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TMI Blog2023 (10) TMI 1474X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/06/2014, passed by the coordinate bench of the Tribunal in ITA No. 2694/Mum./2012, the Assessing Officer ("AO") issued a notice under section 142(1) of the Act asking the assessee to furnish various details in support of the entries in her books of accounts. Since the assessee filed a general reply and did not produce the details called for, the AO again issued notice requesting the assessee to cooperate in the assessment proceedings. During the assessment proceedings, the assessee requested the AO to provide certain documents on the basis of which the addition was made. In response thereto, some company letters, etc. were provided to the assessee. The assessee in respect of directions of the Tribunal regarding verification of books of account submitted that the same were already available on record and the books are correct and complete. The AO vide order dated 30/03/2016, passed under section 144 read with section 254 of the Act did not agree with the submissions of the assessee and held that the books of accounts produced by the assessee cannot be accepted as regular books of accounts since the same has not been maintained during the day to day conduct of business but adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in deleting the addition of Rs. 9,39,76,663/-, made on account of unexplained investment and trading in shares, wherein the assessee has failed to explain the source of acquiring the shares satisfactorily. 2. Whether on the facts and in the circumstances of the case, the Ld.CIT (A) was justified in directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee failed to show that the respective entities have charged interest on the amounts paid by the respective parties? 3. Whether on the facts and in the circumstances of the case, the Ld.CIT (A) was justified in directing the A.O to ascertain the stock-in-trade and allow such expenditure on a proportional basis, made on account of interest expense which was claimed by the assessee disregarding the fact that the assessee has claimed the deduction u/s 57 of the Income Tax Act, 1961 and in that case, the assessee must prove that the interest expenditure was incurred wholly and exclusively for the purpose of earning of interest income. 4. The appellant craves to leave, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the AO to bring on record specific evidence/defect to prove the falsity of books of accounts and further directed the Revenue to provide all the details and materials on the basis of which additions have been made in assessee's hand. 11. It is only pursuant to the aforesaid directions of the coordinate bench of the Tribunal that the AO passed the assessment order dated 30/03/2016, under section 144 read with section 254 of the Act, in the third round of proceedings making an addition of Rs. 10,87,49,014, on account of unexplained investment in shares, which resulted in the present appeal. The learned CIT(A), vide impugned order, inter-alia upheld the addition to an extent of Rs. 1,47,77,303, on account of unexplained investment in shares and granted partial relief to an extent of Rs. 9,29,76,663, by considering the submissions of the assessee and the information available on record. The relevant findings of the learned CIT(A), vide impugned order, are reproduced as under:- "6.5. In the light of the above a detailed exercise has again been conducted during this appellate proceedings and the claims of the appellant have been examined. Out of the addition of Rs.& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, addition stands deleted - GUJARAT AMBUJA CEMENTS 26,350 - - The company letter shows holding of 1,45,450 shares as on 31/3/92 as per letter dated 19.06.1992; The difference has not been reconciled 93,54,250 GUJARAT HEAVY CHEMICALS 100 4,575 4,575 As per the appellant, he has holding of 4,100 shares which is more than 200 shares as per AO; Hence, addition stands deleted - HINDUSTAN LEVER LTD. 6,012 19,53,916 19,53,916 As per the appellant, he has holding of 6050 shares which is more than 6012 shares as per AO; Hence, addition stands deleted - INDO GULF FERTILISERS 27,200 18,97,200 18,97,200 As per the appellant, he has holding of 38600 shares which is more than 37700 shares as per AO; Hence, addition stands deleted - JCT LTD. 34,977 22,04,320 22,04,320 As per the appellant, he has holding of 36200 shares whereas it is 49977 shares as per AO; Addition stands partly confirmed 33,92,000 KILBURN REPROGRAPHICS 3,800 - - No reconciliation given; addition is confirmed 99,750 LAXMI PRECISION 100 22,800 22,800 As per the appellant, he has holding of 1350 shares which is more than 30 shares as per AO; Hence, addition stands deleted - LARSEN & TOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,475 TISCO 34,245 1,29,91,697 1,29,91,697 The appellant has extracted various letters addressed by the company to AO in response to S.133(6) notices and pointed out that Mrs. Pratima Mehta is only second holder. Addition stands deleted. - TRANS FRIGHT 100 1,61,500 - No reconciliation given; addition is confirmed 1,61,500 TRANSPEK INDUSTRIES 50 27,500 27,500 As per the appellant, he has holding of 70 shares whereas it is 100 shares as per AO; Addition stands partly confirmed - UNITED PHOSPHORUS LTD. 150 8,588 - No reconciliation given; addition is confirmed 8,588 WARREN TEA LTD. 150 35,625 - No reconciliation given; addition is confirmed 35,625 1,73,678 10,87,53,965 9,39,76,663 1,47,77,303 In view of the above addition to the extent of Rs. 9,39,76,663/- stands deleted, while the sum of Rs. 1,47,77,303/- which continues to remain unexplained stands confirmed." Being aggrieved, both assessee and Revenue are in appeal before us. 12. We have considered the submissions of both sides and perused the material available on record. It is undisputed that the entire addition of Rs. 10,87,49,014, as made by the AO is on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16,950 13,450 15. Therefore on the basis of the aforesaid variation, it was submitted that the figures of shareholding of the assessee provided by the Custodian are not reliable. In support of this submission, reference was also made to the letter of the Custodian dated 28/11/2017, wherein the Custodian clarified that column no.6, of its statement vide letter dated 29/10/1993, is meant for the owner of the shares, which was shown as owner 2 and column no.7, is meant for the second holder of the shares, who was shown as the holder of the shares. The relevant reply of the Custodian vide aforesaid letter dated 28/11/2017, is reproduced as under:- "Sub.: Information u/s 133(6) of the IT Act, 1961 in the case of Shri. Sudhir S. Mehta for the Assessment Year 1992-93 Sir. With reference to your office letter no. DCIT-CC-4(1) clarification/2017- 18 dated 20.11.2017 received in this on 24.11.2017 calling for the information u/s 133(6) of the IT Act, 1961 in the case of Shri. Sudhir S. Mehta for the Assessment Year 1992-93, it is states that as per your statement. your department had Assessed the Income of Shri. Sudhir S. Mehta, Smt. Deepika A. Mehta and other notified parties o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, the actual shareholding of the assessee still has to be determined. We further find that the aforesaid clarification dated 28/11/2017, issued by the Custodian was not brought to the notice of the coordinate bench in the decisions relied upon by the learned AR in the Harshad Mehta group cases. It is also undisputed that the said clarification dated 28/11/2017, as was sought in the case of one of the assessee of the Harshad Mehta Group, was neither considered by any of the lower authorities nor similar clarification was sought in the case of the assessee while determining the shareholding in the hands of the assessee on the basis of information received from the Custodian. Therefore, in view of the above, the total addition of Rs. 4,70,49,835, 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. Further, 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 informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and also the grounds raised before us, we find that in the case of Smt. Rasila S. Mehta (supra) and in other cases also, similar grounds were raised. In these cases, the Tribunal has set aside the entire matter to the file of the Assessing Officer for making fresh assessment denovo. Since the facts of the assessee's case are similar to other cases viz. Hitesh S. Mehta, Rasila S. Mehta, Jyoti H. Mehta and Pratima H. Mehta, cited above, therefore, for the sake of ready reference, the relevant findings, as given in the decision of Rasila S. Mehta, is reproduced herein below:- "3.2 Having considered the rival submissions and careful perusal of the relevant material on record, we note that the CIT (A) while deciding the matter has relied upon the order in the case of Shri Hitesh 5 Mehta, as it is evident from para 9.20 as well as para 10.1 of the impugned order. We further note that the facts in the case of the assessee as well as in the case of Shri Hitesh S. Mehta, are identical and the matter arising from the same search and seizure action u/s 132 of the Act. The co-ordinate bench of the Tribunal, while deciding the identical matter in the case of Shri Hitesh S. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re involved, therefore, we also set aside the impugned order passed by the learned Commissioner (Appeals) and restore back the entire issue to the file of the Assessing Officer for denovo assessment with similar directions. The Assessing Officer shall provide due and effective opportunity of hearing to the assessee. We order accordingly." 20. We further find that the Revenue's appeal against the aforesaid decision was dismissed by the Hon'ble jurisdictional High Court in CIT v/s Smt. Pratima H. Mehta, ITA No. 258 of 2015, vide order dated 26/09/2017. Therefore, from the above, it is evident that the addition of Rs. 3,13,213, 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 of Rs. 3,13,213, made on the basis of company letters, which were not provided to the assessee is deleted. Further, the learned DR could not bring any material on record to controvert the partial relief granted by the learned CIT(A), accordingly, the relief so granted is up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. We find that the aforesaid submission is duly corroborated by the ledger account of dividend and share holing in Gujarat Ambuja Cements Ltd. in the books of the assessee, forming part of the paper book on pages 526, and 541- 543. We find that the opening balance in the shares of Gujarat Ambuja Cements Ltd. is Rs. 72,76,550, which as per the assessee is a value of 74,800 shares held in the previous financial year. We further find that in the year under consideration, the assessee purchased 78,400 shares prior to selling 32,500 shares on 20/11/1991 and 10000 shares on 29/03/1992, thus aggregating to 42,500 shares. It is pertinent to note that the assessee received a dividend of Rs. 4,42,320 on 1,42,500 shares of Gujarat Ambuja Cements Ltd. on 04/10/1991 and Rs. 9,157 on 2,950 shares of Gujarat Ambuja Cements Ltd. on 10/10/1991. Therefore, from the record, it is firstly discernible that the dividend was declared, i.e. on 04/10/1991 and 10/10/1991, prior to the sale of 42,500 shares on 20/11/1991 and 29/03/1992, and secondly, on the dates of declaration of dividend, the assessee had a shareholding of 1,53,200 (i.e. 74,800 shares purchased in the assessment year 1991-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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. 25. As regards the addition of Rs. 2,76,250, and Rs. 1,51,500, in respect of shareholding in Nicholas Laboratories and Trans Freight India Ltd, it is the submission of the assessee that no such investments were made by the assessee during the year. It was further submitted that it may be possible that the holding belonging to other family members may have been mistakenly registered in the name of the assessee and the assessee has received the dividend inadvertently from the company. It was also submitted that in spite of inquiries by the AO with the companies under section 133(6) of the Act, no such holding is reflected in information obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of interest claimed for the following reasons:- (i) The liabilities were not crystallise during the year. (ii) The interest payable is tentative and provisional. (iii) There is no basis as per which the assessee has a right to pay and the creditors has are right to receive. (iv) There is no basis of computation of interest payable which has been provided by the assessee. (v) The provisions made on account of interest payable is a contingent liability and therefore, cannot be allowed as a business expenditure. (vi) It is also seen that these broking firms have not charged any interest on the amount receivable from the companies of this group with the books of accounts have been produced before the Assessing Officer. 29. The AO following the approach adopted in earlier round of litigation rejected the assessee's claim of deduction on account of interest and disallowed interest payment of Rs. 2,46,33,261. The learned CIT(A), vide impugned order, partly allowed the ground raised by the assessee on this issue and held that the main purpose of incurring the interest expenditure was not earning income from dividends and unless the interest expenditure was incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the connection between the expenditure and the earning of income need not be direct, and even an indirect connection could prove the nexus between the expenditure incurred and the income. We further find that in CIT v/s Smt. Sushila Devi Khadaria, [2009] 319 ITR 413 (Bom.), in a similar factual matrix, i.e. wherein the AO denied the deduction claimed under section 57(iii) of the Act on the basis that the expenditure was not incurred wholly for the purpose of earning income as the taxpayer was engaged in selling shares in the stock market and the dividend income had accrued as a by-product, the Hon'ble jurisdictional High Court by placing reliance upon the aforesaid decision of the Hon'ble Supreme Court in Seth R. Dalmia (supra), upheld the allowance of finance expenditure as deduction under section 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. Therefore, respectfully following the aforesaid decision of the Hon'ble Supreme Court in Seth R. Dalmia (supra), we are of the considered view that the assessee is entitled to claim a deduction of interest expenditure under section 57 o ..... 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