ITAT Mumbai Decides Three-Decade-Old Cross-Appeals: 50% Relief on Share Trading Profit, Interest Deduction Allowed Under Section 57

Background and Overview

The Mumbai Bench of the Income Tax Appellate Tribunal adjudicated a set of cross-appeals arising from Assessment Year 1993-94 in the matter of Jyoti H. Mehta Vs ACIT (ITAT Mumbai), vide ITA No. 436/Mum/2023 (assessee's appeal) and ITA No. 1186/Mum/2023 (Revenue's appeal). The impugned order had been passed by the CIT(A)-52, Mumbai on 09/01/2023 under Section 250 of the Income Tax Act, 1961. What makes this case particularly noteworthy is the extraordinary span of litigation — nearly thirty years — that preceded this final adjudication at the Tribunal level.

The foundational assessment had been completed by the Assessing Officer under Section 144 of the Income Tax Act, 1961 on 29.03.1996, determining the total income of the assessee at Rs. 66,62,59,784/-. The subsequent appellate journey saw the matter being dismissed at the first appellate stage on grounds of Section 249(4), restored by the Tribunal in ITA No. 6885/M/2017 vide order dated 23.06.2008, and eventually disposed of by the CIT(A) only in January 2023 — underlining the protracted nature of proceedings connected with transactions from the early 1990s.

Issue-Wise Analysis of the Assessee's Appeal

Ground 1: Dividend and Debenture Interest Income

The AO had estimated dividend and debenture interest income at Rs. 88,78,044/-, basing this figure on the assessee's shareholding position as computed by him. However, the assessee's books of account recorded dividend income of Rs. 66,28,489/- and debenture interest income of Rs. 5,62,782/-, aggregating to Rs. 71,91,271/-. The same figure was duly reflected in the Profit & Loss account forming part of the paper book placed before the Tribunal.

The CIT(A) had confirmed the addition at Rs. 88,78,044/- on grounds that it represented a reasonable estimate amounting to 1.54% of total shareholding of Rs. 57,70,64,581/-. The Revenue objected before the Tribunal primarily on three counts: the assessee had not raised this point specifically before the CIT(A); the revised figures were not placed before the lower authorities; and verification with custodians or company records was necessary before any revision.

The Tribunal, however, found merit in the assessee's position. It noted that:

  • The books of account had since been produced and were on record before the CIT(A), who had called for a remand report from the AO.
  • Given the passage of approximately three decades, it was practically impossible for any party — including the companies involved — to produce fresh verifiable records.
  • Even statutory law does not require preservation of accounting data beyond eight years.
  • Dividend and interest income had been received through banking channels and was reflected in bank statements, which were sufficient primary evidence.
  • The principle enshrined in Article 265 of the Constitution of India that the State should not unjustly enrich itself was also invoked.

Accordingly, the Tribunal restricted the addition to Rs. 71,91,271/- as reflected in the assessee's own books, and Ground No. 1 was allowed.

Ground 2: Share Market Trading Profit — 50% Relief Granted

This was the most contested issue. The AO had made an addition of Rs. 56,70,59,983/- on account of alleged unexplained profits from share market transactions. The CIT(A) granted substantial relief on factual grounds, sustaining only Rs. 6,83,95,324/-. The assessee sought complete deletion, while the Revenue sought full restoration.

The Tribunal observed that: