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TMI Blog2020 (11) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... earned. It is relevant to observe, in assessee's own case in AY 2017-18, the AO himself has allowed claim of deduction of interest expenditure to the extent of interest income earned during that year, In view of the aforesaid, the ground is allowed as indicated above. Levy of collection of interest under section 234A, 234B 234C and charging of interest excluding the income which is subject to TDS - HELD THAT:- Interest levied under section 234A, 234B 234C be recomputed after excluding the income which is subject to TDS. Considering the decision in [ 2017 (12) TMI 1668 - ITAT MUMBAI] the Assessing Officer is directed to re-compute the interest accordingly, In the result, these grounds of appeal are allowed for statistical purpose. Capitalization of interest - HELD THAT:- We are of the view that to the extent the interest relate to the investment, i.e. being disallowable under Section 57 will become part of cost of acquisition of shares and therefore the AO is directed to take it as part of the cost of shares for determining profit on sale of the shares. Thus, the additional ground stands allowed to that extent. - ITA No.6957 to 6959/Mum/2018, ITA No.6765 to 676 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal: 1. Whether 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 of ₹ 2,59,98,276/- only relying on the decision of the Hon ble ITAT in case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2014 for A.Ys. 2009-10 to A.Y. 2011-12 which has itself been challenged by the Department before the Hon ble Bombay High Court. 3. At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that all the grounds of appeal raised by assessee as well as by revenue are covered by the decisions of Tribunal in assessee s group case. 4. For Ground No. 1, the ld. AR of the assessee submits that assessee is claiming deduction of interest expenses to the extent of ₹ 4,07,230/- being the income earned during the year. The ld. AR of the assessee submits that this issue is covered by the decision of Tribunal in assessee s group case in Cascade Holdings Pvt. Ltd. Vs. DCIT for A.Y. 2012-13, 2013-14 2015- 16 in ITA No. 6965, 6966 6968/Mum/2018 dated 16.03.2020 as well as in Pratima H. Mehta vs. DCIT in ITA No. 5839/Mum/2018 dated 27.11.2019 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which is apparent even from the assessment order of A.Y. 1990-91 as well as from the impugned assessment year. The order for A.Y. 1990-91 in fact has been passed by the AO after the date of notification and the enactment of the Special Court Act. We have gone through the order passed by the CIT(A) in the case of Shri Ashwin S. Mehta assessment years 2010-11 and 2011-12, where we noted that this issue of taxability of interest income of the assessee and other parties has specifically been dealt with by the CIT(A) and accordingly interest income of ₹ 10,68,83,732/- was brought to tax. In view of this fact it is apparent that the assessee is liable to pay interest on the amount outstanding. Therefore the liability towards interest got accrued. Under the mercantile system of accounting interest is deductible when it has accrued. This also proves that there was an agreement, may be oral, to pay the interest on the borrowed funds by the assessee to the other family members. We, therefore, reject the plea of the learned D.R. that no liability towards Growmore Leasing Investment Ltd. Others interest has accrued but it was merely a contingent liability. We noted that section 4 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Growmore Leasing Investment Ltd. Others interest expenses for A.Y. 2006-07 vide order dated 27.09.2013 under para 6 which has been reproduced under para 18 of the order of the assessee. These finding and observation in the above orders of the CIT(A) has not been disputed by the Revenue by filing an appeal. In view of this finding becoming final, in our view, the existence of liability for payment of interest cannot be disputed. 14. Coming to the objection of the Revenue that interest cannot be allowed as deduction has not been shown by recipients in their income. As has been discussed by us in the preceding paragraphs the interest has been shown as income by Mr. Ashwin S. Mehta in assessment years 2010- 11 and 2011-12. We also noted that Late Shri Harshad Mehta has been offering his income on cash basis and the method of accounting has been duly upheld by the Tribunal in his case for A.Y. 1989-90. Even otherwise disallowance of interest claimed by the assessee cannot be made merely because in the opinion of the AO the corresponding interest income has not been offered by the recipients. The interest can be allowed on the basis of method of accounting followed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pports 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 funds generated income in the form of dividend and interest income. After being notified, such shares and securities got converted into Fixed Deposits with various banks. These fixed deposits generated interest income which is offered to tax. Hence, a reasonable nexus can be said to exist between the interest liability incurred by the appellant, and the interest income earned from these assets. However, this matter being sub-judice before the Hon'ble Special Court, no finding can be given on these matters. 15. Similar issue has arisen in the case of Shri Hitesh S. Mehta for A.Y. 2005-06 wherein the CIT(A) vide his order dated 31.08.2010 approved the nexus between borrowed funds and the investment in term deposit which has been followed by the CIT(A) even in the case of the assessee for A.Y. 2006-07 dated 27.09.2013. We do not agree with the submission of the learned D.R. that interest expenses cannot be allowed till the Hon'ble Special Court decide the issue. The allowance or disallowance of the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under Sections 11 and 12 of the Income Tax Act of 1961. The aforesaid dictum of law was reiterated recently by the Supreme Court in CIT vs. Excel Industries Ltd. : 358 ITR 295. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the Assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather spend the tax payers money in pursuing litigation for the sake of it. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts were offered to tax by the assessee under the head income from other sources . We find that against these interest receipts, the assessee had claimed deduction u/s.57 of the Act towards interest expenditure in the sum of ₹ 2,19,69,050/- on the amounts outstanding to the related notified broker entities, i.e. M/s.Ashwin Mehta and M/s. J H Mehta. We find that the ld. AO disallowed the claim of deduction of interest u/s.57 of the Act in the sum of ₹ 2,19,69,050/- on the ground that the said liability is provisional as well as contingent in nature. The ld. AO had also observed that the assessee was claiming interest expenditure on the amount outstanding to the said related notified broker entities, however, these broker entities were not charging on the other clients. 7.1. It is not in dispute that the assessee is notified person under the provisions of Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 since 08/06/1992 and in view of the notification issued by the Hon ble Special Court, the properties of the applicants were vested with the custodian. We find that the entire issue revolves on the point of borrowed funds being di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity while complying with the said directions of the Hon ble Special Court. Moreover, we also find that the prepaid taxes paid by the assessee in the form of TDS, wealth tax, income tax and advance tax has got no relevance with the borrowings of the assessee as admittedly those were paid by the assessee over the years out of the income earned by the assessee in several years and out of maturity proceeds of fixed deposits / sale proceeds of shares. Hence, there cannot be any assumption that the borrowed funds were used by the assessee for making payments towards the aforesaid taxes. The ld. AR also stated that the borrowings made by the assessee from the four parties i.e. M/s. Ashwin S Mehta, M/s. J.H. Mehta, Ms Deepika A Mehta and Shri Hitesh S Mehta were made way back in 1990 and no fresh borrowings had happened thereafter. Hence, there cannot be any allegation that those borrowed funds were utilized for making payments of taxes as detailed above. We find that in any case, assessee is having sufficient own funds in its kitty as is prevalent in the balance sheet and hence, there cannot be any disallowance of interest on that count itself. Reliance in this regard is placed on Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of appeal, the Ground No.1 of the assessee is allowed. No contrary facts or law is brought to our notice to take other view. 14. Ground No.2 3 relates to levy of interest under section 234A, 234B 234C. The ld. AR of the assessee submits that these grounds of appeal are also covered by the decision of Tribunal in assessee s group case in Aatur Holdings Pvt. Ltd. (supra). 15. On the other hand, the ld. Special Counsel for revenue relied upon the order of lower authorities. 16. We have considered the submission of both the parties and find that in assessee s group case in Aatur Holdings Pvt. Ltd. (supra) for A.Y. 2013- 14, 2014-15 2015-16 the Co-ordinate Bench of Tribunal by following the order of Tribunal in assessee s group case in Sudhir S. Mehta in ITA No. 5799/Mum/2015, passed the following order: 12. Ground No. 2 3 relates to levy of collection of interest under section 234A, 234B 234C and charging of interest excluding the income which is subject la TDS. \x !e have noted that on similar ground of appeal in assessee's group case in ITA No. 5799/Mum/2015 in case of Sudhir S. Mehta, the issue was decided that interest levied under section 234A, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larity, which is reproduced below:- 17. Now coming to the additional ground raised with respect to capitalization of interest we are of the view that to the extent the interest relate to the investment, i.e. being disallowable under Section 57 will become part of cost of acquisition of shares and therefore the AO is directed to take it as part of the cost of shares for determining profit on sale of the shares. Thus, the additional ground stands allowed to that extent. 15. Therefore, respectfully following the decision of Coordinate Bench of ITAT, which is applicable mutatis mutandis in the present cases, we are inclined to accept the findings of Ld.CIT(A) and dismiss the ground raised by the revenue in all these appeals. 16. In the net result, all the appeals filed by the assessee are allowed and all the appeals filed by the revenue are dismissed. 23. Considering the consistent decision of Tribunal in assessee s group case, we do not find any merit in the grounds of appeal raised by revenue. No contrary facts or law is brought to our notice to take other view. In the result, appeal of the revenue is dismissed. ITA No. 6766 6767/Mum/2018 for A.Y. 2014-15 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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