The High Court of Bombay, on 25th February, in the case, HDFC Bank Ltd v. DCIT, set aside the impugned order passed by the Tribunal by upholding the doctrine of precedent. The highlights of the judgment are given below.
For the Assessment Year 200809, the petitioner filed its return of income declaring an income of Rs.241.72 crores. The petitioner had in its return of income also declared an income of Rs.5.81 crores from the investments in securities which were exempt from tax. These investments were treated by the petitioner as stock in trade. The petitioner had during the subject Assessment year paid interest on borrowed funds and had claimed the same as an expenditure. However the petitioner did not disallow any expenditure on the income earned on the tax-free securities on the ground that the investments in tax free securities was made out of its own tax free funds as is evidenced by the fact that it had ample funds of its own to make investments. Thus no disallowance was made on the expenditure claimed as the interest paid on borrowed funds.
The Assessing officer, on December 2010 passed an order under section 143(3) assessed the petitioner’s income at Rs.1067.93 crores. The petitioner’s contention that Section 14A of the Act would not apply in respect of its tax free securities as it had ample interest free funds available and the same was utilized from a common pool consisting of interest bearing funds and interest free funds to purchase the tax free securities. This was rejected by the Abby invoking section 14A r/w rule 8 D of the Income Tax Act on the ground that on the ground that the petitioner was not able to indicate / lead evidence that the investments made in tax free securities came out of its interest free funds.
The assessee filed an appeal before the Commissioner of Appeals against the order but the Commissioner upheld the order of the AO. Being aggrieved, the assessee approached the Tribunal by raising two grounds (i) It possessed interest free funds which were more than the tax free investments. Thus no disallowance of expenditure on account of interest paid could be made in view of the binding decision of this Court in the petitioner’s own case in HDFC Bank Ltd. (supra); and (ii) The tax free securities were held by it as its stock in trade. Thus no disallowance of any expenditure under Section 14A of the Act could be made in view of the binding
decision of this Court in CIT Vs. India Advantages Securities Ltd. ITA 1131/13 decided on 30th April, 2014.However, the Tribunal by the impugned order did not accept the petitioner’s submission on both the grounds. It disregarded the binding decision of this Court by holding that an
earlier decision of this Court in Godrej and Boyce ManufacturingCo. Ltd. Vs. Deputy Commissioner of Income Tax, 328 ITR 81, which was not brought to the notice of this Court in HDFC Bank Ltd.(supra) would hold the field. Further on the second issue of stock in trade the impugned order after holding that it was raised for the first time before the Tribunal, yet on merits holds that the decision of this Court in India Advantage Securities Ltd. (supra) cannot apply.
By the impugned order dated 23rd September, 2015, the Tribunal dismissed the petitioner’s appeal relating to the Assessment Year 2008- 09 on the issue of applicability of Section 14A of the Act to disallow a portion of the interest paid on borrowed funds in respect of investments made in tax free securities. This when it has its own funds in excess of investments made in the securities and further these securities are held as stock in trade. This dismissal of the appeal, submit the petitioner, inspite of the issue being concluded on both the grounds in its favour by the binding decisions of the High Court of Bombay.
The petition was challenged by the respondent on ground that there is an alternative remedy available to the petitioner under s.260A of the Income Tax Act,1961 to challenge the impugned order through an appeal. The Court refused to accept this contention pointing out that the grievance of the petitioner in the instant case is not so much to the merits or demerits of the impugned order, but the refusal of the Tribunal to follow the binding decision of this Court in the case of the petitioner itself being CIT Vs. HDFC Bank Ltd. 366 ITR 50, for an earlier Assessment Year 200102 on identical issue of applicability of Section 14A of the Act to partially disallow interest expenditure when interest free funds available with the Petitioner are in excess of investments made in tax free securities.
The contention of the petitioner was that the Tribunal has exceeded its bounds of its authority by disregarding the binding decision of the High Court resulted in violation of two most important principles ie, the doctrine of precedent and the hierarchical structure of our judicial system.
The High Court, exercised its powers under Art. 227 of the Constitution and held that 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. The Court further opined that “this is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this Court”.
The Court set aside the impugned order and directed the Tribunal to consider the matter afresh on its own merits and in accordance with law. The Court further expressed a view that “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 tax paying 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.”
Read the full text of the Judgment below.
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