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TMI Blog2024 (12) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... n this short point, the addition on account of personal withdrawals made by the learned CIT(A) is deleted. As a result, the impugned order on this issue is set aside and grounds no.2-3 raised in assessee s appeal are allowed. Addition on account of drawings - We find that the amount shown as drawings in the ledger account for the financial year 2010-11 appears in Schedule A of the balance sheet of the year under consideration and thereby the capital account is reduced to that extent. Since the drawings in the books of the assessee for the year under consideration is nothing but the drawings of the financial year 2010-11, it appears that the same was reduced erroneously by the assessee from the capital account of this year and thus the direction of the learned CIT(A) to exclude the same, which resulted in the impugned addition, on the basis that same is not appropriately reflected is correct and we upheld the same. Accordingly, the impugned order on this issue is upheld and ground no.4 raised in assessee s appeal is dismissed. Deduction of interest expenditure - CIT(A) dismissed the ground raised by the assessee on this issue and upheld the disallowance made by the AO u/s 57(iii) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21,60,000/- on account of personal withdrawals. 3. The Ld. CIT(A) ought to have appreciated that the addition on account of personal withdrawals represents enhancement of income and that such enhancement was not permissible in view of s. 251 of the Act. 4. The Ld. CIT(A) has erred in law and in facts in making addition on account of drawings of Rs. 2,74,080/-. 5. The Ld. CIT(A) ought to have deleted the discrepancies pointed out by the Ld. A.O. instead of setting it aside to the Ld. A.O. for verification. The Ld. CIT(A) has erred in law and in facts in not granting deduction on account of interest payable by the appellant amounting to Rs. 1,25,73,937/-. 6. The Ld. CIT(A) has erred in law and in facts in not allowing set off of tax deductible at source while calculating interest u/s. 234B of the Act. 3. Ground no. 1, raised in assessee s appeal, was not pressed during the hearing on the basis that the addition was deleted vide order giving effect pursuant to the learned CIT(A) s directions. Accordingly, ground no.1 raised in assessee s appeal is dismissed. 4. The issue arising in grounds no.2-4, raised in assessee s appeal, pertains to addition on account of personal withdrawals. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows: 9.7. At the same time, it is seen that the appellant has overstated its capital balance despite past additions / disallowances made on this account. For instance in AY 2016-17, the AO has made an addition of Rs. 21,60,000/- on account of personal household expenses. Although the assessment order was passed on 19.12.2018, the appellant had not filed any appeal against quantum proceeding till 07.11.2023 when the penalty appeal for the same year was heard. Vide para 8 of the CIT(A) order against the 271(1)(c) order for AY 2016- 17, a finding was given that the quantum issue had already become final. Hence, this amount of Rs. 21,60,000/- is not available for the appellant to be treated as-its capital. For the year under reference also the appellant was asked to explain why no drawings or expenses have been shown. In my view, it would be appropriate that a similar sum of Rs. 21,60,000/- be excluded for the purpose of capital balance. Apart from this, if any addition / disallowance has been made in the past, which impact the capital balance, the same may be verified and excluded from the capital balance. The appellant is directed to assist the AO in this regard. Besides the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressly or impliedly by the AO. Accordingly, we are of the considered view that the learned CIT(A), in the present case, has transgressed its power of enhancement granted under section 251(1) of the Act while making the addition on account of personal withdrawals, and therefore the impugned addition is void ab initio. Accordingly, on this short point, the addition of INR 21,60,000 on account of personal withdrawals made by the learned CIT(A) is deleted. As a result, the impugned order on this issue is set aside and grounds no.2-3 raised in assessee s appeal are allowed. 11. The issue arising in ground no.4, raised in assessee s appeal, pertains to addition on account of drawings. 12. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that while adjudicating the ground raised by the assessee challenging the addition of INR 450,05,53,549 on account of capital balance, the learned CIT(A) made an addition of a sum of INR 2,74,080 on account of drawings, which as per the learned CIT(A) was not properly reflected by the assessee. As per the assessee, the drawings amounting to INR 2,74,080 were made during the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red with the income earned. It was held that however, the assessee in her submissions could not establish the linkage between the income earned and expenses incurred. It was further held that the assessee has not furnished any specific details providing a direct correlation of such expenses with the income from other sources earned during the year under consideration. Accordingly, the AO disallowed the deduction of interest claimed by the assessee for the following reasons: The interest payable is tentative and provisional. There is no basis as per which the assessee has a right to pay and the creditors has a right to receive. There is no basis of computation of interest payable which has been provided by the assessee. The provisions made on account of interest payable is a contingent liability and therefore, cannot be allowed as business expenditure. It is also seen that these broking firms have not charged any interest on the amount receivable from the companies of this group where the books of accounts have been produced before the AO. 16. Thus, the AO found no merits in the contention of the assessee and disallowed the sum of INR 1,25,73,937 and added the same to the total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 solely for the purposes of making or earning dividend income, no deduction is possible under section 57 of the Act. The learned CIT(A) further held that in the acquisition of shares for capital gains, the dividend income is incidental and not a major factor, and it is thus clear that the sole purpose of borrowing by the assessee @12% per annum cannot be for the purpose of earning dividend income. Accordingly, the interest expenditure was held to be not allowable against dividend income. The learned CIT(A), however, allowed the interest expenditure only to the tune of Rs. 15,73,548 which is the share trading profit. Being aggrieved, both ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid 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 of the Act 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 under section 57 of the Act. As a result, ground No. 3 raised in assessee s appeal is allowed, while ground No. 2 and 3 raised in Revenue s appeal is dismissed. 19. During the hearing, the learned DR by vehemently relying on the impugned order submitted that the decision of the coordinate bench of the Tribunal in assessee s family member, cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the issue under consideration before us, under the Income Tax Act, 1922 and the Act applicable to the present case. Therefore, we find no merits in the aforesaid submission of the learned DR. 22. During the hearing, the learned AR submitted that a similar issue came up for consideration before the coordinate bench of the Tribunal in assessee s own case for the assessment years 2011-12, 2012-13 and 2013-14 in Smt. Rasila S. Mehta v/s DCIT, in ITA no. 5806/Mum./ 2015, etc. We find that in the aforesaid decision, vide order dated 27/12/2017, the coordinate bench allowed the claim of deduction in respect of interest expenditure, by observing as follows: 12. We heard the rival submissions and carefully considered the same along with the orders of the Tax Authorities below. We have also gone through the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted from the affidavit of the custodian dated 01.03.2006 in M.P. No. 41 of 1999 that the custodian seeking to levy interest @ 15% to 18% per annum. Therefore the interest on outstanding credit balance of the brokerage firm has accrued as actual liability. The issue with regard to contract for payment of interest has been raised by the AO and the CIT(A) in the case of other notified entities duly approve the existence of liability. We noted that in the case of Growmore Leasing Finance Ltd. for A.Y. 2007-08 by order dated 26.06.2014 the CIT(A) followed the finding in the case of other group concerns, i.e. Eminent Holding Pvt. Ltd. by observing as under: - 6.3 I have gone through the submissions of the Ld. AR. I find that though there is no express document evidencing payment of interest 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt directs for distribution of the assets towards existing liabilities under Section 11(2) of the Special Court Act, the assessee cannot make the payment to these creditors. Even otherwise since the existence of liability towards interest has accrued especially when the assessee is following the mercantile system of accounting the interest is to be allowed. During the course of hearing we raised a query about the nexus of interest expenses with the interest income. The learned A.R. pointed out that the liability in the present case was accrued on account of purchases of shares securities by the assessee which were sold in terms of the directions of the Hon'ble Special Court in subsequent years and the sale proceeds so received were invested in term deposits with the 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AC 155 (PC), wherein it was observed (page 328): Parties are not permitted to begin fresh litigation because of new view they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted. 28. In A.Y. 2011-12 assessee has taken identical grounds as taken in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015. In assessment years 2012-13 and 2013-14 the assessee has taken only ground Nos. 1 3 4 which were renumbered as ground Nos. 1, 2 3 except change in figure in ground No. 1. In ground No. 1 assessee has claimed deduction of interest at Rs. 1,29,51,465/- after proportionate disallowance of interest at Rs. 12,25,871/- for A.Y. 2012-13 and in A.Y. 2013-14 the assessee has claimed interest of Rs. 1,35,62,185/- after proportionate disallowance of interest of Rs. 6,15,151/- in place of Rs. 1,08,72,373/- after disallowance of proportionate interest of Rs. 33,04,963 in A.Y. 2011.12. Both the parties agreed that as the facts and claim of interest is similar to ground No. 1 in the case of Shri Sudhir S. Mehta in ITA No. 5799/Mum/2015, the same view may be taken in the case of the assessee. While disposing of ground No. 1 relating to claim of interest of assessee in the case of Shri Sudhir S. Mehta we have allowed the claim of interest against interest on term deposit and confirmed proportionate disallowance of interest. We, therefore, respectfully following t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicable to the notified entities also, that the assessee was in the-process of filing an appeal against the said order before the Hon'ble Supreme Court, that the income earned in the year under consideration was subjected to provisions of TDS, that the changeability of the section 234A, 234B and 234C of the Act should be after considering the amount of tax deductible at source on the income assessed. The appellant relies in this regard on the following decisions. He relied upon the cases of Motorola Inc. v. DCIT [95 ITD 269 (Del.) (SB)], Sedco Fores Drilling Co. Ltd. [264 ITR 320], NGC Network Asia LLC [313 ITR 187], Summit Bhatacharya [ 300 ITR (AT) 347 (Bom)(SB)], Vijal Gopal Jindal [ITA No. 4333/Del/2009] Emillo Ruiz Berdejo [320 ITR 190 (Bom)]. DR relied upon the cases of Devine Holdings Pvt. Ltd. 3.1. We have heard the rival submissions and pe ..... 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