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Facts
The assessee claimed a deduction for interest expenditure amounting to Rs. 32,795,923/-, but the Assessing Officer disallowed it. The assessee is a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The issue is regarding the deductibility of interest expenditure against interest income.
Held
The Tribunal held that the interest expenditure deduction should not exceed the interest income earned. It also considered the provision that interest expenditure must be incurred wholly and exclusively for the purpose of earning such income. The Tribunal relied on previous decisions of coordinate benches in similar cases.
Key Issues
Whether the interest expenditure claimed by the assessee is deductible against interest income, and if so, to what extent, considering the provisions of the Income Tax Act and previous judicial precedents.
Sections Cited
Section 143(3), Section 254, Section 234B, Section 57(iii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI RAHUL CHAUDHARY, JM
ITA number 382 0/M/2022 is filed for assessment year 1999 – 2000 by Harsha estate private limited, Mumbai (the assessee/appellant)against the appellate order passed by the Commissioner of income tax, appeals – 52, Mumbai (the learned CIT – A) dated 31/8/2023 wherein
The assessee is aggrieved and has preferred this appeal raising the solitary ground of appeal which is pressed before us states that the learned CIT – A has erred in law and on facts in not allowing the deduction of interest expenditure claimed by the appellant amounting to Rs. 32,795,923/– and restricting the deduction only to the tune of Rs. 3,520,886/–.
3. Grounds in ITA No. 3820/Mum/2023:-
“1. The learned CIT (A) has erred in law and in facts in passing order under Section 250 of the Act and confirming the order of Learned. Assessing Officer.
2. The learned CIT (A) has erred in law and in facts in not allowing the deduction of interest expenditure claimed by the appellant amounting to ₹3,27,95,923/- and restricting the deduction only to the tune of ₹35,20,886/-.
The learned CIT (A) has erred in law and in facts in not appreciating that the interest under Section 234B was not calculated by the learned Assessing Officer correctly.”
Ground no 2 is the grievance. Briefly stated the fact shows that :-
i. Assessee is a notified person under The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 and all its assets including bank accounts were attached and are lying in the hands of the custodian appointed under the said act. ii. Assessee did not file any return of income and the assessment under section 144 of the act was passed on 7/2/2022 of the total income of Rs. 6,830,640/–. iii. On appeal before the learned CIT – A, it was dismissed. Assessee approached the coordinate bench which restored the matter back to the file of the CIT – A. In such appeal proceedings the assessee raised an additional ground of interest expenditure claim of Rs. 327,95,923/- which the learned CIT – A dismissed. iv. Assessee approached the coordinate bench in ITA number 4021/M/2011 wherein as per order dated 2/2/2015 the issue was set-aside to the file of the AO with direction to verify the issue. v. The assessing officer passed the order under section 143 (3) read with section 254 of the act dated 29/6/2016 assessing the total income of Rs.
Therefore, the assessee is in appeal before us and according to the assessee the total amount of interest of Rs. 327,95,923 should have been allowed to the assessee as deduction and the action of the learned CIT (A) of allowing only Rs. 3,520,886/- is erroneous.
The learned authorized representative filed 2 paper books before us. The first paper book contains 66 pages wherein the orders passed by the coordinate benches are placed. In the second paper book also containing 65 pages the decision of the coordinate benches in case of assessee for assessment year 2013 – 14, 2014 – 15 and 2015 – 16 dated 15/9/2020, the order of the coordinate bench in case of family member of the assessee in ITA number 6228 and 5839/M/2018 dated 27/11/2019 and the coordinate bench decision in case of Grow more leasing and investment Ltd and others in ITA number
The learned authorized representative specifically referred to the decision of the coordinate bench in assessee’s own case in ITA number 6957, 6958 and 6959/MUL/2018 dated 15/9/2020. He submits that according to paragraph number nine of that order the issue was decided by following the decision of Grow more leasing and investment Ltd and in the case of Mr. Sudhir H Mehta ITA number 5799/M/2014. He further referred to paragraph number 13 wherein following the decision ofcascade Holdings private limited relief was allowed to the assessee in earlier years. He further referred to the decision of the coordinate bench in case of Pratima H Mehta by the dated 27/11/2019stating that identical issue arose in that case where also the coordinate bench has allowed the deduction of interest expenditure on identical facts and circumstances. He further referred to the decision of the coordinate bench in case of Growmore leasing and investments Ltd dated 27/12/2017 wherein also identical deduction was allowed. It was specifically referred that in paragraph number 14 of that, issue was raised about the Nexus of interest expenses with the interest income. It was stated therein that the liability in that case was accrued on account of purchase of shares and securities by the assessee which were sold in terms of the directions of the special court in subsequent years and the sale proceeds were received were invested in term deposits with the bank and accordingly the assessee has claimed
The learned departmental representative vehemently supported the order of the learned lower authorities. It was stated that the assessee has claimed the interest expenditure of Rs. 3.27 crores whereas it has earned only the deposit interest of Rs. 41 lakhs. The learned CIT – A accordingly has granted proportionate deduction of interest expenditure to the assessee. He submitted that according to the provisions of section 57 of the income tax act only the expenditure incurred by the assessee wholly and exclusively for the purpose of earning of the fixed deposit interest is only allowable to the assessee as deduction. He further referred to the order of the learned CIT – A where the assessee has failed to give any details of the interest expenditure incurred. Accordingly, he submitted that the learned CIT – A is gracious enough to allow the assessee the deduction of Rs. 3,520,000/–. Therefore, the assessee’s appeal requires to be dismissed.
We have carefully considered the rival contention and perused the orders of the lower authorities. Undoubtedly the assessee has earned bank interest of Rs. 41 lakhs. According to section 57 of the income tax act, assessee is
Ground number 3 is with respect to the charge of interest under section 234B of the act. We find that the learned CIT – A has given a detailed finding in paragraph number 7 regarding chargeability of the same. However it is apparent that the proviso to section 209 (1) has been
Before us the assessee has raised an additional ground of appeal
on 7. March 2024 wherein the assessee has stated that the learned assessing officer has observed that the income of the appellant remains unchanged at ₹ 6,232,130 as per order dated 31/12/2010 however the assessee has stated that the learned CIT – A – per order dated 20/11/2013 has directed the learned assessing officer to add adopt the interest income at ₹ 4,108,355/– as against ₹ 6,849,683. Accordingly the total income of the assessee requires to be adjusted according to the direction of the learned CIT – A. It is submitted before us that the learned AO has not carried out the direction of the learned CIT – A. We direct the assessing officer to compute the correct income as per the direction of the learned CIT – A. Thus additional ground filed by the assessee is merely a correction in the order, therefore, same is admitted and adjudicated as above.
In the result appeal of the assessee for assessment year 1999 – 2000 is partly allowed.
Ground number 3 of the appeal is with respect to the chargeability of interest under section 234B on income on which tax is deductible, is identical to ground number three of the appeal of the assessee for assessment year 99 – 2000, which we have restored back to the file of the learned assessing officer, for similar reasons we also restore this ground of appeal for this year.
16. Ground number 1 of the appeal is general in nature and therefore same is dismissed.
In the result ITA number 3819/M/2023 for assessment year 2005 – 06 of the appeal of the assessee is partly allowed.
ITA number 3818/M/2023 is filed by the assessee for assessment year 2006 – 07 against the appellate order passed on 31/8/2023 by the learned CIT – A.
Ground number 2 of the appeal is with respect to the proportionate disallowance of interest expenditure claimed by the assessee. Assessee has claimed interest expenditure of ₹ 32,795,923/–, the learned CIT – A has restricted allowance to the extent of ₹ 4,546,900. This ground is identical to the ground number 2 of the appeal for assessment year 99 – 2000 wherein, respectfully following the decision of the coordinate benches in assessee's own case for subsequent years, we have directed the learned AO to delete the disallowance in toto. Accordingly we direct the learned AO to delete the disallowance for this year also. Ground number 2 of the appeal is allowed.
Ground number 3 is with respect to the chargeability of the interest under section 234B of the act with respect to the income included in the total income on which tax is deductible. This ground is identical to ground number 3 of the appeal for assessment year 99 – 2000. We have directed the learned assessing officer to compute the interest under section 234B of the act in terms of provisions of the act as applicable for that assessment year. Therefore, it similar reasons we also restore this ground of appeal to the file of the AO with similar direction.
In the result, appeal for assessment year 2006 – 07 is partly allowed.
Order pronounced in the open court on 21.03.2024.