SUDHIR S. MEHTA,MUMBAI V. DCIT, CC-4(1), MUMBAI

ITA 417/MUM/2023

AI Insights

The case involves cross-appeals by Sudhir S. Mehta, the assessee, and the Deputy Commissioner of Income Tax (DCIT), the revenue, against the order of the CIT(A) pertaining to the assessment year 1992-93. The primary issues revolved around the additions made to the assessee's income on account of unexplained investments, receipts, and the enhancement of income based on discrepancies noted in the books of account of the late Harshad Mehta. The Tribunal found that the additions were made without proper confrontation of the specific details to the assessee, thus violating the principles of natural justice. The Tribunal also noted inconsistencies in the information provided by the companies and the custodian, leading to the conclusion that the additions could not be sustained.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36660 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 1992-1993
• Other Referred Cases: Sheraton International Inc. vs. Deputy Director of Income-tax [2007] 293 ITR (AT) 68 (Delhi), Hitesh S. Mehta vs. DCIT in ITA No. 538/Mum/2012, CIT vs. Smt. Pratima H. Mehta, ITA No.258 of 2015, CIT vs. Hitesh S. Mehta ITA No. 6026/Mum/2017 and ITA No. 5190/Mum/2017, Growmore Leasing & Investments Ltd. Vs. DCIT in ITA. No.2192/M/2015 A.Y.1992-93, Pratima H. Mehta in ITA NO. 416/Mum/2023 and 1180/Mum/2023
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P. DANIEL SPL. COUNSEL
• Assessee Lawyers: VIJAY MEHTA; DHARMESH SHAH; ARS; RS.
• Keywords: Set aside; Opportunity of being heard; Business expenditure; Unexplained investment; Rejection of books of accounts; Rule of consistency; Capital Gains; Principle of natural justice; Search and seizure; Rectification of order; Audi alteram partem
• Section: 144; 154; 143(1); 132; 133(6); 234B

Judgement Text

"| आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 417/Mum/2023 Assessment Year: 1992-93 Sudhir S. Mehta 32, Madhuli Apartment 3rd Floor, Dr. A.B. Road Worli Mumbai - 400018 [PAN: ABAPM4496R] Vs DCIT, CC-4(1), Mumbai अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) I.T.A. No. 1179/Mum/2023 Assessment Year: 1992-93 DCIT, CC-4(1), Mumbai Vs Sudhir S. Mehta 32, Madhuli Apartment 3rd Floor, Dr. A.B. Road Worli Mumbai - 400018 [PAN: ABAPM4496R] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Vijay Mehta & Shri Dharmesh Shah, A/Rs Revenue by : Shri Dr. P. Daniel – Spl. Counsel सुनवाई की तारीख/Date of Hearing : 29/01/2025 घोषणा की तारीख /Date of Pronouncement: 06/02/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. No. 417/Mum/2023 and I.T.A. No. 1179/Mum/2023, are cross-appeals by the assessee and the revenue preferred against the order of the ld. CIT(A) - 52, Mumbai [hereinafter ‘the ld. CIT(A)’] dated 09/01/2023, pertaining to AY 1992-93. 2. These cross-appeals were heard together and are disposed off by this common order for the sake of convenience and brevity. I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 2 3. Representatives of both the sides were heard at length. Case records carefully perused and the relevant documentary evidences and judicial decisions brought to our notice, duly considered in the light of Rule 18(6) of the ITAT, Rules, 1963. 4. We will first take up the assessee’s appeal in ITA No. 417/Mum/2023. 5. Briefly stated the facts of the case are that this is the third round of litigation. The original assessment order was framed u/s 144 of the Act on 20/03/1995. The assessee is a member of Harshad Mehta Group, in which a search and seizure operation was carried out on 27/09/1990. The second search and seizure operation was carried out on 28/02/1992 and thereafter there was also a search on various premises of this group by C.B.I. on 04/06/1992. The assessment was framed at Rs.54,75,47,566/-. The quarrel travelled up to the Tribunal and the Tribunal vide order dated 28/04/2006, set aside the matter for fresh decision on merits after considering the books of accounts. 5.1. The matter came up for fresh adjudication and the AO vide order dated 17/12/2007, assessed the total income at Rs.56,59,80,814/- by repeating the unexplained investment of Rs.51,95,38,091/-. The ld. CIT(A) vide order dated 11/03/2014, gave part relief to the assessee but at the same time enhanced the income of the assessee by Rs.33,61,390/- on account of unreconciled balances with the books of Shri Harshad Mehta. Thereafter, vide order dated 17/04/2015, the AO framed the following order giving effect to the ld. CIT(A)’s order:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 3 I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 4 6. It is very pertinent to mention that against the aforementioned order of the ld. CIT(A), the revenue did not prefer any appeal. Therefore, to the extent of relief given by the ld. CIT(A), the issue has attained finality. 7. Our view is fortified by the decision of the Co-ordinate Bench in the case of Sheraton International Inc. vs. Deputy Director of Income-tax [2007] 293 ITR (AT) 68 (Delhi). The relevant facts and findings read as under:- “In the assessments originally completed for the assessment years 1996-97 and 1997- 98 in the assessee's case, the entire amounts received by it from the Indian hotels I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 5 under the agreements at 3 per cent. on room sales were held to be taxable in India by the Assessing Officer. The assessee-company challenged these assessments by preferring appeals before the Commissioner (Appeals) who held that 75 per cent. of the amounts was taxable in India. Accordingly, he sustained the additions made by the Assessing Officer to that extent but held that the remaining portion of 25 per cent. represented business profits of the assessee not liable to tax in India under article 7 of the DIAA between India and the U. S. A. In its appeals filed before the Tribunal, the assessee-company challenged the orders of the Commissioner (Appeals) for both the years i.e., assessment years 1996-97 and 1997-98 disputing the additions sustained by him to the extent of 75 per cent. The Revenue, how-ever, did not prefer any appeals or even cross-objections before the Tribunal challenging the relief allowed by the Commissioner (Appeals) to the assessee by deleting the additions made by the Assessing Officer to the extent of 25 per cent. The Tribunal disposed of the appeals filed by the assessee for both the years set aside the orders of the Commissioner (Appeals) for the assessment years 1997-98 and 1998-99 impugned in the appeals filed before it and restored the matter to the file of the Assessing Officer for fresh adjudication after taking into consideration first the taxability of the amounts in question under the charging provisions contained in sections 4, 5 and 9 of the Income-tax Act, 1961 : Held, that the subject-matter of the appeals before the Tribunal thus was only about the taxability of 75 per cent. of the amounts received by the asses-see-company from the Indian hotels: the remaining portion of 25 per cent. deleted by the Commissioner (Appeals) was not the subject-matter of the appeals before the Tribunal. Therefore, when the assessments for the assessment years 1996-97 and 1997-98 were set aside by the Tribunal and the matter was remanded to the Assessing Officer for making assessments afresh, the power of the Assessing Officer was confined to the issue relating to the taxability of 75 per cent. of the amounts in question received by the assessee-company from the Indian hotels in India. He was not entitled to take up the issue relating to the taxability of the remaining portion of 25 per cent. in India notwithstanding the fact that there was no specific direction given by the Tribunal to this effect. The additions of this remaining portion of 25 per cent. made by the Assessing Officer in the assessments completed for the assessment years 1996-97 and 1997-98 were clearly outside the scope of remand and the Commissioner (Appeals) was not justified in confirming the same. These additions for the assessment years 1997-98 and 1998-99 were therefore to be deleted.” 8. In the present appeal, the assessee has raised the following grounds of appeal:- “1. The Ld. CIT(A) has erred in law and in facts in rejecting the books of accounts and holding that the same do not stand admitted. 2. The Ld. CIT(A) has erred in law and in facts in partly confirming the addition on account of unexplained investments without appreciating that- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 6 a. In the case of the Appellant and taking into account the provisions of Sec.69 of the Income Tax Act, no addition is liable to be made under the head of 'Unexplained Investments'. b. The addition has been made without providing the copies of the evidences used by him against the appellant, as directed by the Hon'ble Tribunal. c. The addition has been made without considering the aggregate purchases made by the appellant and only considering the closing investments as on 31.03.1992 while allowing credit of the purchases reflected in the books of accounts. d. The addition has been made without appreciating that the holding determined on the basis of the custodian letter dated 29.10.1993 could not have been adopted for determining the holding. 3. The Ld. CIT(A) has erred in law and in facts in confirming the addition on account of unexplained receipts to the tune of Rs. 2,95,427/-. 4. The Ld. CIT(A) has erred in law and in facts in not allowing the claim of interest expenditure to the tune of Rs. 2,04,00,000/- and granting deduction only to the tune of Rs. 12,93,360/- 5. The Ld. CIT(A) has erred in law and in facts in not allowing various expenses recorded in the books of accounts. 6. The Ld. CIT(A) has erred in law and in facts in enhancing the assessed income of the appellant by Rs. 33,91,390/- on account of difference in the balance in the books of account of Late Mr. Harshad S. Mehta for A.Y. 1992-93. 7. The Ld. CIT(A) has erred in law and in facts in confirming the levy of interest u/s. 234D of the Act. 8. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.” 9. The assessment is framed u/s 144 r.w.s. 254 of the Act vide order dated 29/12/2017 wherein the AO framed and repeated the additions which were made in the first round of litigation. The total income was computed as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 7 9.1. When the assessment was agitated before the ld. CIT(A), the assessee took a specific ground on account of addition of unexplained investments of Rs.51,95,38,091/-. The relevant findings of the ld. CIT(A) read as under:- “7.2. In the earlier appellate proceedings, vide order dt. 11.03.2014, my Id. Predecessor had directed the AO to consider the contract notes submitted up to 1.3.1995. He has also directed the AO to reconcile the discrepancies as regards bonus, rights subscription, etc. Subsequently, vide order giving effect dt. 17.04.2015, the AO had given a relief of Rs. 25,46,98,471/- on account of explanation given through contract notes and bonus shares and the relief of Rs. 52,08,375/- on account of explanation given though rights issue. 7.3. Coming to the order under question, the AO has not given any reasoning as to why, these relief need to be withdrawn from the appellant. While deciding ground No. 3, I have held that even while the books of accounts rejected the same could be used wherever relevant, being an important source of information in the context of section 144 proceedings. Hence, this addition of Rs. 25,46,98,471/- and Rs. 52,08,375/- cannot be sustained without valid reasons. These additions aggregating Rs. 25,99,66,848/- stands deleted.” 10. Thus, it can be seen from the above that the relief given by the ld. CIT(A) in the second round of litigation has been repeated by the ld. CIT(A) as the AO has not given any reason as to why this relief needs to be withdrawn. We have already mentioned that to this extent, the order of the ld. CIT(A) has attained finality as mentioned hereinabove. 11. While giving effect to the ld. CIT(A)’s order, the AO computed the total income as under:- ***This space has been left blank intentionally, P.T.O.*** I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 8 11.1. Thereafter the AO framed a rectification order u/s 154 of the Act and computed the total income as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 9 11.2. The unexplained investment came down to Rs. 4,68,43,434/- to which the correct figures are as under:- 12. The unexplained investment is divided into three parts:- (I) – The addition based upon Company letters received u/s 133(6) – Rs.27,91,101/-. The details of the investments on such information are as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 10 13. The additions have been made on the basis of information collected by the AO from aforementioned companies but even after repeated requests made by the assessee, no such details were confronted to the assessee. The request made by the assessee on several occasions can be understood from the following chart:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 11 I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 12 14. A perusal of the documents filed before us show that there is discrepancy in the information collected. For example, there is an information from Oswal Agro Mills Ltd., that the assesse is holding 210 shares as per the AO and the balance quantity after giving relief to the assessee is 187 shares whereas as per the information given by the company Oswal Agro Mills Ltd., 210 shares were held by Ashwin S. Mehta and the number of shares held by Shri Sudhir S. Mehta i.e., the assessee, is Nil. 15. Considering the facts in totality, we are of the considered view that even in the third round of litigations, the AO could not provide the specific information/details collected from the companies on the basis of which the impugned additions have been made, are in complete violation of the principles of natural justice. 16. We find that the Co-ordinate Bench in the case of Hitesh S. Mehta vs. DCIT in ITA No. 538/Mum/2012, while setting aside the issues to the file of the AO, has specifically mentioned that, “Therefore, the Assessing Officer is directed to provide copies of all information on which basis, the AO wanted to made additions in the hands of the assessee. If the AO does not provide the material then in our view addition can not be made.” This specific direction has been upheld by the Hon’ble High Court of Bombay in ITA No. 2490 of 2013, vide order dated 07/06/2016, wherein the Hon’ble High court, held as under:- “(d) We find that the impugned order of the Tribunal on the above issue is unimpeachable The basic principles of natural justice require that before any addition is made by the Assessing Officer on information obtained from third parties/own source, he must confront the assessee with the material so obtained. This above would I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 13 enable the assessee to explain the correctness/incorrectness or unreliability of the evidence so obtained. In the absence of the necessary evidence sought to be used being given by the Assessing Officer to the Assessee, it would amount to condemning a person without a proper hearing.” 16.1. Similar view was taken by the Co-ordinate Bench in ITA No. 6026/Mum/2017 and ITA No. 5190/Mum/2017. The relevant findings read as under:- “So far as, the second amount of 7,28,925/- representing the addition made on the basis of letters filed by four companies as mentioned at serial no. 9 to 12 in para no. 9 above, we find that in the said letters details provided were incomplete as it is not clear whether the same pertain to the year under consideration. For example, the details and information provided by these companies do not explain to which year these transaction relate to and there were several flaws in the said letters. Thus, the details provided by above 4 companies do not reflect the exact details to come to the conclusion the correct holding of the assessee and therefore, we find merits in the arguments of the Ld. AR that the addition on the basis of said letters is not justified and can not be sustained. Accordingly, we set aside the order of the CIT(A) on the issue and direct the AO to delete the addition.” 16.2. Similarly, the Co-ordinate Bench in the case of Pratima H. Mehta in ITA NO. 416/Mum/2023 and 1180/Mum/2023, had the occasion to consider an identical situation and the Co-ordinate Bench held as under:- “18. As regards the addition made on the basis of company letters, the learned AR submitted that the enquiries were made by the AO during the course of original assessment proceedings with various companies seeking information in respect of the shareholding of the assessee. It was further submitted that although the said information so received was used to determine the shareholding in the various scrips and treated the same as unexplained, however, copies of these evidences were never provided to the assessee. In this regard, the learned AR referred to details of various letters requesting the AO/learned CIT(A) to provide the information received from the company on the basis of which addition was made. The learned AR further submitted that to the extent company letters were provided by the AO, in the third round of proceedings, assessee's explanation was accepted by the AO and the addition to an extent of Rs.1,32,13,835, was deleted. It was further submitted that during the course of proceedings before the learned CIT(A), even though several I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 14 letters were provided to the assessee, the copies of letters based on which the addition of Rs.3,13,213, was sustained, were not provided to the assessee. 19. We find that the coordinate bench of the Tribunal vide its order, in the second round of proceedings, in ITA No.2694/Mum./2012, vide order dated 30/06/2014, specifically directed the AO to provide copies of all information on the basis of which additions were made in the hands of the assessee. The coordinate bench further held that if the AO does not provide the material then the addition cannot be made. The relevant findings of the coordinate bench in the aforesaid decision, are reproduced as under:- \"5. After considering the impugned order, various Tribunal orders in the group cases 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. Mehta, has disposed off the same in Para-4 & 5 as under:- 4. We have heard rival submissions and consider them carefully. We have also perused the copies of the order of the tribunal in case of Smt. Pratima Mehta and the assessee passed in first round. 5. After considering all the relevant material, we found that the matter should go back to the file of the Assessing Officer to pass a fresh order, It is seen that for rejecting the books of account, the AO has not given any valid reasons as no specific defect has been pointed out in. the books of account, I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 15 therefore in our view the Assessing Officer should go through the books for determining the income on the basis of books accounts\" The Assessing Officer has to bring on record specific evidence or defect to prove falsity of books of account as no falsity has been proved in the assessment order passed by the AO. Besides this the department has to provide all the details and material on which basis the addition have been made earlier. If such material is disputed by the assessee then in our view correctness of such material has to be examined as per provision of law, we are not convinced with the argument of Id. DR that assessee can collect information from parties from where Assessing Officer has obtained the copies on which basis the addition have been made, Therefore, Assessing Officer is directed to provide the copies of all information on which basis, the AO wanted to made additions in the hands of the assessee. If the AO does not provide the material then in our view addition cannot be made, In view of above facts and circumstances, we set aside order of the authorities below and restore the issues to the file of the Assessing Officer to pass assessment de novo after affording reasonable opportunity of being heard to the assessee and as per observations of ours made in the order as above. We order accordingly. 4 Since the facts and circumstances are identical and the nature of issue raised in the case of the assessee as well as in the case of Shri Hitesh S Mehta (supra) are also similar; therefore, to maintain the rule of consistency, we set aside the matter to the record of the Assessing Officer with the similar directions and terms as in the case of Shri Hitesh S Mehta (above).\" 6. Thus, consistent with the view taken by the Tribunal in all these cases, wherein identical facts and issues are 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 I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 16 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 upheld. Therefore, the appeal by the assessee in respect of the aforesaid addition is allowed, while the appeal by the Revenue is dismissed.” 17. In light of the above decisions of the Co-ordinate Bench, to sum- up even in the first round of litigation, the AO could not provide the details which were the basis for making the impugned additions. Therefore, in our considered view, such additions cannot be sustained, keeping in mind the number of decades passed since the original assessment order was framed. Moreover, the additions have been made in violation of audi alteram partem. We, therefore, direct the AO to delete the impugned addition. 18. (II) – The second addition is based upon the letter received from the Custodian – Rs.3,89,77,270/- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 17 The letter received from the custodian, reads as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 18 19. A bare perusal of the aforementioned letter shows that there is not even a whisper of the impugned financial year or assessment year. It has also been clearly mentioned that the figures cannot be treated as firm and final figures. Moreover, when the office of the Custodian realised some glaring errors, it clarified the information already sent, as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 19 20. In fact, on 28/10/1993, the company, Fuller K.C.P. Ltd., certified that the dividend declared @24% was dispatched to the registered shareholders. Mr. Rasilal Shantilal Mehta, holding 11900 shares which had been added by the AO in the hands of the assessee. Thus, an example of wrong information and in some cases, the request for allotment of shares have been returned. One such company is TISCO, whose letter is place at page 403 in Paper Book volume-II. 21. On identical situation and facts, the Co-ordinate Bench in the case of CIT vs. Hitesh S. Mehta ITA No. 6026/Mum/2017 and ITA No. 5190/Mum/2017, had the occasion to consider a similar issue and held as under:- “13. The second amount of addition of Rs.24,24,385/- as stated in para 8 above represented the addition made on the basis of Custodian letter. We observed that Rs.24,24,385/- was made on the basis of Custodian letter dated 29.10.1993. The I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 20 information provided in the said letter were incomplete. For example the date of determination of the share holdings was not mentioned, constant change of the figure of holding due to reasons like non-consideration of sale of shares by notified parties, and the holding provided by the Custodian not matching with the companies letters. Therefore, the addition made by relying on the Custodian letter can not be confirmed. The case of the assessee is supported by the decision of the coordinate bench in Growmore Leasing & Investments Ltd. Vs. DCIT in ITA. No.2192/M/2015 A.Y.1992-93 wherein it was held that where there was no evidence of the holdings of shares and securities as alleged by the revenue, the addition has to be deleted. Considering these facts and circumstances and the coordinate bench decision, we set aside the addition of Rs.24,24,385/ sustained by CIT(A) and direct the AO to delete the same. 22. Considering the facts of the case in totality in light of the letter of the custodian mentioned elsewhere and finding that no specific details of holding of shares for the impugned assessment year has been mentioned or provided to the assessee, the additions cannot be sustained. The AO is directed to delete the same. 23. (III) – Additions made on account of dividend details/warrants – Rs.51,67,438/- The details of alleged unexplained investment addition on the basis of dividend information is as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 21 24. The details of shareholding of the assessee are exhibited from pages 414 to 418 of the Paper Book volume – II. The investment in shares DCM Ltd. of 2500 shares are coming from earlier years as the same is opening balance. Similarly, 3900 shares of Eicher Motors which were opening balance of the assessee were only 200 shares with bonus of 400 shares at the end of the impugned financial year. The holding of Golden Proteins at 15,300 shares have been wrongly taken from the opening balance of Gujarat Ambuja Proteins. The complete details of short-term capital gains and long-term capital gains on sale of shares during the impugned financial year have been given at pages 247 to 249 of the paper book with complete details of dividends received from shares during the financial year at pages 258 to 263 the paper book. It would be pertinent to mention here that the entire additions have been based on dividends declared by the companies of which the assessee may or may not have held the shares during the year under consideration as the same is not based on physical holding of shares and merely on the basis of information collected behind the back of the assessee for which we have already expressed our view elsewhere. Therefore, this addition also cannot be sustained. Accordingly, Ground No. 2 with all its sub- grounds is allowed. 25. Ground No. 3 relates to the addition on account of unexplained receipts of Rs.2,95,427/-. Particulars of such unexplained receipts as per the AO is as under:- I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 22 26. We have carefully considered the orders of the authorities below. We do not find any specific reason given for making the impugned addition as interest received on savings bank account, dividend income have already been shown by the assessee on its income statement and there is no specific mention as to entry in which bank account has not been shown/declared by the assessee. The additions have been repeated from the first round of litigation without any demonstrative evidence, therefore, the same is directed to be deleted. Accordingly, Ground No. 3 is allowed. 27. Ground No. 4, relates to the claim of interest expenditure Rs.2.04 Crores out of which the ld. CIT(A) allowed only Rs.12,93,360/-. 27.1. Similar issue came up for consideration before the Coordinate Bench in the case of Pratima H. Mehta (supra). The relevant findings read as under:- “27. Since the issue arising in ground no.3, raised in assessee's appeal, and grounds no.2 and 3, raised in Revenue's appeal, pertains to the deduction of interest expenditure, therefore the aforesaid grounds are dealt with together. I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 23 28. The brief facts of the case pertaining to this issue, as emanating from the record, are: During the assessment proceedings, the assessee submitted that the transactions in the capital market have been made through three broking firms belonging to the family members of the assessee. As per the details submitted by the assessee, it was submitted that the amount of interest of Rs. 2,46,33,261 are shown as payable to family run broking firms such as M/s HSM, M/s ASM and M/s JHM. The AO vide order passed under section 144 read with section 254 of the Act did not agree with the submissions of the assessee and disallowed the deduction 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 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 assessee and Revenue are in appeal before us. 30. We have considered the submissions of both sides and perused the material available on record. From the perusal of the computation of total income, forming part of the paper book on pages 464-466, we find that the assessee claimed interest on bank loans of Rs. 2,46,33,261 against the income under the head \"income from other sources\". It is evident from the record that the learned CIT(A) placed reliance upon the decision of the Hon'ble jurisdictional High Court in CIT v/s Jagmohandas J. Kapadia, [1966] 61 ITR 663 (Bom.), in order to support the conclusion that unless the interest expenditure was incurred solely for the purposes of making or earning dividend income, no deduction as possible under section 57 of the Act. The relevant I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 24 findings of the Hon'ble jurisdictional High Court in the aforesaid decision, as relied upon in the impugned order, are as under:- \"It would be noticed that what is allowable as expenditure under the said sub- section is only the expenditure incurred solely for the purpose of making or earning dividend income. Emphasis thus appears to be on the object or purpose of incurring of the expenditure. The exclusive object of incurring the expenditure has to be the making or earning of the dividend income. The mere fact that income by way of dividend has accrued and that the expenditure incurred is in some manner or other related to the accrual of the dividend income is not sufficient.\" 31. We find that the Hon'ble Supreme Court in Seth R. Dalmia v/s CIT, [1977] 110 ITR 644 (SC) agreed with the view taken by the Hon'ble jurisdictional High Court in CIT v/s H.H. Maharani Vijaykuverba Saheb of Morvi [1975] 100 ITR 67 (Bom), wherein it was held that 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 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.” 27.2. Similarly in the case of Jyoti H. Mehta vs. ACIT in ITA No. 436/Mum/2023 and ITA No. 1186/Mum/2023, the Tribunal has considered similar grievance, which reads as under:- “41. Ground no 6 pertains to sustaining the addition on account of interest disallowed. The Ld. CIT (A) has granted partial relief, by allowing on proportionate I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 25 basis, the interest expenditure only to the extent of Rs. 11, 49,540/- as against the total claim of Rs. 1, 02, 00,000/- made by the assessee.” 27.2.1. And the Co-ordinate Bench following the order of the case of Pratima H. Mehta (supra), held as under:- “44. It is apparent that the reasons given for not allowing the interest expenditure claimed by the assessee u/s 57 of the Act are not tenable in view of the decision of the Apex Court in the case of Seth R. Dalmia (supra) which is duly followed by the co- ordinate bench of the Tribunal in the case of Smt. Pratima Mehta (supra). Respectfully following these judicial precedents, we allow this ground of appeal in favour of the assessee and direct the A.O. to allow interest expenditure claimed by the assessee while computing the taxable income. In the result, ground no. 6 raised by the assessee is allowed.” 28. In assessee’s own case for AY 1991-92, the Coordinate Bench in ITA No. 5966/Mum/2017 and 635/Mum/2018, has allowed the claim of interest. On finding parity of facts, respectfully following the decision of the Coordinate Bench (supra), we direct the AO to allow the entire claim of interest. Accordingly, Ground No. 4 is allowed. 29. Ground No. 6 relates to the enhancement of assessed income by Rs. 33,91,390/- on account of difference in the balance sheet in the books of account of Late Harshad Mehta. The cause for enhancement is the following observations of the ld. CIT(A):- “52. The Hon'ble Special Court had appointed three firms of Chartered Accountants, viz. M/s. Kapadia Damani & Co., M/s. Natwarlal Vepari & Co. and M/s. Kalyaniwalla & Mistry, to prepare and audit the accounts of notified parties in Harshad Mehta group cases. These Auditors audited the accounts of the assessee and submitted their Audit Report to the AO. On perusal of the Audit Report submitted by these Auditors in the case of the appellant as also the Audit Report submitted by M/s. Vyas & Vyas, CAs, in the case of Shri Harshad S. Mehta, certain differences were found in the balances of accounts of the group entities, as under:- …………………….. …………………….. During the course of audit, M/s. Vyas & Vyas, Auditors, had given a categorical finding on the issue of differences in the balances as per the books of accounts of Shri Harshad Mehta and other group assessees. These findings were given after collectina information from various assessees. banks and financial institutions and other I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 26 sources. Further, these findings are based on cross-verification and examination of the accounts of the group assessees. It appears that differences in the balances arose due to non-disclosure of transactions by the respective assessees. Therefore, such differences in account is liable to be taxed in the hands of the respective assesses, as undisclosed income. As per the table given above, there was a difference of Rs.33,61,390/- in the account of the appellant as appearing in the books of Shri Harshad Mehta, which was not taxed. This matter has been dealt with in the appellate order dated 24/3/2010 in the case of Shri Harshad Mehta for A.Y. 1992-93. Accordingly, a notice of enhancement of income u/s.251(1)(a) of the I.T. Act, 1961 was issued to the appellant on 24/6/2011. In response to the same, the appellant did not make any written submissions. However, the learned AR argued that these balances may not relate to the year itself, but may be brought forward from earlier years. However, he could not give any evidence of the same. 53. I have considered the facts of the case. From the perusal of the records, specifically the Audit Reports of the Auditors appointed by Hon'ble Special Court, it is clear that there is a difference of Rs.33,61,390/- in the balances appearing in the name of the appellant in his own books of accounts (Rs.11,92,15,389/-), audited by the three firms of Chartered Accountants appointed by the Hon'ble Special Court, and in the books of accounts of late Shri Harshad Mehta (Rs. 12,25,76,779/-), which were audited by M/s. Vyas & Vyas, CAs. The Auditors have collected information from different sources, including Custodian, Banks and other parties, and have cross-verified the same. Thereafter, they have reached on conclusion that there was indeed difference of Rs.33,61,390/- in the balances as on 31/3/1992, in the books of the present assessee and that of Shri Harshad Mehta. The assessee has failed to explain this difference satisfactorily. In fact, to me, it appears to be non-reporting of certain transactions by the appellant and, therefore, amounts to concealment of income. Therefore, the difference in the balances as per two Audit Reports, amounting to R$/33,61,390/-. is liable to be taxed in the hands of the assessee. Accordingly, appellant's income is enhanced by an amount of Rs.33,61,390/-. Penalty proceedings u/s.271 (1)(c) of the I.T. Act, 1961 are initiated on this issue.” 30. The assessee has furnished the following re-conciliation of balance:- ***This space has been left blank intentionally, P.T.O.*** I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 27 31. If the above re-conciliation is read with the annexure which explain the additions and the difference, we find that as on 31/03/1992, the balance in the books of Harshad Mehta in respect of the assessee was debit of Rs.12,25,76,779.56/- and the balance in the books of Sudhir S. Mehta, was debit of Rs.11,92,15,389.56/-. Now, if we see these figures I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 28 from the reconciliation statement hereinabove we find that the balance of Rs.11,92,15,290/- has been mentioned as balance as per the books of Harshad Mehta and the total balance which included share-market balance, money market balance and personal balance is Rs.12,25,76,779/-. It seems that the balance of Harshad Mehta have been considered with his own balance and not with the balance of Sudhir S. Mehta, which have been explained in the above chart and the balance stands totally reconciled. Therefore, the impugned enhancement made by the ld. CIT(A) is uncalled for and deserves to be deleted. Accordingly, Ground No. 6 is allowed. 32. Ground No. 7 relates to the levy of interest u/s 234D of the Act. In our considered opinion, provisions of Section 234D of the Act are not applicable in the facts of the case inasmuch as, there was no refund issued to the assessee as there was no processing of return u/s 143(1) of the Act. Our view is fortified by the decision of the Hon’ble Bombay High Court in the case of Delta Airlines Inc - BOM HC - 358 ITR 367. We accordingly direct the AO to not charge interest u/s 234D of the Act. 33. The additional ground raised by the assessee relates to the levy of interest u/s 234A and 234B of the Act. In our considered view, such levies are mandatory but only up to the date of original assessment order which is dated 20/03/1995. The AO is directed to charging interest u/s 234A and 234B of the Act up to the date of original assessment order. 34. Accordingly, the appeal of the assessee in I.T.A. No. 417/Mum/2023 is allowed. I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 29 35. Coming to the revenue’s appeal, as we have already explained in assessee’s appeal that the additions deleted by the ld. CIT(A) in the second round of litigation, were not agitated by the revenue before the Tribunal, therefore, the same has attained finality. Therefore, in view of detailed discussion given elsewhere, the additions deleted by the ld. CIT(A) in the second round cannot be agitated in this appeal. To this extent, the grievance of the revenue is dismissed. 36. The other issues related to the partial relief given by the ld. CIT(A) in respect of the interest payments. This issue has been discussed in detail by us in the assessee’s appeal while deciding Ground No. 4. For our detailed discussion therein, this ground of the revenue is also dismissed. 37. In the result, appeal of the assessee is allowed and appeal of the revenue is dismissed. Order pronounced in the Court on 6th February, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE-PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 06/02/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs I.T.A. No. 417/Mum/2023 I.T.A. No. 1179/Mum/2023 30 आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "