TaxTMI 
TaxTMI 
2020 (11) TMI 495
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed on the assessee. Subsequently, the assessee vide letter dated 22.08.2016 filed the relevant information as called for. 3. After considering the submission of assessee, AO observed that assessee has earned interest income on term deposits of Rs. 12,66,861/- and claimed interest on loan at Rs. 2,20,45,030/-. The assessee has claimed deduction of Rs. 2,20,45,030/- under section 57 of the I.T. Act and the assessee was asked as to why deduction u/s. 57 in respect of interest expenditure should not be disallowed. In response, assessee filed the written submission against invoking section 57 of the Act, which is kept on record. During the assessment proceedings, it was asked to the assessee to furnish the basis of the provisions of interest expenditure made in their accounts along with the written contract including the terms and conditions between the creditors and the assessee. However, A.R. has relied on certain claims made before the Hon'ble Special Court. As there is no specific order from the Court, this claim was rejected. Accordingly, AO rejected the contention of the assessee and passed assessment order u/s 143(3) of the Act by making disallowances on account of interest ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... regard, reliance is placed on the order in assessee's own case for A.Y. 2009-10, 2010-11 & 2011-12 in ITA No. 5799 to 5801/Mum/2015 dated 27.12.2017 at para no.06-16 of the said Common Order. Ld. Counsel further relied on the decision of Cascade Holdings Pvt. Ltd. v. DCIT for A.Y. 2012-13, 2013-14 & 2015-16 in ITA Nos. 6965, 6966 & 6968/Mum/2018 dated 16.03.2020 in para no. 9 of the order, Hon'ble Tribunal has allowed deduction of interest expenditure to the extent of gross assessed income for the year. Ld. Counsel further relied on the following orders on similar issue, wherein the Coordinate Bench of ITAT has allowed the claim of interest expenditure: - a) Pratima H. Mehta v. DCIT for A.Y. 2014-15 in ITA No.5839/Mum/2018 dated 27.11.2019. b) Cascade Holdings Pvt. Ltd. v. DCIT for A.Y. 2014-15 in ITA Nos. 6967/Mum/2018 dated 23.09.2020. c) Aatur Holdings Pvt. Ltd. v. DCIT for A.Y. 2013-14 to 2015-16 in ITA Nos. 6954-6956/Mum/2018 in order dated 13.03.2020. d) Harsh Estates Pvt. Ltd. v. DOT for A.Y. 2013-14 to 2015-16 in ITA Nos. 6957 6959/Mum/2018 dated 15.09.2020 e). Orion Travels Pvt. Ltd. v. DCIT for A.Y. 2013-14 to 2015-16 in ITA N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nterest income of Rs. 10,68,83,732/- was brought to tax. In view of this fact it is apparent that the assessee is liable to pay interest on the amount outstanding. Therefore the liability towards interest got accrued. Under the mercantile system of accounting interest is deductible when it has accrued. This also proves that there was an agreement, may be oral, to pay the interest on the borrowed funds by the assessee to the other family members. We, therefore, reject the plea of the learned D.R. that no liability towards interest has accrued but it was merely a contingent liability. We noted that section 4 of the Special Court Act empowers the custodian and the court to cancel any contract or agreement in relation to the property of a person notified under that Act provided they have entered into fraudulently. In this case no cogent material or evidence has been brought to our knowledge or placed before us which may prove that the custodian under Section 4(1) of the Special Court Act has taken any action to cancel the terms relating to payment of interest. Rather we have noted from the affidavit of the custodian dated 01.03.2006 in M.P. No. 41 of 1999 that the custodian se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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- 11 and 2011-12. We also noted that Late Shri Harshad Mehta has been offering his income on cash basis and the method of accounting has been duly upheld by the Tribunal in his case for A.Y. 1989-90. Even otherwise disallowance of interest claimed by the assessee cannot be made merely because in the opinion of the AO the corresponding interest income has not been offered by the recipients. The interest can be allowed on the basis of method of accounting followed by the assessee. We noted that similar issue when arose in the case of M/s. Growmore Leasing & Investment Ltd. vs. CIT in ITA No. 51354 & 5136/Mum/2012 wherein the Coordinate Bench of this Tribunal while setting aside the issue to the file of the CIT(A) directed him to tax the income in the hands of recipient family members in accordance with the method of accounting followed by them. We find force in the submission of the learned A.R. that since the assessee as well as the recipients are notified entities under the Special Court Act unless the Court directs for distribution of the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 2005-06 wherein the CIT(A) vide his order dated 31.08.2010 approved the nexus between borrowed funds and the investment in term deposit which has been followed by the CIT(A) even in the case of the assessee for A.Y. 2006-07 dated 27.09.2013. We do not agree with the submission of the learned D.R. that interest expenses cannot be allowed till the Hon'ble Special Court decide the issue. The allowance or disallowance of the expenditure depends on the accrual of expenditure. Even no dispute has been raised in respect of interest on such credit balances before the Special Court. Even on this basis, following the principle of consistency, as the interest has been allowed as deduction in the A.Y. 2006-07 and there is no change in the facts, the deduction in respect of the interest expenditure has to be allowed. Our aforesaid view is supported by the following decisions: The Supreme Court in the case of Radhasoami Satsang Saomi Bagh vs. CIT 193 ITR 321 referred to the following passage from Hoystead v Commissioner of Taxation ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T vs. Excel Industries Ltd. : 358 ITR 295. "It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the Assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather spend the tax payers money in pursuing litigation for the sake of it." 16. In view of our aforesaid discussion we set aside the order of the CIT(A) and direct the AO to allow deduction in respect of said interest accrued and calculated at 12% per annum amounting to Rs. 2,64,72,208/- after disallowing proportionate interest in respect of the investment in shares amounting to Rs. 3,51,176/- after verifying the calculation of the interest quantification. 9. Therefore, respectfully following the above decisions which are applicable mutatis mutandis in the present case, I am inclined to accept the submission of Ld. AR. Accordingly, the ground raised by the assessee stands allowed. 10. With regard to ground no. 2 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relied on the order of assessee's own case for A.Y. 2009-10, 2010-11 & 2011-12 in ITA No. 5799 to 5801/Mum/2015 dated 27.12.2017 at Para No. 18-19 of the said order, wherein the Hon'ble Tribunal has followed their decision in the case of Sudhir Mehta v. DCIT [ITA No. 5799/Mum/2015] dated 27.12.2017 for A.Y. 2009-10 in para no.18-19 of the said order, has reduced the disallowance to 50% of the disallowance sustained by Ld. CIT(A). 15. On the other hand Ld. DR relied upon the orders passed by the revenue authorities and submitted that addition of personal household expenses, the Hon'ble Tribunal has always reduced the disallowance to 50% by following the decision of assessee's own case. Ld. AR further submitted that AO has disallowed 6 lakhs and Ld. CIT(A) has already disallowed 50%, therefore further deduction is not justifiable, accordingly prayed that disallowance made by Ld. CIT(A) be sustained. 16. Considered the rival submissions and material placed on record. It is noticed from the record that the identical ground raised in the present appeal has already been decided by the Coordinate Benches of ITAT in assessee's own case as well as others on merits. For the sake of cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Special Counsel submitted that the appellant is maintaining motor car and live in posh area of Mumbai, and no details of household expenses has been given by the appellant. In such a case, addition sustained by the CIT(A) appears to be far more reasonable. 21: After considering the rival submissions and on perusal of the relevant finding in the impugned order, we find that the addition made by the AO as well as sustained by the CIT(A) are though on ad-hoc basis, but same was done because no details of expenditures was filed by the appellant. Before us, the Ld. Counsel has submitted that, most of the expenses have been incurred by Dr. Hitesh S. Mehta and other family members living in a Joint family set-up. Further other members have contributed for household expenses and that some of the additions have been confirmed on account of personal household expenses by the Department. On these facts and circumstances, we are inclined to scale down the additions to Rs. 3 lakhs. Accordingly, addition sustained on account of personal household expenses would be Rs. 3 lakhs. Accordingly, the ground No.5 of the appellant is partly allowed." Respectfully following the said ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee 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 ITD 269 (Del.) (SB)], Sedco Fores Drilling Co. Ltd. [264 ITR 320], NGC Network Asia LLC [313 ITR 187], Summ....