AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (3) TMI 1252
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....fic adjudication, accordingly, dismissed. 4. With reference to Ground No. 1, assessee was seeking relief on addition of Rs. 3,52,622/-, which is interest earned by the assessee out of the deposits made as per the instruction of Special Court. 5. With regard to Ground No. 1, the brief facts of the case are, AO made disallowance of interest expenditure claimed by the assessee u/s 57 of the Act of Rs. 7,02,00,848/-. Against the above expenditure, assessee has made an adjustment of Rs. 3,53,672/- of interest receipts on term deposits. AO observed that assesse has shown interest receipts of Rs. 3,53,672/- on termed deposits of Rs. 39.9 lakhs and assessee has offered the same under the head 'Income from other sources'. With reference to calculation submitted by assessee, AO observed that assessee has claimed interest expenditure of Rs. 9,86,14,668/- u/s 57 of the Act on the amounts outstanding related to 3 notified broker entities i.e. M/s Harshad S. Mehta, M/s Ashwin Mehta and M/s J. H. Mehta. At the same time, assessee has made suo moto disallowance of an amount of Rs. 2,84,13,820/- and balance interest expenses of Rs. 7,02,00,848/- was claimed as deduction u/s 57 of the Act. Accordi....
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....by the said notified broker entities is being offered and assessed to tax as per the method of accounting followed by them, (ix) the deduction of the said interest expenditure against the interest income from Term deposits is also to be allowed as per the principles of matching concept laid out by the jurisdictional High Court in the case of Taparia Tools Ltd. (260 ITR 102) and (x) this issue of interest expenditure has been adjudicated and allowed by the Tribunal in the case of the assessee as well as other notified entities. Further, the assessee has explained that as and when there are surplus funds available in the accounts of the assessee, the Hon'ble Special Court directs the Custodian to invest the same in term deposits with various banks. It was also explained that originally, substantial funds were invested in the form of shares, debentures etc. out of credit availed from the said notified broker entities. Thereafter, subsequent to notification on 08.06.1992, substantial portion of these investments, have been sold under the orders of the Hon'ble Special Court and the proceeds from such sale as well as income by way of dividend, interest etc. earned on the investme....
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....e offering the interest income for taxation as per the system of accounting regularly employed by them. Moreover, as regards the dispute of the assessee with the AO that the liability of interest is contingent in nature, it is observed that the Hon'ble ITAT in the case of Ms Deepika A Mehta for A.Ys. 2007-08, 2009-10 and 2010-11 in ITA No. 5135/5136/Mum/2012 and 2151/Mum/2013 dated 05.03.2015 has held that the said liability is not contingent in nature since no adjudication in respect of this issue is pending before the Hon'ble Special Court. 7.4 The income under the head 'Income from Other Sources' is to be computed as per the provisions of Sec. 56 to 58. The deductions which are allowable are as per the provisions of Sec. 57. As per the provisions of Sec. 57(iii), any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as a deduction while computing the income under the head "Income from Other Sources'. Now the issue to be decided is what is the quantum of interest expenditure out of the total interest expenditure incurred of Rs. 9,86,....
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....ances given includes loan given of Rs. 6155.69 lakhs to Harshad Mehta as per the directions of the Hon'ble Special Court and payments made for Advance tax, TDS etc of Rs. 49.9takhs 7.8 In course of the appellate proceedings, it was observed that the assessee is following mercantile system of accounting whereas M/s. H.M. Mehta as well as Harshad Mehta in individual capacity is following cash system of accounting. This difference in accounting policies has resulted in an extremely adverse situation against the Revenue whereby from A.Y. 1992-93 to the relevant assessment year; the assessee has claimed expenditure of more than Rs. 140 crores whereas M/s. H.M. Mehta has not booked any corresponding interest income in view of the cash system of accounting followed. If due to the different accounting systems being followed, the timing difference in booking of expenditure by the assessee and booking of income by M/s. H.M. Mehta was of a year or two, it would, have been understandable. However, in the instant case, for a period of more than 20 years, the assessee is consistently booking expenditure whereas M/s. H.M. Mehta is not booking any income. 7.9 Further, in course of the ap....
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.... loans taken from M/s H M Mehta as well as Harshad Mehta in individual capacity but is not receiving any interest on the huge loan advanced of Rs. 6155.69 lakhs to Harshad Mehta as per the directions of the Hon'bie Special Court, (iii) To justify its claim of interest expenditure related to the said notified broker entity, the assessee claims that even for loans inter-se between the notified entities, the Custodian as well as the Special Court is insisting on charging of interest, however, it is surprising that no interest has been charged on the huge loan of Rs. 6155.69 lakhs advanced by the assessee to Harshad Mehta. (iv) When it comes to disallowance of interest attributable to the income tax, etc. of Rs. 49.9 lakhs, the assessee contends that the same is out of the surplus funds available at its disposal, however, when it comes to disallowance of interest expenditure claimed related to interest income .on Term deposits, the assessee contends that the same is out of the credit availed from the said notified broker entity for purchase of shares way back in the year ending 31.03.1992 for which it is liable to pay interest @12% p.a. 7.11 From the above, it can be observed....
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....on as per the decision of the Hon'ble (TAT in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2014 for A.Ys. 2009-10 to 2011-12. 7.13 As noted above, in the intervening period, between 31.03.1992 and 31.03.2012, investments of cost price Rs. 131.1 lakhs (Rs. 2520.06 lakhs - Rs. 2388.96 lakhs) bearing interest @ 12% per annum have been sold off. The assessee itself admits that the said investments have grown multiple times and their sale has resulted into huge surpluses, however, due to indexation, it has not paid any tax on account of long term capital gains. This is also apparent from the fact that though investment in shares & debentures has come down by Rs. 131.1 lakhs from Rs. 2520.06 lakhs as on 31.03.1992 to Rs. 2388.96 lakhs as on 31.03.2012 on account of sale of investments in the intervening period, however, the loans & advances, taxes etc has gone up by Rs. 6200.27 lakhs from Rs. 5.32 lakhs as on 31.03.1992 to Rs. 6205.59 lakhs as on 31.03.2012. As can be observed, on account of the surpluses arising on sale of investments, the loans, advances, taxes, etc have gone up by Rs. 6200.27 lakhs as against the decrease in investments on account of sale of Rs. 131.1 la....
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....fore us Ld. AR submitted that the assets and liability of the assessee company are under control of Special Court and he submitted that assessee has borrowed funds from its sister entities and based on the oral agreement, the interest is payable @ 12% per annum and the same is claimed by the assessee. The AO in its order treated the above interest expenditure as contingent liability, accordingly AO disallowed the same. He further submitted that AO observed that there is no nexus between investment made by the assessee and loan taken. However, he submitted that Hon'ble ITAT has allowed the appeal of the assessee and he brought to our notice the broker entities offering it as income and when broker entities are offering it as income, assessee is also eligible to claim it as expenditure. Accordingly, he brought to our notice para 7.2 of the order of Ld. CIT(A). He also brought to our notice balance sheet of the assessee company and submitted that assessee has made investment of 39.9 lakhs as term deposit and assessee has earned interest income and assessee has not claimed interest expenditure which even Ld. CIT(A) has accepted the facts. Now since all the activities of the assessee co....
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....ssessment years are similar to that of AY 201213 filed by the assessee as discussed above. Therefore, the conclusion drawn in above paras are applicable to this appeal as well. Accordingly, grounds raised by the assessee in these assessment years are allowed. ITA No. 6768, 6769 & 6771/Mum/2018 (AY 2012-13, 2013-14 & 2015-16) 11. Now we take up ITA No. 6768, 6769 & 6771/Mum/2018 for AY 2012-13, 2013-14 & 2015-16 filed by the revenue on account of findings of Ld. CIT(A) in capitalizing the disallowance of interest of Rs. 2,86,67,490/- u/s 14A of the Act by relying on the decision of ITAT. 12. At the outset, Ld. AR appearing on behalf of the assessee submitted that the ground raised by the revenue is squarely covered by the consolidated order of Coordinate Bench of Hon'ble ITAT in ITA No. 5799/Mum/2015 for AY 2009-10 in Shri Sudhir S. Mehta case, wherein the Hon'ble ITAT has allowed the ground of merit in favour of assessee. 13. On the other hand, Ld. DR supported the orders passed by AO and submitted that Ld. CIT(A) was not justified in capitalizing the disallowance of interest of Rs. 2,86,67,490/- u/s 14A of the Act only relying on the decision of ITAT in ITA No. 5799/Mum/2015 ....