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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI NARENDRA KUMAR BILLAIYA, HONBLE
ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nThis appeal by the assessee is preferred against the order of the ld.\nCIT(A) - 52, Mumbai [hereinafter 'the ld. CIT(A)'] dated 09/01/2023,\npertaining to AY 1993-94.\n2.\nThe grievance of the assessee reads as under:-\n“Following grounds of appeal are without prejudice to each other:\n1. The Ld. CIT(A) erred in law and in facts in confirming the addition of Rs.\n8,10,87,777/- on account of alleged unexplained income from sale of shares.\n2. The Ld. CIT(A) has erred in law and in facts in confirming the addition to\nthe extent of Rs.48,95,729/- out of the aggregate addition of Rs.78,35,878/- on\naccount of dividend and interest income.\n3. The Ld. CIT(A) has erred in law and in facts in confirming the addition to\nthe tune of Rs.16,36,407/- on account of unexplained credits in the bank account.\n4. The Ld. CIT(A) has erred in law and in facts in not granting deduction on\naccount of interest expense payable by the appellant.\n5. The Ld. CIT(A) has erred in law and in facts in not appreciating that the\ninterest u/s.234A and 234B of the Act was not computed in accordance with law.\n6. The Ld. CIT(A) has erred in law and in facts in enhancing the income by Rs.\n48,69,375/- on account of short term capital gains.\n7.\nThe Ld. CIT(A) has erred in law and in facts in enhancing the income by Rs.\n2,58,263/- on account of miscellaneous income allegedly based on the books of\naccount which have not been considered by the ld. A.O. while determining the\nassessed income.\n8. The appellant craves leave to add to, amend, alter or delete all or any of the\nforegoing grounds of appeal.”\n3. At the very outset, the ld. Counsel for the assessee stated the he is\nnot pressing Ground Nos.3, 5, 6 &
7. Therefore, all these grounds are\ndismissed as not pressed.\n4. Ground No. 1 relates to the addition of Rs.8,10,87,777/- on\naccount of alleged unexplained income from sale of shares.\n5. Briefly stated, the underlying facts in the issue are that the\nassessee is a member of Harshad Mehta Group, notified by Special\nCourt (Trial of Offences Relating to Transactions in Securities) Act, 1992.\nWhile scrutinising the return of income, taking the closing stock\nposition on 31/03/1992, the AO determined the holding of the assessee\nfor 1993 basis the assessment order for AY 1992-93. On comparison of\nthe opening stock figures and closing stock figures, the AO observed\nthat there is a variation in the figures. The AO observed that in cases\nwhere the opening stock is more than closing stock, there are sales in\nthe relevant previous years. Similarly, where the closing stock is more\nthan the opening stock there were purchases during the year. The\nassessee was asked to explain the treatment to be given in case of such\nvariations. On receiving no plausible reply, the unexplained purchases\nwere estimated at Rs.21,88,20,985/- and the unaccounted sales was\nestimated at Rs.59,86,63,490/- and the profit was taken at Rs.\n8,10,87,777/-. The AO further observed that in case the gross sales\nreceipts are greater than the gross amount of purchases, it is presumed\nthat the sale proceeds are used for acquiring the shares and accordingly\nno addition was made. Thus, the profit on sale of shares is taxed as\nunexplained income of the assessee for the year under consideration.\nThe challenged before the ld. CIT(A) was of no avail.\n6. We find that on identical set of facts, the Co-ordinate Bench in AY\n1992-93 in had the occasion to consider an\nidentical issue and held as under:-\n“15. Considering the facts in totality, we are of the considered view that even in\nthe third round of litigations, the AO could not provide the specific\ninformation/details collected from the companies on the basis of which the impugned\nadditions have been made, are in complete violation of the principles of natural\njustice.\n16. We find that the Co-ordinate Bench in the case of Hitesh S. Mehta vs. DCIT\nin ITA No. 538/Mum/2012, while setting aside the issues to the file of the AO, has\nspecifically mentioned that, “Therefore, the Assessing Officer is directed to provide\ncopies of all information on which basis, the AO wanted to made additions in the\nhands of the assessee. If the AO does not provide the material then in our view\naddition can not be made." This specific direction has been upheld by the Hon'ble\nHigh Court of Bombay in ITA No. 2490 of 2013, vide order dated 07/06/2016,\nwherein the Hon'ble High court, held as under:-\n“(d) We find that the impugned order of the Tribunal on the above issue is unimpeachable\nThe basic principles of natural justice require that before any addition is made by the\nAssessing Officer on information obtained from third parties/own source, he must confront\nthe assessee with the material so obtained. This above would enable the assessee to explain\nthe correctness/incorrectness or unreliability of the evidence so obtained. In the absence of\nthe necessary evidence sought to be used being given by the Assessing Officer to the Assessee,\nit would amount to condemning a person without a proper hearing.\"\n16.
1. Similar view was taken by the Co-ordinate Bench in ITA No.\n6026/Mum/2017 and ITA No. 5190/Mum/2017. The relevant findings read as\nunder:-\n“So far as, the second amount of 7,28,925/- representing the addition made on the basis of\nletters filed by four companies as mentioned at serial no. 9 to 12 in para no. 9 above, we find\nthat in the said letters details provided were incomplete as it is not clear whether the same\npertain to the year under consideration. For example, the details and information provided\nby these companies do not explain to which year these transaction relate to and there were\nseveral flaws in the said letters. Thus, the details provided by above 4 companies do not reflect\nthe exact details to come to the conclusion the correct holding of the assessee and therefore,\nwe find merits in the arguments of the Ld. AR that the addition on the basis of said letters is\nnot justified and can not be sustained. Accordingly, we set aside the order of the CIT(A) on\nthe issue and direct the AO to delete the addition.\"\n16.
2. Similarly, the Co-ordinate Bench in the case of Pratima H. Mehta in ITA\nNO. 416/Mum/2023 and 1180/Mum/2023, had the occasion to consider an identical\nsituation and the Co-ordinate Bench held as under:-\n“18. As regards the addition made on the basis of company letters, the learned AR\nsubmitted that the enquiries were made by the AO during the course of original\nassessment proceedings with various companies seeking information in respect of the\nshareholding of the assessee. It was further submitted that although the said\ninformation so received was used to determine the shareholding in the various scrips\nand treated the same as unexplained, however, copies of these evidences were never\nprovided to the assessee. In this regard, the learned AR referred to details of various\nletters requesting the AO/learned CIT(A) to provide the information received from\nthe company on the basis of which addition was made. The learned AR further\nsubmitted that to the extent company letters were provided by the AO, in the third\nround of proceedings, assessee's explanation was accepted by the AO and the\naddition to an extent of Rs.1,32,13,835, was deleted. It was further submitted that\nduring the course of proceedings before the learned CIT(A), even though several\nletters were provided to the assessee, the copies of letters based on which the addition\nof Rs.3,13,213, was sustained, were not provided to the assessee.
19. We find that the\ncoordinate bench of the Tribunal vide its order, in the second round of proceedings,\nin ITA No.2694/Mum./2012, vide order dated 30/06/2014, specifically directed the\nAO to provide copies of all information on the basis of which additions were made in\nthe hands of the assessee. The coordinate bench further held that if the AO does not\nprovide the material then the addition cannot be made. The relevant findings of the\ncoordinate bench in the aforesaid decision, are reproduced as under:-\n\"5. After considering the impugned order, various Tribunal orders in the\ngroup cases of the assessee and also the grounds raised
before us, we find that\nin the case of Smt. Rasila S. Mehta (supra) and in other cases also, similar\ngrounds were raised. In these cases, the Tribunal has set aside the entire\nmatter to the file of the Assessing Officer for making fresh assessment denovo.\nSince the facts of the assessee's case are similar to other cases viz. Hitesh\nS. Mehta, Rasila S. Mehta, Jyoti H. Mehta and Pratima H. Mehta, cited above,\ntherefore, for the sake of ready reference, the relevant findings, as given in the\ndecision of Rasila S. Mehta, is reproduced herein below:-\n\"3.2 Having considered the rival submissions and careful perusal of\nthe relevant material on record, we note that the CIT(A) while\ndeciding the matter has relied upon the order in the case of Shri Hitesh\n5 Mehta, as it is evident from para 9.20 as well as para 10.1 of the\nimpugned order. We further note that the facts in the case of the\nassessee as well as in the case of Shri Hitesh S. Mehta, are identical\nand the matter arising from the same search and seizure action u/s\n132 of the Act. The co-ordinate bench of the Tribunal, while deciding\nthe identical matter in the case of Shri Hitesh S. Mehta, has disposed\noff the same in Para-4 & 5 as under:-\n4. We have heard rival submissions and consider them\ncarefully. We have also perused the copies of the order of the\ntribunal in case of Smt. Pratima Mehta and the assessee\npassed in first round.\n5. After considering all the relevant material, we found that\nthe matter should go back to the file of the Assessing Officer\nto pass a fresh order, It is seen that for rejecting the books of\naccount, the AO has not given any valid reasons as no specific\ndefect has been pointed out in. the books of account, therefore\nin our view the Assessing Officer should go through the books\nfor determining the income on the basis of books accounts\"\nThe Assessing Officer has to bring on record specific evidence\nor defect to prove falsity of books of account as no falsity has\nbeen proved in the assessment order passed by the AO. Besides\nthis the department has to provide all the details and material\non which basis the addition have been made earlier. If such\nmaterial is disputed by the assessee then in our view\ncorrectness of such material has to be examined as per\nprovision of law, we are not convinced with the argument of\nId. DR that assessee can collect information from parties from\nwhere Assessing Officer has obtained the copies on which basis\nthe addition have been made, Therefore, Assessing Officer is\ndirected to provide the copies of all information on which basis,\nthe AO wanted to made additions in the hands of the assessee.\nIf the AO does not provide the material then in our view\naddition cannot be made, In view of above facts and\ncircumstances, we set aside order of the authorities below and\nrestore the issues to the file of the Assessing Officer to pass\nassessment de novo after affording reasonable opportunity of\nbeing heard to the assessee and as per observations of ours\nmade in the order as above. We order accordingly.\n4 Since the facts and circumstances are identical and the nature of\nissue raised in the case of the assessee as well as in the case of Shri\nHitesh S Mehta (supra) are also similar; therefore, to maintain the\nrule of consistency, we set aside the matter to the record of the\nAssessing Officer with the similar directions and terms as in the case\nof Shri Hitesh S Mehta (above).\"\n6. Thus, consistent with the view taken by the Tribunal in all these cases,\nwherein identical facts and issues are involved, therefore, we also set aside the\nimpugned order passed by the learned Commissioner (Appeals) and restore\nback the entire issue to the file of the Assessing Officer for denovo assessment\nwith similar directions. The Assessing Officer shall provide due and effective\nopportunity of hearing to the assessee. We order accordingly.\"\n20. We further find that the Revenue's appeal against the aforesaid decision\nwas dismissed by the Hon'ble jurisdictional High Court in CIT v/s Smt.\nPratima H. Mehta, of 2015, vide order dated 26/09/2017.\nTherefore, from the above, it is evident that the addition of Rs.3,13,213, is\nbased on the evidence which was not furnished to the assessee. In view of the\nspecific directions of the coordinate bench of the Tribunal in assessee's own\ncase, in the second round of proceedings, we find no basis in sustaining such\nan addition. Accordingly, the addition of Rs.3,13,213, made on the basis of\ncompany letters, which were not provided to the assessee is deleted. Further,\nthe learned DR could not bring any material on record to controvert the\npartial relief granted by the learned CIT(A), accordingly, the relief so granted\nis upheld. Therefore, the appeal by the assessee in respect of the aforesaid\naddition is allowed, while the appeal by the Revenue is dismissed.”\n18. In light of the above decisions of the Co-ordinate Bench, to sum-up even in\nthe first round of litigation, the AO could not provide the details which were the basis\nfor making the impugned additions. Therefore, in our considered view, such\nadditions cannot be sustained, keeping in mind the number of decades passed since\nthe original assessment order was framed. Moreover, the additions have been made\nin violation of audi alteram partem. We, therefore, direct the AO to delete the\nimpugned addition.\n(II) – The second addition is based upon the letter received from the\nCustodian - Rs.3,89,77,270/-.\n***This space has been left blank intentionally, P.T.O.***\n7\nThe letter received from the custodian, reads as under:-\nOFFICE OF THE CUSTODIAN\nTHE SPECIAL COURT (Trio offences relating to\ntransactions in Securities) Act, 1992.\n3rd Floor, Bank of Baroda Bhawan,\n16. Parliament Street,\nNEW DELHI-110001\nPhones: 3320836,3327279.\n001\n69\nRegd.\nदूरभाष : 33408303241,279\n110/cus/ATI/17/12(18)\nदि स 171019.93\nDoted tlie\nTo\nShri C.P.Ramaswamy,\nDy.Director(Investigations)\nOffice of the Director General Investigations\nIncome Tax\nBombay-\nSir,\nAs requested by you we are enclosing the details of\nproperties held by Harshad Mehta Group intimated to us by\nvarious companies as registered in their books. In this\nconnection, I would like to state that these figures are\nsubject to constant changes due to the following:\n1)\nA part of these holdings may have been sold by the\nnotified persons in blank.which will need to be excluded\non certification in terms of Special Court's order in\nMisc.Petition 1 of 1992.\n2)\nThe value of these shares are subject to the prevailing\nmarket quotations which is bound to fluctuate.\n3) The companies who have not yet indicated the holdings to\n: this office may send the information in future.\n: It may please be appreciated that for the reasons stated\nabove, the figures can not be treated as firm and final figures.\nYours faithfully,\n(RAJIV BHARDWAJ ).\nDeputy Secretary\nEncls: as above(Niccccficre\n(Microme)\n19. A bare perusal of the aforementioned letter shows that there is not even a\nwhisper of the impugned financial year or assessment year. It has also been clearly\nmentioned that the figures cannot be treated as firm and final figures. Moreover,\nwhen the office of the Custodian realised some glaring errors, it clarified the\ninformation already sent, as under:-\n8\nOffice of the Custodian\nThe Special Court (TORTS) Act, 1992\nDepartment of Financial Services,\nMinistry of Finance, Government of India,\n10th Floor, Nariman Bhawan, 227, Vinay K. Shah Marg.\nNariman Point, Mumbal 400 021.\nPhones:22022251, 22856780, 22833007 Fax: 022-22810357\nE-mail: custodian.mumbai@yahoo.com\nNo.2302/CUS/BOM/HM/IT ASSESSMENT/ (2445) November 28, 2017\nTo\nThe Deputy Commissioner of Income Tax\nCentral Circle -4(1), Central Range -4\nRoom No. 1916, 19th Floor,\nAir India Bldg, Nariman Point,\nMumbai-400021\nSir.\nSub.: Information u/s 133(6) of the IT Act, 1961 in the case of Shri.\nSudhir S. Mehta for the Assessment Year 1992-93\nWith reference to your office letter no. DCIT-CC-4(1) clarification/2017-\n18 dated 20.11.2017 received in this on 24.11.2017 calling for the information\nu/s 133(6) of the IT Act, 1961 in the case of Shri. Sudhir S. Mehta for the\n Assessment Year 1992-93, it is states that as per your statement, your\ndepartment had Assessed the Income of Shri. Sudhir S. Mehta, Smt. Deepika A.\nMehta and other notified partles on the basis of information given by this\noffice vide letter no. 2561/CUS/ATT/IT/92(118) dated 29.10.1993 in a flopy.\nIn this connection, it is clarified that the col. No. 6 of the statement\nmeant for owner of the shares, was shown as owner 2 and the col. No. 7\nmeant for 2nd holder of the shares, was shown as Holder of the shares. As such\nshares actually held and owned by Ms. Rina and Rasila Mehta were shown as\nthose of Shri. Sudhir Mehta, who was the second holder. In support of this\nplease find enclosed letters of the following Companies showing holding of the\neach notified parties including Smt. Deepika Mehta and Sudhir Mehta, as on\nthe date of notification. I hope this will help you in re-assessing the Income of\nShri. Sudhir Mehta, Smt. Deepika Mehta and other notified parties for the\nd:\\my documents\\suraj\\us\\2445.docx\n9\n Assessment Year 1992-93, If required. In case of any clarification required you\nmay approach the concerned Company for the same.\nSr.\nno\nName of the Company\nLetter No.\n1\nACC Ltd\nSHR CUS DIV 4622 dated 05.10.2000\n2\nMazda Industries & Leasing\nMILL/FIN/97-98/1795 dated 20.04.1998\n3\nCastrol India Ltd\nCIL:SD:021:44768:99 dated 14.07.1999\n4\nApollo Tyres Ltd\nCS/CL-209 dated 07.04.1999\n5\nHindalco Ltd\n9431/92 dated 11.11.1992\n6\nSwaraj Engine Ltd\nSEL/02 dated 30.12.1997\n7\nTata Share Registry Ltd\nSH/TIS/58392 dated 21.08.1992\n8\nBharat Seats Ltd\nBSL/FIN/2001/3686 dated 05.03.2001\n9\nBombay Dyeing\nSHR/1545/200 dated 22.05.2000\nManufacture Co. Ltd\nYours faithfully,\n(J. A. MAHALE)\nUNDER SECRETARY\n20. In fact, on 28/10/1993, the company, Fuller K.C.P. Ltd., certified that the\ndividend declared @24% was dispatched to the registered shareholders. Mr. Rasilal\nShantilal Mehta, holding 11900 shares which had been added by the AO in the hands\nof the assessee. Thus, an example of wrong information and in some cases, the request\nfor allotment of shares have been returned. One such company is TISCO, whose letter\nis place at page 403 in Paper Book volume-II.\n21. On identical situation and facts, the Co-ordinate Bench in the case of CIT vs.\nHitesh S. Mehta ITA No. 6026/Mum/2017 and ITA No. 5190/Mum/2017, had the\noccasion to consider a similar issue and held as under:-\n
13. The second amount of addition of Rs.24,24,385/- as stated in para 8 above represented\nthe addition made on the basis of Custodian letter. We observed that Rs.24,24,385/- was\nmade on the basis of Custodian letter dated 29.10.1993. The information provided in the said\nletter were incomplete. For example the date of determination of the share holdings was not\nmentioned, constant change of the figure of holding due to reasons like non-consideration of\nsale of shares by notified parties, and the holding provided by the Custodian not matching\nwith the companies letters.\nTherefore, the addition made by relying on the Custodian letter can not be confirmed. The\ncase of the assessee is supported by the decision of the coordinate bench in Growmore Leasing\n& Investments Ltd. Vs. DCIT in ITA. No.2192/M/2015 A.Y.1992-93 wherein it was held\nthat where there was no evidence of the holdings of shares and securities as alleged by the\nrevenue, the addition has to be deleted. Considering these facts and circumstances and the\ncoordinate bench decision, we set aside the addition of Rs.24,24,385/ sustained by CIT(A)\nand direct the AO to delete the same.\n22. Considering the facts of the case in totality in light of the letter of the\ncustodian mentioned elsewhere and finding that no specific details of holding of\nshares for the impugned assessment year has been mentioned or provided to the\nassessee, the additions cannot be sustained. The AO is directed to delete the same.\n10\n(III) – Additions made on account of dividend details/warrants\nRs.51,67,438/-\nThe details of alleged unexplained investment addition on the basis of\ndividend information is as under:-\nSUDHIR S. MEHTA\nΑ.Υ. 1992-93\nDetails of Unexplained Investment addition on the basis of Dividend information\nS.No.\nScrip Name\nHolding as\nper A.O.\nCredit\nGiven by\nΑ.Ο.\noriginal\norder\nIn\nBalance\nQuantity in\ndispute\nFurther credit\ngiven\npursuant to\norder of the\nCIT(A)\nBalance\nQuantity\nValue (Rs.)\n(Qty)\nDCM SHRIRAM\n2,500\n2,500\n2,500\n6,31,875\n2\nEICHER TRACTORS\n4,300\n4,700\n4,700\n11,73,825\n3\nGOLDEN PROTIENS\n15,300\n100\n15,200\n15,200\n45,600\n4\nGRASIM\n5,000\n19\n4,981\n4,981\n20,54,663\n5\nKERALA CHEM\n450\n450\n450\n2,35,125\n6\nMUNJAL SHOWA\n600\n600\n600\n76,350\n7\nTATA METALS & STRIPS\n1,000\n1,000\n100\n900\n3,54,375\n8\nUNITECH\n100\n100\n100\n5,750\n9\nVAM ORGANIC\n4,150\n2,500\n1,650\n1,650\n5,89,875\nTotal\nTotal\n51,67,438\n24. The details of shareholding of the assessee are exhibited from pages 414 to 418\nof the Paper Book volume – II. The investment in shares DCM Ltd. of 2500 shares\nare coming from earlier years as the same is opening balance. Similarly, 3900 shares\nof Eicher Motors which were opening balance of the assessee were only 200 shares\nwith bonus of 400 shares at the end of the impugned financial year. The holding of\nGolden Proteins at 15,300 shares have been wrongly taken from the opening balance\nof Gujarat Ambuja Proteins. The complete details of short-term capital gains and\nlong-term capital gains on sale of shares during the impugned financial year have\nbeen given at pages 247 to 249 of the paper book with complete details of dividends\nreceived from shares during the financial year at pages 258 to 263 the paper book. It\nwould be pertinent to mention here that the entire additions have been based on\ndividends declared by the companies of which the assessee may or may not have held\nthe shares during the year under consideration as the same is not based on physical\nholding of shares and merely on the basis of information collected behind the back of\nthe assessee for which we have already expressed our view elsewhere. Therefore, this\naddition also cannot be sustained. Accordingly, Ground No. 2 with all its sub-\ngrounds is allowed.\n7.\nOn finding parity of facts, respectfully following the decision of\nthe Co-ordinate Bench, we direct the AO to delete the impugned\naddition. Ground No. 1 is accordingly allowed.\n11\n8. Ground No. 2 relates to the addition of Rs.48,95,729/- out of the\ntotal addition of Rs.78,35,878/- on account of dividend and interest\nincome.\n9. During the course of scrutiny assessment proceedings, taking a\nleaf out of the figures arrived at by the AO in AY 1992-93, the AO was\nof the opinion that the closing stock figures included both registered\nand unregistered shares and debentures. On such observations, the AO\nasked the assessee as to why the dividend/interest should not be\ncalculated based on the holding of the debentures/shares as per the\ndepartmental records and the published details of dividend issued\ncoupon rate by the respective companies. The assessee strongly objected\nfor this proposition stating that the assessee has not accepted the figures\nin AY 1992-93 as they are not reliable. However, this objection of the\nassessee was dismissed by the AO by stating that the assessment order\nstands good till the same is superseded by an appellate order of a higher\nauthority. The AO further observed that the assessee is still receiving\ninterest/dividend on shares and debentures even though they must\nhave been sold by the assessee. The AO further rubbished the\ncontention of the assessee that the unregistered shares/debentures are\npending registration before the Special Court and, therefore, the\ndividend/interest should be taxed only when the same is received by\nthe assessee. The AO proceeded by determining the dividend/interest\nas per the holding of the assessee and arrived at figure of Rs.78,35,878/-\n9.
1. The assessee strongly objected before the ld. CIT(A). It was\nbrought to the notice of the ld. CIT(A) that the assessee has received the\ndebenture interest of Rs.2,94,299/- which is duly recorded in his books\nof accounts on the debenture interest amounting to Rs.94,06,690/-.\n10. The ld. CIT(A) further observed that the assumption u/s 144 of\nthe Act should be reasonable and based upon judicious reasoning and\naccordingly, estimated the debenture interest_income @ 14% of\nRs.94,06,690/- and determined the interest at Rs.13,16,937/-. The total\ndividend/interest income which stands confirmed can be understood\nfrom the following chart:-\nDividend Income\n33,75,944\nDebenture Interest Income\n13,16,937\nInterest on Term Deposit\n1,63,945\nInterest on Saving Bank Accounts\nTotal\n38,903\n48,95,729\n11. Before us, the assessee only contested the debenture interest\nincome of Rs.13,16,937/-. The assessee furnished detailed chart in\nrespect of its submissions and the same reads as under:-\n***This space has been left black intentionally, P.T.O.***\n13\nSr.\nNo.\nName of the Company\nAmount Invested\nInterest Income\nas per Books\nRemark\n1\nBaroda Rayon Corporation\nLtd.\n7,13,500\nNil\nAs per Company Letter dt.23.02.1993 (PBP-381),\nsince Debentures were partly paid-up, no Interest\nwas paid by the company on said debentures.\n2\nMazda Industries &\nLeasing Ltd.\n25,07,219\n172\nAs per Company Letter dt.20.04.1998 (PBP-383),\nsince all the Debentures were converted into Shares\nexcept 12 Deb. as on Notification Date,\ni.e.08.06.1992, Interest was paid by the company\nonly on 12 debentures.\n3\nReliance Industries Ltd.\n'H' Series\n24,55,725\nNil\nSince all the Debentures were Partly Paid-up and\nthe Call Money/Balance Payment was made in July\n1995 vide Special Court order dt.03.07.1995 in\nM.A.No.255 of 1995 (PBP-386,396) Company has\nmade payment of Interest on the said Debentures in\nAugust 1995 and the same was assessed in\nA.Y.1996-97 by Assessing Officer vide order\ndt.22.03.2002 (PBP-399).\n4\nReliance Industries Ltd.\n"J' Series\n7,97.100\nNil\nSince all the Debentures were Partly Paid-up and\nthe Call Money/Balance Payment was made in May\n1995 vide Special Court order dt.30.04.1994 in\nM.A.No.173 of 1994 (PBP-408,415) Company has\nmade payment of Interest on the said Debentures in\nAugust 1995 and the same was assessed in\nA.Y.1996-97 by Assessing Officer vide order\ndt.22.03.2002 (PBP-399).\n5\nOther Companies\n29,33,147\n2,94,127\nThis interest of Rs.2,94,127/- on remaining\nDebentures received by the assessee during\nprevious year is already offered by the assessee and\nassessed by the Assessing Officer vide its order dt.\n29.03.1996\nTotal\n94,06,691\n2,94,299\n12. We have given a thoughtful consideration to the aforementioned\nchart. It appears that the debentures mentioned that Sr. No.1 to 4 were\npartly paid and the call money were paid in subsequent accounting year\n14\nand being a partly paid debenture there is no question of receiving any\ninterest on such partly paid debentures. Insofar as, the balance of\nRs.2,94,127/- is concerned, the same has already been offered to tax by\nthe assessee and assessed as such by the AO. Considering the facts of\nthe case in totality, we do not find any merit in the addition of\nRs.13,16,937/- and the same is directed to be deleted. Accordingly,\nGround No. 2 is partly allowed.\n13. Ground No. 4 relates to not granting of deduction on account of\ninterest expenses payable by the assessee. While rejecting the claim of\nthe assessee the AO observed that the assessee has neither filed copy of\nthe account regarding borrowing nor could furnish him exact amount\nof interest liability. There is also no specification of shares which were\nheld on investment account and shares which were held on trading\naccounts. With these observations, the claim of interest of the assessee\nwas disallowed which was confirmed by the ld. CIT(A).\n13.
1. On identical set of facts, the Co-ordinate Bench in ITA No.\n417/Mum/2023 for AY 1992-93 has decided the issue as under:-\n“27. Ground No. 4, relates to the claim of interest expenditure Rs.2.04 Crores out\nof which the ld. CIT(A) allowed only Rs.12,93,360/-\n27.
1. Similar issue came up for consideration before the Coordinate Bench in the\ncase of Pratima H. Mehta (supra). The relevant findings read as under:-\n“27. Since the issue arising in ground no.3, raised in assessee's appeal, and grounds no.2\nand 3, raised in Revenue's appeal, pertains to the deduction of interest expenditure, therefore\nthe aforesaid grounds are dealt with together.\n28. The brief facts of the case pertaining to this issue, as emanating from the record, are:\nDuring the assessment proceedings, the assessee submitted that the transactions in the\ncapital market have been made through three broking firms belonging to the family members\nof the assessee. As per the details submitted by the assessee, it was submitted that the amount\nof interest of Rs.2,46,33,261 are shown as payable to family run broking firms such as M/s\nHSM, M/s ASM and M/s JHM. The AO vide order passed under section 144 read with\nsection 254 of the Act did not agree with the submissions of the assessee and disallowed the\ndeduction of interest claimed for the following reasons:-\n(i) The liabilities were not crystallise during the year.\n(ii) The interest payable is tentative and provisional.\n(iii) There is no basis as per which the assessee has a right to pay and the creditors has are\nright to receive.\n(iv) There is no basis of computation of interest payable which has been provided by the\nassessee.\n(v) The provisions made on account of interest payable is a contingent liability and therefore,\ncannot be allowed as a business expenditure.\n(vi) It is also seen that these broking firms have not charged any interest on the amount\nreceivable from the companies of this group with the books of accounts have been produced\nbefore the Assessing Officer.\n29. The AO following the approach adopted in earlier round of litigation rejected the\nassessee's claim of deduction on account of interest and disallowed interest payment of Rs.\n2,46,33,261. The learned CIT(A), vide impugned order, partly allowed the ground raised
by\nthe assessee on this issue and held that the main purpose of incurring the interest expenditure\nwas not earning income from dividends and unless the interest expenditure was incurred\nsolély for the purposes of making or earning dividend income, no deduction is possible under\nsection 57 of the Act. The learned CIT(A) further held that in the acquisition of shares for\ncapital gains, the dividend income is incidental and not a major factor, and it is thus clear\nthat the sole purpose of borrowing by the assessee @12% per annum cannot be for the purpose\nof earning dividend income. Accordingly, the interest expenditure was held to be not\nallowable against dividend income. The learned CIT(A), however, allowed the interest\nexpenditure only to the tune of Rs.15,73,548 which is the share trading profit. Being\naggrieved, both assessee and Revenue are in appeal before us.\n30. We have considered the submissions of both sides and perused the material available on\nrecord. From the perusal of the computation of total income, forming part of the paper book\non pages 464-466, we find that the assessee claimed interest on bank loans of Rs.2,46,33,261\nagainst the income under the head \"income from other sources\". It is evident from the record\nthat the learned CIT(A) placed reliance upon the decision of the Hon'ble jurisdictional High\nCourt in CIT v/s Jagmohandas J. Kapadia, [1966]
61. ITR 663 (Bom.), in order to support\nthe conclusion that unless the interest expenditure was incurred solely for the purposes of\nmaking or earning dividend income, no deduction as possible under section 57 of the Act. The\nrelevant findings of the Hon'ble jurisdictional High Court in the aforesaid decision, as\nrelied upon in the impugned order, are as under:-\n\"It would be noticed that what is allowable as expenditure under the said sub-\nsection is only the expenditure incurred solely for the purpose of making or earning\ndividend income. Emphasis thus appears to be on the object or purpose of incurring\nof the expenditure. The exclusive object of incurring the expenditure has to be the\nmaking or earning of the dividend income. The mere fact that income by way of\ndividend has accrued and that the expenditure incurred is in some manner or other\nrelated to the accrual of the dividend income is not sufficient.\"\n31. We find that the Hon'ble Supreme Court in Seth R. Dalmia v/s CIT, [1977] 110 ITR 644\n(SC) agreed with the view taken by the Hon'ble jurisdictional High Court in CIT v/s Η.Η.\nMaharani Vijaykuverba Saheb of Morvi [1975] 100 ITR
67. (Bom), wherein it was held that\nthe connection between the expenditure and the earning of income need not be direct, and\neven an indirect connection could prove the nexus between the expenditure incurred and the\nincome. We further find that in CIT v/s Smt. Sushila Devi Khadaria, [2009] 319 ITR 413\n(Bom.), in a similar factual matrix, i.e. wherein the AO denied the deduction claimed under\nsection 57(iii) of the Act on the basis that the expenditure was not incurred wholly for the\npurpose of earning income as the taxpayer was engaged in selling shares in the stock market\nand the dividend income had accrued as a by-product, the Hon'ble jurisdictional High Court\nby placing reliance upon the aforesaid decision of the Hon'ble Supreme Court in Seth R.\nDalmia (supra), upheld the allowance of finance expenditure as deduction under section\n57(iii) of the Act against the income by way of dividends, finance charges and interest which\nwere shown as income from other sources by the taxpayer. Therefore, respectfully following\nthe aforesaid decision of the Hon'ble Supreme Court in Seth R. Dalmia (supra), we are of the\nconsidered view that the assessee is entitled to claim a deduction of interest expenditure\nunder section 57 of the Act since receipt of dividend is merely due to the shareholding of the\nassessee and the interest expenditure has nexus with the income under the head \"income\nfrom other sources\" including dividend income even though not direct. Accordingly, the AO\nis directed to allow the interest expenditure claimed by the assessee under section 57 of the\nAct. As a result, ground No. 3 raised in assessee's appeal is allowed, while ground No. 2 and\n3 raised in Revenue's appeal is dismissed.\"\n27.
2. Similarly in the case of Jyoti H. Mehta vs. ACIT in ITA No. 1186/Mum/2023, the Tribunal has considered similar grievance, which\nreads as under:-\n“41. Ground no 6 pertains to sustaining the addition on account of interest disallowed. The\nLd. CIT (A) has granted partial relief, by allowing on proportionate basis, the interest\nexpenditure only to the extent of Rs.11, 49,540/- as against the total claim of Rs.1, 02,\n00,000/- made by the assessee.\"\n27.
1. And the Co-ordinate Bench following the order of the case of Pratima H.\nMehta (supra), held as under:-\n\"44. It is apparent that the reasons given for not allowing the interest expenditure\nclaimed by the assessee u/s 57 of the Act are not tenable in view of the decision of the Apex\nCourt in the case of Seth R. Dalmia (supra) which is duly followed by the co-ordinate bench\nof the Tribunal in the case of Smt. Pratima Mehta (supra). Respectfully following these\njudicial precedents, we allow this ground of appeal in favour of the assessee and direct the\nA.O. to allow interest expenditure claimed by the assessee while computing the taxable\nincome. In the result, ground no. 6 raised by the assessee is allowed.\"\n28. In assessee's own case for AY 1991-92, the Coordinate Bench in ITA No.\n5966/Мит/2017 and 635/Mum/2018, has allowed the claim of interest. On finding\nparity of facts, respectfully following the decision of the Coordinate Bench (supra),\nwe direct the AO to allow the entire claim of interest. Accordingly, Ground No. 4 is\nallowed.\"\n14. On finding parity of facts, respectfully following the decision of\nthe Coordinate Bench (supra), we direct the AO to allow the entire claim\nof interest. Accordingly, Ground No. 4 is allowed.\"\n15. In the result, appeal of the assessee is partly allowed.\nOrder pronounced in the Court on 12th March, 2025 at Mumbai.\nSd/-\n(SAKTIJIT DEY)\nVICE-PRESIDENT\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 12/03/2025\n*SC SPS\n17\nआदेश की प्रतिलिपि अग्रेषित/