AI Drafter 
TaxTMI 
TaxTMI 
2018 (10) TMI 1843
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....arned Commissioner of Income-Tax (Appeals) has erred in law and in facts in not granting relief of liability amounting to Rs. l_,15,20,783/-,_ towards interest expenditure claimed by the appellant. The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated that out of interest of Rs. 1,15,20,783/- payable on the borrowed funds, interest on the amount utilized in investment in Term deposit ought to have been allowed to the extent of interest income i.e. Rs. 69,98,791/- 3. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in confirming calculation of book profit u/s. 115JB amounting to Rs. 69,77,541/-. 4. The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in confirming interest charged u/s. 234A, 234B and 234C of the Act. 5. The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in the hands of the appellant was 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. 6. The Appellant craves leave of Your Honour to add to, alter, amend and/or delete all or any of the foregoing grounds ....
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....Mum/2017 dated 11/09/2017). The Tribunal passed the following order (para 2-5) :- " 2. The appeals filed by these assessees are barred by limitation as detailed below :- (a) Orion Travels Pvt. Ltd. : 383 days (b) Aatur Holding Pvt. Ltd. : 391 days (c) Harsh Estates Pvt. Ltd. : 391 days (d) Eminent Holdings Pvt. Ltd. : 760 days All these assessees have filed an application requesting the bench to condone the days on the ground that there was delay in releasing funds for remitting appeal fees by the custodian. It is submitted that the assessee took the initiative to address letters and reminders to the custodian for release of funds for remitting appeal fees in connection with filing the present appeals. The assessee has furnished a chart explaining chronology of events that has taken place in this regard in all the cases. For the sake of convenience, I extract below the chronology of events narrated in the case of Orion Travels Pvt. Ltd. :- ......... ........... 3. Learned AR submitted that for AY 2004-05 and 2005-06 also, the delay had occurred on identical reasons in the case of Orion Travels Pvt. Ltd an....
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.... required in the present case. 9. On the other hand the ld. DR supported the orders of lower authorities. 10. We have considered the rival submissions and perused the material and orders passed by the Tribunal in assessee‟s group case. The ld. AR submits that in Sudhir Mehta case (supra), the Tribunal allowed claim of interest expenditure and set aside the issue to the file of Assessing Officer for verification, calculation of disallowance u/s. 14A, however, the assessee has not earned any exempt income, hence, no disallowance is required u/s. 14A in the present case. The Tribunal passed the following order (para 6-16) :- "6. Ground No. 1 relates to the interest expenditure claimed by the assessee. The AO disallowed the same because the interest income on term deposits as claimed by the assessee, in the opinion of the AO, was not allowable due to the following reasons: - (a) The interest payable is tentative and provisional. (b) There is no basis as per which the assessee has a right to pay and the creditors has a right to receive. (c) There is no basis of computation of interest payable which has been provided by the assessee. ....
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....of the AO in respect of interest not payable is factually incorrect. The assessee has entered into oral agreement with creditors being three brokerage firms, i.e. M/s. Harshad S. Mehta, M/s. J.H. Mehta and M/s. Ashwin S. Mehta to pay the interest @12% per annum on the credit balance. The family members are dealing with the above three brokerage firms within the family itself. There was no written agreement. Based on such understanding interest on credit balance was provided by the assessee as he followed mercantile system of accounting and therefore it is necessary for the assessee to reckon both income and expenditure. Our attention was drawn towards the assessment order in this regard that the assessee was following mercantile system of accounting. It was further submitted that the assessee has made such claims in the past which were duly allowed by the AO. In this regard attention was drawn towards computation of income for A.Y. 1990-91 as well as assessment order dated 26.03.1993 passed under Section 143(3). In that year assessee claimed interest on mercantile basis, which was allowed. The order for A.Y. 1990-91 was passed well after notification of the assessee on 08.06.1992 a....
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....he existing contract or agreement do not get disturbed by invocation unless the custodian appointed under the Special Court Act invoke power under Section 4(1). The custodian in the impugned case during the past 25 years has not cancelled the agreement to pay interest between the assessee and his creditors. Our attention was also drawn to the evidence filed by the custodian in M.P. No. 41 of 1999 in which the custodian himself strongly advocated levy of interest and infact calculated interest on such credit balances @15% to 18% per annum to demonstrate that the liability of the family members including the assessee are more than the assets of the respective members. This proves that the funds borrowed by the assessee from the brokerage firms were subject to levy of interest as claimed, even as per the custodian. Thus it was contended that since the contract entered into by the assessee to avail interest bearing loans and advances has not affected by the notification and the assessee is liable to pay the interest. The said interest should be allowed as deduction. Reliance was placed in this regard on the decision of the Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd.....
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....ibution to the creditors under Section 11(2) of the Special Court Act. It was further submitted that in pursuance to the direction of the Hon'ble Special Court some payment has been made to the account of Late Shri Harshad Mehta during A.Y. 2011-12 and for this attention was drawn toward the ledger account of Late Shri Harshad Mehta in his books for A.Y. 2011-12. For the objection of the AO that no basis for calculation of interest has been submitted by the assessee, the learned A.R. contended that this allegation is totally incorrect. The details were duly filed along with revised ground of appeal and therefore the observations of the AO are not justified. With regard to allegation of the CIT(A) that the nexus of interest income with interest expenses is not established the learned D.R. contended that the monies were borrowed to meet the investment in shares and securities. Subsequently under the direction of the Hon'ble Special Court for other years part of these very investments were sold and the fund realised were invested in the fixed deposits with several banks. Thus the income generated has been brought to tax by the AO in the impugned assessment year. There was in f....
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....992 if the custodian finds that these contracts have been entered into fraudulently or to defeat the provisions of the Special Court Act. In A.Y. 1990-91, the AO in the assessment order passed under Section 143(3) dated 26.03.1993 allowed the interest expenses to the assessee to the extent of Rs. 5,86,404/-. From page 75 of the paper book which contains the computation of income for A.Y. 1990-91, we noted that the assessee has disclosed the loan taken for the purchase of investment. The assessee is consistently following mercantile system of accounting which is apparent even from the assessment order of A.Y. 1990-91 as well as from the impugned assessment year. The order for A.Y. 1990-91 in fact has been passed by the AO after the date of notification and the enactment of the Special Court Act. We have gone through the order passed by the CIT(A) in the case of Shri Ashwin S. Mehta assessment years 2010-11 and 2011-12, where we noted that this issue of taxability of interest income of the assessee and other parties has specifically been dealt with by the CIT(A) and accordingly interest income of Rs. 10,68,83,732/- was brought to tax. In view of this fact it is apparent that the asse....
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....ri Hitesh S. Mehta for A.Y. 2005-06 where also the AO has disputed the very existence of liability towards interest to creditors. The CIT(A) vide his order dated 31.08.2010 confirmed and approved the claim of the assessee that there was no need for any written agreement and that the oral agreement coupled with action and intentions of the parties is sufficient to prove the existence of liability. This order of the CIT(A) was followed by him in the case of the assessee while adjudicating the ground relating to the interest expenses for A.Y. 2006-07 vide order dated 27.09.2013 under para 6 which has been reproduced under para 18 of the order of the assessee. These finding and observation in the above orders of the CIT(A) has not been disputed by the Revenue by filing an appeal. In view of this finding becoming final, in our view, the existence of liability for payment of interest cannot be disputed. 14. Coming to the objection of the Revenue that interest cannot be allowed as deduction has not been shown by recipients in their income. As has been discussed by us in the preceding paragraphs the interest has been shown as income by Mr. Ashwin S. Mehta in assessment years 2010-....
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....considered the issue of nexus of interest expenditure with interest income, following his own finding in the case of another notified entity, i.e. Eminent Holding Pvt. Ltd. for A.Y. 2007-08 which are reproduced as under: - "As regards the nexus of the interest expenditure with the interest income, I find that the Balance Sheet of the appellant and the affidavit filed by the custodian before the Hon'ble Special Court supports the fact that the funds borrowed from Shri Harshad S. Mehta were deployed by the appellant in various assets like shares and securities, properties, etc. These funds generated income in the form of dividend and interest income. After being notified, such shares and securities got converted into Fixed Deposits with various banks. These fixed deposits generated interest income which is offered to tax. Hence, a reasonable nexus can be said to exist between the interest liability incurred by the appellant, and the interest income earned from these assets. However, this matter being sub-judice before the Hon'ble Special Court, no finding can be given on these matters." 15. Similar issue has arisen in the case of Shri Hitesh S. Mehta for A.Y....
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....e following year but where a fundamental aspect permeating though the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 19. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter and if there was not change it was in support of the assesses - we do not think the question should have been reopened and contrary to what had been decided by the Commission of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Sections 11 and 12 of the Income Tax Act of 1961." The aforesaid dictum of law was reiterated recently by the Supreme Court in CIT vs. Excel Industries Ltd. : 358 ITR 295. "It appears from the re....
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.... "3.Next ground of appeal is about levy of interest u/s. 234 of the Act. Before us, AR stated that the assessee was a notified entity that the provisions of s. 234A, 234B and 234C of the Act were deemed to have complied with, that the assets were already in attachment of the Custodian appointed under the provisions of the Special Courts Act, that the Tribunal in the case of the appellant and several other entities had held the view in favour of the appellant, that the Hon'ble Bombay High Court in the case of Divine Holdings Pvt. Ltd. and Cascade Holdings Pvt. Ltd. had held that the provisions of sections 234A,234B and 234C of the Act were mandatory and were applicable to the notified entities also, that the assessee was in the-process of filing an appeal against the said order before the Hon'ble Supreme Court, that the income earned in the year under consideration was subjected to provisions of TDS, that the changeability of the section 234A, 234B and 234C of the Act should be after considering the amount of tax deductible at source on the income assessed. The appellant relies in this regard on the following decisions. He relied upon the cases of Motorola inc. v. DCIT [95....