TaxTMI 
TaxTMI 
2022 (2) TMI 29
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....016) 383 ITR 529 (Bom), the Hon'ble Jurisdictional High Court set aside the order of the Tribunal in its entirety and restored the issues to the Tribunal for deciding afresh with the following observations:- "25. It is in the above view, that we set aside the impugned order of the Tribunal dated 23rd September, 2015 in its entirety and restore the issue to the Tribunal to decide it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously follow the decisions rendered by this Court wherein a view has been taken on identical issues arising before it. It is not open to the Tribunal to disregard the binding decisions of this Court, the grounds indicated in the impugned order which are not at all sustainable. Unless the Tribunal follows this discipline, it would result in uncertainty of the law and confusion among the taxpaying public as to what are their obligations under the Act. Besides opening the gates for arbitrary action in the administration of law, as each authority would then decide disregarding the binding precedents leading to complete chaos and anarchy in the administration of law." 3. This is how the present appeal came up be....
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.... the above mentioned reasons. The Appellant, therefore, prays that the disallowance of ESOP expenses of Rs. 8,21,32,798/-be deleted." 5. In ground 1, the assessee has challenged disallowance of expenditure amounting to Rs. 3,66,00,000 under section 14A of the Income Tax Act, 1961 read with rule 8D of the I.T. Rules, 1962. 6. Briefly stated, the assessee, a resident company, is engaged in the business of banking. For the assessment year under dispute, assessee filed its return of income declaring total income of Rs. 291,92,11,551/-. Subsequently, assessee filed a revised return of income on 12-08-2009 declaring total income of Rs. 241,72,24,633/-. In course of assessment proceedings, the assessing officer, while verifying the return of income filed by the assessee noticed that the assessee had earned exempt income of Rs. 5,81,22,000/- towards interest earned on tax free bonds and dividend on shares and mutual funds. Noticing the above, the assessing officer called upon the assessee to furnish the details of interest and other expenses incurred for earning the exempt income in terms of rule 8D. In response to the query raised by the assessing officer, assessee furnishe....
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....ven, the CBDT has issued the circular stating that in case of investment made by a banking concern, the income arising from such investment is attributable to the business of banking falling under the head "Profits and gains of business or profession". Thus, he submitted, since the securities, shares and bonds are held as stock in trade, no disallowance under section 14A r.w.r. 8D can be made in respect of exempt income earned thereon. He submitted, the aforesaid legal principle has also been reiterated by the Hon'ble Supreme Court in case of Maxopp Investment Ltd vs CIT 402 ITR 640 (SC) and in case of South Indian Bank Ltd vs CIT Civil Appeal No.9606 of 2011 judgement dated 09-09-2021. Additionally, he also relied upon the following decisions:- 1. CIT vs Karnataka State Co-operative Apex Bank 251 ITR 194 (SC) 2. PCIT vs State Bank of Patiala 391 ITR 218 (P&H High Court) 3. CIT vs M/s India Advantage Securities Ltd (Bom HC) (ITA No1131 of 2013) 4.DCITvsM/s India Advantage Securities Ltd(TM)(Mum)(ITA 6711/M/20-11) 5.HDFC Bank Ltd vs DCIT (Bom HC) (383 ITR 529(para 18-10) 6.HDFC Bank Ltd vs ACIT (ITA No.6173/M/16, order dated 08/0....
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....he Hon'ble Supreme Court. Further, he submitted, in assessee's own case in assessment years 2011-12 , 2012-13 and 2013-14, the same legal principle has been applied. Thus, he submitted, no disallowance of interest expenditure can be made. In support, he relied upon the following decisions as well:- 1. CIT vs HDFC Bank Ltd 366 ITR 505(Bom HC) 2. CIT vs Reliance Utilities and Power Ltd 313 ITR 340(Bom HC) 3. CIT vs Reliance Industries Ltd 410 ITR 466 (SC) 4. CIT vs UTI Bank Ltd 32 taxmann.com 370 (Guj SC) 5. HDFC Bank Ltd DCIT 383 ITR 59 (Bom HC) 6. Yasham Bio Sciencies Pvt Ltd vs DCIT (ITA No.2723/M/2017 order dated 25-09-2020(TMum) 7.DCIT vs. Mentor Capital Ltd ITA No.6329/M/18 order dated 29/01/2020(TMum) 8.S Vinodkumar Diamonds Pvt Ltd vs DCIT (ITA No.79/M/2015 order dated 03-08-2020 (TMum) 9.Assessment order in assessee's own case for AY 2013-14 12. Without prejudice, he submitted, the assessee has surplus interest income even after set off of the interest expenditure. Therefore, no interest expenditure can be disallowed under rule 8D(2)(ii). In support, he relied upon the following decisions:- ....
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....nvestment needs to be verified. In this context, he drew our attention to order dated 12-11-2014 passed in ITA 375/Mum/2012 and others and order passed in M.A. Nos.18 to 20/Mum/2015 & others dated 31-03-2015. Thus, he submitted, assessee's contention of availability of interest free funds as on balance-sheet date cannot be accepted, in view of Tribunal's order in M.A. Nos.18 to 20/Mum/2015 & others. He submitted, the presumption of availability of interest free fund would only arise in a case where on the date of investment, the assessee has surplus interest free funds available with him. Unless the assessee can establish this fact, as per the decision of Hon'ble Supreme Court in case of Maxopp Investment Ltd (supra) apportionment of expenditure for disallowance under section 14A r.w.r. 8D would automatically come into play. Further, he submitted, in view of the decision of the Hon'ble Supreme Court in case of Maxopp Investment Ltd (supra), the decision of the Hon'ble jurisdictional High Court in case of Reliance Utilities and Power Ltd (supra), CIT vs HDFC Bank Ltd (supra) and CIT vs India Advantage Securities Ltd (supra) are no longer good law. He submitted, while filing the writ....
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.... (Bom) 6. CIT vs Abhishek Industries Ltd (2006) 286 ITR 1 (P&H) 7. Indian Metal and Ferro Alloys Ltd vs CIT (1992) 193 ITR 344(Orissa) 17. In rejoinder, learned senior counsel for the assessee submitted, the availability of surplus interest free fund has to be seen on the date of balancesheet and not on the date of investment. He submitted, the presumption of availability of interest free fund can only trigger if the assessee has mixed pool of funds on the date of balance-sheet and the interest free fund available is more than the investment made. To emphasise upon the fact that the availability of surplus fund has to be seen as on the date of balance-sheet, learned senior counsel drew our attention to the following observations of the Hon'ble jurisdictional High Court in case of CIT vs HDFC Bank Ltd (supra):- 4.xxxxxxxxxxxxxxxxxx. It was pointed out that the income from the operations of the Assessee was Rs. 313.53 crores and with the availability of other interest free funds with the Assessee the amount available for investments out of its own funds were to the tune of Rs. 398.19 crores. In view thereof, it was submitted that from the analysis of the....
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....ed operation of the orders passed by the assessing officer giving effect to the directions in M.A. order. 23. We have given a thoughtful consideration to the rival submissions in the light of decisions relied upon and perused the materials on record. Undisputedly, the disallowance made by the assessing officer under section 14A comprised of disallowance of interest expenditure made under rule 8D(2)(ii) and administrative expenditure under rule 8D(2)(iii). As far as disallowance of interest expenditure under rule 8D(2)(ii) is concerned, the primary contention of learned senior counsel for the assessee is, since, as on the date of balance-sheet the interest free fund available with the assessee is much more than the investment made, no disallowance out of interest expenditure can be made. On a perusal of the balance-sheet of the assessee as on 31-03-2007 reveals that interest free fund available with the assessee are as under:- Share capital Rs. 15669 lakhs Reserves & Surplus Rs. 121490 lakhs Current Account deposits from banks and others Rs. 204955 lakhs Total Rs. 342114 lakhs Similarly as on 31-03-2008, the interest free fund available is as under:- ....
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....l now examine the impugned order of the Tribunal. The issue before the Tribunal as raised by the petitioner was that Section 14A of the Act would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities, for the following two reasons:- (a) The petitioner was possessed of sufficient interest free funds of Rs. 2153 crores as against the investment in tax free securities of Rs. 52.02 crores. Consequently, there is a resumption that the investment which has been made in the tax free Securities as come out of the interest free funds available with the petitioner. This is so as it has been held by this Court in the petitioner's own case for an earlier Assessment year being HDFC Bank Ltd. (supra). This decision on the above issue has been accepted by the Revenue. This is evidenced by the fact although an appeal has been filed to the Supreme Court with regard to another issue arising from the order in HDFC Bank Ltd. (supra) namely broken period interest, no appeal on this issue as raised before the Tribunal has been challenged before the Supreme Court; and (b) In an event, the tax free investment in securities were ....
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.... and Power Ltd. (supra) has been considered and the opinion on the same has been rendered in the case of Godrej and Boyce Manufacturing Co. Ltd. (supra). The test to decide whether or not two decisions are in conflict with each other is to first determine the ratio of both the cases and if the ratio in both the cases are in conflict with each other, then alone, can it be said that the two decisions are in conflict. We find that no such exercise has been done. If it was done, the Tribunal would have noted that this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) has not decided the issue of applicability of Reliance Utilities & Power Ltd. (supra) inasmuch as it has restored the entire issue to the Assessing Officer after upholding the constitutional validity of Section 14A of the Act. 14. The only basis for proceeding on the basis that there is a conflict between the two decisions of this court which emerges from the impugned order is that in petitioner's own case in HDFC Bank Lid. (supra), reliance was placed upon the decision of this Court in Reliance Utilities & Power Lid. (supra) to conclude that where both interest free funds and interest bearing funds are available ....
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....y holding that the test of presumption as held by this Court In Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while Considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (Supra) on the above issue has also been accepted by the Revenue inasmuch as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal as been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act. Therefore, the issue which arose for consideration before the Tribunal had not been decided by this Court in Godrej & Boyce Mfg. Co. Ltd. (supra). It arose and was so decided for the first time by this Court in HDFC Bank Ltd. (supra). Thus, there is no conflict as Sought to be made out by the impugned order. Thus, the impugned order has proceeded on a fundamentally erroneous basis as the ratio decindi of the order in Godrej & Boyce Mfg. Co. Ltd. (supra) had nothing to do with the test of presumption canvassed by the pet....
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....ssue namely applicability of the Godrej & Boyce Mfg. Co. Ltd. (supra) while interpreting Section 14A of the Act in the context of the test of presumption as arising in the appeal before the Tribunal. For the purposes of this order, we are not taking into account the above decisions as they were not cited at the hearing before the Tribunal. Thus we are only examining whether the action of the Tribunal is within the bounds of its authority on the basis of the materials placed before it leading to the impugned order and we unfortunately find it is not so. This is for the reason that it failed to follow the binding precedent in HDFC Bank Ltd. (supra). 18. The alternative submission (b) which was put forte the petitioner before the Tribunal that the investment In securities are its stock-in-trade. Consequently, Section 14A of the Act would inapplicable by placing reliance upon the decision of this Court in India Advantage Securities Ltd. (supra). However this was also disregarded by the impugned order on the ground that this Court did not entertain an appeal o the Revenue from the order of the Tribunal holding that of the Act is inapplicable where t c investment has been mare I....
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.... parameters are different from that of Section 14A of the Act. This Court in its order in HDFC Bank Ltd. (supra) consciously applied the principle of presumption as laid down in Reliance Utilities and Power Ltd. (supra) and in fact quoted the relevant paragraph to emphasize that the same principle / test of presumption would apply to decide whether or not interest expenditure could be disallowed under Section 14A of the Act in respect of the income arising out of tax free securities, It is not the office of Tribunal to disregard a binding decision of this court. This is particularly so when the decision in Reliance Utilities and Power Ltd. (supra) , has been consciously applied by this Court while rendering a decision in the context of Section 14A of the Act. 22. We also note that the impugned order of the Tribunal has an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner's own case in HDFC Bank Ltd (supra). Once there is a binding decision of this Court, the same continues to be binding on all authorities within the State till suc....
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....cumstances that we are of the view that we have to exercise our powers under Article 227 of the Constitution of India. This is in view of the manner in which the impugned order of the Tribunal has chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this Court." 27. Thus, from the aforesaid observations, it is very much clear that the Hon'ble jurisdictional High Court has again expressed the view that in case of common pool of funds available with the assessee, the presumption of investments having been made out of interest free funds would apply. Though, learned counsel for the revenue made an attempt to impress upon us that in view of the decision of the Hon'ble Supreme Court in case of Maxopp Investment Ltd (supra), apportionment of expenditure has to be made; however, we are not convinced. In our view, the issue has now been set at rest by the decision of the Hon'ble Supreme Court in case of South Indian Bank vs CIT (supra), wherein, after taking note of its own dec....
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....s a presumption that investment which has been made in tax free securities, has come out of interest free funds available with assessee. In such situation Section 14A of the Act would not be applicable. Similar views have been expressed by other High Courts in CIT Vs. Suzlon Energy Ltd, CIT Vs. Microlabs Ltd. and CIT Vs. Max India Ltd. Mr. S Ganesh the learned Senior Counsel while citing these cases from the High Courts have further pointed out that those judgments have attained finality. On reading of these judgments, we are of the considered opinion that the High Courts have correctly interpreted the scope of Section 14A of the Act in their decisions favouring the assessees. 20. Applying the same logic, the disallowance would be legally impermissible for the investment made by the assessees in bonds/shares using interest free funds, under Section 14A of the Act. In other words, if investments in securities is made out of common funds and the assessee has available, noninterest-bearing funds larger than the investments made in tax- free securities then in such cases, disallowance under Section 14A cannot be made."(Emphasis by us) 28. Thus, the aforesaid observations of....
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....e of investment, in our view, would lead to absurdity. This is so, because, on each date of investment a balance-sheet has to be drawn up which is neither possible nor practicable. Therefore, the fund position of the assessee has to be seen as on the date of balance-sheet which is drawn up at the end of the financial year. This view of ours gets further strengthened by the decision of the Hon'ble jurisdictional High Court in case of CIT vs Reliance Utilities and Power Ltd (supra), wherein, the Hon'ble High Court has observed that availability of interest free fund has to be seen as on the date of balance-sheet. 30. Thus, if we apply the ratio laid down in the decisions discussed herein before to the facts of the present case, the inescapable conclusion would be, as per the balance-sheet the assessee had sufficient interest free fund available with it to take care of the investment. That being the factual position, presumption would be, the investments have been made out of the interest free funds available with the assessee. Hence, no disallowance under rule 8D(2)(ii) can be made. 31. As regards the contention of learned counsel for the revenue that the Tribunal in the order ....
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....made under rule 8D(2)(ii). 34. As regards the contention of the learned counsel for the revenue that the assessee has misrepresented facts before the jurisdictional High Court while challenging the earlier order of the Tribunal in the present appeal by way of writ application, in our view, it is neither necessary nor relevant for deciding the present appeal. In any case of the matter, if there was any misrepresentation of facts by the assessee before the Hon'ble High Court, it was for the revenue to bring it to the notice of the Hon'ble High Court. Therefore, we cannot consider an issue which is not in our domain. 35. As far as disallowance under rule 8D(2)(iii) is concerned, the limited submission of learned senior counsel for the assessee is, such disallowance should be computed only with reference to the investments yielding exempt income during the year. In view of the ratio laid down by the Special Bench of this Tribunal in case of ACIT vs Vireet Investments Pvt Ltd (2017) 82 taxmann.415 (Del)(SB), we accept the aforesaid contention. Accordingly, we direct the assessing officer to compute disallowance under rule 8D(2)(iii) considering only those investments which have yi....