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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. Nos.6092, 6093 & 6091/Mum/2018 (निर्धारण वर्ा / Assessment Years: 2013-14, 2014-15 & 2015-16) Growmore Leasing & बिधम/ DCIT Cen Cir 4(3) Investment Ltd. Room No. 1921, Air India Vs. 32 Madhuli Apartment, 3rd Bldg, 19th Floor, Nariman Floor, Dr. A. B. RD, Worli, Point, Mumbai-400021. Mumbai-400018.
आयकर अपील सं/ I.T.A. Nos.6213, 6214 & 6215/Mum/2018 (निर्धारण वर्ा / Assessment Years: 2013-14, 2014-15 & 2015-16) DCIT Cen Cir 4(3) बिधम/ Growmore Leasing & Room No. 1921, Air India Investment Ltd. Vs. Bldg, 19th Floor, Nariman 32 Madhuli Apartment, 3rd Point, Mumbai-400021. Floor, Dr. A. B. RD, Worli, Mumbai-400018. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : ABAPM4491J (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Assessee by: Ms. Mitali Gopani Revenue by: Dr. P. Daniel सुनवाई की तारीख / Date of Hearing: 21/09/2020 घोषणा की तारीख /Date of Pronouncement: 16/12/2020 आदेश / O R D E R PER BENCH: The assessee as well as revenue have filed the above mentioned appeals against the different order passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Ys. 2013-14, 2014-15 & 2015-16.
ITA. NO.6092/Mum/2018
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 2. The assessee has filed the present appeal against the order dated 28.08.2018 passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2013- 14.
The assessee has raised the following grounds: -
“1. The Ld. Commissioner of Income-tax (Appeals) ought to have allowed the deduction of interest expenditure of Rs.8,28,27,023/- as follows: Sr. Entities Interest @ No. 12% per annum payable 1 M/s. Harshad S. 7,39,27,383 Mehta 2 Ms/. Jyoti H. Mehta 3,00,81,923 Total 10,40,09,306 Less: Proportionate (- disallowance of )2,11,82,283 interest u/s 14A of the Act Total 8,28,27,023
The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A and 234C of the Act. 3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234A and 234C of the Act.
The appellant craves leave of Your honour to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal.” 4. The assessee has filed the revised ground of appeal which is mentioned below: -
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 “1. In respect with the captioned appeal, we state and submit as under: - 2. It is submitted that the above appeal has been filed by the appellant against the order of the Ld. CIT(A) dated 28.08.2018 partly confirming the order of the AO dated 27.07.2016 in respect of various additions/disallowances made by the Assessing Officer. 3. As against the aforesaid order, the appellant has taken various grounds of appeal challenging the merits of addition made. However, the appellant has not taken the ground challenging the jurisdiction of the assessing officer in reopening of assessment and passing the order u/s 143(3) r.w.s. 147 of the Act before Your Honours. 4. The above aspect has been left to be raised before Your Honours at the time of filing the appeal due to an inadvertent error. The appellant is therefore filing herewith the additional ground of appeal with respect to the aforesaid issue. 5. It is submitted that the enclosed ground is a legal ground and that for adjudication of the said additional ground, all the facts are already available on the record. Further, this issue would have a bearing on the validity of the assessment order and determination of the correct taxable income of the appellant. 6. Accordingly, it is humbly prayed that the enclosed additional ground may kindly be admitted and adjudicated upon by Your Honours. It is a settled position in law that the Hon'ble Tribunal has powers to consider a claim of the appellant emanating from the assessment proceedings, although not raised earlier. In this regard, the appellant relies upon the following landmark decisions of the Hon’ble Courts. i. National Thermal Power Corporation v. CIT [229 ITR 383 (SC)] ii. Jute Corporation of India Ltd. v. CIT [187 ITR 688 (SC)] iii. Ahmedabad Electricity Co. Ltd. v. CIT [199 ITR 351 (Bom) (FB)] iv. CIT v. Pruthvi Brokers & Shareholders [349 ITR 336 (Bom)] 7. In view of the above, it is most humbly submitted that the enclosed additional ground may kindly be admitted and adjudicated upon by your honour.” 5. The assessee has raised the following additional ground in the appeal: -
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 “1. The Ld. CIT(A) has erred in facts in not appreciating that the notice issued u/s 148 of the Act and the reopening of assessment u/s 147 of the Act is invalid and bad in law.” 6. The brief facts of the case are that the assessee filed its return of income on 04.12.2015 declaring total loss of Rs.3499/-. The assessee has shown the interest in sum of Rs.5,14,025/- on term deposits of Rs.70.66 lakhs with State Bank of Mysore, Allahabad Bank, UCO Bank, Bank of Baroda, Oriental Bank of Commerce. These interest receipts were offered by the assessee for taxation under the head „Income from Other Sources‟. Against these interest receipts, the assessee has claimed deduction u/s 57 of the interest expenditure of Rs.10,40,09,306/- on the amounts outstanding to the related notified broker entities, M/s. Harshad Mehta and M/s. J. H. Mehta. Out of the same, the assessee has suo moto disallowed an amount of Rs.2,11,82,283/- u/s 14A and balance amount of Rs.8,28,27,023/- has been claimed as deduction against interest on FDR. The AO completed the assessment by disallowance the claiming of deduction u/s 57 of the Act interest expenditure of Rs.8,28,27,023/- on the ground that the said liability was provisional as well as contingent and without any basis. The assessee was claiming interest expenditure on the amount outstanding to the said related notified broker entities, however, these broker entities were not charging interest from other clients. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who dismissed the appeal of the assessee, therefore, the assessee has filed the present appeal before us.
ISSUE Nos. 1 to 3 and revised ground 7. We have heard the arguments advanced by the Ld. Representative of the parties and perused the record. Initially, the assessee claimed the interest in view of the provisions u/s 57 of the Act in sum of Rs.8,28,27,023/-. In the revised ground of appeal, the assessee claimed the
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 interest expenditure to the extent of Rs.5,10,530/-. The Ld. Representative of the assessee has argued that the issue has duly been covered by the assessee‟s own case for the A.Y.2012-13 in ITA. No.1219/M/2017 dated 27.12.2017. The relevant finding has been given in para no. 56 to 62 which is hereby reproduced as under.:-
“56. In this case the assessee has taken the following revised ground of appeal: - “2. The Ld. Commissioner of Income-Tax (Appeals) ought to have allowed the deduction of interest expenditure to the extent of interest income i.e. Rs.1,43,721/- as follows: Sr. No. Entities Outstanding amount payable Interest @ Interest @ 12% p. a. 12% p. a. payable payable 1 Jyoti H. Mehta 25,06,82,692 3,00,81,923 2 Harshad S. Mehta 61,60,61,525 739,27,383 Total 86,67,44,217 10,40,09,306 Less: Proportionate disallowance of interest u/s. 14 A of the Act 2,12,47,194 Total 8,27,62,112
The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A, 234B and 234C of the Act. 4. The Ld, Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234B and 234C of the Act.” 57. The appeal filed by the assessee is barred by limitation of 391 days. We heard both the parties on the issue of condonation of delay. The assessee has submitted the application under Section 253(5). The main reason for condonation of delay is that the delay was caused on account of delay on the part of the custodian for releasing the appeal fees required for filing the appeal. It was pointed out that identical issue has arisen in the case of another notified entity, M/s. Fortune Holding Pvt. Ltd. wherein the delay in filing the appeal for 749 days was condoned by the Coordinate Bench of this Tribunal. The appeal in the present case is also identical. Even it was also contended that this Tribunal has condoned the delay in the case of Aatur Holding Pvt. Ltd. and others vs. DCIT in ITA No. 1223/Mum/2017 for A.Y. 2012-13 of 391 days which
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 was due to the inaction of the custodian. A chart showing chronology of events leading to the delay was filed. 58. On the other hand, the learned D.R. contended that this is a case of negligence on the part of the assessee, therefore the delay should not be condoned. 59. We noted that under identical facts and circumstances the Coordinate Bench of this Tribunal in the case of Fortune Holding P. Ltd. ITA No. 939/Mum/2017 has condoned the delay for more than 749 days. Respectfully following the said decision of the Coordinate Bench, we condone the delay and admit the appeal filed by the assessee. 60. Ground No. 1 relates to the claim of interest by the assessee amounting to `1,43,721/- after disallowing proportionate interest amounting to `2,12,47,194/- out of interest earned by the assessee on term deposits. Both the parties agreed that similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 and whatever view the Tribunal may taken in that case the same view may be taken in the impugned case. After hearing the rival submissions and considering the same we noted that this Tribunal while disposing of the said ground allowed claim of the assessee in respect of interest expenditure after proportionate disallowance. We, therefore, respectfully following our finding given in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 allow the claim of interest of the assessee to the extent of `1,43,721/- after proportionately disallowing a sum of `2,12,47,194/- and give similar direction to the AO as given in ITA No. 5799/Mum/2015. Thus, ground No. 1 is allowed. 61. So far as the additional ground is concerned as agreed by both the parties, similar additional ground has been taken in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10. We, respectfully following our decision in that case direct the AO to treat the proportionate interest which stands disallowed while disposing of ground No. 1 as part of cost of shares and securities. 62. Ground No. 2 & 3 relate to levy and calculation of interest under Section 234A, 234B and 234C of the Income Tax Act. As agreed by both the parties, similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for 2009-10. We, therefore, respectfully following the said decision dismiss ground No. 2 regarding levy of interest but direct the AO in respect of ground No. 3 that the interest levied under Section 234A, 234B and 234C be recomputed after excluding the income which is subject to TDS. Thus, this ground is allowed for statistical purposes. 8. Since the issues have squarely been covered by the decision of the assessee‟s own case (supra), therefore, in the said circumstances, we allowed the interest expenditure to the extent of income of the assessee
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 instead of original claim of Rs.8,28,27,023/-. So far as the calculation of interest u/s 234A, 234B & 234C of the Income Tax Act is concerned the same would liable to be computed after excluding the income which was subject to the TDS. Accordingly, all the issues are decided in favour of the assessee against the revenue.
ITA. Nos. 6091 & 6093/M/2018 9. The facts of the present case are quite identical to the facts of the case as narrated above. However, the figure is different. The issues in these appeals are also the same. The findings given above are applicable as mutatis mutandis. In these appeals the interest expenditure to the extent of income is hereby allowed and So far as the calculation of interest u/s 234A, 234B & 234C of the Income Tax Act is concerned the same would liable to be computed after excluding the income which was subject to the TDS. Accordingly, all the issues are decided in favour of the assessee against the revenue. In the result, all the appeals are filed by the assessee are hereby allowed.
ITA. NO.6213/M/2018 10. The revenue has filed the present appeal against the order dated 28.08.2018 passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2013- 14. 11. The revenue has raised the following grounds.:-
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in capitalizing the disallowance of interest u/s 14A of the I. T. Act, 1961 only relying on the decision of the Hon’ble ITAT in case of Shri Sudhir S. Mehta ITA. No. 5799/M/2014 for A.Ys. 2009-10 to A.Y.2011-12 which has itself been challenged by the Department before the Hon’ble Bombay High Court. The appellant craves to leave, to add, to amend and/or to alter any of the ground of appeal, if need be.” 12. The facts of the present case are quite similar to the facts of the case as narrated above bearing ITA. No.6092/M/2018, therefore, there is no need to repeat the same.
ISSUE NO. 1
Under this issue the revenue has challenged the capitalization of the disallowance of interest u/s 14A of the Income Tax Act by relying upon the decision of the Hon‟ble ITAT in the case of Sudhir S. Mehta in ITA. No.5799/M/2014 for A.Ys. 2009-10 & 2011-12. The Ld. Representative of the revenue has argued that the claim of the assessee has wrongly been allowed whereas the Ld. Representative of the assessee has argued that the issue has duly been covered by the assessee‟s own case for the A.Y.2012- 13 in ITA. No.1219/M/2017 dated 27.12.2017. The CIT(A) has also decided the issues in favour of the assessee accordingly. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-
“5 Ground No 1 of the appeal relates to the disallowance of the assessee's claim of deduction u/s 57 of interest expenditure of Rs 8,28,41,790/- against the interest receipts of Rs. 6,79,595/- on Term deposits. In the course of assessment proceedings, the AO observed that the assessee has shown interest receipts of Rs. 6,79,595/- on term deposits of Rs. 95.18 lakhs with UCO Bank. Allahabad Bank, State Bank of Mysore, Bank of Baroda. Andhra Bank and Indian Bank. These interest receipts were offered by the assessee for taxation under the head Income from Other Sources'. Against these interest receipts, the
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 assessee had claimed deduction u/s. 57 of the interest expenditure of Rs 10.40.09.3061- on the amounts outstanding to the related notified broker entities, MIs. Harshad Mehta and MIs. J.H. Mehta. Out of the same, the assessee has suo moto disallowed an amount of Rs 2,11,67,516/- u/s 14A and the balance amount of Rs 8,28,41.7901- has been claimed as deduction against interest on FDR. The AO completed the assessment after disallowing the assessee's claim of deduction u/s 57 of interest expenditure of Rs 8,28,41,790/- on the ground that the said liability is provisional as well as contingent and without any basis. The AO, while making this disallowance of interest expenditure noted that though the assessee was claiming interest expenditure on the amounts outstanding to the said related notified broker entities, however, these broker entities were not charging interest on the other clients. 5.1 During the course of appellate proceedings, the Ld AR of the assessee has made detailed submissions vide letters dated 15.06.2018, 21.08.2018 and 24.04.2018 which have been duly considered. In the submissions dated 15.05.2018, the assessee has broadly submitted that the action of the AO of disallowing the said interest expenditure is not correct considering that (i) an oral contract existed between the assessee and the said notified broking entities as observed by the Hon'ble ITAT in the case of the assessee for A.Y. 2006-07 and also a number of other cases of Harshad Mehta Group, (ii) as per the bye-laws and regulations of Stock Exchange, she is required to compensate the broker for delay in the payment for purchase of shares by way of payment of interest, (iii) the Hon'ble Special court has directed the other clients of the notified broker entities to pay interest on the amounts outstanding, (iv) the Hon'ble Special Court has also been awarding/levying interest @12% pa. on the funds used inter-se between notified entities, (v) the Custodian is the only authority as per Sec. 4(i) of the Special Courts Act, to seek cancellation of any contract on the ground that they are fraudulent or entered into with a view to defeat the provisions of the said Act, however, the Custodian has not sought cancellation of the contract between the assessee and the notified broker entities on charging of interest, (vi) the market price of the said shares purchased through the said notified broker entities has gone up multiple times and therefore, it is in the interest of the assessee to secure performance of the contract for purchase of shares by paying interest, (vii) the liability is not contingent in nature as no adjudication in respect of this issue is pending before the Hon'ble Special Court as noted by the Hon'ble ITAT in the case of the assessee for A.Ys. 2007-08, 2009- 10 and 2010-11 in ITA No. 5135/5136/Mum/2012 and 2151/Mum/2013 dated 05.03.2015
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 (viii) the corresponding interest income received by the said notified broker entities is being offered and assessed to tax as per the method of accounting followed by them, (ix) the deduction of the said interest expenditure against the interest income from Term deposits is also to be allowed as per the principles of matching concept laid out by the jurisdictional High Court in the case of Taparia Tools Ltd. (260 ITR 102) and (x) this issue of interest expenditure has been adjudicated and allowed by the Tribunal in the case of the assessee as well as other notified entities. Further, the assessee has explained that as and when there are surplus funds available in the accounts of the assessee, the Hon'ble Special Court directs the Custodian to invest the same in term deposits with various banks. It was also explained that originally substantial funds were invested in the form of shares, debentures etc. out of credit availed from the said notified broker entities. Thereafter, subsequent to notification on 08.06.1992, substantial portion of these investments, have been sold under the orders of the Hon'ble Special Court and the proceeds from such sale as well as income by way of dividend, interest etc. earned on the investments has been deployed in Term deposits. Accordingly, the assessee contended that the interest expenditure of Rs. 8,28,41,790/- has a connection with the interest income on the Term deposits and therefore, should be allowed as a deduction. Moreover, the assessee explained that it is incorrect to hold that the delivery of the shares in respect of the said notified brokers has not yet been taken considering that all the unregistered shares have been handed over to the Custodian on behalf of the assessee. 5.2 I have considered the various submissions of the assessee as well as the order of the AO. It is observed that out of the total interest expenditure of Rs 10,40,09,306/-, the assessee I-as considered an amount of Rs 2,11,67,516/- for disallowance u/s 14A and the balance amount of Rs 8,28,41,790/- has been claimed as a deduction u/s 57 against the interest receipts of Rs 6,79,595/- on Term deposits while computing the income under the head, -Income from Other Sources". However, the AO has held that the entire interest expenditure claimed by the assessee of Rs. 8,28,41,790/- u/s. 57 cannot be allowed as a deduction against the interest income of Rs 6,79,595/- on term deposits since, the said expenditure is provisional/contingent and without any basis. he assessee contends that the action of the AO is incorrect since the entire expenditure is payable as per oral contract of the assessee with the said notified broker entities and since there is a nexus between the said interest expenditure and the interest income from Term deposits, the entire amount of interest expenditure claimed by it of Rs 628.41,790/- u/s 57 should be allowed as a deduction.
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 5.3 As regards, the dispute of the assessee with the AO that there is no basis/contract for incurring the said expenditure, it is observed that in the case of the assessee as well as the cases of other notified entities, the Appellate authorities have consistently been holding that absence of a written contract should not be viewed adversely against the assessee As regards the dispute of the assessee with the AO that the said notified broker entities have not been offering the corresponding interest income in their hands, it is observed that the Hon'ble ITAT in the case of Sudhir Mehta for AYs 2009-10 to 2011-12 in ITA No 5799 to 5801/Mum/2015 dated 27.12.2017 has noted that the notified broker entities are offering the interest income for taxation as per the system of accounting regularly employed by them. Moreover, as regards the dispute of the assessee with the AO that the liability of interest is contingent in nature, it is observed that the Hon'ble ITAT in the case of Ms Deepika A Mehta for A.Ys. 2007- 08, 2009-10 and 2010-11 in ITA No. 5135/5136/Mum/2012 and 2151/Mum/2013 dated 05.03.2015 has held that the said liability is not contingent in nature since no adjudication in respect of this issue is pending before the Hon'ble Special Court. 5.4 The income under the head 'Income from Other Sources is to be computed as per the provisions of Sec. 56 to 58. The deductions which are allowable are as per the provisions of Sec. 57. As per the provisions of Sec. 57(iii), any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as a deduction while computing the income under the head "Income from Other Sources'. Now the issue to be decided is what is the quantum of interest expenditure out of the total interest expenditure incurred of Rs. 10,40,09,306/-, which can be said to have been laid out or expended wholly and exclusively for the purpose of making or earning the interest income of Rs. 6,79,595/- on Term deposits. It is relevant to note that the said entire interest expenditure of Rs 10,40,09,306/- pertains to 2 of the notified broker entities, M/s. Harshad S. Mehta (Rs 7,39,27,383/-) and M/s. J.H. Mehta (Rs 3,00,81,923/-) related to the shares purchased by the assessee through them during the period prior to 1992. 5.5 On examination of the Balance Sheet of the assessee for AY. 1992- 93, it is observed that the amounts payable to the said 2 notified broker entities are of Rs. 6606.99 lakhs and Rs. 2605.04 lakhs respectively. Interest has been charged @12% on the amounts payable to the said 2 notified broker entities Against this total outstanding amount of Rs. 9204.42 lakhs, the corresponding investments in shares, debentures etc. shown are of Rs. 10132 lakhs. It is also noted that the capital of the assessee is of Rs. 267.87 laths as on 31.03.1992 5.6 Similarly, on examination of the Balance Sheet of the assessee for the relevant year i.e. A.Y. 2014-15, it is observed that the amounts
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 payable to the said 2 notified broker entities are of Rs. 6160.61 lakhs and Rs. 2506.82 lakhs respectively, totally aggregating to Rs. 8667.43 lakhs. Interest has been charged of Rs. 10.40,09,306/- @12% on the amounts payable to the said 2 notified. It has been submitted by the assessee that in the intervening period between the year ending 31.03.1992 and the year ending 31.03.2014 substantial portion of the said shares, debentures etc. purchased from the said 2 notified broker entities and others have been sold off by the Custodian and the amounts realized have been utilized for payment of taxes etc. and the surplus has been deployed for investment in Term deposits. The unsold investments in shares, debentures etc. shown are of Rs.5292.31 lakhs as on 31.03.2014. It is further noted that the capital of the assessee is (-) Rs. 4867.5 lakhs as on 31.03.2014.
5.7 For ready reference, the Comparative figures of Balance Sheet for the years relevant to AYs 1992-93 and 2014-15 is reproduced as under:
Particulars As on 31.3.14 As 31.3.92 Particulars As on 31.3.14 As on 31.3.92
Capital (-)4867.5 267.87 Inv in shares, debentures 5292.31 10132
Payable to 2 notified 8667.43 9204.42 Loan & advances taxes 20620.14 142.025 brokers
Unsecured loans from 294.85 304.57 Term deposits 95.18 - Ashwin Mehta
Liabilities 21918.84 619.13 Fixed assets. Etc 5.99 121.965
26013.62 10395.92 26013.62 10395.99
" Loans & advances given includes loan given of Rs 16,416.25 lakhs to Harshad Mehta as per the directions of the Hon'ble Special Court and payments made for Advance tax, TDS, etc of Rs. 4,203.89 lakhs. 5.8 In course of the appellate proceedings, it was observed that the assessee is following mercantile system of accounting whereas M/s. H.M. Mehta as well as Harshad Mehta in individual capacity is following cash system of accounting. This difference in accounting policies has resulted in an extremely adverse situation against the Revenue whereby from A.Y.1992-93 to the relevant assessment year, the assessee has claimed expenditure of more than Rs. 125 crores whereas M/s. H M. Mehta has not booked any corresponding interest income in view of the cash system of accounting followed. If due to the different accounting systems being followed, the timing difference in booking of expenditure by the assessee and booking of income by M/s. H.M. Mehta was of a year or two, it would have been understandable. However, in the instant case, for a period of more than 20 years, the assessee is consistently booking expenditure whereas M/s. H.M. Mehta is not booking any income.
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 5.9 Further, in course of the appellate proceedings, it was also observed that the assessee has given loan of Rs 16,416.25 lakhs to Harshad Mehta as per the order of the Hon'ble Special Court which does not carry any interest. Moreover, in course of the appellate proceedings, it was also observed that an amount of Rs 4,203.89 Iakhs shown under the head 'Loans & Advances" comprises of advance tax, wealth tax. TDS. income tax, etc. and therefore, the interest attributable to such amounts is to be disallowed. Therefore, the assessee vide this office letter dated 09.08.2018 was asked to explain as to why interest has not been charged on the said amount advanced to Shri Harshad Mehta of Rs 16,416.25 lakhs and also as to why the interest attributable to the amount of Rs 4.203,89 lakhs related to payment of income tax, etc should not be disallowed. In response. the assessee submitted the reply vide letter dated 21.08.2018. In the said letter, it was explained that the said amount of Rs 16,416.25 lakhs was paid to Shri Harshad Mehta pursuant to order passed by the Honble Special Court dated 25 02.2011 in connection with payment of the outstanding income tax dues and this order did not have any stipulation for payment of interest. It was further contended that as per the Law laid down by the Hon'ble Supreme Court, the Hon'ble Special Court enjoys exclusive Civil jurisdiction and imposing of any tax presumed interest income will be a violation of the said exclusive Civil jurisdiction of the Hon'ble Special Court thereby resulting into contempt of Court. As regarcs disallowance of interest attributable to the loans & advances given in the form of advance tax, wealth tax, income tax, TDS etc of Rs 4,203.89 lakhs it was submited that no part of interest bearing funds have been deployed for the said payments of Income Tax etc. 5.10 The contentions of the assessee have been considered. The following anomalies are noticed in the factual position as well as the contentions of the assessee (I) Due to the different accounting policies followed by the assessee and M/s H M Mehta as well as Harshad Mehta in individual capacity, the interest of Revenue has been adversely affected since on one hand over the past more than 20 years, the assessee has been claiming cumulative interest expenditure of more than Rs 125 crores whereas the corresponding interest income is not being offered in the hands of MIs H M Mehta as well as Harsad Mehta in individual capacity, (ü) The assessee is paying interest @ 12% oil the loans taken from MIs H M Mehta as well as Harshad Mehta in individual capacity but is not receiving any interest on the huge loan advanced of Rs 16,416.25 lakhs to Harshad Mehta as per the directions of the Hon'ble Special Court, (hi) To justify its claim of interest expenditure related to the said 2 notified broker entities, the assessee claims that even for loans inter-se between the notified entities, the Custodian as well as the Special Court is insisting on charging of interest, however, it is surprising that no
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 interest has been charged on the huge loan of Rs 16,416.25 laths advanced by the assessee to Harshad Mehta. (iv) When it comes to disallowance of interest attributable to the income tax, etc. of Rs 4,203.89 lakhs, the assessee contends that the same is out of the surplus funds available at its disposal, however, when it comes to disallowance of interest expenditure claimed related to interest income on Term deposits, the assessee contends that the same is out of the credit availed from the said 2 notified broker entities for purchase of shares way back in the year ending 31.03.1992 for which it is liable to pay interest @12% p.a. 5.11 From the above, it can be observed that the factual position as well as the contentions of the assessee are full of contradictions. The assessee in course of the appellate proceedings, was specifically asked to furnish details of the interest expenditure attributable to the income tax, etc. of Rs 4,203.89 lakhs, the interest expenditure attributable to exempt investments, the interest expenditure attributable to the interest income on Term deposits, etc. and also the details of the notional interest income arising to it on account of the loan advanced to Shri Harshad Mehta of Rs 16,416.25 lakhs. As regards, the interest expenditure related to exempt investments, it was claimed by the assessee to be of Rs.2,11,67,516/- and the interest expenditure related to payments of income tax, etc was claimed to be of Rs. Nil. However, the details in respect of the interest attributable to Term deposits as well as the notional interest income on the loan advanced to Harshad Mehta of Rs. 16,416.25 lakhs were not submitted by the assessee. 5.12 It can be observed from the comparative figures of the Balance Sheet for the year ending 31.03.1992 and 31.03.2014 in para 5.7 above, that the investments in shares, debentures, etc as on 31.03.1992 were of Rs 10,132 lakhs and in the intervening period, substantial portion of the said investments of Rs. 4839.69 lakhs were sold and the unsold investments as on 31.03.2014 are of only Rs 5292.31 lakhs. It is pertinent to note that the entire investments of Rs 10,132 lakhs were purchased through the said 2 notified broker entities, etc in the year ending 31.03.1992 and the interest payable on the amounts outstanding was @ 12% per annum. In the intervening period, substantial investments have been sold off but the balance unsold investments of Rs 5292.31 lakhs as on 31.03.2014 continue to be liable for interest @ 12% per annum as the direct nexus continues from the year ending 31.03.1992 till the end of the relevant year. Therefore, interest of Rs 6,35,07,775/- (12% of Rs 52,92,31,464) is directly attributable to the unsold investments in shares, debentures, etc of Rs 5292.31 lakhs as on 31.03.2014. Accordingly, this interest of Rs 6,35,07,775/- is disallowable u/s 14A being the direct expenditure in relation to the exempt investments as against the suo moto disallowance made by the assessee of Rs 2,11,67,516/- u/s 14A. The AO is, however, directed to allow capitalization as per the decision of the
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 Hon'ble ITAT in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum12014 for A.Ys. 2009-10 to 2011-12. 5.13 As noted above, in the intervening period, between 31.03.1992 and 31.03.2014, investments of cost price Rs 4839.69 lakhs (Rs 10132 laths - Rs 5292.31 lakhs) bearing interest @ 12% per annum have been sold off. The assessee itself admits that the said investments have grown multiple times and their sale has resulted into huge surpluses, however, due to indexation, it has not paid any tax on account of long term capital gains. This is also apparent from the fact that though investment in shares & debentures has come down by Rs 4839.69 lakhs from Rs 10132 lakhs as on 31.03.1992 to Rs 5292.31 lakhs as on 31.03.2014 on account of sale of investments in the intervening period, however, the loans & advances, taxes etc has gone up by Rs 20478.115 lakhs from Rs 142.025 lakhs as on 31.03.1992 to Rs 20,620.14 lakhs as on 31.03.2014. As can be observed, on account of the surpluses arising on sale of investments, the loans, advances, taxes, etc have gone up by Rs 20,478.115 lakhs as against the decrease in investments on account of sale of Rs 4839.69 laths. Thus, the interest burden on the outstanding amounts to the said 2 not fied broker entities etc especially related to the investments of Rs 4839.69 lakhs has been spread over the increase in loans, advances, taxes, etc of Rs 20,478,115 laths in the intervening period from the year ending 31.03.1992 to the year ending 31 .03.2014. Further, there is little doubt that the assessee maintains a common pool of funds for its investment in shares, debentures, etc as well as for its investments in Term deposits. 514 In view of the above factual position, the interest attributable to the income tax, etc of Rs 4,203,89 lakhs and the interest free loan giver) to Shri Harshad Mehta of Rs 16,416,25 lakhs car, be reasonably computed by adopting the formula which has been prescribed in Rule 8D(2)(ii) for computing the interest attributable to the exempt investments i.e. Interest expenditure x (Average of exempt investments/Average total assets) but in the said formula, the 'Average exempt investments' will be replaced by 'Average of Payments of Income tax etc and the interest free loans given to Harshad Mehta etc. Moreover, the interest to be considered, in this formula, will be the net interest of Rs. 4,05,01,531/- after excluding the interest of Rs 6,3507,775/- directly attributable to the exempt investments. The AO is accordingly directed to compute the interest attributable to the income tax, etc and the interest free loan given to Shri Harshad Mehta etc and disallow the same. 5.15 Similarly, the interest attributable to the Term deposits o' Rs 9518 lakhs can also be computed by adopting the same formula which has been prescribed in Rule 8D(2)(ii) for computing the interest attributable to the exempt investments i.e. Interest expenditure x (Average of exempt investments/Average total assets) but in the said formula, the "Average exempt investments' will be replaced by "Average Investments in Term deposits" Here also, the interest to be considered in this formula will be
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 the net interest of Rs.4,05,01,531/- after excluding the interest of Rs.6.35,07,775/- directly attributable to exempt investments. The AO is accordingly directed to compute the interest attributable on the Term deposits and only allow this amount as a deduction u/s 57 against the interest receipts of Rs 6,79,595/- while computing the income of the assessee under the head "Income from other Sources". Accordingly, ground no 1 is partly allowed. 6. Ground Nos 2 & 3 of the appeal relates to charging of interest u/s 234A & 234B. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Anjum. H. Ghaswalla (252 ITR 1), wherein it is held that the charging of interest is mandatory under the provisions of law. Accordingly, ground Nos 2 & 3 of the appeal is dismissed.” 14. On appraisal of the above mentioned finding, it is quite clear that the CIT(A) has decided the issue on the basis of the decision of Hon‟ble ITAT in the case of Sudhir S. Mehta in ITA. No.5799/M/2014 for A.Ys. 2009-10 & 2011-12. The issue has also been covered by the decision of the Hon‟ble ITAT in the assessee‟s own case bearing ITA. No. 1219/M/2017 dated 27.12.2017. The relevant finding is hereby mentioned below.:-
“60. Ground No. 1 relates to the claim of interest by the assessee amounting to `1,43,721/- after disallowing proportionate interest amounting to `2,12,47,194/- out of interest earned by the assessee on term deposits. Both the parties agreed that similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 and whatever view the Tribunal may taken in that case the same view may be taken in the impugned case. After hearing the rival submissions and considering the same we noted that this Tribunal while disposing of the said ground allowed claim of the assessee in respect of interest expenditure after proportionate disallowance. We, therefore, respectfully following our finding given in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 allow the claim of interest of the assessee to the extent of `1,43,721/- after proportionately disallowing a sum of `2,12,47,194/- and give similar direction to the AO as given in ITA No. 5799/Mum/2015. Thus, ground No. 1 is allowed. 61. So far as the additional ground is concerned as agreed by both the parties, similar additional ground has been taken in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10. We, respectfully following our decision in that case direct the AO to treat the proportionate interest which stands disallowed while disposing of ground No. 1 as part of cost of shares and securities. 62. Ground No. 2 & 3 relate to levy and calculation of interest under Section 234A, 234B and 234C of the Income Tax Act. As agreed by both
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 the parties, similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for 2009-10. We, therefore, respectfully following the said decision dismiss ground No. 2 regarding levy of interest but direct the AO in respect of ground No. 3 that the interest levied under Section 234A, 234B and 234C be recomputed after excluding the income which is subject to TDS. Thus, this ground is allowed for statistical purposes.” 15. On appraisal of the above mentioned finding, we find that the issue has duly been covered in favour of the assessee in the assessee‟s own case (supra), therefore, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with the appellate stage. Accordingly, we dismissed the appeal of the revenue.
ITA. Nos. 6214 & 6215/M/2018 16. The facts of the present case are quite similar to the fact of the case as narrated above while deciding the ITA. No.6213/M/2018, therefore, there is no need to repeat the same. However, the figure is different. The matter of controversy is also the same. The finding given above in ITA. No.6213/M/2018 is quite applicable to the facts of the present case as mutatis mutandis and accordingly we dismiss all the appeals of the revenue. 17. In the result, the appeals filed by the assessee are hereby partly allowed and the appeals filed by the revenue are hereby dismissed. Order pronounced in the open court on 16/12/2020 Sd/- Sd/- (RAJESH KUMAR) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 16/12/2020 Vijay Pal Singh/Sr. P.S.
ITA Nos. 6092, 6093 & 6091/Mum/2018 /M/2018 6213, 6214 & 6215/M/2018 A.Ys. 2013-14, 2014-15 & 2015-16 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- आयकर आयुक्त / CIT 4. 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// (Assistant Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai