2024 (12) TMI 1344 - HC - Income Tax

Assessee allowed deduction for broken-period interest on HTM securities; reassessment under Section 147 and 148A(d) quashed

Bank of India Versus Assistant Commissioner of Income-tax, Circle – 2 (1) (1), Mumbai, Chief Commissioner of Income Tax, Mumbai-1, Mumbai., and Union of India.

Bank of India Versus Assistant Commissioner of Income-tax, Circle – 2 (1) (1), Mumbai, Chief Commissioner of Income Tax, Mumbai-1, Mumbai., and Union of ... Issues Involved:1. Whether the petitioner is entitled to deduction for broken period interest (BPI) on purchase of hold to maturity (HTM) securities.2. Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961.3. Application and binding nature of judicial precedents on revenue authorities.Issue-wise Detailed Analysis:1. Entitlement to Deduction for Broken Period Interest (BPI):The core issue in the proceedings was whether the petitioner/assessee is entitled to a deduction for the broken period interest on the purchase of HTM securities. The petitioner argued that the issue of broken period interest being allowable as a deduction while computing income is settled by the Supreme Court in the case of Bank of Rajasthan Ltd. vs. Commissioner of Income-tax and other precedents. The petitioner relied on consistent judicial decisions which have affirmed that broken period interest is deductible, including the decisions in American Express International Banking Corporation vs. CIT and CIT vs. Citibank N.A. The court found substance in the petitioner's arguments, noting that the position in law regarding the deduction of broken period interest is well settled. The court concluded that the petitioner's entitlement to the deduction is no longer res integra, meaning it is not open to further dispute.2. Legality of Reopening of Assessment:The petitioner challenged the legality of the reopening of assessment under Section 148 of the Income Tax Act, arguing that the reopening was initiated without jurisdiction and was contrary to established legal principles. The court observed that the notice under Section 148A (b) was issued based on the claim that income had escaped assessment due to the non-addition of broken period interest in the final assessment order. The court noted that the reasons for reopening were not sufficient, given the settled legal position on broken period interest. The court highlighted that the reopening of assessment was based on a fundamental error, as the broken period interest was indeed allowable as a deduction. The court found the reopening of assessment to be without legal basis and in violation of the principles laid down by higher judicial authorities.3. Application and Binding Nature of Judicial Precedents:The court emphasized the importance of adhering to judicial precedents, particularly decisions of the jurisdictional High Court and the Supreme Court. It criticized the revenue authorities for not following the decision in Hexaware Technologies Ltd., which was binding on them. The court underscored that the principles of judicial discipline require revenue officers to follow the decisions of higher appellate authorities unreservedly. The court noted that the approach of the revenue authorities, in this case, amounted to defiance of the law laid down by the Constitutional Court. The court directed that all assessing officers should not resort to proceedings contrary to the decisions of the jurisdictional High Court, and emphasized the need for adherence to judicial discipline to prevent undue harassment to assessees.Conclusion:The court allowed the petition, quashing the impugned notices and orders issued under Sections 148A and 148 of the Income Tax Act. It held that the proceedings initiated by the revenue authorities were without legal basis and contrary to established legal principles. The court reiterated the binding nature of judicial precedents and directed revenue authorities to comply with the decisions of the jurisdictional High Court.