TaxTMI 
TaxTMI 
2024 (12) TMI 1330
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.... of Rs. 4,50,05.53,549/- and directing the Ld. A.O. to verify and rework the capital balance. The Ld. CIT(A) ought to have deleted the addition made on account of capital balance of Rs. 4,50,05.53,549/-. 2. The Ld. CIT(A) has erred in law and in facts in making addition of Rs. 21,60,000/- on account of personal withdrawals. 3. The Ld. CIT(A) ought to have appreciated that the addition on account of personal withdrawals represents enhancement of income and that such enhancement was not permissible in view of s. 251 of the Act. 4. The Ld. CIT(A) has erred in law and in facts in making addition on account of drawings of Rs. 2,74,080/-. 5. The Ld. CIT(A) ought to have deleted the discrepancies pointed out by the Ld. A.O. instead of setting it aside to the Ld. A.O. for verification. The Ld. CIT(A) has erred in law and in facts in not granting deduction on account of interest payable by the appellant amounting to Rs. 1,25,73,937/-. 6. The Ld. CIT(A) has erred in law and in facts in not allowing set off of tax deductible at source while calculating interest u/s. 234B of the Act." 3. Ground no. 1, raised in assessee's appeal, was not pressed ....
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.... AO vide assessment order and there was also no reduction of capital balance as declared by the assessee during the assessment proceedings. We find that it is for the first time while adjudicating the ground raised by the assessee challenging the addition of INR 450,05,53,549 on account of capital balance, the learned CIT(A) observed as follows: - "9.7. At the same time, it is seen that the appellant has overstated its capital balance despite past additions / disallowances made on this account. For instance in AY 2016-17, the AO has made an addition of Rs. 21,60,000/- on account of personal household expenses. Although the assessment order was passed on 19.12.2018, the appellant had not filed any appeal against quantum proceeding till 07.11.2023 when the penalty appeal for the same year was heard. Vide para 8 of the CIT(A) order against the 271(1)(c) order for AY 2016- 17, a finding was given that the quantum issue had already become final. Hence, this amount of Rs. 21,60,000/- is not available for the appellant to be treated as-its capital. For the year under reference also the appellant was asked to explain why no drawings or expenses have been shown. In my view, it woul....
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....ed in the foregoing paragraphs, the AO computed the total income of the assessee at INR 468,05,63,910 after making additions under section 68 of the Act on account of capital balance and disallowance of interest expenditure. Thus, the addition on account of personal withdrawals was neither the subject matter of assessment nor the source of income which was considered expressly or impliedly by the AO. Accordingly, we are of the considered view that the learned CIT(A), in the present case, has transgressed its power of enhancement granted under section 251(1) of the Act while making the addition on account of personal withdrawals, and therefore the impugned addition is void ab initio. Accordingly, on this short point, the addition of INR 21,60,000 on account of personal withdrawals made by the learned CIT(A) is deleted. As a result, the impugned order on this issue is set aside and grounds no.2-3 raised in assessee's appeal are allowed. 11. The issue arising in ground no.4, raised in assessee's appeal, pertains to addition on account of drawings. 12. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are th....
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....nse under section 57 of the Act of INR 1,25,73,937, which includes interest expenses of INR 1,25,72,847 and bank charges of INR 1090. The AO vide order dated 29/09/2022 passed under section 143(3) of the Act disagreed with the submissions of the assessee and held that in order to claim deduction under section 57(iii) of the Act they should be a direct nexus between the expenditure incurred with the income earned. It was held that however, the assessee in her submissions could not establish the linkage between the income earned and expenses incurred. It was further held that the assessee has not furnished any specific details providing a direct correlation of such expenses with the income from other sources earned during the year under consideration. Accordingly, the AO disallowed the deduction of interest claimed by the assessee for the following reasons: - * The interest payable is tentative and provisional. * There is no basis as per which the assessee has a right to pay and the creditors has a right to receive. * There is no basis of computation of interest payable which has been provided by the assessee. * The provisions made on account of in....
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....le is tentative and provisional. (iii) There is no basis as per which the assessee has a right to pay and the creditors has are right to receive. (iv) There is no basis of computation of interest payable which has been provided by the assessee. (v) The provisions made on account of interest payable is a contingent liability and therefore, cannot be allowed as a business expenditure. (vi) It is also seen that these broking firms have not charged any interest on the amount receivable from the companies of this group with the books of accounts have been produced before the Assessing Officer. 29. The AO following the approach adopted in earlier round of litigation rejected the assessee's claim of deduction on account of interest and disallowed interest payment of Rs. 2,46,33,261. The learned CIT(A), vide impugned order, partly allowed the ground raised by the assessee on this issue and held that the main purpose of incurring the interest expenditure was not earning income from dividends and unless the interest expenditure was incurred solely for the purposes of making or earning dividend income, no deduction is possible under section 57 of t....
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.... indirect connection could prove the nexus between the expenditure incurred and the income. We further find that in CIT v/s Smt. Sushila Devi Khadaria, [2009] 319 ITR 413 (Bom.), in a similar factual matrix, i.e. wherein the AO denied the deduction claimed under section 57(iii) of the Act on the basis that the expenditure was not incurred wholly for the purpose of earning income as the taxpayer was engaged in selling shares in the stock market and the dividend income had accrued as a by-product, the Hon'ble jurisdictional High Court by placing reliance upon the aforesaid decision of the Hon'ble Supreme Court in Seth R. Dalmia (supra), upheld the allowance of finance expenditure as deduction under section 57(iii) of the Act against the income by way of dividends, finance charges and interest which were shown as income from other sources by the taxpayer. Therefore, respectfully following the aforesaid decision of the Hon'ble Supreme Court in Seth R. Dalmia (supra), we are of the considered view that the assessee is entitled to claim a deduction of interest expenditure under section 57 of the Act since receipt of dividend is merely due to the shareholding of the assessee and the inter....
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.... wholly and exclusively for the purpose of making or earning such income;" 21. Therefore, from the perusal of the plain language of the provisions of section 12(2) of the Income Tax Act, 1922, dealing with the provisions of "Other Sources" and the provisions of section 57(iii) of the Act, it is evident that under both provisions deduction of expenditure is allowable only when the same is expended/incurred solely/wholly and exclusively for the purpose of making or earning such income and such expenditure is not in the nature of capital expenditure. Thus, we find that there is no change in the language of the provisions, in respect of the issue under consideration before us, under the Income Tax Act, 1922 and the Act applicable to the present case. Therefore, we find no merits in the aforesaid submission of the learned DR. 22. During the hearing, the learned AR submitted that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee's own case for the assessment years 2011-12, 2012-13 and 2013-14 in Smt. Rasila S. Mehta v/s DCIT, in ITA no. 5806/Mum./ 2015, etc. We find that in the aforesaid decision, vide order dated 27/12/2017, the coor....
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....ther family members. We, therefore, reject the plea of the learned D.R. that no liability 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 seeking to levy interest @ 15% to 18% per annum. Therefore the interest on outstanding credit balance of the brokerage firm has accrued as actual liability. The issue with regard to contract for payment of interest has been raised by the AO and the CIT(A) in the case of other notified entities duly approve the existence of liability. We noted that in the case of Growmore Leasing & Finance Ltd. for A.Y. 2007-08 by order dated 26.06.2014 the CIT(....
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....ding 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 assets towards existing liabilities under Section 11(2) of the Special Court Act, the assessee cannot make the payment to these creditors. Even otherwise since the existence of liability towards interest has accrued especially when the assessee is following the mercantile system of accounting the interest is to be allowed. During the course of hearing we raised a query about the nexus of interest expenses with the interest income. The learned A.R. pointed out that the lia....
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....llowed 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 1926 AC 155 (PC), wherein it was observed (page 328): "Parties are not permitted to begin fresh litigation because of new view they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a princip....
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....ers 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. ****************** Smt. Rasila S. Mehta - ITA Nos. 5806/Mum/2015 & ITA 2378 & 2379/Mum/2017 27. In this case also the assessee has taken additional ground as has been taken in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015. In view of the discussion in the case of Shri Sudhir S. Mehta the additional ground taken by the assessee stands admitted. 28. In A.Y. 2011-12 assessee has taken identical grounds as taken in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015. In assessment years 2012-13 and 2013-14 the assessee has taken only ground Nos. 1 3 & 4 which were renumbered as ground Nos. 1, 2 & 3 except change in figure in ground No. 1. In ground No. 1 assessee has claimed deduction of inter....
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....012-13 and 2013-14, cited supra. We find that in the aforesaid decision vide order dated 27/12/2017, the coordinate bench of the Tribunal observed as follows: - "20. Ground Nos. 3 & 4 relate to levy or interest under Section 234A, 234B and 234C as well as calculation of the said interest. We find that the said issue has been decided by the Coordinate Bench in the case of Eminent Holding P. Ltd. in ITA No. 2139/Mum/2013 for A.Y. 2002-03 in which this Tribunal while dealing with the said issue held as under: -" "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 w....