TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 532
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....ssessee is a notified party (under the relevant Act, being the Special Court (Trial of offences relating to transactions in securities) Act, 1992), as it appears, from 08.06.1992, and all its assets, including bank accounts, stand attached and vested in the Custodian appointed under the Special Court (Torts) Act, 1992. The assessee had borrowed capital and had also been extended credit (prior to 08.06.1992) from three brokerage firms, being M/s. Harshad S. Mehta; Shri Ashwin S. Mehta; and M/s. J. H. Mehta, who had purchased shares on behalf of the assessee, the payment for which had not been made. The Custodian had sold some shares and invested the monies realized in term deposits with banks as per the order of the Special Court trying the offences under the relevant Act. The Custodian, representing the brokerage firms as well, has apparently claimed interest at rates varying from 15% to 18% p.a. (in MP No. 41 of 1999) before the Special Court. The assessee, accordingly, worked out his liability, as it appears, at 12% p.a., for the relevant year at Rs.1,18,95,460/-. While Rs.1,10,85,760/- of the same was disallowed suo motu u/s.14A, the balance impugned amount of Rs.8,09,700/- is c....
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....in its respect assumed before the authorities below, so that the said plea is to no avail. On merits, the case of the parties before us, as delineated above, was much the same, i.e., as before the authorities below. 3.2 We have given our careful consideration to the matter. The basic condition for allowance of an expense is its accrual; the assessee admittedly following mercantile method of accounting for the purpose of returning income under the Act and, thus, its determination; it being rather obliged to do so in terms of its governing Act, the Companies Act, 1956. The accrual of an expense, or income for that matter; the two being corresponding to each other, is essentially a matter of fact, to be determined on an appreciation of underlying rights and obligations. We may toward this advert to a recent decision by the apex court in CIT vs. Excel Industries [2013] 358 ITR 295, wherein its stands clarified that where the right to receive the payment or, correspondingly, the obligation to make the payment has arisen, even if for a later date, there is accrual of income or, as the case may be, expenditure. Reference in this context may also be made to its decisions in K.C.P. Ltd. vs....
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....in fact the investment in the term deposits itself having also been made only on the direction by the special court. In this view of the matter, the ld. CIT(A) in our opinion has correctly appreciated the facts and the law to hold that the matter of grant of interest being sub-judice before the Special Court, the same may be allowed where so granted for the relevant year. We confirm his direction, subject to a modification that the interest to be allowed, in-as-much as the same is to be by way of deduction against interest income, assessable as income from other sources, cannot exceed the rate at which the interest on deposit/s stands earned by the assessee, on an average, for the relevant period. We state so as only the expense incurred for the purpose of earning the interest income is to be allowed u/s. 57 of the Act. Payment of interest at a higher rate implies a gross loss, with no contractual obligation to pay interest having been established, so that the payment of interest at a higher rate cannot either conceivably, i.e., under the circumstances, or in terms, be said to be for the purpose of earning interest. We decide accordingly. 4. The fifth ground is toward computation ....
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....scharge of liability of another in-as-much as they form part of a group, operating in tandem. The income under the Act, however, is to be determined qua a person. There is no charge or claim that the other parties, including the assessee, an incorporated entity, are a benami of Shri Harshad S. Mehta or have not received the income in their own right. The issue, as we perceive, is essentially of the same as representing either a diversion of income by over-riding title or an application of income. The said claim, in fact, it would be readily seen, also runs counter to and is inconsistent with the assessee's claim for interest, either under the regular provisions or under the MAT provisions, to other parties in-so-far and to the extent it relates to other notified parties forming part of the said 'group'. This issue we observe stands also discussed by the tribunal in M/s. Pallavi Holdings Pvt. Ltd. (in ITA No.8599/Mum/2010 dated 17.07.2013/copy on record) wherein, following its earlier order in Hitesh S. Mehta vs. DCIT (in ITA Nos. 7726 & 7727/Mum/2010 dated 26.04.2013), it stands held that no direction by the tribunal is warranted in-as-much as the matter is sub-judice ....