JT. COMMISSIONER OF INCOME TAX(OSD), CENTRAL CIRCLE 4(1), MUMBAI vs. DEEPIKA ASHWIN MEHTA, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “D”, MUMBAI Before Shri Amit Shukla (JM) & Shri Arun Khodpia (JM) ITA No. 1910/Mum/2026 (A.Y. 2023-24)

JCIT(OSD) Vs. Deepika Ashwin Mehta Room No. 420 32, Madhuli Apartment Kautilya Bhavan, BKC Dr. Annie Besant Road Bandra East Worli SO, Mumbai-400 018. Mumbai-400 051. PAN : ABNPM8231D (Appellant) (Respondent)

Assessee by Shri Yayesh Kala & Ms. Aakansha Mhatre Respondent by Dr. P. Daniel (Spl. Counsel) Date of Hearing 06.07.2026 Date of Pronouncement 09.07.2026

ORDER Per Arun Khodpia, AM: This appeal of the Revenue is directed against the order of Commissioner

of Income Tax (Appeals)-52, Mumbai [in short ‘Ld. CIT(A)’] dated 01.12.2025, for the assessment year 2023-24, arises from the order under section 143(3) of the Income Tax Act, 1961 [in short ‘Act’] dated 26.02.2025 passed by the Assistant Commissioner of Income-tax, Central Circle 4(1), Mumbai.

2 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . substantiate the claim lies with the assessee that the interest expenditure was genuine & for business purpose? 2. Whether the Ld. CIT(A) misapplied the law by not drawing an adverse inference against the assessee, as permitted by the Hon'ble Supreme Court's ruling in CIT vs. BEST Co. Ltd (60 ITR 11), when the assessee failed to produce evidence exclusively in their possession to substantiate the interest expenditure claim? 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition made under section 69C of the Income-tax Act, 1961 on account of unexplained personal and household expenses from Rs. 12,00,000 to Rs. 1,50,000, without appreciating that the assessee failed to furnish any documentary evidence to substantiate his claim regarding the source and extent of such expenses. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting the assessee's explanation that his personal and household expenses were borne by relatives, particularly his brother, without any supporting evidence such as confirmations, bank statements, or proof of actual payment, and without establishing that such expenses were incurred regularly and exclusively for the assessee throughout the year. The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal, if need be. The appellant, therefore, prays that on the ground stated above, the order of the Ld. CIT (A)-52, Mumbai, may be set aside and that of the Assessing Officer restored.

3 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . 3. Brief facts of the case: The assessee is a notified person since 08.06.1992

under section 3(2) of the Special Court TORTS Act 1992. All the assets including

the bank account of the assessee have been under attachment, control and custody

of the Custodian since 08.06.1992. It is also pertinent to mention that the assessee

is one of the persons related to the Harshad Mehta Group. For the year under

consideration, the assessee had filed her income tax return on 29.07.2023,

declaring total income at ‘NIL’ and had claimed a refund of Rs. 19,80,263/-.

Subsequently, the case was selected for scrutiny assessment under CASS and

accordingly notice under section 143(2) /142(1) were issued. In response, the

assessee submitted a reply on 08.11.2024.

has claimed deduction of Rs. 1,61,78,879/- under section 57 of the Act on account

of interest expenses. The assessee was asked to furnish justification for aforesaid

claim and to explain nexus between the interest expenses claimed and income

under the head ‘income from other sources’. The assessee furnished her

explanation before the AO. However, the AO was not convinced with the same,

therefore, had made the disallowance of the aforesaid amount with the observation

that the assessee is failed to establish the direct nexus of expenditure with the

interest income under the head ‘income from other sources’. Accordingly, the

4 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . amount of interest claimed by the assessee is added back to the taxable income of

the assessee.

expenses of the assessee. The AO raised a question that as per the financial of the

assessee, no expenses on household for day-to-day expenses or withdrawals was

shown by the assessee. In response to such query, the assessee submitted that she

is notified entity and her assets are managed by Custodian, thus same can be dealt

with only under the orders of Hon'ble Special Court. The assessee submits that

she has not spent any income for personal expenses, which are otherwise very

meager and nominal. It is further submitted by the assessee that she lives with

large number of family members all of whom are not notified. The livelihood of

the assessee is taken care of by the relatives and other family members. Since no

expenditure is incurred by her, there should not be any addition to her income on

that ground. The AO considered this submission of the assessee, however was not

convinced with the same, as the assessee was unable to furnish any relevant

documents/details regarding source of cash received from the relatives. If the

assessee received any type of favourism from relatives, friends and other family

members that was to be explained and she needs to furnish relevant details to

explain the source of income and expense incurred by her.

5 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . 6. The AO then was of the opinion that there must be certain personal

expenses incurred by the assessee which are met from undisclosed source of

income, therefore the amount of Rs. 1 lakh per month has been estimated as

personal expenses and accordingly in aggregate Rs. 12 lakh was added to the

taxable income of the assessee under section 69C of the Act.

appeal before CIT(A), who had partly allowed the appeal of the assessee on both

grounds.

restricting the disallowance on account of interest expenditure up to interest

income and reducing the estimated addition of household expenses, therefore the

assessee is in appeal before us.

rightly made additions which are not appreciated by the ld. CIT(A) while

restricting interest expenditure under section 57 of the Act to the extent of income

earned offered without appreciating that the burden of proof to substantiate such

claim lies on assessee that the interest expenditure was genuine and for business

purpose. Ld. DR relied on the decision of Hon'ble Apex Court in the case of CIT

Vs. BEST Co. Ltd. (60 ITR 11), according to which when the assessee failed to

6 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . produce evidence exclusively in their possession to substantiate the interest

expenditure claimed, the Revenue authorities have to draw an adverse inference.

Regarding household expenses, it is submitted that CIT(A) have not appreciated

the facts of issue in correct perspective while reducing personal and household

expenses to Rs. 1.50 lakhs instead of the addition of Rs. 12 lakhs made by the AO.

As no one of the stretcher of the assessee can live with such a small amount of

Rs. 1.5 lakh on her household during an entire year. It is submitted that the

assessee failed to produce any evidence that her household exp were borne by the

relatives, accordingly addition made by the AO for Rs. 12 lakhs, deserve to be

sustained. It was requested that both the additions made by the AO merits to be

sustained and the order of the CIT(A) is liable to be set aside.

is raised by the ld. AO in the present case is covered by the decision of Hon'ble

ITAT in assessee’s own case for A.Y. 2009-10 in ITA No. 6831/Mum/2013 dated

21.10.2025 and for A.Y. 2011-12 and 2012-13 vide ITA No. 418/Mum/2016 &

2736/Mum/2017. It was therefore the prayer that CIT(A) had rightly decided the

issue based on the decisions of ITAT by following the observation of Hon'ble

ITAT, as the facts of the issue in the present year are identical to the facts of issue

in the years which were decided by the Hon’ble ITAT. Therefore, in the absence

of any new facts or material brought on record by the Revenue, addition resticted

7 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . by CIT(A) was justified. Regarding addition of household expense of Rs. 12 lakh,

it was submitted that estimation of Rs. 1 lakh per annum by the AO was arbitrary,

excessive and devoid of any basis. The assessee’s modest living expenses are

being met by her brother-in-law, Dr. Hitesh S. Mehta. Dr. Mehta is an independent

medical professional and a regular income tax assessee. The source of funds is

therefore not unexplained. The assessee constrained by her circumstances

therefore living a frugal lifestyle. It was therefore prayed that the addition made

by the AO was rightly scaled down by to Rs. 1.5 lakh per annum, which needs to

be upheld.

perusal of the facts on record and the decisions of the ITAT in assessee’s own

case, admittedly CIT(A) had decided the issue of interest expenditure in

accordance with the decision of ITAT, Mumbai in assessee’s own case for A.Y.

2011-12, 12-13 and 2009-10. For the sake of completeness, the observations of

CIT(A) are extracted as under:

8 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta .

6.2 In the various case of Harshad Mehta Group, certain requests were received de letter dt. 11.03.2024 to restore the appeal on the similar issues in pursuant to the reactions given by Hon'ble Tribunal on different date to re-adjudicate the said issue in group of cases of Harshad Mehta also. 6.3. The Ground no. 2 related to the issue of disallowance of interest expenditure amounting to Rs. 1,61,78,879/-, The details of disallowance of interest expenditure are as below:-

A.Y. Rejection of Appellant claim AO’s view int. amount (in Rs.) 2023- 1,61,78,879/- The assessee had shown The AO completed the 24 interest expenditure of Rs. assessment by disallowing 1,61,78,879/- payable to the interest expenditure of the related notified broker Rs. 1,61,78,879/- as entities deduction.

6.4 The appellant has challenged the disallowance made by Ld. A.O. on account of interest expenditure in various AYs. The Ld. A.O. has broadly disallowed the said interest expenditure in the cases of this group for the following reasons: a. The interest payable is tentative and provisional. b. There is no basis for computation of interest payable to the parties as per which the Appellant has a right to pay and the creditors have a right to receive. c. The provision made on account of interest payable is a contingent liability and therefore, cannot be allowed as business expenditure. d. The broking firms have not charged interest from corporate entities. e. The liabilities were not crystalized during the year. f. The AO in the assessment order also mentioned that if the interest expenses are allowable to the assessee, the provision of section 14A of the Act shall apply. g. The AO has relied on the judgement of various courts stating that the appellant has failed to prove nexus between the income and expenditure to claim deduction u/s 57 of the Act.

6.5. Earlier, the Ld. CIT(Appeal)'s for various AYs in the case of appellant while adjudicating the original assessment order for different AYs dismissed the appeal holding that the dispute with regards to payment of interest to these parties is raised before Hon'ble special court and decision of Hon'ble special court would be relevant factor for determining the liability of interest.

6.6. Further, the Hon'ble ITAT for different AYs have also set aside the issue for re- adjudication and also allowed the appeal of the appellant in the different AYs on the similar set of facts.

9 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . 6.7. It is further submitted that the appellant had taken loans from the related broker entities, M/s. Harshad Mehta, M/s. Ashwin Mehta and M/s. J.H. Mehta for making investments in the shares and for which purpose the appellant had entered into an arrangement to pay interest @ 12% p.a. Since the interest is in relation to earning of income from investments, i.e. shares and terms deposits, the same was claimed as deduction against the said income. The appellant has accordingly provided interest at the rate of 12% p.a. in the books.

6.8. The appellant had shown interest broker entities. The appellant has filed submissions explaining the allowability of interest expenditure alongwith various judgment of own case as well as family members wherein this claim has been allowed.

6.9. The appellant has relied upon the case of Pratima Mehta for A.Y. 2014-15 wherein the Hon'ble Mumbai Tribunal has allowed the interest expenditure in ITA No. 5839/Mum/2018 vide order dated 27.11.2019. The relevant findings are reproduced below:

"6. The only issue to be decided in this appeal is as to whether the Id. CIT(A) was justified in confirming the disallowance of interest in the sum of Rs. 2, 19,69,050/- in the facts and circumstances of the case.

7.1. It is not in dispute that the assessee is notified person under the provisions of Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 since 08/06/1992 and in view of the notification issued by the Hon'ble Special Court, the properties of the applicants were vested with the custodian. We find that the entire issue revolves on the point of borrowed funds being diverted for non-business purposes by the assessee and hence, correspondingly the interest paid by the assessee requires to be disallowed, in the opinion of the Assessing Officer. We find that the Id. AR

10 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . had pleaded that the borrowings were made by the assessee in the year 1990 and invested in the shares of various companies. The interest paid on such borrowings was allowed as deduction from time to time to the assessee in the past. The Id. AR pleaded that those shares were sold in the open market at much higher price in the year 2009-10 and the sale proceeds thereon were either kept in the form of fixed deposits with various banks or utilized for making payments to certain parties who are also notified entities. The Id. AR placed on the record the balance sheet of the assessee as on 31/03/2014 from which the following items require crucial consideration:-

Liability Side 1. Capital Account balance as on 31/03/2014 Rs. 70,22,40,565/- 2. Loan from M/s. Ashwin S Mehta - Rs. 11,58,95,466/- 3. Loan from M/s. J.H. Mehta Rs. 10,47,41,410/- 4. Loan from Ms Deepika A Mehta Rs. 20,500/- 5. Loan from Shri Hitesh S Mehta Rs. 15,480/-

Asset Side 1. Investment in Term Deposits Rs. 3,32,11,643/- 2. Prepaid Taxes a. TDS Rs.6, 15, 17,832/- b. Wealth Tax Rs. 1,792/- c. Income Tax Rs.29,11,19,135/- d. Advance Tax Rs. 60,66,341/- 3. Loan to M/s. Harshad S Mehta Rs. 47,37,93,346/-

7.2. From the details provided in the balance sheet as on 31.3.2013 and 31.3.2014, we find that the own funds of the assessee in the form of capital account balance was Rs. 70,22,40,565/- as 31/03/2014 and Rs. 70,03,89, 126/- as on 31/03/2013. The Id. AR pleaded that the amounts were paid to Shri Harshad S Mehta in the sum of Rs.47,37,93,346/- out of withdrawal of fixed deposits kept with various banks and as per the directions of Hon'ble Special Court. Hence, there cannot be any charging of interest on the said loans paid to Shri Harshad S Mehta by the assessee. We find lot of force in the said argument of the Id. AR that when the amounts were advanced to certain notified persons in order to comply with the directions of the Hon'ble Special Court with specific directions for utilisation of those funds subsequently also, the assessee cannot be fastened with a notional interest liability while complying with the said directions of the Hon'ble Special Court. Moreover, we also find that the prepaid taxes paid by the assessee in the form of TDS, wealth tax, income tax and advance tax has got no relevance with the borrowings of the assessee as admittedly those were paid by the assessee over the years out of the income earned by the assessee in several years and out of maturity proceeds of fixed deposits / sale proceeds of shares. Hence, there cannot be any assumption that the borrowed funds were used by the assessee for making payments towards the aforesaid taxes. The Id. AR also stated that the borrowings made by the assessee from the four parties

11 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . i.e. M/s. Ashwin S Mehta, M/s. J.H. Mehta, Ms Deepika A Mehta and Shri Hitesh S Mehta were made way back in 1990 and no fresh borrowings had happened thereafter. Hence, there cannot be any allegation that those borrowed funds were utilized for making payments of taxes as detailed above. We find that in any case, assessee is having sufficient own funds in its kitty as is prevalent in the balance sheet and hence, there cannot be any disallowance of interest on that count itself. Reliance in this regard is placed on Hon'ble Jurisdictional High Court in case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 (Bom). Hence, we direct the Id. AO to delete the disallowance of interest in the sum of Rs.2,19,69,050/-Accordingly, the ground No. 1 raised by the assessee is allowed.

6.10. Similarly, the Hon'ble Mumbai Tribunal allowed the claim of interest expenditure in the case of Pratima Mehta for A.Y. 1992-93 in ITA No. 416/Mum/2023 dated 27.10.2023 with following findings:

"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."

12 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . 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 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."

6.11. The appellant has submitted that these decisions have been rendered following the order passed in 21 cases of the family members of the appellant in ITA No. 418/Mum/2016 & 2736/Mum/2017 vide order dated 27.12.2017, including appellant's own case. Thus, the Hon'ble Mumbai Tribunal has been allowing the deduction of interest expenditure in the case of the appellant, family members and related companies on identical set of facts. The Hon'ble Tribunal allowed the claim of deduction of the appellant in the said case. The relevant extract of the decision is reproduced as below:

13 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . of capital account balance for the year which is much more than the loans taken and therefore those own funds are deemed to have been used for acquiring other assets. As such, borrowed funds would be considered as used towards investment in shares and term deposits. My predecessor CIT(A) while deciding the appeal for the AY 2015-16 dated 16.03.2021 in the Pratima Mehta, allowed the interest expenditure to the extent of income in the nature of interest earned (to the extent of interest received on term deposit shown in the return of income) after taking into consideration the finding of Hon'ble ITAT for the AY 2014-15.

14 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . Pratima Mehta from as on 31.03.2014, the Hon'ble ITAT has observed that the Pratima Mehta had paid an amount of Rs. 47,37,93,346/-to Shri Harshad Mehta out of withdrawal of fixed deposits kept with various banks and as per the directions of Hon'ble Special Court. The Hon'ble ITAT has observed that the amount paid to Shri Harshad S Mehta was the Advance to the notified person in order to comply with the direction of the Hon'ble Special Court, therefore, the appellant cannot be fastened with a notional interest liability on account Loan/Advance to Shri Harshad S Mehta. The Hon'ble ITAT has also held that the prepaid taxes/TDS/Advance tax etc. are not paid from borrowing funds and the appellant has shown borrowing from the 4 parties ie. M/s. Ashwini S. Mehta, M/s. J.H. Mehta, Miss Depika Mehta & Shri. Hitesh S Mehta and was made way back in 1990's and no fresh borrowing had happened thereafter.

15 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta . 12. On perusal of the aforesaid findings, we find substance in the decision of

the CIT(A), who had decided the issue partly by following analogy / ratio of

decisions rendered by the ITAT in assessee’s own case and related assessee’s of

Harshad Mehta group. We, thus, de hors any deviating material contradicting

decisions or fresh evidence to dislodge aforesaid findings, do not see any reason

to interfere with the decisions of CIT(A). Accordingly, we uphold the same and

therefore grounds of appeal of the Revenue on this aspect stands rejected.

AO has made addition of Rs. 12 lakhs i.e. Rs. 1 lakh per month, which is restricted

by CIT(A) to Rs. 1,50,000/- per annum in terms of observation of the ITAT in

assessee’s own case for A.Y. 2006-07 and 2008-09 vide ITA No. 5487/Mum/2011

and 6335/Mum/2013. Decision of CIT(A) was in accordance with the decision of

the ITAT in assessee’s own case, as in earlier years, the AO had made

disallowance of Rs. 12 lakhs which is reduced by CIT(A) to Rs. 3 lakhs but the

ITAT has found that the amount of Rs. 1,50,000/- would be reasonable and

justified to be sustained. We thus, in terms of the aforesaid deliberation, find no

infirmity in the order of CIT(A) on this second aspect of addition of household

expenses. Therefore, we do not wish to interfere with the same, accordingly,

grounds of appeal No. 3 & 4 of the Revenue are dismissed being devoid of any

merit.

16 ITA No. 1910/Mum/2026 Deepika Ashwin Mehta .

Order pronounced in the open court on 09.07.2026.

Sd/- Sd/- (AMIT SHUKLA) (ARUN KHODPIA) Judicial Member Accountant Member

Mumbai : Dated 09.07.2026

Copy of the order forwarded to : 1. The appellant 2. The respondent 3. CIT-concerned 4. DR, ITAT, Mumbai 5. Guard file By order

(Dy/Asstt. Registrar) ITAT, Mumbai.