2019 (4) TMI 1897 - AT - Income Tax

Disallowance u/s 14A - Interest expenditure disallowance - disallowing proportionate interest in respect of investment in shares - HELD THAT - The facts of the present case are similar to the facts of the case of Sudhir MehtaI 2017 (12) TMI 1668 - ITAT MUMBAI and the issues involved in both the cases are identical. Since the coordinate Bench of the Tribunal has dealt with the identical issue in the aforesaid case and directed the AO to allow deduction in respect of interest accrued and calculate @ 12% per annum after disallowing proportionate interest in respect of investment in shares after verifying calculation of the interest quantification we respectfully following the decision of the coordinate Bench set aside the findings of the Ld. CIT(A) allow this ground of appeal. Since the assessee had not earned any exempt income during the year relevant to the assessment year under consideration we direct the AO to allow the deduction in respect of interest accrued and calculate @ 12% per annum in terms of the order passed. Interest charged u/s 234A 234B and 234C - HELD THAT - Set aside the said issue to the file of AO for re-computation after reducing the amount of tax deductible at source on the income earned and since there is no material change in the facts of the case there is no reason to take a different view other than the view already taken in the similar matter. Non granting capitalization of interest expenses attributable to share and securities as not allowable u/s 57 (ii iii) - HELD THAT - As decided in case of Sudhir MehtaI 2017 (12) TMI 1668 - ITAT MUMBAI Tribunal has granted capitalization of interest expenses disallowed in the hands of the assessee and directed the Assessing Officer to add the same to the cost of shares and securities - we respectfully following the decision of the coordinate Bench allow this ground of appeal of the assessee and direct the AO to at the same to the cost of shares and securities.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Taxation of income in the hands of the correct assessee.
3. Relief of liability towards interest expenditure.
4. Interest charged under sections 234A, 234B, and 234C of the Income Tax Act.
5. Capitalization of interest expenses attributable to shares and securities.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an application for condonation of delay, citing that the delay was due to the inordinate delay by the custodian and banks in releasing the appeal fees. The Tribunal noted that similar delays had been condoned in related cases, such as Orion Travels Pvt. Ltd. v. DCIT and others. The Tribunal emphasized a justice-oriented approach, referencing the Supreme Court’s decision in Collector Land Acquisition Vs. Mst. Katiji & Others, which highlighted that substantial justice should be preferred over technical considerations. Thus, the Tribunal condoned the delay of 661 days and allowed the appeal to be heard on merits.

2. Taxation of Income in the Hands of the Correct Assessee:
The assessee contended that the income should be taxed in the hands of Shri Harshad S. Mehta, as per the decision of the Hon’ble Special Court. However, the assessee decided not to press this ground of appeal, and hence, it was dismissed as not pressed.

3. Relief of Liability Towards Interest Expenditure:
The assessee challenged the disallowance of interest expenditure amounting to ?3,72,82,860/-. The Tribunal noted that the Mumbai Tribunal had previously allowed similar claims in related cases, such as Sudhir Mehta vs. DCIT. The Tribunal observed that the assessee had not earned any exempt income during the year under consideration, and therefore, no disallowance under section 14A was required. Following the precedent set in Sudhir Mehta’s case, the Tribunal directed the AO to allow the deduction of interest accrued and calculate it at 12% per annum after verifying the calculation.

4. Interest Charged Under Sections 234A, 234B, and 234C of the Income Tax Act:
The assessee argued that interest under sections 234A, 234B, and 234C should not be charged, as the income was subject to TDS. The Tribunal noted that in related cases, such as Sudhir Mehta vs. DCIT, the issue had been set aside to the AO for re-computation after reducing the amount of tax deductible at source. The Tribunal followed this precedent and directed the AO to re-compute the interest liability after reducing the amount of tax deductible at source.

5. Capitalization of Interest Expenses Attributable to Shares and Securities:
The assessee raised an additional ground regarding the capitalization of interest expenses, which was disallowed under section 57(ii & iii). The Tribunal noted that in related cases, such as Sudhir Mehta vs. DCIT, the interest expenses disallowed were directed to be added to the cost of shares and securities. Following this precedent, the Tribunal directed the AO to add the disallowed interest expenses to the cost of shares and securities.

Conclusion:
The appeals filed by the assessee for the assessment years 2003-2004 and 2011-12 were partly allowed. The Tribunal condoned the delay in filing the appeals, dismissed the ground regarding the correct assessee for taxation, allowed the deduction of interest expenditure, directed the re-computation of interest under sections 234A, 234B, and 234C, and allowed the capitalization of interest expenses.