GROWMORE EXPORTS LTD,MUMBAI vs. ASST CIT CEN CIR 31 CEN RG 7, MUMBAI

The appeal is barred by limitation by 338 days. Learned AR submitted that the assessee is a notified entity belonging to Harshad Mehta group and all its accounts were brought under control of Custodian appointed under Control of Special Court (Trial of offences relating to Transactions in Securities) Act, 1992. Hence, for remitting the filing fees, the assessee had to move the custodian to release the funds. Since there was delay in releasing the funds for remitting filing fees, there was consequential delay in filing appeal before the Tribunal. The Learned AR submitted that the delay has occurred for reasons beyond the control of the assessee and accordingly prayed that the delay be condoned. He submitted that delay has occurred in filing appeals before the Tribunal in other group cases also for identical reasons. He submitted that the 2 Growmore Exports Limited SMC bench of the Tribunal has condoned the delay, vide its order dated 1005/Mum/2017 and others passed in the case of Orion Travels Pvt. Ltd. and others. He submitted that the Division Bench of the ITAT has also condoned the delay in the case of Fortune Holdings Pvt. Ltd. (ITA No. 939/Mum/2017 dated 11.10.2017).

On the contrary, the learned Standing Counsel strongly opposed the plea of the assessee. He submitted that these assessee is well aware of disruption and difficulties since the day their business got suspended in 1992. He submitted that the assessee should have taken enough precaution to get funds for filing the appeal well in advance. Accordingly, he opposed the petition filed by the assessee.

Having heard the rival submissions and upon considering the decision rendered by the Coordinate Bench in assessee’s group cases, we are of the view that the delay in filing appeal has occurred for the reasons beyond the control of the assessee. Accordingly, we condone the delay in filing this appeal and proceed to dispose it off on merits.

The assessee has moved an additional ground, wherein the assessee has requested for capitalization of interest expenses attributable to shares and securities, which was not allowed as deduction u/s. 57(iii) of the Act. The assessee has moved an application, wherein it did not press the additional ground. Accordingly, additional ground is dismissed as not pressed.

First issue relates to disallowance of interest expenditure amounting to ` 146.74 lakhs. We have noticed earlier that the assessee belongs to Harshad Mehta group of cases and it is one of the notified entities under the Act referred above. The assessee filed its return of income for the year under consideration declaring a total income of ` 99.47 lakhs. The assessee had debited interest expenditure of ` 248.43 lakhs which consists of interest on loan taken for investment of ` 101.68 lakhs and interest on loan for term deposits of ` 146.74 lakhs. In the computation of income, the assessee had 3 Growmore Exports Limited disallowed interest expenditure of Rs.248.43 lakhs, referred above. Before the Assessing Officer, the assessee put a claim that the interest on loan for term deposits of ` 101.68 lakhs should be allowed as deduction against interest income of ` 99.70 lakhs offered under ‘income from other sources’. Thereafter, the assessee filed a revised return of income on 10.12.2013, wherein the assessee claimed deduction of ` 146.74 lakhs on account of interest on loan for term deposits against interest income shown under ‘income from other sources’. The Assessing Officer has also held that revised return of income filed by the assessee is beyond the period prescribed under section 139(5) of the Act accordingly, did not recognize the same. The Assessing Officer accordingly rejected the claim of the assessee by following the decision rendered by Hon'ble Supreme Court in the case of Goetz India Ltd. (284 ITR 323), wherein the Hon’ble Apex Court has held that the new claims can be made by the assessees through revised return of income only. In the instant case, though the claim for deduction was made through a revised return, yet it was filed beyond the time limit prescribed u/s 139(5) of the Act and hence the AO held it to be not valid return. In the appellate proceedings, the learned CIT(A) upheld the view taken by the Assessing Officer in not admitting the additional claim for deduction of interest expenditure. The learned CIT(A), however, also proceeded to adjudicate the claim of interest expenditure of ` 146.74 lakhs on merits. The learned CIT(A) held that there is no direct nexus between the loan taken for investment in shares and investment made in FDRs/term deposits. Accordingly, the learned CIT(A) rejected the claim on merits also.

The Learned AR submitted that the assessee had taken loan for purchase of shares and after becoming the notified entity, the custodian has deposited sale proceeds realized on sale of shares into fixed deposits. Accordingly, he submitted that there is direct nexus between loan taken and deposits made. Accordingly, he submitted that interest expenditure claimed by the assessee should be allowed. The Learned AR further submitted that similar

The Learned AR further submitted that the co-ordinate bench of Tribunal has taken a different view in the order passed in the case of Growmore Leasing and Investments Ltd. and other (ITA No. 1219/Mum/2017 and others dated 27.12.2017), wherein the Tribunal has allowed the claim for deduction of interest expenditure against interest income earned from fixed deposits. Accordingly, he prayed that interest expenditure claimed by the assessee may be allowed by following the above said decision of the Tribunal.

On the contrary, learned DR submitted that there is no basis or written contract to support the liability to pay interest to the creditors. He further submitted that the assessee has not paid interest till date and it is also not known as to whether the recipients have offered interest income in their hands. Further the assessee has failed to establish nexus between the loan taken and deposits made. Accordingly, learned DR submitted that the interest claim made by the assessee is mere a contingent liability and hence the same cannot be allowed as deduction.

Having heard the rival contention on this issue, we noticed that various group concerns of the assessee have also made identical claim and the Tribunal has restored the issue to the file of the learned CIT(A). It is the contention of the assessee that the co-ordinate bench of Tribunal has allowed the claim of the assessee in the case of Growmore Leasing and Investments Ltd. (supra), vide its order dated 27.12.2017 passed in ITA No. 1219/Mum/2017).

Since the Tribunal has been restoring the issue to the file of the learned CIT(A), we prefer to restore this issue to the file of the learned CIT(A) for adjudicating it afresh. While adjudicating this issue, the learned CIT(A) shall take into account the decision rendered by the Coordinate Bench of the 5 Growmore Exports Limited Tribunal in the case of Growmore Leasing and Investments Ltd. (supra) and take appropriate decision in accordance with the law.

The Next issue relates to rejection of revised return of income and financial statement while determining book profit u/s. 115JB of the Act. In the preceding paragraph, we have restored the issue of claim for deduction of interest expenditure to the file of the learned CIT(A). The above said claim was also a new claim made by the assessee on the basis of revised financial statements filed by it. Accordingly, we are of the view that this ground of the assessee also needs to be set aside to the file of the learned CIT(A). Accordingly, we restore this issue to the file of the learned CIT(A) for adjudicating it afresh.

Last issue relates to charging of interest u/s. 234A, 234B & 234C of the Act. Identical issue has been considered in the case of Orion Travels Pvt. Ltd. (referred supra) and the Tribunal has restored the issue to the file of the Assessing Officer by following the decision rendered by the Division Bench of the Tribunal in the case of Fortune Holdings Pvt. Ltd. (ITA No. 1462/Mum/2011 and others dated 25.8.2015). For the sake of convenience, we extract below the order passed by the Tribunal in the case of Orion Travels Pvt. Ltd. (supra): 9. The next common issue relates to charging of interest u/s 234A, 234B and 234C of the Act. Identical issue has been adjudicated by the division bench in the case of Fortune Holdings P Ltd (supra) and for the sake of convenience, I extract below the relevant observations made in that case:-

Consistent with the view taken in the above said case, we set aside the matter of computation of interest u/s. 234A, 234B & 234C of the Act to the file of the Assessing Officer with similar direction.

In the result, appeal of the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Court on 6.7.2018.