DCIT Vs Hitesh Shantilal Mehta (ITAT, Mumbai)
Section 57 Does Not Carry an “Income-Sized Cap” — Once Nexus Is Proved, Interest Deduction Cannot Be Restricted To Interest Income
Summary: The assessee was a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, consequent to which his properties & assets vested in the Custodian.
Long before such notification, the assessee had borrowed funds from related brokerage entities, namely, Ashwin S. Mehta, Harshad S. Mehta & J.H. Mehta, under an arrangement providing for interest at 12% per annum. The borrowed funds were utilised for acquiring shares & securities. Upon their subsequent sale or liquidation, the realisations were either placed in fixed/term deposits or otherwise dealt with pursuant to directions governing the notified entities.
The assessee earned interest on such deposits & offered it under the head “Income from other sources”. Against this income, he claimed deduction of interest payable on the original borrowings u/s 57.
For AY 2009-10, for example, the assessee earned interest of ₹15.52 crore while the gross interest liability was ₹18.76 crore. After making a suo motu disallowance of ₹57.72 lakh u/s 14A, the assessee claimed net interest expenditure of ₹18.18 crore.
