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TMI Blog2021 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s brother Shri Sheyans Jaswantlal Shah while framing assessment under section 143(3) of the Act for AY 2012-13 and accepted the interest declared in the returned of income. Hence, we are of the view that the assessment framed by AO originally, under section 143(3) of the Act dated 30.01.2015 is neither erroneous nor prejudicial to the interest of the Revenue. Even on facts as discussed above, the assessee has rightly disclosed the interest proportionately in its returned of income for the relevant AY 2012-13. Hence, the Revision Order passed by PCIT is set aside and the appeal of the assessee is allowed. - ITA No. 3919/Mum/2017 - - - Dated:- 5-3-2021 - Shri Mahavir Singh, VP And Shri S Rifaur Rahman, AM For the Appellant : Shri Hiro Rai, AR For the Respondent : Shri Rahul Raman, CIT DR ORDER PER MAHAVIR SINGH, VP: This appeal of assessee is arising out of the order revision order of the Principal Commissioner of Income Tax -4, Mumbai, [in short CIT(A)], in No. Pr.cit-4/HQ/order u/s 263/MJS/201213/2016-17/4129 dated 24.03.2017 passed under section 263 of the Act. The assessment was framed by the Dy. Commissioner of Income Tax, Circle4(1)(2), Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. Hence, the PCIT after considering the submissions of the assessee noted that the assessee has received total interest of ₹4,06,26,679/- as per 26AS but offered interest only to the tune of ₹2,23,66,329/-. It was stated that the assessee has claimed expenses of ₹2,69,372/- under various heads and also diverted the income or application of income in regard to a particular payment to 6 (six) other shareholders. Hence, according to him, it has to be determined whether amount sought to be diverted reach to assessee as his own income or not. He further noted that it has to be verified whether disbursement of income made by the assessee is a result of fulfilment of application by him or whether income has been applied to discharge an application after it reaches to assessee. The PCIT was of the view that even expenses claimed at ₹2,69,372/- need to be disallowed as per the provisions of section 57(iii) of the Act. He further noted that the interest income shown by the assessee vis- -vis that reflected in form 26AS need to be examined in the light of the provisions of section 37BA of the Rules. Hence, he set aside the assessment with a direction to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and placed in the Escrow. The copies of the Share Purchase Agreement and the Escrow Agreement were furnished to the Assessing Officer in the course of the assessment proceedings. Tax was deductible by the Escrow bank from the interest payable on fixed deposits kept. As per Escrow Agreement, the TDS certificate was to be issued in name of the assessee. This was more particularly so because the exact amount of interest payable to each Seller or the Purchaser was a matter of agreement between the Sellers and the Purchasers and the Escrow Bank had nothing to do with the inter-se allocation of interest between the Sellers and the Purchaser. It was for this reason; the fixed deposit receipt was issued in the name of Mr. Mayank J. Shah- Biochem (Networking Capital and Indemnity Escrow Account for convenience . 5. We noted that in response to query raised by the Assessing Officer, the assessee has given the details of Escrow Deposit, the interest earned and the disbursement of interest to Cadila Health Care, his family members and group concern stake holders. The details have been reproduced by the Assessing Officer in the assessment order. The assessee explained to Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seller. The escrow funds are parked in some income earning investments in the meantime- say in fixed deposits with banks. There will naturally be interest receivable on the investments. As to whom the interest received has to be paid- whether the seller or the buyer will depend on whether the liability arises or not If the liability arises, then the interest has to be paid to the buyer because the fund in the escrow is as good as that of the buyer and not the seller. If the liability does not arise, the funds in the escrow can be said to belong to the seller only and the interest has to be paid to him. In assessee s case, it is on these above principles that-interest on escrow, investments was payable either to Cadila Health Care (the buyer) or the assessee s group (the seller). A reading of the escrow agreement will bring out these principles. The escrow account and fixed deposits have to be kept in name of some legal entity. It cannot be kept in name of the escrow scheme. To enable this, the fixed deposit was kept in the name of the assessee for convenience with a suffix of the escrow account nomenclature i.e. Mr. MayankJ. Shah - Biochem (Net Working Capital and Indemnity) Esc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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