. Addition made by the ld. AO is bifurcated into two buckets one relating to nine companies in respect of which ld. AO had information of the shareholding of the assessee and for the other 12 companies, where ld. AO did not have any information neither from companies nor from the custodian. The details are tabulated as furnished by the assessee:

11. For each of the above company, assessee furnished company- wise details which are reproduced for ready reference: “ACC Limited - Addition of Rs. 3,15,05,691/-

We submit that the said addition made by the Ld. A.O. and confirmed by the Ld. CIT(A) is without appreciating that there is no investment remaining unexplained in the said company and that the value is determined solely on 15 Pratima Hitesh Mehta AY 1992-93

Subsequently, vide order dated 29.02.2012, the Ld. CIT(A), directed the Ll. Ld. A.O. to grant credit in respect of the investments made by the appellant and substantiated by the evidences filed before the Ld. A.O. but not considered by him. Accordingly, the relief in respect of the addition on account of the said holding for which details were already available before the Ld. A.O. was determined for Rs. 14,29,30,785/- and addition to that extent was deleted. This is evident from the order giving effect to the Ld. CIT(A) order dated 03.09.2012 [Page 232 to 234 of PB No.2). The break-up of the said relief of Rs. 14,29,30,785/- as considered by the Ld. A.O. while passing the aforesaid order giving effect is enclosed at Page 235 of PB No.2. 36. The perusal of the said chart showing break-up of the relief shows that in respect of holding of ACC Limited, against differential holding of 10,537 shares treated as unexplained, the appellant had furnished the evidence to the tune of 11,013 shares. It is submitted that thus, entire unexplained investment of 10,537 shares stood explained by the evidences submitted by the appellant and accepted by the Ld. A.O. while passing order giving effect dated 03.09.2012. It may be pointed out that the said order passed by the Ld. CIT(A) was accepted by the department and no further appeal was filed before the Hon'ble Tribunal.

It is submitted that although the entire unexplained investment was explained by the appellant in the proceedings before the Ld. A.O. for giving effect to order of Ld. CIT(A) dated 29.02.2012, the Ld. A.O. incorrectly computed the quantum of relieve at Rs. 2,62,89,754/ instead of Rs. 5.77.95.445/-. It is submitted that the said error in the calculation of relief is explained in detail in the chart enclosed at Page 236 of PB No.2. 38. Since there is no investment remaining to be explained, the addition of Rs. 3,15,05,691/-deserves to be deleted.

It may also be pointed out that more than the holding determined by the Ld. A.O. at 34,184 shares, the appellant had sold 37400 shares during the year and the capital gain on the sale of these shares has already been accepted by the Ld. A.O. in the assessment order. Therefore, even on this account, the unexplained investment determined by the Ld. A.O. is incorrect.

The Ld. A.O. had determined shareholding of the appellant at 3,400 shares and after granting credit for 1,000 shares, balance 2,400 shares was treated as unexplained.

We submit that pursuant to clarification from the custodian, the Ld. A.O. received letter dated 22.12.1997 issued by the said company to the custodian [Page 209 to 211 of PB No.2]. The said letter does not support the unexplained investment determined by the Ld. A.O. for the following reasons:

In view of the above, it is submitted that the unexplained investment determined by the Ld. A.O. for 2400 shares was incorrect.

The Ld. A.O. had determined shareholding of the appellant at 1,250 shares and after granting credit of 250 shares, balance 1,000 shares were treated as unexplained.

We submit that pursuant to the clarification sought from the custodian, the Ld. A.O. received the letter dated 14.01.1998 issued by the said company to the custodian [Page 212-215 of PB No. 2). The said letter does not support the unexplained investment determined by the Ld. A.O. for the following reasons:

It is submitted that during the year under appeal, the company had converted these debentures and the first tranche of the said conversion was carried out on 30.05.1992 at 4 shares per debenture. The said information is available on public domain and is enclosed herewith as Annexure I. As such, the appellant came to be acquired 1,000 shares on 30.05.1992 out of part conversion of the debentures

In view of the above, it is submitted that the unexplained investment in 1,000 shares was incorrect.

The Ld. A.O. determined shareholding of the appellant at 6,012 shares and after granting credit of 100 shares, balance 5,912 shares were treated as unexplained.

We submit that pursuant to the enquiry from the custodian, Ld. A.O. received letter dated 16.03.1998 issued by the said company to the custodian [Page 216 to 220 of PB No. 2). The said letter does not support the allegations of the Ld. A.O. with respect to unexplained investment for the following reason:

In view of the above, it is submitted that the unexplained investment in 5.912 shares was incorrect.

The A.O. has determined the shareholding of the Appellant at 49,977 shares and after granting credit for 15,000 shares, the balance 34,977 shares were treated as unexplained.

We submit that pursuant to the enquiry from the custodian, the Ld. A.O. received letter dated 20.08.1998 issued by the company to the custodian [Page 221 224 of PB No. 2). The said letter does not support the unexplained investment determined by the A.O. for the following reasons:

In view of the above, it is submitted that the unexplained investment in 34,977 shares was incorrect.

The Ld. A.O. determined the debenture holding of the appellant at 100 debentures. Since according to the Ld. A.O., the appellant did not file any information in respect of the said investment, these 100 debentures were treated as unexplained.

We submit that pursuant to the enquiry from the custodian, the Ld. A.O. received letter dated 14.12.1998 issued by the company to the custodian [Page 225-227 of PB No. 2]. We submit that the said letter does not support the unexplained investment determined by the A.O. for the following reasons:

In view of the above, it is submitted that the unexplained investment in 100 debentures was incorrect.

The A.O. has determined the shareholding of the Appellant by 20,740 shares and after granting credit for 12,950 shares, the balance 7,790 shares were treated as un-explained.

We submit that pursuant to the enquiry from the custodian, the Ld. A.O. received letter dated 29.01.1998 issued by the company to the custodian which reflected the holding of the appellant [Page 228-230 of PB No. 2]. We submit that the said letter does not support the unexplained investment determined by the A.O. for the following reasons:

In view of the above, it is submitted that the unexplained investment in 20,740 shares was incorrect.

The Ld. A.O. determined the debenture holding of the appellant at 490 debentures. Since according to the Ld. A.O., the appellant did not file any information in respect of the said investment, these 490 debentures were treated as unexplained.

It is submitted that the holding of Tata Power appears to have been determined on the basis of some annexure provided by the Ld. A.O. during the course of assessment proceedings in the case of some family member. The copy of said annexure provided by the Ld. A.O. is enclosed herewith as Annexure II. Although the holding has been determined at 490 shares, the appellant does not hold any of these shares and no such holding has been acquired by the appellant during the year. Even the Ld. A.O. has not been able to explain the basis on which the said holding has been acquired by the appellant.

In view of the above, it is submitted that the unexplained investment determined by the Ld. A.O. at 490 shares was incorrect.

The A.O. has determined the shareholding of the Appellant by 5,150 shares and after granting credit for 5,000 shares, the balance 150 shares were treated as unexplained.

We submit that the Id. A.O. had provided the letter dated 18.09.1996 issued by the company to him. The copy of the said letter is enclosed herewith as 20 Pratima Hitesh Mehta AY 1992-93

Per contra, ld. CIT DR supported the order of ld. AO and prayed for sustaining the addition, so made.

Undisputed fact of the matter is that the addition made by ld. AO while passing the order giving effect order u/s. 144 r.w.s. 254 has already been deleted by the Coordinate Bench in the preceding round of litigation (supra), holding it as not sustainable. This finding was arrived at by the Coordinate Bench by placing reliance on the decision of other two assessees in the Harshad Mehta group cases, more particularly, in the case of Growmore Leasing and Investment Limited and Hitesh S Mehta (supra), whereby the addition made on the basis of custodian letter was directed to be deleted. In the present case, there was no occasion for the ld. AO to reiterate the said addition. Direction of the Coordinate Bench was limited to determine shareholding in the hands of the assessee which was on the basis of information received from the custodian after considering the information received from various companies and actual shareholding claimed by the assessee in various companies. In view of the aforesaid finding already given by the Coordinate Bench on the impugned addition, we do not find any reason to sustain the addition made by ld. AO which has already been held to 21 Pratima Hitesh Mehta AY 1992-93

Ground no. 4 is in respect of deduction of interest expenditure of Rs. 2,46,33,261/- claimed by the assessee which was directed by the Coordinate Bench in the aforesaid order for granting relief to the assessee. Ld. AO failed to give effect to the direction given by the Coordinate Bench on this issue. Ld. CIT(A) though has noted that direction so given by the Coordinate Bench has not been considered by the AO, yet remanded the matter back to the file of ld. AO for the purpose of verification and give effect to the direction of the Coordinate Bench. In this respect, we perused the order of the Coordinate Bench to note that it has very specifically and in clear terms held that assessee is entitled to claim deduction of interest expenditure u/s.57 since receipt of dividend is merely due to the shareholding of the assessee and interest expenditure has nexus with the income under the head ‘income from other sources’, including dividend income even though not direct. Coordinate Bench, thus directed the ld. AO to allow the interest expenditure claimed by the assessee u/s.57 of the Act. There is no whisper about any verification in this regard, while allowing the claim of interest expenditure. Relevant paragraphs of the decision of the Coordinate Bench in this respect are extracted below:

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 juri ictional 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, l.e. wherein the AO denied the deduction claimed under section 57(lil) 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 juri ictional 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 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.

1. In the present case, ld. CIT(A) has, despite holding that the contention of the assessee is correct and ld. AO having failed to give

Ground no.5 raised by the assessee is related to ground no.3 already adjudicated upon by us in the above paragraphs. Accordingly, this ground is to be read in conjunction with our observations and findings given in ground no.3. Ground no. 5 is allowed.

Ground no.6 is in respect of levy of interest u/s.234D which according to the assessee ought not to have been levied in the hands of the assessee. In this respect, reference is made by the ld. Counsel of the assessee to another decision in one of the assessees in the Harshad Mehta Group cases, i.e., in the case of Sudhir S. Mehta in ITA No.417/Mum/2023, vide order dated 06.02.2025, wherein identical issue was dealt by the Coordinate Bench in Para 32, which is extracted below: “32. Ground No. 7 relates to the levy of interest u/s 234D of the Act. In our considered opinion, provisions of Section 234D of the Act are not applicable in the facts of the case inasmuch as, there was no refund issued to the assessee as there was no 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.”

1. Considering the above observation of the Coordinate Bench, there being no change in facts and position of law, we accordingly hold that interest u/s. 234D is not to be charged by the ld. AO. Accordingly, ground no.6 is allowed.

Ground no.7 relates to levy of interest u/s.220, which according to the assessee has been incorrectly computed by the ld. AO. In this respect, interest to be charged u/s.222 is on the correct income to be determined by the ld. AO, after taking into account the findings and directions of the Tribunal on the issues raised in the present appeal in terms of above paragraphs. Ld. AO is directed to re-compute the total income of the assessee after giving effect to our directions and findings in the present appeal and thereafter, re-compute the interest, if any chargeable u/s.220 in the hands of the assessee. Accordingly, ground no.7 is partly allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed.

The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT