2023 (10) TMI 1474 - AT - Income Tax

Unexplained investment in shares - assessee has failed to explain the source of acquiring the shares satisfactorily - HELD THAT - The total addition on the basis of the Custodian letter is not sustainable and thus is directed to be deleted, since the information received from the Custodian was not correctly appreciated. We deem it appropriate to remand the determination of shareholding in the hands of the assessee on the basis of information received from the Custodian to the file of the AO for de novo adjudication. We further direct the AO to also consider the information received from various companies while determining the shareholding in the hands of the assessee. Direct the AO to consider any other information as may be furnished by the assessee in support of her submission regarding the actual shareholding in various companies. AO shall be at liberty to seek any clarification from the Custodian in this regard. AO is directed to re-adjudicate this aspect of the addition as per our aforesaid directions. As a result, the cross-appeals limited to this issue are allowed for statistical purposes. Addition made on the basis of company letters - Addition is based on the evidence which was not furnished to the assessee. In view of the specific directions of the coordinate bench of the Tribunal in assessee s own case, in the second round of proceedings, we find no basis in sustaining such an addition. Accordingly, the addition made on the basis of company letters, which were not provided to the assessee is deleted.DR could not bring any material on record to controvert the partial relief granted by the CIT(A), accordingly, the relief so granted is upheld. Appeal by the assessee in respect of the aforesaid addition is allowed, while the appeal by the Revenue is dismissed. Addition on the basis of holding as per dividend income account - Addition in respect of shareholding in Brooke Bond Lipton India Ltd, 66 shares appears to be issued to the assessee as bonus on holding 200 shares in the company in the ratio of 1 3 and the dividend was received by the assessee on 266 shares (inclusive of bonus shares of 66 shares). Accordingly, we find no merits in the addition on the basis of the difference in shareholding in Brooke Bond Lipton India Ltd as per the dividend income account. Therefore, the same is directed to be deleted. Shareholding in Gujarat Ambuja Cements Ltd, we find no basis in the conclusion of the AO, which was upheld by the learned CIT (A) that the assessee held 1,45,450 shares as per dividend income account, since the assessee s shareholding was much more than the same. Accordingly, the addition due to the difference in shareholding in Gujarat Ambuja Cements Ltd., as per the dividend income account, is deleted. Shareholding in Kilburn Reprographics the fact that the assessee received dividend on 9000 shares from Kilburn Reprographics also goes on to prove that the said company recognised the assessee as a shareholder in respect of the aforesaid shareholding on the date of declaration of dividend. Therefore, all the aforesaid facts lead to the conclusion in favour of the assessee that she had a shareholding of 9000 shares in Kilburn Reprographics and the same is much more than as accepted by the Revenue. Accordingly, the addition due to the difference in shareholding in Kilburn Reprographics, as per the dividend income account, is deleted. Addition in respect of shareholding in Nicholas Laboratories and Trans Freight India Ltd. - A company can grant a dividend in favour of a person only when that person is its shareholder. Further, no material has been brought on record by the assessee to support the submission that the investment in the aforesaid companies was made by any other family member, despite the fact that there have been multiple rounds of litigation in cases of all the family members of the Harshad Mehta group. Accordingly, in the absence of any material in support of assessee s submission, the plea of the assessee is rejected and the addition sustained by the learned CIT(A), in respect of shareholding in Nicholas Laboratories and Trans Freight India Ltd, is upheld. Claim of deduction on account of interest and disallowance of interest payment - HELD THAT - Deduction u/s 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. Respectfully following the aforesaid decision of the Hon ble Supreme Court in Seth R. Dalmia 1977 (9) TMI 1 - SUPREME COURT we are of the considered view that the assessee is entitled to claim a deduction of interest expenditure u/s 57 since receipt of dividend is merely due to the shareholding of the assessee and the interest expenditure has nexus with the income under the head income from other sources including dividend income even though not direct. Accordingly, the AO is directed to allow the interest expenditure claimed by the assessee u/s 57 of the Act.

Summary

Issues Involved:

1. Delay in filing appeal by the Revenue.
2. Rejection of books of accounts and addition on account of unexplained investment in shares.
3. Deduction of interest expenditure.

Issue-wise Detailed Analysis:

1. Delay in Filing Appeal by the Revenue:

The Tribunal condoned the slight delay of 2 days in filing the appeal by the Revenue in the interest of justice. This decision was made to ensure that the case could be heard and decided on its merits without being dismissed on a procedural technicality.

2. Rejection of Books of Accounts and Addition on Account of Unexplained Investment in Shares:

The case revolves around the assessment of an individual associated with the Harshad Mehta group, whose assets were attached under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The Assessing Officer (AO) rejected the books of accounts under section 145(2) of the Income Tax Act, 1961, citing that the books were not maintained contemporaneously and contained afterthought entries. The AO made an addition of Rs. 10,87,14,014 as unexplained investment in shares.

The Commissioner of Income Tax (Appeals) [CIT(A)] granted partial relief by deleting Rs. 9,39,76,663 of the addition, while upholding Rs. 1,47,77,303 as unexplained investment. The Tribunal further examined the evidence and submissions, noting discrepancies in shareholding figures as provided by the Custodian and various companies. The Tribunal found that the information from the Custodian was not reliable and directed the AO to reassess the shareholding based on more accurate data, including company letters and any additional information provided by the assessee. Consequently, the Tribunal deleted the addition based on the Custodian's letter and remanded the issue for de novo assessment.

3. Deduction of Interest Expenditure:

The assessee claimed a deduction of Rs. 2,46,33,261 as interest expenditure under section 57 of the Act. The AO disallowed this claim, arguing that the liabilities were not crystallized, and the interest was provisional and contingent. The CIT(A) allowed the deduction only to the extent of Rs. 15,73,548 related to share trading profit, rejecting the rest on the grounds that the interest was not incurred solely for earning dividend income.

The Tribunal, however, referenced the Supreme Court's decision in Seth R. Dalmia v/s CIT, which allows for an indirect connection between expenditure and income for deduction purposes. The Tribunal concluded that the interest expenditure had a nexus with the income from other sources, including dividends, and directed the AO to allow the full interest expenditure claimed by the assessee under section 57. Thus, the assessee's appeal on this issue was allowed, and the Revenue's appeal was dismissed.

Conclusion:

The Tribunal's judgment addressed procedural delays, the reliability of evidence, and the interpretation of tax provisions related to unexplained investments and interest deductions. The appeals resulted in partial relief for the assessee and required further examination by the AO on specific issues.