SUDHIR S. MEHTA,MUMBAI vs. DCIT, CC-4(1), MUMBAI

ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nI.T.A. No. 417/Mum/2023 and are\ncross-appeals by the assessee and the revenue preferred against the\norder of the ld. CIT(A) - 52, Mumbai (hereinafter 'the ld. CIT(A)'] dated\n09/01/2023, pertaining to AY 1992-93.\n2.\nThese cross-appeals were heard together and are disposed off by\nthis common order for the sake of convenience and brevity.\n3.\nRepresentatives of both the sides were heard at length. Case\nrecords carefully perused and the relevant documentary evidences and\njudicial decisions brought to our notice, duly considered in the light of\nRule 18(6) of the ITAT, Rules, 1963.\n4.\nWe will first take up the assessee's appeal in ITA No.\n417/Mum/2023.\n5.\nBriefly stated the facts of the case are that this is the third round\nof litigation. The original assessment order was framed u/s 144 of the\nAct on 20/03/1995. The assessee is a member of Harshad Mehta Group, in\nwhich a search and seizure operation was carried out on 27/09/1990.\nThe second search and seizure operation was carried out on 28/02/1992\nand thereafter there was also a search on various premises of this group\nby C.B.I. on 04/06/1992. The assessment was framed at\nRs.54,75,47,566/-. The quarrel travelled up to the Tribunal and the\nTribunal vide order dated 28/04/2006, set aside the matter for fresh\ndecision on merits after considering the books of accounts.\n5.1.\nThe matter came up for fresh adjudication and the AO vide order\ndated 17/12/2007, assessed the total income at Rs.56,59,80,814/- by\nrepeating the unexplained investment of Rs.51,95,38,091/-. The ld.\nCIT(A) vide order dated 11/03/2014, gave part relief to the assessee but\nat the same time enhanced the income of the assessee by Rs.33,61,390/-\non account of unreconciled balances with the books of Shri Harshad\nMehta. Thereafter, vide order dated 17/04/2015, the AO framed the\nfollowing order giving effect to the ld. CIT(A)'s order:-\nSr. No.\nParticulars\nRs.\nI.\nIncome assessed as per order u/s\n143(3) rws 254, dated 17.12.2007\nAdd:\nincome enhanced by the CIT(A)\n(as per Para 53 of the order)\nIncome after enhancement by the\nCIT(A)\nLESS\n(2,01,61,000)\nAddition on account of disclosure\nmade by Shri Harshad Mehta\nu/s.132(4)\nLESS\nRelief on account of quantity of\nshares acquired by the assessee for\nwhich the details have been\nsubmitted on or before 01.03.1995 in\nregards of quantities explained\nthrough contract notes and bonus\nshares.\nLESS\nRelief on account of quantity of\nshares explained through Right issue\nshares.\nTOTAL TAXABLE INCOME\nNote:-\ni)\nLTCG of Rs.29,16,296/- to be taxed @ 20%. Balance total taxable\nincome of Rs.28,63,58,062/- to be taxed at normal rates for the\nyear.\nii)\nPart relief is allowed on account of unexplained investment on the\nbasis of details submitted on or before 01.03.1995 of contract\nnotes and bonus shares.\niii)\nPart Relief is allowed on account of Right issue after verification of\nthe basis of details provided by the assessee.\niv)\nIn the light of Supreme Court direction vide order dated\n13.02.2002 in Civil Appeal No. 7572 of 1999, in which Hon'ble\nCourt directed that credit for TDS may be allowed only against the\nincome for statutory period of 01.04.1991 to 06.06.1992.\nv)\nPenalty is initiated u/s.271(1)(c) of the I.T. Act, 1961 on the\nenhanced amount of Rs.33,61,390/- as per direction of the CIT(A).\nvi)\nInterest u/s.234A and 234B of the I. T. Act, directed by the CIT(A)\nto levy up to the date of original assessment.\nRevise assessed income accordingly. Give credit of prepaid taxes as\ndirected above. Charge interest u/s.234A and 234B as directed above.\nCharge interest u/s.220(2) of the I. T. Act, 1961. Issue separate notice u/s.\n271(1)(c) for enhanced amount of Rs.33,61,390/- as per direction of the\nCIT(A). Issue DN/challan, as applicable.\n[RAMANAND K. NAIR]\nAssistant Commissioner of Income-Tax\nCentral Circle -4(1), Mumbai.\nCopy to: The assessee\n&\nACIT, Central Circle - 4(1), MUMBAI.\n6.\nIt is very pertinent to mention that against the aforementioned\norder of the ld. CIT(A), the revenue did not prefer any appeal.\nTherefore, to the extent of relief given by the ld. CIT(A), the issue has\nattained finality.\n7.\nOur view is fortified by the decision of the Co-ordinate Bench in\nthe case of Sheraton International Inc. vs. Deputy Director of Income-tax\n[2007] 293 ITR (AT) 68 (Delhi). The relevant facts and findings read as\nunder:-\n“In the assessments originally completed for the assessment years 1996-97 and 1997-98\nin the assessee's case, the entire amounts received by it from the Indian hotels\nunder the agreements at 3 per cent. on room sales were held to be taxable in India by\nthe Assessing Officer. The assessee-company challenged these assessments by\npreferring appeals before the Commissioner (Appeals) who held that 75 per cent. of\nthe amounts was taxable in India. Accordingly, he sustained the additions made by\nthe Assessing Officer to that extent but held that the remaining portion of 25 per\ncent. represented business profits of the assessee not liable to tax in India under\narticle 7 of the DIAA between India and the U. S. A. In its appeals filed before the\nTribunal, the assessee-company challenged the orders of the Commissioner (Appeals)\nfor both the years i.e., assessment years 1996-97 and 1997-98 disputing the additions\nsustained by him to the extent of 75 per cent. The Revenue, how-ever, did not prefer\nany appeals or even cross-objections before the Tribunal challenging the relief\nallowed by the Commissioner (Appeals) to the assessee by deleting the additions made\nby the Assessing Officer to the extent of 25 per cent. The Tribunal disposed of the\nappeals filed by the assessee for both the years set aside the orders of the Commissioner\n(Appeals) for the assessment years 1997-98 and 1998-99 impugned in the appeals\nfiled before it and restored the matter to the file of the Assessing Officer for fresh\nadjudication after taking into consideration first the taxability of the amounts in\nquestion under the charging provisions contained in sections 4, 5 and 9 of the\nIncome-tax Act, 1961 :\nHeld, that the subject-matter of the appeals before the Tribunal thus was only about\nthe taxability of 75 per cent. of the amounts received by the asses-see-company from\nthe Indian hotels: the remaining portion of 25 per cent. deleted by the Commissioner\n(Appeals) was not the subject-matter of the appeals before the Tribunal. Therefore,\nwhen the assessments for the assessment years 1996-97 and 1997-98 were set aside\nby the Tribunal and the matter was remanded to the Assessing Officer for making\nassessments afresh, the power of the Assessing Officer was confined to the issue\nrelating to the taxability of 75 per cent. of the amounts in question received by the\nassessee-company from the Indian hotels in India. He was not entitled to take up the\nissue relating to the taxability of the remaining portion of 25 per cent. in India\nnotwithstanding the fact that there was no specific direction given by the Tribunal\nto this effect. The additions of this remaining portion of 25 per cent. made by the\nAssessing Officer in the assessments completed for the assessment years 1996-97 and\n1997-98 were clearly outside the scope of remand and the Commissioner (Appeals)\nwas not justified in confirming the same. These additions for the assessment years\n1997-98 and 1998-99 were therefore to be deleted.\"\n8.\nIn the present appeal, the assessee has raised the following\ngrounds of appeal:-

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2. Similarly, the Co-ordinate Bench in the case of Pratima H. Mehta in\nITA NO. 416/Mum/2023 and 1180/Mum/2023, had the occasion to\nconsider an identical situation and the Co-ordinate Bench held as\nunder:-\n“18. As regards the addition made on the basis of company letters, the learned\nAR submitted that the enquiries were made by the AO during the course of\noriginal assessment proceedings with various companies seeking information\nin respect of the shareholding of the assessee. It was further submitted that\nalthough the said information so received was used to determine the\nshareholding in the various scrips and treated the same as unexplained,\nhowever, copies of these evidences were never provided to the assessee. In this\nregard, the learned AR referred to details of various letters requesting the\nAO/learned CIT(A) to provide the information received from the company on\nthe basis of which addition was made. The learned AR further submitted that\nto the extent company letters were provided by the AO, in the third round of\nproceedings, assessee's explanation was accepted by the AO and the addition\nto 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\naddition of Rs.3,13,213, was sustained, were not provided to the assessee. 19.\nWe find that the coordinate bench of the Tribunal vide its order, in the second\nround of proceedings, in ITA No.2694/Mum./2012, vide order dated\n30/06/2014, specifically directed the AO to provide copies of all information on\nthe basis of which additions were made in the hands of the assessee. The\ncoordinate bench further held that if the AO does not provide the material then\nthe addition cannot be made. The relevant findings of the coordinate bench in\nthe 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\nthat in the case of Smt. Rasila S. Mehta (supra) and in other cases also,\nsimilar grounds were raised. In these cases, the Tribunal has set aside the\nentire matter to the file of the Assessing Officer for making fresh\nassessment denovo. Since the facts of the assessee's case are similar to\nother cases viz. Hitesh S. Mehta, Rasila S. Mehta, Jyoti H. Mehta and\nPratima H. Mehta, cited above, therefore, for the sake of ready reference,\nthe relevant findings, as given in the decision of Rasila S. Mehta, is\nreproduced herein below:-\n\"3.2 Having considered the rival submissions and careful perusal\nof the relevant material on record, we note that the CIT(A) while\ndeciding the matter has relied upon the order in the case of Shri\nHitesh

5. Mehta, as it is evident from para 9.20 as well as para 10.1\nof the impugned order. We further note that the facts in the case\nof the assessee as well as in the case of Shri Hitesh S. Mehta, are\nidentical and the matter arising from the same search and seizure\naction u/s 132 of the Act. The co-ordinate bench of the Tribunal,\nwhile deciding the identical matter in the case of Shri Hitesh S.\nMehta, has disposed off 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\nspecific defect has been pointed out in. the books of account,\ntherefore in our view the Assessing Officer should go\nthrough the books for determining the income on the basis\nof books accounts\"\nThe Assessing Officer has to bring on record specific\nevidence or defect to prove falsity of books of account as no\nfalsity has been proved in the assessment order passed by\nthe AO. Besides this the department has to provide all the\ndetails and material on which basis the addition have been\nmade earlier. If such material is disputed by the assessee\nthen in our view correctness of such material has to be\nexamined as per provision of law, we are not convinced with\nthe argument of Id. DR that assessee can collect information\nfrom parties from where Assessing Officer has obtained the\ncopies on which basis the addition have been made, Therefore, Assessing Officer is directed to provide the copies\nof all information on which basis, the AO wanted to made\nadditions in the hands of the assessee. If the AO does not\nprovide the material then in our view addition cannot be\nmade, In view of above facts and circumstances, we set aside\norder of the authorities below and restore the issues to the\nfile of the Assessing Officer to pass assessment de novo after\naffording reasonable opportunity of being heard to the\nassessee and as per observations of ours made in the order\nas 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\ncase of 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\naside the impugned order passed by the learned Commissioner (Appeals)\nand restore back the entire issue to the file of the Assessing Officer for\ndenovo assessment with similar directions. The Assessing Officer shall\nprovide due and effective opportunity of hearing to the assessee. We order\naccordingly.\"\n20.\nWe further find that the Revenue's appeal against the aforesaid\ndecision was dismissed by the Hon'ble jurisdictional High Court in CIT\nv/s Smt. Pratima H. Mehta, of 2015, vide order dated\n26/09/2017. Therefore, from the above, it is evident that the addition of\nRs.3,13,213, is based on the evidence which was not furnished to the\nassessee. In view of the specific directions of the coordinate bench of the\nTribunal in assessee's own case, in the second round of proceedings, we\nfind no basis in sustaining such an addition. Accordingly, the addition\nof Rs.3,13,213, made on the basis of company letters, which were not\nprovided to the assessee is deleted. Further, the learned DR could not\nbring any material on record to controvert the partial relief granted by\nthe learned CIT(A), accordingly, the relief so granted is upheld.\nTherefore, the appeal by the assessee in respect of the aforesaid addition\nis allowed, while the appeal by the Revenue is dismissed.\n17.\nIn light of the above decisions of the Co-ordinate Bench, to sum-\nup even in the first round of litigation, the AO could not provide the\ndetails which were the basis for making the impugned additions.\nTherefore, in our considered view, such additions cannot be sustained,\nkeeping in mind the number of decades passed since the original\nassessment order was framed. Moreover, the additions have been made\nin violation of audi alteram partem. We, therefore, direct the AO to delete\nthe impugned addition.\n18.\n(II) – The second addition is based upon the letter received from\nthe Custodian – Rs.3,89,77,270/-.\nThe letter received from the custodian, reads as under:-\nअगि\nOFFICE OF THE CUSTODIAN\n.. THE SPECIAL COURT (Triar o offences relating to\n2 transactions in Securities) Act, 1992\n3rd Floor, Bank of Baroda Bhawan,\n10. Parliament Street,\n001\nNEW DELHI-110001\nAnnx - Yy\"\nRegd.\nदूरभाष : 3310830, 3279 Phonos: 3320836,3327279.\n12/cus/ATT/11/92.(118)\nবিনাক Dated tlhe.\nTo\nSir,\nShri C.P.Ramaswamy,\nDy. Director(Investigations)\nOffice of the Director General Investigations\nIncome Tax\nBombay.\n19.10.19.9.3....\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 e figures are\nsubject to constant chances 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) The 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\nthis office may send the information in future.\nIt 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 (Nic\nferry-one)\n19.\nA bare perusal of the aforementioned letter shows that there is not\neven a whisper of the impugned financial ye year or assessment year. It\nhas also been clearly mentioned that the figures cannot be treated as\nfirm and final figures. Moreover, when the office of the Custodian\nrealised some glaring errors, it clarified the information already sent, as\nunder:-\nसत्यमेव सूयते\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\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\nPOR\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\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\nManufacture Co. Ltd\nSHR/1545/200 dated 22.05.2000\nYours faithfully,\n(J. A. MAHALE)\nUNDER SECRETARY\n20.\nIn fact, on 28/10/1993, the company, Fuller K.C.P. Ltd., certified\nthat the dividend declared @24% was dispatched to the registered\nshareholders. Mr. Rasilal Shantilal Mehta, holding 11900 shares which\nhad been added by the AO in the hands of the assessee. Thus, an\nexample of wrong information and in some cases, the request for\nallotment of shares have been returned. One such company is TISCO,\nwhose letter is place at page 403 in Paper Book volume-II.\n21.\nOn identical situation and facts, the Co-ordinate Bench in the case\nof CIT vs. Hitesh S. Mehta ITA No. 6026/Mum/2017 and ITA No.\n5190/Mum/2017, had the occasion to consider a similar issue and held as\nunder:-\n“13. The second amount of addition of Rs.24,24,385/- as stated in para 8 above\nrepresented the addition made on the basis of Custodian letter. We observed that\nRs.24,24,385/- was made on the basis of Custodian letter dated 29.10.1993. The\ninformation provided in the said letter were incomplete. For example the date of\ndetermination of the share holdings was not mentioned, constant change of the figure\nof holding due to reasons like non-consideration of sale of shares by notified parties,\nand the holding provided by the Custodian not matching with the companies letters.\nTherefore, the addition made by relying on the Custodian letter can not be confirmed.\nThe case of the assessee is supported by the decision of the coordinate bench in\nGrowmore Leasing & Investments Ltd. Vs. DCIT in ITA. No.2192/M/2015\nA.Y.1992-93 wherein it was held that where there was no evidence of the holdings of\nshares and securities as alleged by the revenue, the addition has to be deleted.\nConsidering these facts and circumstances and the coordinate bench decision, we set\naside the addition of Rs.24,24,385/ sustained by CIT(A) and direct the AO to delete\nthe same.\n22.\nConsidering the facts of the case in totality in light of the letter of\nthe custodian mentioned elsewhere and finding that no specific details\nof holding of shares for the impugned assessment year has been\nmentioned or provided to the assessee, the additions cannot be\nsustained. The AO is directed to delete the same.\n23. (III) – Additions made on account of dividend details/warrants\n– Rs.51,67,438/-\nThe details of alleged unexplained investment addition on the\nbasis of dividend 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)\n1\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\nΤΑΤΑ ΜΕTALS & 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.\nThe details of shareholding of the assessee are exhibited from\npages 414 to 418 of the Paper Book Volume - II. The investment in shares\nof DCM Ltd. of 2500 shares are coming from earlier years as the same is\nopening balance. Similarly, 3900 shares of Eicher Motors which were\nopening balance of the assessee were only 200 shares with bonus of 400\nshares at the end of the impugned financial year. The holding of Golden\nProteins at 15,300 shares have been wrongly taken from the opening\nbalance of Gujarat Ambuja Proteins. The complete details of short-term\ncapital gains and long-term capital gains on sale of shares during the\nimpugned financial year have been given at pages 247 to 249 of the\npaper book with complete details of dividends received from shares\nduring the financial year at pages 258 to 263 the paper book. It would\nbe pertinent to mention here that the entire additions have been based\non dividends declared by the companies of which the assessee may or\nmay not have held the shares during the year under consideration as\nthe same is not based on physical holding of shares and merely on the\nbasis of information collected behind the back of the assessee for which\nwe have already expressed our view elsewhere. Therefore, this addition\nalso cannot be sustained. Accordingly, Ground No. 2 with all its sub-\ngrounds is allowed.\n25.\nGround No. 3 relates to the addition on account of unexplained\nreceipts of Rs.2,95,427/-. Particulars of such unexplained receipts as per\nthe AO is as under:-\nDate\nAmount\nRemark\n02-05-1991\n42,151.00 NO SUCH ENTRY IN THE BANK STATEMENT. BANK A/C OPENED ON 18-11-1991\n06-07-1991\n1,280.80 SAVING BANK INTEREST\n08-08-1991\n10,057.00 Dividend Income of 2400 ITC shares\n08-08-1991\n50.00 SAVING BANK INTEREST (ACTUAL INT. IS RS.15)\n31-08-1991\n9,286.40 SAVING BANK INTEREST\n09-09-1991\n44.64 SAVING BANK INTEREST\n28-09-1991\n150.00 DIVIDEND INCOME\n28-09-1991\n240.00 DIVIDEND INCOME\n01-10-1991\n13,600.00 BANK INTEREST\n01-10-1991\n16,400.00 BANK INTEREST\n01-10-1991\n4,206.67 SAVING BANK INTEREST\n15-10-1991\n13,126.00 DIVIDEND INCOME (4200 GUJ. AMBUJA CEMENT)\n08-12-1991\n17,282.00 DIVIDEND INCOME (3150 MRF & 5350 PONDS)\n04-01-1992\n2,762.29 SAVING BANK INTEREST\n03-02-1992\n1,32,281.25 SHARE/DEB. APPLICATION MONEY (REFUND OF 4858 QTY OF SPECIAL STEEL)\n09-02-1992\n9,518.60 SAVING BANK INTEREST\n10-02-1992\n15.00 SAVING BANK INTEREST\nTOTAL\n2,72,451.65\nNote: No such entries have been reflected in the bank statement in respect of Balance amount of Rs.22,975\n(i.e.2,95,427-2,72,452)\n26.\nWe have carefully considered the orders of the authorities below.\nWe do not find any specific reason given for making the impugned\naddition as interest received on savings bank account, dividend income\nhave already been shown by the assessee on its income statement and\nthere is no specific mention as to entry in which bank account has not\nbeen shown/declared by the assessee. The additions have been\nrepeated from the first round of litigation without any demonstrative\nevidence, therefore, the same is directed to be deleted. Accordingly,\nGround No. 3 is allowed.\n27.\nGround No. 4, relates to the claim of interest expenditure Rs.2.04\nCrores out of which the ld. CIT(A) allowed only Rs.12,93,360/-.\n27.1.\nSimilar issue came up for consideration before the Coordinate\nBench in the case of Pratima H. Mehta (supra). The relevant findings read\nas under:-\n“27. Since the issue arising in ground no.3, raised in assessee's appeal, and grounds\nno.2 and 3, raised in Revenue's appeal, pertains to the deduction of interest\nexpenditure, therefore the aforesaid grounds are dealt with together.\n28. The brief facts of the case pertaining to this issue, as emanating from the record,\nare: During the assessment proceedings, the assessee submitted that the transactions\nin the capital market have been made through three broking firms belonging to the\nfamily members of the assessee. As per the details submitted by the assessee, it was\nsubmitted that the amount of interest of Rs.2,46,33,261 are shown as payable to\nfamily run broking firms such as M/s HSM, M/s ASM and M/s JHM. The AO vide\norder passed under section 144 read with section 254 of the Act did not agree with\nthe submissions of the assessee and disallowed the deduction of interest claimed for\nthe 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\nhas are right to receive.\n(iv) There is no basis of computation of interest payable which has been provided by\nthe assessee.\n(v) The provisions made on account of interest payable is a contingent liability and\ntherefore, cannot be allowed as a business expenditure.\n(vi) It is also seen that these broking firms have not charged any interest on the\namount receivable from the companies of this group with the books of accounts have\nbeen produced before 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\nof Rs.2,46,33,261. The learned CIT(A), vide impugned order, partly allowed the\nground raised by the assessee on this issue and held that the main purpose of\nincurring the interest expenditure was not earning income from dividends and\nunless the interest expenditure was incurred solely for the purposes of making or\nearning dividend income, no deduction is possible under section 57 of the Act. The\nlearned CIT(A) further held that in the acquisition of shares for capital gains, the\ndividend income is incidental and not a major factor, and it is thus clear that the sole\npurpose of borrowing by the assessee @12% per annum cannot be for the purpose of\nearning dividend income. Accordingly, the interest expenditure was held to be not\nallowable against dividend income. The learned CIT(A), however, allowed the\ninterest expenditure only to the tune of Rs.15,73,548 which is the share trading\nprofit. Being aggrieved, both assessee and Revenue are in appeal before us.\n30. We have considered the submissions of both sides and perused the material\navailable on record. From the perusal of the computation of total income, forming\npart of the paper book on pages 464-466, we find that the assessee claimed interest on\nbank loans of Rs.2,46,33,261 against the income under the head \"income from other\nsources\". It is evident from the record that the learned CIT(A) placed reliance upon\nthe decision of the Hon'ble jurisdictional High Court in CIT v/s Jagmohandas J.\nKapadia, [1966]

61. ITR 663 (Bom.), in order to support the conclusion that unless\nthe interest expenditure was incurred solely for the purposes of making or earning\ndividend income, no deduction is possible under section 57 of the Act. The relevant\nfindings of the Hon'ble jurisdictional High Court in the aforesaid decision, as relied\nupon 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\nearning dividend income. Emphasis thus appears to be on the object or\npurpose of incurring of the expenditure. The exclusive object of incurring the\nexpenditure has to be the making or earning of the dividend income. The mere\nfact that income by way of dividend has accrued and that the expenditure\nincurred is in some manner or other related to the accrual of the dividend\nincome is not sufficient.\"\n31. We find that the Hon'ble Supreme Court in Seth R. Dalmia v/s CIT, [1977] 110\nITR 644 (SC) agreed with the view taken by the Hon'ble jurisdictional High Court\nin CIT v/s H.H. Maharani Vijaykuverba Saheb of Morvi [1975] 100 ITR

67. (Bom),\nwherein it was held that the connection between the expenditure and the earning of\nincome need not be direct, and even an indirect connection could prove the nexus\nbetween the expenditure incurred and the income. We further find that in CIT v/s\nSmt. Sushila Devi Khadaria, [2009] 319 ITR 413 (Bom.), in a similar factual matrix,\ni.e. wherein the AO denied the deduction claimed under section 57(iii) of the Act on\nthe basis that the expenditure was not incurred wholly for the purpose of earning\nincome as the taxpayer was engaged in selling shares in the stock market and the\ndividend 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\nR. Dalmia (supra), upheld the allowance of finance expenditure as deduction under\nsection 57(iii) of the Act against the income by way of dividends, finance charges and\ninterest which were shown as income from other sources by the taxpayer. Therefore,\nrespectfully following the aforesaid decision of the Hon'ble Supreme Court in Seth\nR. Dalmia (supra), we are of the considered view that the assessee is entitled to claim\na deduction of interest expenditure under section 57 of the Act since receipt of\ndividend is merely due to the shareholding of the assessee and the interest expenditure\nhas nexus with the income under the head \"income from other sources\" including\ndividend income even though not direct. Accordingly, the AO is directed to allow the\ninterest expenditure claimed by the assessee under section 57 of the Act. As a result,\nground No. 3 raised in assessee's appeal is allowed, while ground No. 2 and 3 raised\nin Revenue's appeal is dismissed.\n27.

2. Similarly in the case of Jyoti H. Mehta vs. ACIT in ITA No.\n436/Mum/2023 and the Tribunal has considered\nsimilar grievance, which reads as under:-\n“41. Ground no 6 pertains to sustaining the addition on account of interest\ndisallowed. The Ld. CIT (A) has granted partial relief, by allowing on proportionate\n27.2.1.\nbasis, the interest expenditure only to the extent of Rs.11, 49,540/- as against the\ntotal claim of Rs.1, 02, 00,000/- made by the assessee.”\nAnd the Co-ordinate Bench following the order of the case\nof Pratima H. Mehta (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\nApex Court in the case of Seth R. Dalmia (supra) which is duly followed by the co-\nordinate bench of the Tribunal in the case of Smt. Pratima Mehta (supra).\nRespectfully following these judicial precedents, we allow this ground of appeal

in\nfavour of the assessee and direct the A.O. to allow interest expenditure claimed by\nthe assessee while computing the taxable income. In the result, ground no. 6 raised\nby the assessee is allowed.\"\n28.\nIn assessee's own case for AY 1991-92, the Coordinate Bench in\nITA No. 5966/Mum/2017 and 635/Mum/2018, has allowed the claim\nof interest. On finding parity of facts, respectfully following the decision\nof the Coordinate Bench (supra), we direct the AO to allow the entire\nclaim of interest. Accordingly, Ground No. 4 is allowed.\n29. Ground No. 6 relates to the enhancement of assessed income by\nRs.33,91,390/- on account of difference in the balance sheet in the books\nof account of Late Harshad Mehta. The cause for enhancement is the\nfollowing observations of the ld. CIT(A):-\n

52. The Hon'ble Special Court had appointed three firms of Chartered Accountants,\nviz. M/s. Kapadia Damani & Co., M/s. Natwarlal Vepari & Co. and M/s.\nKalyaniwalla & Mistry, to prepare and audit the accounts of notified parties in\nHarshad Mehta group cases. These Auditors audited the accounts of the assessee and\nsubmitted their Audit Report to the AO. On perusal of the Audit Report submitted\nby these Auditors in the case of the appellant as also the Audit Report submitted by\nM/s. Vyas & Vyas, CAs, in the case of Shri Harshad S. Mehta, certain differences\nwere found in the balances of accounts of the group entities, as under:-\nDuring the course of audit, M/s. Vyas & Vyas, Auditors, had given a categorical\nfinding on the issue of differences in the balances as per the books of accounts of Shri\nHarshad Mehta and other group assessees. These findings were given after collectina\ninformation from various assessees. banks and financial institutions and other\nsources. Further, these findings are based on cross-verification and examination of\nthe accounts of the group assessees. It appears that differences in the balances arose\ndue to non-disclosure of transactions by the respective assessees. Therefore, such\ndifferences in account is liable to be taxed in the hands of the respective assesses, as\nundisclosed income. As per the table given above, there was a difference of\nRs.33,61,390/- in the account of the appellant as appearing in the books of Shri\nHarshad Mehta, which was not taxed. This matter has been dealt with in the appellate\norder dated 24/3/2010 in the case of Shri Harshad Mehta for A.Y. 1992-93.\nAccordingly, a notice of enhancement of income u/s.251(1)(a) of the I.T. Act, 1961\nwas issued to the appellant on 24/6/2011. In response to the same, the appellant did\nnot make any written submissions. However, the learned AR argued that these\nbalances may not relate to the year itself, but may be brought forward from earlier\nyears. However, he could not give any evidence of the same.\n53. I have considered the facts of the case. From the perusal of the records, specifically\nthe Audit Reports of the Auditors appointed by Hon'ble Special Court, it is clear that\nthere is a difference of Rs.33,61,390/- in the balances appearing in the name of the\nappellant in his own books of accounts (Rs.11,92,15,389/-), audited by the three firms\nof Chartered Accountants appointed by the Hon'ble Special Court, and in the books\nof accounts of late Shri Harshad Mehta (Rs.12,25,76,779/-), which were audited by\nM/s. Vyas & Vyas, CAs. The Auditors have collected information from different\nsources, including Custodian, Banks and other parties, and have cross-verified the\nsame. Thereafter, they have reached on conclusion that there was indeed difference of\nRs.33,61,390/- in the balances as on 31/3/1992, in the books of the present assessee\nand that of Shri Harshad Mehta. The assessee has failed to explain this difference\nsatisfactorily. In fact, to me, it appears to be non-reporting of certain transactions by\nthe appellant and, therefore, amounts to concealment of income. Therefore, the\ndifference in the balances as per two Audit Reports, amounting to R$/33,61,390/-. is\nliable to be taxed in the hands of the assessee. Accordingly, appellant's income is\nenhanced by an amount of Rs.33,61,390/-. Penalty proceedings u/s.271 (1)(c) of the\nI.T. Act, 1961 are initiated on this issue.”\n30.\nThe assessee has furnished the following re-conciliation of\nbalance:-\n***This space has been left blank intentionally, P.T.O.***\nReconciliation of balances between Sudhir S. Mehta and Harshad S. Mehta\nBalance as per the books of M/s. Harshad S. Mehta\n(i)\n(ii)\n(iii)\nBalance in the ledger account of Sudhi S. Mehta (share market)\nBalance in the ledger account of Sudhir S. Mehta (money market)\nBalance in the ledger account of Sudhir S. Mehta (personal)\nTotal (A)\nRs.11,92,15,390 (Dr.)\nRs.16,63,610 (Cr.)\nRs.50,25,000 (Dr.)\nRs.12,25,76,780 (Dr.)\nBalance as per the books of Mr. Harshad S. Mehta\n(i)\n(ii)\nBalance in the ledger account of Sudhi S. Mehta (Ledger A/c No.\n1111)\nBalance in the ledger account of Sudhir S. Mehta (Ledger A/c No.\n2010)\nTotal (B)\nGrand Total (A+B)\nRs.60,00,000 (Dr.)\nRs.10,00,000 (Cr.)\nRs.50,00,000 (Dr.)\nRs.12,75,76,780 (Dr.)\nBalance as per the books of Mr. Sudhir S. Mehta\n(i)\n(ii)\nBalance in the ledger account of M/s. Harshad S. Mehta\nBalance in the ledger account of Mr. Harshad S. Mehta\nTotal\nRs.11,75,03,983 (Cr.)\nRs.1,10,75,000 (Cr.)\nRs.12,85,78,983 (Cr.)\nDifference of balances\nRs.10,02,204 (Cr.)\n(i)\nDifference in opening balance of M/s. Harshad S.\nMehta A/c No. 4011\nRs.5,338 (Dr.)\n(ii)\nFollowing Payments debited by M/s. Harshad S.\nMehta not reflected in Sudhir S. Mehta's Books\n31.03.1992 - Interest transferred to Sudhir S. Mehta\nfrom Grindlays Bank Adyar\nRs.17,836 (Cr.)\n31.03.1992 - Interest transferred to Sudhir S. Mehta\nfrom Grindlays Bank Adyar\nRs.17,446 (Cr.)\n31.03.1992 - Interest transferred to Sudhir S. Mehta\nfrom Grindlays Bank Adyar\nRs.17,852 (Cr.)\nRs.53,134 (Cr.)\n(iii)\nFollowing amounts received by Mr. Sudhir S.\nMehta from Mr. Harshad S. Mehta not reflected in\nMr. Harshad Mehta's Books\n26.10.1991 From Grindlays Bank - Transferred on\nloan account\n20.02.1991 - From Bank of America transferred\nRs.10,00,000 (Dr.)\nRs.50,000 (Dr.) Rs.10,50,000 (Dr.)\nDifference reconciled\nRs.10,02,204 (Dr.)\nFor Sudhir S Mehta\nNons\n(Ashwin S Mehta)\nConstituted Attorney\n31.\nIf the above re-conciliation is read with the annexure which\nexplain the additions and the difference, we find that as on 31/03/1992,\nthe balance in the books of Harshad Mehta in respect of the assessee\nwas debit of Rs.12,25,76,779.56/- and the balance in the books of Sudhir\nS. Mehta, was debit of Rs.11,92,15,389.56/-. Now, if we see these figures\nfrom the reconciliation statement hereinabove we find that the balance\nof Rs.11,92,15,290/- has been mentioned as balance as per the books of\nHarshad Mehta and the total balance which included share-market\nbalance, money market balance and personal balance is\nRs.12,25,76,779/-. It seems that the balance of Harshad Mehta have been\nconsidered with his own balance and not with the balance of Sudhir S.\nMehta, which have been explained in the above chart and the balance\nstands totally reconciled. Therefore, the impugned enhancement made\nby the ld. CIT(A) is uncalled for and deserves to be deleted.\nAccordingly, Ground No. 6 is allowed.\n32.\nGround No. 7 relates to the levy of interest u/s 234D of the Act.\nIn our considered opinion, provisions of Section 234D of the Act are not\napplicable in the facts of the case inasmuch as, there was no refund\nissued to the assessee as there was no processing of return u/s 143(1) of\nthe Act. Our view is fortified by the decision of the Hon'ble Bombay\nHigh Court in the case of Delta Airlines Inc - BOM HC - 358 ITR 367. We\naccordingly direct the AO to not charge interest u/s 234D of the Act.\n33. The additional ground raised by the assessee relates to the levy of\ninterest u/s 234A and 234B of the Act. In our considered view, such\nlevies are mandatory but only up to the date of original assessment\norder which is dated 20/03/1995. The AO is directed to charging\ninterest u/s 234A and 234B of the Act up to the date of original\nassessment order.\n34.\nAccordingly, the appeal of the assessee in I.T.A. No.\n417/Mum/2023 is allowed.\n35.\nComing to the revenue's appeal, as we have already explained in\nassessee's appeal that the additions deleted by the ld. CIT(A) in the\nsecond round of litigation, were not agitated by the revenue before the\nTribunal, therefore, the same has attained finality. Therefore, in view of\ndetailed discussion given elsewhere, the additions deleted by the ld.\nCIT(A) in the second round cannot be agitated in this appeal. To this\nextent, the grievance of the revenue is dismissed.\n36.\nThe other issues related to the partial relief given by the ld. CIT(A)\nin respect of the interest payments. This issue has been discussed in\ndetail by us in the assessee's appeal while deciding Ground No.