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TMI Blog2018 (10) TMI 1843X X X X Extracts X X X X X X X X Extracts X X X X ..... er: 1. This appeal by assessee is directed against the order of ld. Commissioner of Income-tax(Appeals)-40, Mumbai [ld. CIT(A)] dated 20/10/2014 for Assessment Year 2011-12, which arises from assessment order passed u/s. 143(3) dated 02/12/2013 . The assessee has filed revised Grounds of appeal which read under :-. "1. The learned Commissioner of Income-Tax (Appeals) ought to have appreciated that as per the decision of Hon'ble Special Court dated 30.04.2010 in MP No. 41 of 1999, the assets under consideration and the consequential income belongs to Shri Harshad S. Mehta and hence the income assessed by the Assessing Officer ought to have been taxed in the hands of Shri Harshad S. Mehta and not in the hands of the appellant. 2. The learned Commissioner of Income-Tax (Appeals) has erred in law and in facts in not granting relief of liability amounting to Rs. l_,15,20,783/-,_ towards interest expenditure claimed by the appellant. The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated that out of interest of ₹ 1,15,20,783/- payable on the borrowed funds, interest on the amount utilized in investment in Term deposit ought to have been allowed to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee"s group case wherein identical delay of 760 days on identical fact in Eminent Holdings Pvt.Ltd. & Ors. vs. ACIT in ITA No. 1215/Mum/2017 dated 11/09/2017), was condoned. The ld. AR prayed for condonation of delay. 4. On the other hand the ld. Departmental Representative (DR) contended that he left the issue at the discretion of the Bench. 5. We have considered the submission of both the parties. We have seen that the assessee has placed on record application dated 02/12/2014 moved before Officer on Special Duty (OSD) Office of Custodian under Special Court (TORT) for releasing the appeal fee. We further note that similar Ground for condonation of delay was raised by the assessee‟s Group Company (supra) in ITA No. 1215/Mum/2017 dated 11/09/2017). The Tribunal passed the following order (para 2-5) :- " 2. The appeals filed by these assessees are barred by limitation as detailed below :- (a) Orion Travels Pvt. Ltd. : 383 days (b) Aatur Holding Pvt. Ltd. : 391 days (c) Harsh Estates Pvt. Ltd. : 391 days (d) Eminent Holdings Pvt. Ltd. : 760 days All these assessees have filed an application requesting the bench to condone the days on the ground that there wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the assessee Ground of appeal is dismissed as not pressed. 8. Ground of appeal No.2 relates to disallowance of interest expenditure of ₹ 1,15,20,783/-. The ld. AR submits that this Ground of appeal is covered in favour of the assessee by the decision of the Tribunal in assessee‟s own group case in Sudhir Mehta vs. DCIT and Ors dated 27/12/2017 in ITA No. 5799/Mum/2015. The ld. AR submits that in Sudhir Mehta case (supra), the Tribunal allowed claim of interest expenditure and set aside the issue to the file of Assessing Officer for verification, calculation of disallowance u/s. 14A, however, the assessee has not earned any exempt income, and hence, no verification is required in the present case. 9. On the other hand the ld. DR supported the orders of lower authorities. 10. We have considered the rival submissions and perused the material and orders passed by the Tribunal in assessee‟s group case. The ld. AR submits that in Sudhir Mehta case (supra), the Tribunal allowed claim of interest expenditure and set aside the issue to the file of Assessing Officer for verification, calculation of disallowance u/s. 14A, however, the assessee has not earned any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7726 & 7727/Mum/2010 for A.Y. 2005-06 and 2006-07 which was followed by the Tribunal in the case of same assessee in ITA No. 5587 to 5589/Mum/2011 for A.Y. 1994-05, 1995-96, 2001-02 and 2008-09. The CIT(A) while passing the order in the case of the assessee has duly considered the order of the Tribunal in the case of Dr. Hitesh S. Mehta dated 12.06.2013. For this our attention was drawn towards para 8 of the order of the CIT(A). Since the order of the CIT(A) is after considering the order of the Tribunal therefore it was vehemently contended that the present appeal be decides on merit. The learned A.R. submitted that the finding of the AO in respect of interest not payable is factually incorrect. The assessee has entered into oral agreement with creditors being three brokerage firms, i.e. M/s. Harshad S. Mehta, M/s. J.H. Mehta and M/s. Ashwin S. Mehta to pay the interest @12% per annum on the credit balance. The family members are dealing with the above three brokerage firms within the family itself. There was no written agreement. Based on such understanding interest on credit balance was provided by the assessee as he followed mercantile system of accounting and therefore it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn in this regard towards the decision of the Hon'ble Supreme Court holding that existing contractual rights and obligations created there under do not get affected by notification of any person under the Special Court Act. Reference was invited to Section 4(1) of the Special Court Act empowering the custodian to make enquiry if he thinks fit to cancel any agreement entered into between 01.04.1991 to 06.06.1992 with relation to any property of the person notified provided they have entered into the contract fraudulently or to defeat the provisions of the act. Thus it was contended that section 4(1) conclusively prove that the existing contract or agreement do not get disturbed by invocation unless the custodian appointed under the Special Court Act invoke power under Section 4(1). The custodian in the impugned case during the past 25 years has not cancelled the agreement to pay interest between the assessee and his creditors. Our attention was also drawn to the evidence filed by the custodian in M.P. No. 41 of 1999 in which the custodian himself strongly advocated levy of interest and infact calculated interest on such credit balances @15% to 18% per annum to demonstrate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been made to these creditors subsequent to A.Y. 1990-91, thereby the liability towards the creditors regarding principal and interest was discharged. The payment in the impugned year to the creditors could not be paid due to the notification dated 08.06.1992 and consequent attachment of all the assets on which notification has casted legal responsibility on the assessee and an assessee has less freedom to discharge his obligation towards creditors. In terms of provisions of Special Act the liability to pay interest falls under Section 11(2)(c). The liability towards interest can be made only at the stage of distribution to the creditors under Section 11(2) of the Special Court Act. It was further submitted that in pursuance to the direction of the Hon'ble Special Court some payment has been made to the account of Late Shri Harshad Mehta during A.Y. 2011-12 and for this attention was drawn toward the ledger account of Late Shri Harshad Mehta in his books for A.Y. 2011-12. For the objection of the AO that no basis for calculation of interest has been submitted by the assessee, the learned A.R. contended that this allegation is totally incorrect. The details were duly filed alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case law as has been cited before us the relevant provisions of the Special Court Act which has been referred to before us during the course of hearing. This is an undisputed fact which we noted that the assessee is a notified person from 08.06.1992 under Section 3(2) of the Special Court Act. As per the provisions of the Special Court Act contract entered into by a notified person prior to notification made under Section 3(2) are not affected by the notification. Section 4(1) of the Special Court Act empowers the custodian to cancel any contract or agreement entered into between 01.04.1991 to 06.06.1992 if the custodian finds that these contracts have been entered into fraudulently or to defeat the provisions of the Special Court Act. In A.Y. 1990-91, the AO in the assessment order passed under Section 143(3) dated 26.03.1993 allowed the interest expenses to the assessee to the extent of ₹ 5,86,404/-. From page 75 of the paper book which contains the computation of income for A.Y. 1990-91, we noted that the assessee has disclosed the loan taken for the purchase of investment. The assessee is consistently following mercantile system of accounting which is apparent even from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the brokerage firms, the intentions of the parties were always so, this is evident from the fact that identical claim was also made during A.Y. 1990-91 and the same was allowed to the appellant and other concerns. The claim made in the affidavit of Custodian in MP No. 41 of 1999 also supports this claim. I also agree with the appellant that there need not be any written agreement and that the oral agreement coupled with the actions and intentions of the parties is sufficient to prove the existence of the liability." 13. Similar issue was involved in the case of other family member, i.e. Shri Hitesh S. Mehta for A.Y. 2005-06 where also the AO has disputed the very existence of liability towards interest to creditors. The CIT(A) vide his order dated 31.08.2010 confirmed and approved the claim of the assessee that there was no need for any written agreement and that the oral agreement coupled with action and intentions of the parties is sufficient to prove the existence of liability. This order of the CIT(A) was followed by him in the case of the assessee while adjudicating the ground relating to the interest expenses for A.Y. 2006-07 vide order dated 27.09.2013 under para 6 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... banks and accordingly the assessee has claimed interest expenditure against the interest earned on term deposits. No contrary evidences or material were brought to our knowledge to contradict this fact. In view of this fact we find that there is a nexus between borrowed funds and investments in term deposits. Therefore, the interest paid on the borrowed funds has to be allowed out of the interest earned by the assessee on term deposits. We noted that identical issue was raised in the case of M/s. Growmore Leasing & Investment Ltd. in A.Y. 2007-08. The CIT(A) in his order dated 26.02.2012 considered the issue of nexus of interest expenditure with interest income, following his own finding in the case of another notified entity, i.e. Eminent Holding Pvt. Ltd. for A.Y. 2007-08 which are reproduced as under: - "As regards the nexus of the interest expenditure with the interest income, I find that the Balance Sheet of the appellant and the affidavit filed by the custodian before the Hon'ble Special Court supports the fact that the funds borrowed from Shri Harshad S. Mehta were deployed by the appellant in various assets like shares and securities, properties, etc. These fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int, fundamental to the decision, taken or assumed by the Plaintiff and traversable by the Defendant, has not been traversed. In that case also a Defendant is bound by the judgement, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." At pg 329 of the judgement, Their Lordships observed as under: "We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating though the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 19. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter and if there was not change it was in support of the assesses - we do not think the question should have been reopened and contrary to what had been decided by the Commission of Income-Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest u/s. 234B and 234C of the Act after reducing the amount of tax deductable at source. The Tribunal passed the following order (para 20) which reads as under :- "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 were applic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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