SANJEEV S RENIWAL (HUF),MUMBAI vs. ACIT CEN CIR 38, MUMBAI

Facts in brief, are that the assessee is a resident HUF and claimed interest expenses of Rs.13,12,705/- against short term capital gains of Rs.27,23,515/-. The interest claim of the assessee was not allowed by the assessing officer and the same was confirmed by CIT(A) against which assessee preferred appeal before ITAT vide ITA Nos. 451&457/Mum/10. The appeal of the assessee was partly allowed vide ITAT order dated 16.03.2011 by issuing following directions:- “7.1 However, we find merit in the submission of learned counsel for the assessee that since the assessee has purchased the shares out of the borrowings made from Shri Shanti Sarup Reniwal, therefore, at least the interest attributable to such script for the number of days which was held by the assessee should be allowed as deduction. From the statement of STCG, we find the assessee has calculated interest of Rs.12,81.220. However, such calculation was not before the assessing officer or the CIT(A). We, therefore, deem it proper to restore the matter to the file of the assessing officer with the direction to verify the interest so calculated by the assessee on the basis of the utilization of the borrowed funds for the number of days from the date of purchase to the date of sale of the shares. Needless to say, the assessing officer shall afford reasonable opportunity of being heard to the assessee by verifying such calculation, copy of which is placed in paper book pages 14

Against the same, assessee preferred appeal before CIT(A) but the same was dismissed vide order dated 14.11.2014. The assessee contended that the issue whether amount borrowed for investment in shares can be allowed as ‘cost of acquisition’ has already been settled in favour of the assessee by the aforesaid order of the ITAT. As no calculation of claim of interest was provided to the A.O. during the assessment proceedings and with a view to verify these calculations, suitable directions were issued by the ITAT and therefore, A.O.’s action in calling upon the appellant to establish the nexus between the borrowings of funds and its utilization for investments was in clear breach of the judicial discipline. It was claimed that the Hon’ble ITAT, based on documents and submissions had accepted the fact about the borrowings of the funds and its utilization in making investment in shares. It was submitted that the A.O. simply had to verify the calculation of interest and not to once again ask the appellant to prove the fact that had already been decided by a higher authority with respect to the utilization of the borrowed funds for the purpose of the investments. CIT(A) observed that there was nothing to indicate that the assessee had demonstrated before the Hon’ble Tribunal the nexus of borrowed funds with scrip- wise investments with the help of cogent materials. Further, the onus was on the assessee to show that the shares were acquired from borrowed fund because the source of acquisition of shares was within the special knowledge of the assessee and assessee was under obligation to prove the same with the help of the bank statements, contact notes, brokers account etc. The assessee has failed to produce evidence to substantiate its claim and therefore, the appeal of the assessee was dismissed.

The learned authorized representative [AR] of the assessee has raised various contentions in its support and filed various documents including statement of short term capital gains, bank statement as per assessee’s books of accounts and correspondences made with the lower authorities to substantiate his claim. The AR contended that the claim of the assessee in principle with respect to interest on borrowed capital has already been settled in favour of the assessee by the early directions of the ITAT and lower authorities are only required to verify the calculations with respect to number of days for which borrowed capital has been used for the purpose of making investments from which short term capital gains have been earned by the assessee. The learned DR, on the other hand has relied upon the stand of the lower authorities and contended that assessee needs to substantiate its claim with respect to interest on borrowed capital as well as computation thereof.

We have heard the rival contentions and perused the material on record. The main dispute in matter is that whether the claim of the assessee in principal with respect to interest on borrowed capital has been settled by the earlier directions of the ITAT or not. For this, it would be prudent to reproduce the relevant operative part of the earlier directions of the ITAT which is as follows:- “7.1 However, we find merit in the submission of learned counsel for the assessee that since the assessee has purchased the shares out of the borrowings made from Shri Shanti Sarup Reniwal, therefore, at least the interest attributable to such script for the number of days which was held by the assessee should be allowed as deduction. From the statement of STCG, we find the assessee has calculated interest of Rs.12,81.220. However, such calculation was not before the assessing officer or the CIT(A). We, therefore, deem it proper to restore the matter to the file of the assessing officer with the direction to verify the interest so calculated by the assessee on the basis of the utilization of the borrowed funds for the number of days from the date of purchase to the date of sale of the shares……”

In nutshell the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 21/09/2016