TaxTMI 
TaxTMI 
2020 (12) TMI 1424
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....r annum payable 1 M/s. Harshad S. Mehta 7,39,27,383 2 Ms/. Jyoti H. Mehta 3,00,81,923 Total 10,40,09,306 Less: Proportionate disallowance of interest u/s 14A of the Act (- )2,11,82,283 Total 8,28,27,023 2. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and in facts that in confirming the levy of interest u/s. 234A and 234C of the Act. 3. The Ld. Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the income assessed in the hands of the appellant were subjected to the provisions of TDS and hence on the said amount of tax no interest can be computed u/s. 234A and 234C of the Act. 4. The appellant craves leave of Your honour to add to, alter, amend and/or delete all or any of the foregoing grounds of appeal." 4. The assessee has filed the revised ground of appeal which is mentioned below: - "1. In respect with the captioned appeal, we state and submit as under: - 2. It is submitted that the above appeal has been filed by the appellant against the order of the Ld. CIT(A) dated 28.08.2018 partly confirming the order of t....
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.... of Mysore, Allahabad Bank, UCO Bank, Bank of Baroda, Oriental Bank of Commerce. These interest receipts were offered by the assessee for taxation under the head "Income from Other Sources". Against these interest receipts, the assessee has claimed deduction u/s 57 of the interest expenditure of Rs. 10,40,09,306/- on the amounts outstanding to the related notified broker entities, M/s. Harshad Mehta and M/s. J. H. Mehta. Out of the same, the assessee has suo moto disallowed an amount of Rs. 2,11,82,283/- u/s 14A and balance amount of Rs. 8,28,27,023/- has been claimed as deduction against interest on FDR. The AO completed the assessment by disallowance the claiming of deduction u/s 57 of the Act interest expenditure of Rs. 8,28,27,023/- on the ground that the said liability was provisional as well as contingent and without any basis. The assessee was claiming interest expenditure on the amount outstanding to the said related notified broker entities, however, these broker entities were not charging interest from other clients. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who dismissed the appeal of the assessee, therefore, the assessee has filed the present app....
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....e Coordinate Bench of this Tribunal. The appeal in the present case is also identical. Even it was also contended that this Tribunal has condoned the delay in the case of Aatur Holding Pvt. Ltd. and others vs. DCIT in ITA No. 1223/Mum/2017 for A.Y. 2012-13 of 391 days which was due to the inaction of the custodian. A chart showing chronology of events leading to the delay was filed. 58. On the other hand, the learned D.R. contended that this is a case of negligence on the part of the assessee, therefore the delay should not be condoned. 59. We noted that under identical facts and circumstances the Coordinate Bench of this Tribunal in the case of Fortune Holding P. Ltd. ITA No. 939/Mum/2017 has condoned the delay for more than 749 days. Respectfully following the said decision of the Coordinate Bench, we condone the delay and admit the appeal filed by the assessee. 60. Ground No. 1 relates to the claim of interest by the assessee amounting to 1,43,721/- after disallowing proportionate interest amounting to 2,12,47,194/- out of interest earned by the assessee on term deposits. Both the parties agreed that similar issue has arisen in ITA No. 5799/Mum/2015 in....
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....rrated above. However, the figure is different. The issues in these appeals are also the same. The findings given above are applicable as mutatis mutandis. In these appeals the interest expenditure to the extent of income is hereby allowed and So far as the calculation of interest u/s 234A, 234B & 234C of the Income Tax Act is concerned the same would liable to be computed after excluding the income which was subject to the TDS. Accordingly, all the issues are decided in favour of the assessee against the revenue. In the result, all the appeals are filed by the assessee are hereby allowed. ITA. NO.6213/M/2018 10. The revenue has filed the present appeal against the order dated 28.08.2018 passed by the Commissioner of Income Tax (Appeals) -52, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the A.Y. 2013- 14. 11. The revenue has raised the following grounds.:- "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in capitalizing the disallowance of interest u/s 14A of the I. T. Act, 1961 only relying on the decision of the Hon'ble ITAT in case of Shri Sudhir S. Mehta ITA. No. 5799/M/2014 for A.Ys. 2009-10 to A.Y....
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....ing this disallowance of interest expenditure noted that though the assessee was claiming interest expenditure on the amounts outstanding to the said related notified broker entities, however, these broker entities were not charging interest on the other clients. 5.1 During the course of appellate proceedings, the Ld AR of the assessee has made detailed submissions vide letters dated 15.06.2018, 21.08.2018 and 24.04.2018 which have been duly considered. In the submissions dated 15.05.2018, the assessee has broadly submitted that the action of the AO of disallowing the said interest expenditure is not correct considering that- (i) an oral contract existed between the assessee and the said notified broking entities as observed by the Hon'ble ITAT in the case of the assessee for A.Y. 2006-07 and also a number of other cases of Harshad Mehta Group, (ii) as per the bye-laws and regulations of Stock Exchange, she is required to compensate the broker for delay in the payment for purchase of shares by way of payment of interest, (iii) the Hon'ble Special court has directed the other clients of the notified broker entities to pay interest on the a....
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....estments has been deployed in Term deposits. Accordingly, the assessee contended that the interest expenditure of Rs. 8,28,41,790/- has a connection with the interest income on the Term deposits and therefore, should be allowed as a deduction. Moreover, the assessee explained that it is incorrect to hold that the delivery of the shares in respect of the said notified brokers has not yet been taken considering that all the unregistered shares have been handed over to the Custodian on behalf of the assessee. 5.2 I have considered the various submissions of the assessee as well as the order of the AO. It is observed that out of the total interest expenditure of Rs 10,40,09,306/-, the assessee I-as considered an amount of Rs 2,11,67,516/- for disallowance u/s 14A and the balance amount of Rs 8,28,41,790/- has been claimed as a deduction u/s 57 against the interest receipts of Rs 6,79,595/- on Term deposits while computing the income under the head, -Income from Other Sources". However, the AO has held that the entire interest expenditure claimed by the assessee of Rs. 8,28,41,790/- u/s. 57 cannot be allowed as a deduction against the interest income of Rs 6,79,595/- on term de....
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....rred of Rs. 10,40,09,306/-, which can be said to have been laid out or expended wholly and exclusively for the purpose of making or earning the interest income of Rs. 6,79,595/- on Term deposits. It is relevant to note that the said entire interest expenditure of Rs 10,40,09,306/- pertains to 2 of the notified broker entities, M/s. Harshad S. Mehta (Rs 7,39,27,383/-) and M/s. J.H. Mehta (Rs 3,00,81,923/-) related to the shares purchased by the assessee through them during the period prior to 1992. 5.5 On examination of the Balance Sheet of the assessee for AY. 1992- 93, it is observed that the amounts payable to the said 2 notified broker entities are of Rs. 6606.99 lakhs and Rs. 2605.04 lakhs respectively. Interest has been charged @12% on the amounts payable to the said 2 notified broker entities Against this total outstanding amount of Rs. 9204.42 lakhs, the corresponding investments in shares, debentures etc. shown are of Rs. 10132 lakhs. It is also noted that the capital of the assessee is of Rs. 267.87 laths as on 31.03.1992 5.6 Similarly, on examination of the Balance Sheet of the assessee for the relevant year i.e. A.Y. 2014-15, it is observed that the amo....
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....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. 5.9 Further, in course of the appellate proceedings, it was also observed that the assessee has given loan of Rs 16,416.25 lakhs to Harshad Mehta as per the order of the Hon'ble Special Court which does not carry any interest. Moreover, in course of the appellate proceedings, it was also observed that an amount of Rs 4,203.89 Iakhs shown under the head 'Loans & Advances" comprises of advance tax, wealth tax. TDS. income tax, etc. and therefore, the interest attributable to such amounts is to be disallowed. Therefore, the assessee vide this office letter dated 09.08.2018 was asked to explain as to why interest has not been charged on the said amount advanced to Shri Harshad Mehta of Rs 16,416.25 lakhs and also as to why the interest attributable to the amount of Rs 4.203,89 lakhs related to payment of income tax, etc should not ....
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....omes to disallowance of interest attributable to the income tax, etc. of Rs 4,203.89 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 2 notified broker entities for purchase of shares way back in the year ending 31.03.1992 for which it is liable to pay interest @12% p.a. 5.11 From the above, it can be observed that the factual position as well as the contentions of the assessee are full of contradictions. The assessee in course of the appellate proceedings, was specifically asked to furnish details of the interest expenditure attributable to the income tax, etc. of Rs 4,203.89 lakhs, the interest expenditure attributable to exempt investments, the interest expenditure attributable to the interest income on Term deposits, etc. and also the details of the notional interest income arising to it on account of the loan advanced to Shri Harshad Mehta of Rs 16,416.25 lakhs. As regards, the interest expenditure related to exempt investments,....
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.... investment in shares & debentures has come down by Rs 4839.69 lakhs from Rs 10132 lakhs as on 31.03.1992 to Rs 5292.31 lakhs as on 31.03.2014 on account of sale of investments in the intervening period, however, the loans & advances, taxes etc has gone up by Rs 20478.115 lakhs from Rs 142.025 lakhs as on 31.03.1992 to Rs 20,620.14 lakhs as on 31.03.2014. As can be observed, on account of the surpluses arising on sale of investments, the loans, advances, taxes, etc have gone up by Rs 20,478.115 lakhs as against the decrease in investments on account of sale of Rs 4839.69 laths. Thus, the interest burden on the outstanding amounts to the said 2 not fied broker entities etc especially related to the investments of Rs 4839.69 lakhs has been spread over the increase in loans, advances, taxes, etc of Rs 20,478,115 laths in the intervening period from the year ending 31.03.1992 to the year ending 31 .03.2014. Further, there is little doubt that the assessee maintains a common pool of funds for its investment in shares, debentures, etc as well as for its investments in Term deposits. 5.14 In view of the above factual position, the interest attributable to the income tax, etc of R....
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.... Mehta in ITA. No.5799/M/2014 for A.Ys. 2009-10 & 2011-12. The issue has also been covered by the decision of the Hon'ble ITAT in the assessee's own case bearing ITA. No. 1219/M/2017 dated 27.12.2017. The relevant finding is hereby mentioned below.:- "60. Ground No. 1 relates to the claim of interest by the assessee amounting to 1,43,721/- after disallowing proportionate interest amounting to 2,12,47,194/- out of interest earned by the assessee on term deposits. Both the parties agreed that similar issue has arisen in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 and whatever view the Tribunal may taken in that case the same view may be taken in the impugned case. After hearing the rival submissions and considering the same we noted that this Tribunal while disposing of the said ground allowed claim of the assessee in respect of interest expenditure after proportionate disallowance. We, therefore, respectfully following our finding given in ITA No. 5799/Mum/2015 in the case of Shri Sudhir S. Mehta for A.Y. 2009-10 allow the claim of interest of the assessee to the extent of 1,43,721/- after proportionately disallowing a sum of 2,12,47,194/- and....